485BPOS
Post-Effective Amendment
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
File No. 2-14213
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 102 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
File No. 811-0816
Amendment No. 102 [X]
(Check appropriate box or boxes.)
AMERICAN CENTURY MUTUAL FUNDS, INC.
_________________________________________________________________
(Exact Name of Registrant as Specified in Charter)
4500 Main Street, Kansas City, MO 64141-6200
_________________________________________________________________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (816) 531-5575
David C. Tucker, Esq., 4500 Main Street, 9th Floor, Kansas City, MO 64111
________________________________________________________________________
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: August 29, 2003
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on August 29, 2003 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
------------------------------------------------------------------------
Your
American Century
prospectus
R CLASS
Growth Fund
Ultra(reg.sm) Fund
AUGUST 29, 2003
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANYONE WHO
TELLS YOU OTHERWISE IS COMMITTING A CRIME.
American Century Investment Services, Inc.
[american century logo and text logo (reg. sm)]
(left margin)
[american century logo and text logo (reg. sm)]
American Century
Investments
P.O. Box 419786
Kansas City, MO
64141-6786
Dear Investor,
American Century is committed to helping people make the most of their financial
opportunities. That's why we are focused on achieving superior results and
building long-term relationships with investors.
We believe our relationship with you begins with providing a prospectus that's
easy to read, and more importantly, that gives you the information you need to
have confidence in the investment decisions you have made or are soon to make.
Naturally, you may have questions about investing after you read through the
Prospectus. Please contact your investment professional with questions or for
more information about our funds.
Sincerely,
American Century Investment Services, Inc.
Table of Contents
AN OVERVIEW OF THE FUNDS .................................................. 2
FUND PERFORMANCE HISTORY .................................................. 3
FEES AND EXPENSES ......................................................... 6
OBJECTIVES, STRATEGIES AND RISKS .......................................... 7
MANAGEMENT ................................................................ 9
INVESTING WITH AMERICAN CENTURY ........................................... 12
SHARE PRICE AND DISTRIBUTIONS ............................................. 15
TAXES ..................................................................... 16
MULTIPLE CLASS INFORMATION ................................................ 18
PERFORMANCE INFORMATION OF OTHER CLASS .................................... 19
[graphic of triangle]
This symbol is used throughout the book to highlight DEFINITIONS
of key investment terms and to provide other helpful information.
AN OVERVIEW OF THE FUNDS
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
These funds seek long-term capital growth.
WHAT ARE THE FUNDS' PRIMARY INVESTMENT STRATEGIES AND PRINCIPAL RISKS?
The funds look for common stocks of growing companies. Each fund's investment
strategy is based on the belief that, over the long term, stocks of companies
with accelerating earnings and revenue growth have a greater-than-average chance
to increase in value. A more detailed description of American Century's growth
investment style begins on page 7. The fund managers look for stocks of
companies they believe will increase in value over time, using a growth
investment strategy developed by American Century.
The funds' principal risks include
* MARKET RISK -- The value of a fund's shares will go up and down based on the
performance of the companies whose securities it owns and other factors
generally affecting the securities market.
* PRICE VOLATILITY -- The value of a fund's shares may fluctuate significantly
in the short term.
* PRINCIPAL LOSS -- At any given time your shares may be worth more or less
than the price you paid for them. In other words, it is possible to lose
money by investing in the funds.
* FOREIGN SECURITIES -- A fund may invest in foreign securities, which can be
riskier than investing in U.S. securities.
WHO MAY WANT TO INVEST IN THE FUNDS?
The funds may be a good investment if you are
* seeking long-term capital growth from your investment
* comfortable with short-term price volatility
* comfortable with the risks associated with the funds' investment strategies
* investing through an IRA or other tax-advantaged retirement plan
WHO MAY NOT WANT TO INVEST IN THE FUNDS?
The funds may not be a good investment if you are
* seeking current income from your investment
* investing for a short period of time
* uncomfortable with short-term volatility in the value of your investment
[graphic of triangle]
An investment in the funds is not a bank deposit, and it is not
insured or guaranteed by the Federal Deposit Insurance Corporation
(FDIC) or any other government agency.
2
FUND PERFORMANCE HISTORY
GROWTH FUND
ULTRA FUND
When the R Class of the funds has investment results for a full calendar year,
this section will feature charts that show
* Annual Total Returns
* Highest and Lowest Quarterly Returns
* Average Annual Total Returns for the R Class of the funds, including a
comparison of these returns to a benchmark index
If the R Class had existed during the periods presented, its performance would
have been substantially similar to that of the Investor Class because each
represents an investment in the same portfolio of securities. However,
performance of the R Class would have been lower because of its higher expense
ratio.
Annual Total Returns
The following bar charts show the performance of the funds' Investor Class
shares for each full calendar year in the life of the class. They indicate the
volatility of the funds' historical returns from year to year. The returns of
the funds' R class of shares will differ from those returns shown in the charts,
depending on the expenses of that class.
GROWTH FUND -- INVESTOR CLASS
--------------------------------------------------------------------------------
2002 -26.13%
2001 -18.67%
2000 -14.71%
1999 34.68%
1998 36.77%
1997 29.28%
1996 15.01%
1995 20.35%
1994 -1.49%
1993 3.76%
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The highest and lowest quarterly returns for the periods reflected in the bar
chart are:
Highest Lowest
--------------------------------------------------------------------------------
Growth 23.62% (4Q 1999) -19.33% (1Q 2001)
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3
ULTRA FUND -- INVESTOR CLASS
--------------------------------------------------------------------------------
2002 -23.15%
2001 -14.61%
2000 -19.91%
1999 41.46%
1998 34.55%
1997 23.13%
1996 13.85%
1995 37.68%
1994 -3.62%
1993 21.81%
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The highest and lowest quarterly returns for the periods reflected in the bar
chart are:
Highest Lowest
--------------------------------------------------------------------------------
Ultra 32.09% (4Q 1999) -17.49% (1Q 2001)
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Average Annual Total Returns
The following tables show the average annual total returns of the funds'
Investor Class shares calculated three different ways. Because the funds'
R Class shares did not have a full calendar year's worth of performance,
returns for the R Class shares are not included.
Return Before Taxes shows the actual change in the value of fund shares over the
time periods shown, but does not reflect the impact of taxes on fund
distributions or the sale of fund shares. The two after-tax returns take into
account taxes that may be associated with owning fund shares. Return After Taxes
on Distributions is a fund's actual performance, adjusted by the effect of taxes
on distributions made by the funds during the periods shown. Return After Taxes
on Distributions and Sale of Fund Shares is further adjusted to reflect the tax
impact on any change in the value of fund shares as if they had been sold on the
last day of the period.
After-tax returns are calculated using the highest historical federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor's tax situation and may differ from
those shown. After-tax returns shown are not relevant to investors who hold fund
shares through tax-deferred arrangements such as 401(k) plans or IRAs.
The benchmarks are unmanaged indices that have no operating costs and are
included in the table for performance comparison.
4
INVESTOR CLASS
For the calendar year ended December 31, 2002 1 year 5 years 10 years Life of Class(1)
--------------------------------------------------------------------------------------------------------------
Growth
Return Before Taxes -26.13% -1.15% 5.61% 15.09%(2)
Return After Taxes on Distributions -26.13% -2.97% 2.89% N/A
Return After Taxes on Distributions
and Sale of Fund Shares -16.04% -0.32% 4.21% N/A
Russell 1000 Growth Index -27.88% -3.84% 6.70% N/A(3)
(reflects no deduction for fees, expenses or taxes)
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Ultra
Return Before Taxes -23.15% 0.01% 8.53% 13.39%
Return After Taxes on Distributions -23.24% -1.01% 6.94% N/A
Return After Taxes on Distributions
and Sale of Fund Shares -14.21% 0.31% 7.04% N/A
S&P 500 Index -22.10% -0.59% 9.34% 13.08%(4)
(reflects no deduction for fees, expenses or taxes)
--------------------------------------------------------------------------------------------------------------
(1) The inception dates for the Investor Class are Growth, October 31, 1958;
and Ultra, November 2, 1981. Only funds with performance history for less
than 10 years show after-tax returns for life of fund.
(2) Although the class's actual inception date was October 31, 1958, life of
class is calculated from June 30, 1971, when the management company
implemented its current investment philosophy and practices.
(3) Benchmark began January 1, 1979.
(4) Since October 31, 1981, the date closest to the class's inception for
which data is available.
The performance information on these pages is designed to help you see how fund
returns can vary. Keep in mind that past performance (before and after taxes)
does not predict how the fund will perform in the future.
For current performance information, please call us at 1-800-378-9878.
5
FEES AND EXPENSES
There are no sales loads, fees or other charges
* to buy fund shares directly from American Century
* to reinvest dividends in additional shares
* to exchange into the same class of shares of other American Century funds
* to redeem shares other than a $10 fee to redeem by wire
The following table describes the fees and expenses you may pay if you buy and
hold shares of the funds.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Distribution and Other Total Annual Fund
Fee Service (12b-1) Fees(1) Expenses(2) Operating Expenses
-----------------------------------------------------------------------------------------------
Growth
R Class 1.00% 0.50% 0.00% 1.50%
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Ultra
R Class 0.99%(3) 0.50% 0.00% 1.49%
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(1) The 12b-1 fee is designed to permit investors to purchase shares through
broker-dealers, banks, insurance companies and other financial
intermediaries. The fee may be used to compensate such financial
intermediaries for distribution and other shareholder services. For more
information, see Service and Distribution Fees, page 18.
(2) Other expenses, which include the fees and expenses of the funds'
independent directors and their legal counsel, as well as interest, are
expected to be less than 0.005% for the current fiscal year.
(3) The fund has a stepped fee schedule. As a result, the fund's management fee
rate generally decreases as fund assets increase and increases as fund
assets decrease.
EXAMPLE
The examples in the table below are intended to help you compare the costs of
investing in a fund with the costs of investing in other mutual funds. Of
course, your actual costs may be higher or lower. Assuming you . . .
* invest $10,000 in the fund
* redeem all of your shares at the end of the periods shown below
* earn a 5% return each year
* incur the same operating expenses as shown above
. . . your cost of investing in the fund would be:
1 year 3 years 5 years 10 years
-------------------------------------------------------------------------------
Growth
R Class $152 $472 $814 $1,778
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Ultra
R Class $151 $469 $809 $1,767
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6
OBJECTIVES, STRATEGIES AND RISKS
GROWTH FUND
ULTRA FUND
WHAT IS THE FUNDS' INVESTMENT OBJECTIVE?
These funds seek long-term capital growth.
HOW DO THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES?
The fund managers look for stocks of companies they believe will increase in
value over time, using a growth investment strategy developed by American
Century. This strategy looks for companies with accelerating earnings and
revenues that are not only growing, but growing at a successively faster, or
accelerating, pace. This strategy is based on the premise that, over the long
term, the stocks of companies with accelerating earnings and revenues have a
greater-than-average chance to increase in value.
The managers use a bottom-up approach to select stocks to buy for the funds.
This means that the managers make their investment decisions based on the
business fundamentals of the individual companies, rather than on economic
forecasts or the outlook for industries or sectors. Using American Century's
extensive computer database, the managers track financial information for
thousands of companies to identify trends in the companies' earnings and
revenues. This information is used to help the fund managers select or hold the
stocks of companies they believe will be able to sustain accelerating growth and
sell the stocks of companies whose growth begins to slow down.
Although most of the funds' assets will be invested in U.S. companies, there is
no limit on the amount of assets the funds can invest in foreign companies. Most
of the funds' foreign investments are in companies located and doing business in
developed countries. Investments in foreign securities present some unique risks
that are more fully described in the funds' Statement of Additional Information.
[graphic of triangle]
Accelerating growth is shown, for example, by growth that is faster
this quarter than last or faster this year than the year before.
The fund managers do not attempt to time the market. Instead, under normal
market conditions, they intend to keep the funds essentially fully invested in
stocks regardless of the movement of stock prices generally. When the managers
believe it is prudent, the funds may invest a portion of their assets in
convertible debt securities, equity-equivalent securities, foreign securities,
short-term securities, nonleveraged stock index futures contracts and other
similar securities. Futures contracts, a type of derivative security, can help
the funds' cash assets remain liquid while performing more like stocks. The
funds have a policy governing futures contracts and similar derivative
securities to help manage the risk of these types of investments. For example,
the fund managers cannot invest in a derivative security if it would be possible
for the funds to lose more money than they invested. A complete description of
the derivatives policy is included in the Statement of Additional Information.
WHAT KINDS OF SECURITIES DO THE FUNDS BUY?
The funds will usually purchase common stocks, but they can purchase other types
of securities as well, such as domestic and foreign preferred stocks,
convertible debt securities, equity-equivalent securities, nonleveraged futures
contracts and options, notes, bonds and other debt securities, as discussed
above. The funds generally limit their purchase of debt securities to
investment-grade obligations.
7
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS?
The value of a fund's shares depends on the value of the stocks and other
securities it owns. The value of the individual securities a fund owns will go
up and down depending on the performance of the companies that issued them,
general market and economic conditions and investor confidence.
The fund managers may buy a large amount of a company's stock quickly, and often
will dispose of it quickly if the company's earnings or revenues decline. While
the managers believe this strategy provides substantial appreciation potential
over the long term, in the short term it can create a significant amount of
share price volatility. This volatility can be greater than that of the average
stock fund.
At any given time your shares may be worth more or less than the price you paid
for them. In other words, it is possible to lose money by investing in the
funds.
Market performance tends to be cyclical, and, in the various cycles, certain
investment styles may fall in and out of favor. If the market is not favoring a
fund's style, the fund's gains may not be as big as, or its losses may be bigger
than, other equity funds using different investment styles.
Although the fund managers intend to invest the funds' assets in U.S. stocks,
the funds may invest in securities of foreign companies. Foreign investment
involves additional risks, including fluctuations in currency exchange rates,
less stable political and economic structures, reduced availability of public
information, and lack of uniform financial reporting and regulatory practices
similar to those that apply in the United States. These factors make investing
in foreign securities generally riskier than investing in U.S. stocks. To the
extent a fund invests in foreign securities, the overall risk of that fund could
be affected.
8
MANAGEMENT
WHO MANAGES THE FUNDS?
The Board of Directors, investment advisor and fund management teams play key
roles in the management of the funds.
THE BOARD OF DIRECTORS
The Board of Directors oversees the management of the funds and meets at least
quarterly to review reports about fund operations. Although the Board of
Directors does not manage the funds, it has hired an investment advisor to do
so. More than two-thirds of the directors are independent of the funds' advisor;
that is, they are not employed by and have no financial interest in the
advisor.
THE INVESTMENT ADVISOR
The funds' investment advisor is American Century Investment Management, Inc.
The advisor has been managing mutual funds since 1958 and is headquartered at
4500 Main Street, Kansas City, Missouri 64111.
The advisor is responsible for managing the investment portfolios of the funds
and directing the purchase and sale of its investment securities. The advisor
also arranges for transfer agency, custody and all other services necessary for
the funds to operate.
For the services it provides to the funds, the advisor receives a unified
management fee based on a percentage of the average net assets of the specific
class of shares of the funds. The amount of the management fee for each fund is
determined daily on a class-by-class basis using a two-step formula that takes
into account each fund's strategy (money market, bond or equity) and the total
amount of mutual fund assets the advisor manages. The management fee is paid
monthly in arrears taking into account the average net assets of all classes of
the funds. The R Class shares of the funds had no assets as of the date of this
prospectus. Growth will pay the advisor a unified management fee of 1.00% of the
average net assets of the R Class shares of the fund. Ultra will pay the advisor
a unified management fee of 1.00% of its pro rata share of the first $20 billion
of the fund's average net assets, 0.95% of its pro rata share more than $20
billion to $30 billion or the fund's average net assets, 0.925% of its pro rata
share more than $30 billion to $40 billion of the fundd's average net assets,
and 0.900% of its pro rata share of over $40 billion of the fund's average net
assets.
The Statement of Additional Information contains detailed information about the
calculation of the management fee. Out of that fee, the advisor pays all
expenses of managing and operating the funds except brokerage expenses, taxes,
interest, fees and expenses of the independent directors (including legal
counsel fees), and extraordinary expenses. A portion of each fund's management
fee may be paid by the fund's advisor to unaffiliated third parties who provide
recordkeeping and administrative services that would otherwise be performed by
an affiliate of the advisor.
THE FUND MANAGEMENT TEAMS
The advisor uses teams of portfolio managers, assistant portfolio managers and
analysts to manage the funds. The teams meet regularly to review portfolio
holdings and discuss purchase and sale activity. Team members buy and sell
securities for a fund as they see fit, guided by the funds' investment
objectives and strategy.
9
The portfolio managers on the investment teams are identified below.
Growth
GREGORY J. WOODHAMS
Mr. Woodhams, Vice President and Senior Portfolio Manager, has been a member of
the team that manages Growth since he joined American Century in September 1997
as an Investment Analyst. He was promoted to Portfolio Manager for the Growth
team in May 1998. He has a bachelor's degree in economics from Rice University
and an M.A. in economics from the University of Wisconsin. He is a CFA
charterholder.
E. A. PRESCOTT LEGARD
Mr. LeGard, Vice President and Portfolio Manager, has been a member of the team
that manages Growth since March 2000. Before joining American Century in March
1999, he was an Analyst for USAA Investment Management from March 1998 to March
1999. He has a bachelor's degree in economics from DePauw University. He is a
CFA charterholder.
TIM REYNOLDS
Mr. Reynolds, Vice President and Portfolio Manager, has been a member of the
team that manages Growth since June 2003. He joined American Century in November
1999 as an investment analyst and was promoted to Portfolio Manager in August
2001. Prior to joining American Century, he was a Senior Analyst at USAA from
May 1997 to November 1999. He has a bachelor of business administration -
finance from Texas A&M University and a master's degree in finance from Texas
Tech University. He is a CFA charterholder.
Ultra
JAMES E. STOWERS III
Mr. Stowers, Co-Chairman and Portfolio Manager, has been a member of the team
that manages Ultra since 1981. He is also the Chief Investment Officer -- U.S.
Growth Equity and as such oversees the investment discipline used by the fund
and nine other growth funds. He joined American Century in 1981. He has a
bachelor's degree in finance from Arizona State University.
BRUCE A. WIMBERLY
Mr. Wimberly, Vice President and Senior Portfolio Manager, has been a member of
the team that manages Ultra since July 1996. He joined American Century in
September 1994 as an Investment Analyst. He has a bachelor of arts from
Middlebury College and an MBA from the Kellogg Graduate School of Management,
Northwestern University.
JERRY SULLIVAN
Mr. Sullivan, Vice President and Portfolio Manager, has been a member of the
team that manages Ultra since July 2001. Before joining American Century in
February 2000, he was a Portfolio Manager with the Franklin Templeton Group from
March 1998 to October 1999. He has a bachelor's degree in political science from
Columbia College and an MBA with a concentration in finance and accounting from
the Columbia Graduate School of Business.
WADE W. SLOME
Mr. Slome, Portfolio Manager, has been a member of the team that manages Ultra
since June 1998. He was promoted to Portfolio Manager in July 2002. He joined
American Century in June 1998 as an investment analyst. He has a bachelor's
degree in economics from the University of California, Los Angeles and an MBA in
finance from Cornell University. He is a CFA charterholder.
10
Code of Ethics
American Century has a Code of Ethics designed to ensure that the interests of
fund shareholders come before the interests of the people who manage the funds.
Among other provisions, the Code of Ethics prohibits portfolio managers and
other investment personnel from buying securities in an initial public offering
or profiting from the purchase and sale of the same security within 60 calendar
days. In addition, the Code of Ethics requires portfolio managers and other
employees with access to information about the purchase or sale of securities by
the funds to obtain approval before executing permitted personal trades.
FUNDAMENTAL INVESTMENT POLICIES
Fundamental investment policies contained in the Statement of Additional
Information and the investment objectives of the funds may not be changed
without shareholder approval. The Board of Directors may change any other
policies and investment strategies.
11
INVESTING WITH AMERICAN CENTURY
ELIGIBILITY FOR R CLASS SHARES
The R Class shares are intended for purchase by participants in
employer-sponsored retirement or savings plans and for persons purchasing shares
through broker-dealers, banks, insurance companies and other financial
intermediaries that provide various administrative and distribution services.
MINIMUM INITIAL INVESTMENT AMOUNTS
To open an account, the minimum initial investments are $2,000 for a Coverdell
Education Savings Account (CESA, formerly an Education IRA), and $2,500 for all
other accounts.
INVESTING THROUGH FINANCIAL INTERMEDIARIES
If you do business with us through a financial intermediary or a retirement
plan, your ability to purchase, exchange and redeem shares will depend on the
policies of that entity. Some policy differences may include
* minimum investment requirements
* exchange policies
* fund choices
* cutoff time for investments
Please contact your FINANCIAL INTERMEDIARY or plan sponsor for a complete
description of its policies.
[graphic of triangle]
FINANCIAL INTERMEDIARIES include banks, broker-dealers, insurance
companies and investment advisors.
Certain financial intermediaries perform recordkeeping and administrative
services for their clients that would otherwise be performed by American
Century's transfer agent. In some circumstances, American Century will pay the
service provider a fee for performing those services.
The financial intermediary through which you may purchase, redeem and exchange
fund shares may charge a transaction-based or other fee for their services.
Those charges are retained by the intermediary and are not shared with American
Century or the funds.
The funds have authorized certain financial intermediaries to accept orders on
each fund's behalf. American Century has contracts with these intermediaries
requiring them to track the time investment orders are received and to comply
with procedures relating to the transmission of orders. Orders must be received
by the intermediary on a fund's behalf before the time the net asset value is
determined in order to receive that day's share price. If those orders are
transmitted to American Century and paid for in accordance with the contract,
they will be priced at the net asset value next determined after your request is
received in the form required by the intermediary.
12
MODIFYING OR CANCELING AN INVESTMENT
Investment instructions are irrevocable. That means that once you have mailed or
otherwise transmitted your investment instruction, you may not modify or cancel
it. Each fund reserves the right to suspend the offering of shares for a period
of time and to reject any specific investment (including a purchase by
exchange). Additionally, we may refuse a purchase if, in our judgment, it is
of a size that would disrupt the management of a fund.
ABUSIVE TRADING PRACTICES
We discourage market timing and other abusive trading practices, and we take
steps to minimize the effect of these activities in our funds.
Excessive, short-term (market timing) or other abusive trading practices may
disrupt portfolio management strategies and harm fund performance. To minimize
harm to the funds and their shareholders, we reserve the right to reject any
purchase order (including exchanges) from any investor we believe has a history
of abusive trading or whose trading, in our judgment, has been or may be
disruptive to the funds. In making this judgment, we may consider trading done
in multiple accounts under common ownership or control.
YOUR RESPONSIBILITY FOR UNAUTHORIZED TRANSACTIONS
American Century and its affiliated companies use procedures reasonably designed
to confirm that telephone, electronic and other instructions are genuine. These
procedures include recording telephone calls, requesting personalized security
codes or other information, and sending confirmation of transactions. If we
follow these procedures, we are not responsible for any losses that may occur
due to unauthorized instructions. For transactions conducted over the Internet,
we recommend the use of a secure Internet browser. In addition, you should
verify the accuracy of your confirmation statements immediately after you
receive them.
REDEMPTIONS
Your redemption proceeds will be calculated using the NET ASSET VALUE (NAV) next
determined after we receive your transaction request in good order.
[graphic of triangle]
A fund's NET ASSET VALUE, or NAV, is the price of the fund's shares.
However, we reserve the right to delay delivery of redemption proceeds up to
seven days. For example, each time you make an investment with American Century,
there is a seven-day holding period before we will release redemption proceeds
from those shares, unless you provide us with satisfactory proof that your
purchase funds have cleared. For funds with CheckWriting privileges, we will not
honor checks written against shares subject to this seven-day holding period.
Investments by wire generally require only a one-day holding period. If you
change your address, we may require that any redemption request made within 15
days be submitted in writing and be signed by all authorized signers with their
signatures guaranteed. If you change your bank information, we may impose a
15-day holding period before we will transfer or wire redemption proceeds to
your bank. In addition, we reserve the right to honor certain redemptions with
securities, rather than cash, as described in the next section.
13
SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS
If, during any 90-day period, you redeem fund shares worth more than $250,000
(or 1% of the value of a fund's assets if that amount is less than $250,000), we
reserve the right to pay part or all of the redemption proceeds in excess of
this amount in readily marketable securities instead of in cash. The fund
managers would select these securities from the fund's portfolio. A payment in
securities can help the fund's remaining shareholders avoid tax liabilities that
they might otherwise have incurred had the fund sold securities prematurely to
pay the entire redemption amount in cash.
We will value these securities in the same manner as we do in computing the
fund's net asset value. We may provide these securities in lieu of cash without
prior notice. Also, if payment is made in securities, you may have to pay
brokerage or other transaction costs to convert the securities to cash.
If your redemption would exceed this limit and you would like to avoid being
paid in securities, please provide us with an unconditional instruction to
redeem at least 15 days prior to the date on which the redemption transaction is
to occur. The instruction must specify the dollar amount or number of shares to
be redeemed and the date of the transaction. This minimizes the effect of the
redemption on a fund and its remaining investors.
REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS
If your account balance falls below the minimum initial investment amount for
any reason other than as a result of market fluctuation, we will notify you and
give you 90 days to meet the minimum. If you do not meet the deadline, American
Century reserves the right to redeem the shares in the account and send the
proceeds to your address of record.
SIGNATURE GUARANTEES
A signature guarantee -- which is different from a notarized signature -- is a
warranty that the signature presented is genuine. We may require a signature
guarantee for the following transactions:
* Your redemption or distribution check, Check-A-Month or automatic redemption
is made payable to someone other than the account owners
* Your redemption proceeds or distribution amount is sent by wire or EFT to a
destination other than your personal bank account
* You are transferring ownership of an account over $100,000
We reserve the right to require a signature guarantee for other transactions, at
our discretion.
A NOTE ABOUT MAILINGS TO SHAREHOLDERS
To reduce the amount of mail you receive from us, we may deliver a single copy
of certain investor documents (such as shareholder reports and prospectuses) to
investors who share an address, even if accounts are registered under different
names. If you prefer to receive multiple copies of these documents individually
addressed, please contact your financial intermediary directly.
RIGHT TO CHANGE POLICIES
We reserve the right to change any stated investment requirement, including
those that relate to purchases, exchanges and redemptions. We also may alter,
add or discontinue any service or privilege. Changes may affect all investors or
only those in certain classes or groups.
14
SHARE PRICE AND DISTRIBUTIONS
SHARE PRICE
American Century determines the NAV of each fund as of the close of regular
trading on the New York Stock Exchange (usually 4 p.m. Eastern time) on each day
the Exchange is open. On days when the Exchange is closed (including certain
U.S. holidays), we do not calculate the NAV. A fund share's NAV is the current
value of the fund's assets, minus any liabilities, divided by the number of fund
shares outstanding.
If current market prices of securities owned by a fund are not readily available
from an independent pricing service, the advisor may determine their fair value
in accordance with procedures adopted by the funds' board. For example, if an
event occurs after the close of the exchange on which a fund's portfolio
securities are principally traded that is likely to have changed the value of
the securities, the advisor may determine the securities' fair value. Trading of
securities in foreign markets may not take place every day the Exchange is open.
Also, trading in some foreign markets and on some electronic trading networks
may take place on weekends or holidays when a fund's NAV is not calculated. So,
the value of a fund's portfolio may be affected on days when you can't purchase
or redeem shares of the fund.
We will price your purchase, exchange or redemption at the NAV next determined
after we receive your transaction request in GOOD ORDER.
[graphic of triangle]
GOOD ORDER means that your instructions have been received in the
form required by American Century. This may include, for example,
providing the fund name and account number, the amount of the
transaction and all required signatures.
DISTRIBUTIONS
Federal tax laws require each fund to make distributions to their shareholders
in order to qualify as a "regulated investment company." Qualification as a
regulated investment company means the funds will not be subject to state or
federal income tax on amounts distributed. The distributions generally consist
of dividends and interest received by a fund, as well as CAPITAL GAINS realized
by a fund on the sale of its investment securities. Each fund generally pays
distributions from net income and capital gains, if any, once a year in
December. The funds may make more frequent distributions, if necessary, to
comply with Internal Revenue Code provisions.
[[graphic of triangle]
CAPITAL GAINS are increases in the values of capital assets, such
as stock, from the time the assets are purchased.
You will participate in fund distributions when they are declared, starting the
next business day after your purchase is effective. For example, if you purchase
shares on a day that a distribution is declared, you will not receive that
distribution. If you redeem shares, you will receive any distribution declared
on the day you redeem. If you redeem all shares, we will include any
distributions received with your redemption proceeds.
Participants in tax-deferred retirement plans must reinvest all distributions.
For investors investing through taxable accounts, we will reinvest distributions
unless you elect to receive them in cash.
15
TAXES
The tax consequences of owning shares of the funds will vary depending on
whether you own them through a taxable or tax-deferred account. Tax consequences
result from distributions by the funds of dividend and interest income they have
received or capital gains they have generated through their investment
activities. Tax consequences also may result when investors sell fund shares
after the net asset value has increased or decreased.
Tax-Deferred Accounts
If you purchase fund shares through a tax-deferred account, such as an IRA or a
qualified employer-sponsored retirement or savings plan, income and capital
gains distributions usually will not be subject to current taxation but will
accumulate in your account under the plan on a tax-deferred basis. Likewise,
moving from one fund to another fund within a plan or tax-deferred account
generally will not cause you to be taxed. For information about the tax
consequences of making purchases or withdrawals through a tax-deferred account,
please consult your plan administrator, your summary plan description or a tax
advisor.
Taxable Accounts
If you own fund shares through a taxable account, you may be taxed on your
investments if the fund makes distributions or if you sell your fund shares.
Taxability of Distributions
Fund distributions may consist of income such as dividends and interest earned
by a fund from its investments, or capital gains generated by a fund from the
sale of its investment securities. Distributions of income are taxed as ordinary
income, unless they are designated as QUALIFIED DIVIDEND INCOME and you need a
minimum required holding period with respect to your shares of the fund, in
which case they are taxed as long-term capital gains.
[graphic of triangle]
QUALIFIED DIVIDEND INCOME is a dividend received by a fund from the
stock of a domestic or qualifying foreign corporation, provided
that the fund has held the stock for a required holding period.
For capital gains recognized by the funds prior to May 6, 2003, the following
rates apply:
Tax Rate for 10% and Tax Rate for
Type of Distribution 15% Brackets All Other Brackets
--------------------------------------------------------------------------------
Short-term capital gains Ordinary income rate Ordinary income rate
--------------------------------------------------------------------------------
Long-term capital gains (1-5 years) 10% 20%
--------------------------------------------------------------------------------
Long-term capital gains (5 years) 8% 20%
--------------------------------------------------------------------------------
For capital gains recognized by the funds after May 5, 2003, and for income
distributions designated as qualified dividend income, the following rates
apply:
Tax Rate for 10% and Tax Rate for
Type of Distribution 15% Brackets All Other Brackets
--------------------------------------------------------------------------------
Short-term capital gains Ordinary Income Ordinary Income
--------------------------------------------------------------------------------
Long-term capital gains ( 1 year)
and Qualified Dividend Income 5% 15%
--------------------------------------------------------------------------------
16
The tax status of any distributions of capital gains is determined by how long a
fund held the underlying security that was sold, not by how long you have been
invested in the fund, or whether you reinvest your distributions in additional
shares or take them in cash. For taxable accounts, American Century or your
financial intermediary will inform you of the tax status of fund distributions
for each calendar year in an annual tax mailing (Form 1099-DIV).
Distributions also may be subject to state and local taxes. Because everyone's
tax situation is unique, you may want to consult your tax professional about
federal, state and local tax consequences.
Taxes on Transactions
Your redemptions--including exchanges to other American Century funds--are
subject to capital gains tax. The table above can provide a general guide for
your potential tax liability when selling or exchanging fund shares. Short-term
capital gains are gains on fund shares you held for 12 months or less. Long-term
capital gains are gains on fund shares you held for more than 12 months. If your
shares decrease in value, their sale or exchange will result in a long-term or
short-term capital loss. However, you should note that loss realized upon the
sale or exchange of shares held for six months or less will be treated as a
long-term capital loss to the extent of any distribution of long-term capital
gain to you with respect to those shares. If a loss is realized on the
redemption of fund shares, the reinvestment in additional fund shares within 30
days before or after the redemption may be subject to the wash sale rules of the
Internal Revenue Code. This may result in a postponement of the recognition of
such loss for federal income tax purposes.
If you have not certified to us that your Social Security number or tax
identification number is correct and that you are not subject to withholding, we
are required to withhold and pay to the IRS the applicable federal withholding
tax rate on taxable dividends, capital gains distributions and redemption
proceeds.
Buying a Dividend
Purchasing fund shares in a taxable account shortly before a distribution is
sometimes known as buying a dividend. In taxable accounts, you must pay income
taxes on the distribution whether you reinvest the distribution or take it in
cash. In addition, you will have to pay taxes on the distribution whether the
value of your investment decreased, increased or remained the same after you
bought the fund shares.
The risk in buying a dividend is that a fund's portfolio may build up taxable
gains throughout the period covered by a distribution, as securities are sold at
a profit. The funds distribute those gains to you, after subtracting any losses,
even if you did not own the shares when the gains occurred.
If you buy a dividend, you incur the full tax liability of the distribution
period, but you may not enjoy the full benefit of the gains realized in a fund's
portfolio.
17
MULTIPLE CLASS INFORMATION
American Century offers five classes of the funds: Investor Class, Institutional
Class, Advisor Class, C Class and R Class. The shares offered by this Prospectus
are R Class shares. R Class shares are offered primarily through
employer-sponsored retirement plans and through institutions like banks,
broker-dealers and insurance companies.
The other classes have different fees, expenses and/or minimum investment
requirements from the class offered by this Prospectus. The difference in the
fee structures between the classes is the result of their separate arrangements
for shareholder and distribution services and not the result of any difference
in amounts charged by the advisor for core investment advisory services.
Accordingly, the core investment advisory expenses do not vary by class.
Different fees and expenses will affect performance. For additional information
concerning the other classes of shares not offered by this Prospectus, call us
at
* 1-800-345-2021 for Investor Class shares
* 1-800-345-3533 for Institutional Class shares
* 1-800-378-9878 for Advisor Class and C Class shares
You also can contact a sales representative or financial intermediary who offers
that class of shares.
Except as described below, all classes of shares of the funds have identical
voting, dividend, liquidation and other rights, preferences, terms and
conditions. The only differences between the classes are (a) each class may be
subject to different expenses specific to that class; (b) each class has a
different identifying designation or name; (c) each class has exclusive voting
rights with respect to matters solely affecting such class; (d) each class may
have different exchange privileges; and (e) the Institutional Class may provide
for automatic conversion from that class into shares of the Investor Class of
the same fund.
Service and Distribution Fees
Investment Company Act Rule 12b-1 permits mutual funds that adopt a written plan
to pay certain expenses associated with the distribution of their shares out of
fund assets. The funds' R Class shares have a 12b-1 plan. Under the R Class
Plan, the funds' R Class pays an annual fee of 0.50% of R Class average net
assets to the distributor. The distributor pays all or a portion of such fees to
the investment advisors, banks, broker-dealers, insurance companies and
recordkeepers that make R Class shares available. Because these fees are paid
out of the funds' assets on an ongoing basis, over time these fees will increase
the cost of your investment and may cost you more than other types of sales
charges. For additional information about the Plan and its terms, see Multiple
Class Structure in the Statement of Additional Information.
In addition, the advisor or the funds' distributor may make payments for various
services or other expenses out of their past profits or other available sources.
Such expenses may include distribution services, shareholder services or
marketing, promotional or related expenses. The amount of these payments is
determined by the advisor or the distributor and is not paid by you.
18
PERFORMANCE INFORMATION OF OTHER CLASS
The following financial information is provided to show the performance of the
funds' original class of shares. This class, the Investor Class, has a total
expense ratio that is lower than the R Class offered by this Prospectus. If the
R Class had existed during the periods presented, its performance would have
been lower because of the additional expenses.
The tables on the next few pages itemize what contributed to the changes in the
Investor Class share price during the most recently ended fiscal year. It also
shows the changes in share price for this period in comparison to changes over
the last five fiscal years, or less, if the share class is not five years old.
On a per-share basis, each table includes as appropriate
* share price at the beginning of the period
* investment income and capital gains or losses
* distributions of income and capital gains paid to investors
* share price at the end of the period
Each table also includes some key statistics for the period as appropriate
* TOTAL RETURN - the overall percentage of return of the fund, assuming the
reinvestment of all distributions
* EXPENSE RATIO - the operating expenses of the fund as a percentage of average
net assets
* NET INCOME RATIO - the net investment income of the fund as a percentage of
average net assets
* PORTFOLIO TURNOVER - the percentage of the fund's investment portfolio that
is replaced during the period
The Financial Highlights have been audited by Deloitte & Touche LLP, independent
auditors. Their Independent Auditors' Reports and the financial statements are
included in the funds' annual reports, which are available upon request.
19
GROWTH FUND
Investor Class
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
-------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
-------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
Net Asset Value, Beginning of Period $17.85 $31.09 $31.60 $28.03 $27.86
-------------------------------------------------------------------------------------------------------------
Income From Investment Operations
-----------------------------------------------------
Net Investment Loss(1) (0.01) --(2) (0.10) (0.07) (0.01)
-----------------------------------------------------
Net Realized and Unrealized Gain (Loss) (3.04) (9.66) 3.73 9.03 4.35
-------------------------------------------------------------------------------------------------------------
Total From Investment Operations (3.05) (9.66) 3.63 8.96 4.34
-------------------------------------------------------------------------------------------------------------
Distributions
-----------------------------------------------------
From Net Realized Gains -- (3.58) (4.14) (5.39) (4.17)
-------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.80 $17.85 $31.09 $31.60 $28.03
=============================================================================================================
TOTAL RETURN(3) (17.09)% (34.14)% 11.49% 36.31% 18.53%
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 Loss to Average Net Assets (0.04)% (0.01)% (0.30)% (0.24)% (0.02)%
-----------------------------------------------------
Portfolio Turnover Rate 135% 114% 102% 92% 126%
-----------------------------------------------------
Net Assets, End of Period (in millions) $3,951 $5,715 $9,557 $8,333 $6,097
-------------------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Per-share amount was less than $0.005.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact of
calculating the net asset values to two decimal places. If net asset
values were calculated to three decimal places, the total return
differences would more closely reflect the class expense differences.
The calculation of net asset values to two decimal places is made in
accordance with SEC guidelines and does not result in any gain or loss
of value between one class and another.
20
ULTRA FUND
Investor Class
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
--------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
--------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
Net Asset Value, Beginning of Period $25.09 $41.45 $38.97 $31.06 $33.46
--------------------------------------------------------------------------------------------------------------
Income From Investment Operations
-----------------------------------------------------
Net Investment Income (Loss)(1) 0.06 (0.06) (0.28) (0.14) (0.02)
-----------------------------------------------------
Net Realized and Unrealized Gain (Loss) (3.32) (11.89) 4.14 11.17 4.70
--------------------------------------------------------------------------------------------------------------
Total From Investment Operations (3.26) (11.95) 3.86 11.03 4.68
--------------------------------------------------------------------------------------------------------------
Distributions
-----------------------------------------------------
From Net Investment Income -- -- -- -- (0.01)
-----------------------------------------------------
From Net Realized Gains -- (4.41) (1.38) (3.12) (7.07)
--------------------------------------------------------------------------------------------------------------
Total Distributions -- (4.41) (1.38) (3.12) (7.08)
--------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $21.83 $25.09 $41.45 $38.97 $31.06
==============================================================================================================
TOTAL RETURN(2) (12.99)% (31.44)% 9.81% 37.94% 17.61%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 0.99% 0.98% 0.99% 1.00% 1.00%
-----------------------------------------------------
Ratio of Net Investment Income (Loss)
to Average Net Assets 0.24% (0.18)% (0.64)% (0.39)% (0.08)%
-----------------------------------------------------
Portfolio Turnover Rate 92% 86% 62% 42% 128%
-----------------------------------------------------
Net Assets, End of Period (in millions) $18,616 $24,560 $38,461 $35,752 $25,396
--------------------------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. The total return of the classes may not
precisely reflect the class expense differences because of the impact
of calculating the net asset value to two decimal places. If net
asset values were calculated to three decimal places, the total return
differences would more closely reflect the class expense differences.
The calculation of net asset values to two decimal places is made in
accordance with SEC guidelines and does not result in any gain or loss of
value between one class and another.
21
MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS
Annual and Semiannual Reports
Annual and semiannual reports contain more information about the funds'
investments and the market conditions and investment strategies that
significantly affected the funds' performance during the most recent fiscal
period.
Statement of Additional Information (SAI)
The SAI contains a more detailed, legal description of the funds' operations,
investment restrictions, policies and practices. The SAI is incorporated by
reference into this Prospectus. This means that it is legally part of this
Prospectus, even if you don't request a copy.
You may obtain a free copy of the SAI or annual and semiannual reports, and ask
questions about the funds or your accounts, by contacting American Century at
the address or telephone numbers listed below.
You also can get information about the funds (including the SAI) from the
Securities and Exchange Commission (SEC). The SEC charges a duplicating fee to
provide copies of this information.
In person SEC Public Reference Room
Washington, D.C.
Call 202-942-8090 for location and hours.
On the Internet * EDGAR database at www.sec.gov
* By email request at publicinfo@sec.gov
By mail SEC Public Reference Section
Washington, D.C. 20549-0102
This Prospectus shall not constitute an offer to sell securities of a fund in
any state, territory, or other jurisdiction where the fund's shares have not
been registered or qualified for sale, unless such registration or qualification
is not required, or under any circumstances in which such offer or solicitation
would be unlawful.
Fund Reference Fund Code Ticker Newspaper Listing
--------------------------------------------------------------------------------
Growth
R Class 120 N/A Growth
--------------------------------------------------------------------------------
Ultra
R Class 122 N/A Ultra
--------------------------------------------------------------------------------
Investment Company Act File No. 811-0816
AMERICAN CENTURY INVESTMENTS
P.O. Box 419786
Kansas City, Missouri 64141-6786
1-800-378-9878
0308
SH-PRS-34867
American Century
statement of
additional information
AUGUST 29, 2003
American Century Mutual Funds, Inc.
Growth Fund
Ultra(reg.sm) Fund
Select Fund
Vista(sm) Fund
Heritage Fund
Balanced Fund
Capital Value Fund
Giftrust(reg.sm) Fund
New Opportunities Fund
New Opportunities II Fund
Veedot(reg.sm) Fund
This Statement of Additional Information adds to the discussion in the funds'
Prospectuses dated March 1, 2003, and August 29, 2003, but is not a prospectus.
The Statement of Additional Information should be read in conjunction with the
funds' current Prospectuses. If you would like a copy of a Prospectus, please
contact us at one of the addresses or telephone numbers listed on the back cover
or visit American Century's Web site at www.americancentury.com.
This Statement of Additional Information incorporates by reference certain
information that appears in the funds' annual and semiannual reports, which are
delivered to all investors. You may obtain a free copy of the funds' annual or
semiannual reports by calling 1-800-345-2021.
American Century
Investment Services, Inc.
[american century logo and text logo (reg. sm)]
Table of Contents
The Funds' History ........................................................ 2
Fund Investment Guidelines ................................................ 3
Growth, Ultra, Select, Vista, Heritage, Giftrust
New Opportunities, New Opportunities II and Veedot ................... 3
Balanced ............................................................. 4
Capital Value ........................................................ 4
Fund Investments and Risks ................................................ 6
Investment Strategies and Risks ...................................... 6
Investment Policies .................................................. 23
Portfolio Turnover ................................................... 25
Management ................................................................ 27
The Board of Directors ............................................... 30
Ownership of Fund Shares ............................................. 33
Code of Ethics ....................................................... 34
The Funds' Principal Shareholders ......................................... 35
Service Providers ......................................................... 41
Investment Advisor ................................................... 41
Transfer Agent and Administrator ..................................... 44
Distributor .......................................................... 44
Other Service Providers ................................................... 45
Custodian Banks ...................................................... 45
Independent Auditors ................................................. 45
Brokerage Allocation ...................................................... 45
Growth, Ultra, Select, Vista, Heritage, Capital Value,
Giftrust, New Opportunities, New Opportunities II, Veedot
and the Equity Portion of Balanced ................................... 45
The Fixed-Income Portion of Balanced ................................. 46
Information about Fund Shares ............................................. 47
Multiple Class Structure ............................................. 47
Buying and Selling Fund Shares ....................................... 57
Valuation of a Fund's Securities ..................................... 57
Taxes ..................................................................... 58
How Fund Performance Information Is Calculated ............................ 60
Performance Comparisons .............................................. 65
Permissible Advertising Information .................................. 66
Multiple Class Performance Advertising ............................... 66
Financial Statements ...................................................... 66
Explanation of Fixed-Income Securities Ratings ............................ 67
1
THE FUNDS' HISTORY
American Century Mutual Funds, Inc. is a registered open-end management
investment company that was organized in 1957 as a Delaware corporation under
the name Twentieth Century Investors, Inc. On June 2, 1990, the company
reorganized as a Maryland corporation, and in January 1997 it changed its name
to American Century Mutual Funds, Inc. Throughout this Statement of Additional
Information we refer to American Century Mutual Funds, Inc. as the corporation.
Each fund described in this Statement of Additional Information is a separate
series of the corporation and operates for many purposes as if it were an
independent company. Each fund has its own investment objective, strategy,
management team, assets, and tax identification and stock registration numbers.
Fund Ticker Symbol Inception Date
------------------------------------------------------------------------------
Growth
Investor Class TWCGX 10/31/1958
------------------------------------------------------------------------------
Institutional Class TWGIX 06/16/1997
------------------------------------------------------------------------------
C Class TWGCX 11/28/2001
------------------------------------------------------------------------------
R Class N/A 08/29/2003
------------------------------------------------------------------------------
Advisor Class TCRAX 06/04/1997
------------------------------------------------------------------------------
Ultra
Investor Class TWCUX 11/02/1981
------------------------------------------------------------------------------
Institutional Class TWUIX 11/14/1996
------------------------------------------------------------------------------
C Class TWCCX 10/29/2001
------------------------------------------------------------------------------
R Class N/A 08/29/2003
------------------------------------------------------------------------------
Advisor Class TWUAX 10/02/1996
------------------------------------------------------------------------------
Select
Investor Class TWCIX 10/31/1958
------------------------------------------------------------------------------
Institutional Class TWSIX 03/13/1997
------------------------------------------------------------------------------
A Class AASLX 01/31/2003
------------------------------------------------------------------------------
B Class ABSLX 01/31/2003
------------------------------------------------------------------------------
C Class ACSLX 01/31/2003
------------------------------------------------------------------------------
Advisor Class TWCAX 08/08/1997
------------------------------------------------------------------------------
Vista
Investor Class TWCVX 11/25/1983
------------------------------------------------------------------------------
Institutional Class TWVIX 11/14/1996
------------------------------------------------------------------------------
C Class TWVCX 07/18/2001
------------------------------------------------------------------------------
Advisor Class TWVAX 10/02/1996
------------------------------------------------------------------------------
Heritage
Investor Class TWHIX 11/10/1987
------------------------------------------------------------------------------
Institutional Class ATHIX 06/16/1997
------------------------------------------------------------------------------
C Class THGCX 06/26/2001
------------------------------------------------------------------------------
Advisor Class ATHAX 07/11/1997
------------------------------------------------------------------------------
Balanced
Investor Class TWBIX 10/20/1988
------------------------------------------------------------------------------
Institutional Class ABINX 05/01/2000
------------------------------------------------------------------------------
Advisor Class TWBAX 01/06/1997
------------------------------------------------------------------------------
Capital Value
Investor Class ACTIX 03/31/1999
------------------------------------------------------------------------------
Institutional Class ACPIX 03/01/2002
------------------------------------------------------------------------------
Advisor Class N/A N/A
------------------------------------------------------------------------------
2
Fund Ticker Symbol Inception Date
------------------------------------------------------------------------------
Giftrust
Investor Class TWGTX 11/25/1983
------------------------------------------------------------------------------
New Opportunities
Investor Class TWNOX 12/26/1996
------------------------------------------------------------------------------
New Opportunities II
Investor Class ANOIX 06/01/2001
------------------------------------------------------------------------------
Institutional Class N/A N/A
------------------------------------------------------------------------------
A Class ANOAX 01/31/2003
------------------------------------------------------------------------------
B Class ANOBX 01/31/2003
------------------------------------------------------------------------------
C Class ANOCX 01/31/2003
------------------------------------------------------------------------------
Veedot
Investor Class AMVIX 11/30/1999
------------------------------------------------------------------------------
Institutional Class AVDIX 08/01/2000
------------------------------------------------------------------------------
Advisor Class N/A N/A
------------------------------------------------------------------------------
FUND INVESTMENT GUIDELINES
This section explains the extent to which the funds' advisor, American Century
Investment Management, Inc., can use various investment vehicles and strategies
in managing each fund's assets. Descriptions of the investment techniques and
risks associated with each appear in the section, Investment Strategies and
Risks, which begins on page 6. In the case of the funds' principal investment
strategies, these descriptions elaborate upon discussions contained in the
Prospectuses.
Each fund, other than Veedot, is diversified as defined in the Investment
Company Act of 1940 (the Investment Company Act). Diversified means that, with
respect to 75% of its total assets, each fund will not invest more than 5% of
its total assets in the securities of a single issuer or own more than 10% of
the outstanding voting securities of a single issuer.
Veedot is nondiversified. Although Veedot's managers expect that it will
ordinarily satisfy the requirements of a diversified fund, its nondiversified
status gives it more flexibility to invest heavily in the most attractive
companies identified by the fund's methodology.
To meet federal tax requirements for qualification as a regulated investment
company, each fund must limit its investments so that at the close of each
quarter of its taxable year
(1) no more than 25% of its total assets are invested in the securities of a
single issuer (other than the U.S. government or a regulated investment
company), and
(2) with respect to at least 50% of its total assets, no more than 5% of its
total assets are invested in the securities of a single issuer.
GROWTH, ULTRA, SELECT, VISTA, HERITAGE, GIFTRUST,
NEW OPPORTUNITIES, NEW OPPORTUNITIES II AND VEEDOT
In general, within the restrictions outlined here and in the funds'
Prospectuses, the fund managers have broad powers to decide how to invest fund
assets, including the power to hold them uninvested.
Investments are varied according to what is judged advantageous under changing
economic conditions. It is the advisor's policy to retain maximum flexibility in
management without restrictive provisions as to the proportion of one or another
class of securities that may be held, subject to the investment restrictions
described on the following pages. It is the advisor's intention that each fund
will generally consist of domestic and foreign common stocks, convertible debt
securities and equity-equivalent securities. However, subject to the specific
limitations applicable to a fund, the funds'
3
management teams may invest the assets of each fund in varying amounts in other
instruments and may use other techniques, such as those reflected in Table 1 on
page 5, when such a course is deemed appropriate in order to pursue a fund's
investment objective. Senior securities that, in the opinion of the fund
managers, are high-grade issues also may be purchased for defensive purposes.
So long as a sufficient number of acceptable securities are available, the fund
managers intend to keep the funds fully invested, regardless of the movement of
stock or bond prices, generally. However, should a fund's investment methodology
fail to identify sufficient acceptable securities, or for any other reason
including the desire to take a temporary defensive position, the funds may
invest up to 100% of their assets in U.S. government securities. In most
circumstances, each fund's actual level of cash and cash equivalents will be
less than 10%. The managers may use futures contracts as a way to expose each
fund's cash assets to the market while maintaining liquidity. As mentioned in
the Prospectuses, the managers may not leverage a fund's portfolio; so there is
no greater market risk to the funds than if they purchase stocks. See Derivative
Securities, page 8, Short-Term Securities, page 11 and Futures and Options, page
11.
BALANCED
In general, within the restrictions outlined here and in the fund's Prospectus,
the fund managers have broad powers to decide how to invest fund assets,
including the power to hold them uninvested. As a matter of fundamental policy,
the managers will invest approximately 60% of the fund's portfolio in equity
securities and the remainder in bonds and other fixed-income securities. The
equity portion of the fund generally will be invested in equity securities of
companies comprising the 1,500 largest publicly traded companies in the United
States. The fund's investment approach may cause its equity portion to be more
heavily invested in some industries than in others. However, it may not invest
more than 25% of its total assets in companies whose principal business
activities are in the same industry. In addition, as a diversified investment
company, its investments in a single issue are limited, as described above in
Fund Investment Guidelines. The fund managers also may purchase foreign
securities, convertible debt securities, equity-equivalent securities,
non-leveraged futures contracts and similar securities, and short-term
securities. See Table 1, page 5.
The fixed-income portion of the fund generally will be invested in a diversified
portfolio of high-grade government, corporate, asset-backed and similar
securities. There are no maturity restrictions on the fixed-income securities in
which the fund invests, but under normal conditions the weighted average
maturity for the fixed-income portion of the fund will be in the 3-to-10-year
range. The managers will actively manage the portfolio, adjusting the
portfolio's weighted average maturity in response to expected changes in
interest rates. During periods of rising interest rates, a shorter weighted
average maturity may be adopted in order to reduce the effect of bond price
declines on the fund's net asset value. When interest rates are falling and bond
prices rising, a longer weighted average portfolio maturity may be adopted. The
restrictions on the quality of the fixed-income securities the fund may purchase
are described in the Prospectus. For a description of the fixed-income
securities rating system, see Explanation of Fixed-Income Securities Ratings, on
page 67.
CAPITAL VALUE
The fund managers will invest primarily in stocks of medium to large companies
that the managers believe are undervalued at the time of purchase. The fund
managers will usually purchase common stocks of U.S. and foreign companies, but
they can purchase other types of securities as well, such as domestic and
foreign preferred stocks, convertible debt securities, equity-equivalent
securities, notes, bonds and other debt securities. See Table 1, page 5.
4
TABLE 1
--------------------------------------------------------------------------------
An "X" in the table below indicates that the fund may invest in the security or
employ the investment technique that appears in the corresponding row.
New
Growth Opportunities II
Ultra Vista New Capital
Select Heritage Opportunities Giftrust Balanced Value Veedot
-----------------------------------------------------------------------------------------------------------------
Foreign Securities X X X X X X X
-----------------------------------------------------------------------------------------------------------------
Convertible Debt
Securities X X X X X X X
-----------------------------------------------------------------------------------------------------------------
Short Sales X X X X X X X
-----------------------------------------------------------------------------------------------------------------
Portfolio Lending 33-1/3% 33-1/3% 33-1/3% 33-1/3% 33-1/3% 33-1/3% 33-1/3%
-----------------------------------------------------------------------------------------------------------------
Derivative Securities X X X X X X X
-----------------------------------------------------------------------------------------------------------------
Investments in Companies
with Limited
Operating Histories 5% 10% 10% 10% 5% X 10%
-----------------------------------------------------------------------------------------------------------------
Other Investment
Companies 10% 10% 10% 10% 10% 10% 10%
-----------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X X X X X
-----------------------------------------------------------------------------------------------------------------
When-Issued and
Forward Commitment
Agreements X X X X X X X
-----------------------------------------------------------------------------------------------------------------
Restricted and
Illiquid Securities 15% 15% 15% 15% 15% 15% 15%
-----------------------------------------------------------------------------------------------------------------
Short-Term Securities X X X X X X X
-----------------------------------------------------------------------------------------------------------------
Futures & Options X X X X X X X
-----------------------------------------------------------------------------------------------------------------
Forward Currency
Exchange Contracts X X X X X X X
-----------------------------------------------------------------------------------------------------------------
Equity Equivalents X X X X X X X
-----------------------------------------------------------------------------------------------------------------
FIXED-INCOME SECURITIES
-----------------------------------------------------------------------------------------------------------------
Municipal Notes X X
-----------------------------------------------------------------------------------------------------------------
Municipal Bonds X X
-----------------------------------------------------------------------------------------------------------------
Variable- and
Floating-Rate
Obligations X X
-----------------------------------------------------------------------------------------------------------------
Obligations with Term
Puts Attached X X
-----------------------------------------------------------------------------------------------------------------
Tender Option Bonds X
-----------------------------------------------------------------------------------------------------------------
Zero-Coupon and
Step-Coupon Securities X
-----------------------------------------------------------------------------------------------------------------
Inverse Floaters X X
-----------------------------------------------------------------------------------------------------------------
U.S. Government
Securities X X X X X X X
-----------------------------------------------------------------------------------------------------------------
Mortgage-Backed
Securities X
-----------------------------------------------------------------------------------------------------------------
Asset-Backed Securities X
-----------------------------------------------------------------------------------------------------------------
5
FUND INVESTMENTS AND RISKS
INVESTMENT STRATEGIES AND RISKS
This section describes investment vehicles and techniques the fund managers can
use in managing a fund's assets. It also details the risks associated with each,
because each investment vehicle and technique contributes to a fund's overall
risk profile. To determine whether a fund may invest in a particular investment
vehicle, consult Table 1, page 5.
Foreign Securities
Each fund may invest an unlimited portion of its total assets in the securities
of foreign issuers, including foreign governments, when these securities meet
its standards of selection. Securities of foreign issuers may trade in the U.S.
or foreign securities markets.
Investments in foreign securities may present certain risks, including:
CURRENCY RISK - The value of the foreign investments held by the funds may be
significantly affected by changes in currency exchange rates. The dollar value
of a foreign security generally decreases when the value of the dollar rises
against the foreign currency in which the security is denominated, and tends to
increase when the value of the dollar falls against such currency. In addition,
the value of fund assets may be affected by losses and other expenses incurred
in converting between various currencies in order to purchase and sell foreign
securities, and by currency restrictions, exchange control regulation, currency
devaluations and political developments.
POLITICAL AND ECONOMIC RISK - The economies of many of the countries in which
the funds invest are not as developed as the economy of the United States and
may be subject to significantly different forces. Political or social
instability, expropriation, nationalization, confiscatory taxation and
limitations on the removal of funds or other assets also could adversely affect
the value of investments. Further, the funds may find it difficult or be unable
to enforce ownership rights, pursue legal remedies or obtain judgments in
foreign courts.
REGULATORY RISK - Foreign companies generally are not subject to the regulatory
controls imposed on U.S. issuers and, in general, there is less publicly
available information about foreign securities than is available about domestic
securities. Many foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic companies. Income from foreign
securities owned by the funds may be reduced by a withholding tax at the source,
which would reduce dividend income payable to shareholders.
MARKET AND TRADING RISK - Brokerage commission rates in foreign countries, which
generally are fixed rather than subject to negotiation as in the United States,
are likely to be higher. The securities markets in many of the countries in
which the funds invest will have substantially less trading volume than the
principal U.S. markets. As a result, the securities of some companies in these
countries may be less liquid and more volatile than comparable U.S. securities.
Furthermore, one securities broker may represent all or a significant part of
the trading volume in a particular country, resulting in higher trading costs
and decreased liquidity due to a lack of alternative trading partners. There
generally is less government regulation and supervision of foreign stock
exchanges, brokers and issuers, which may make it difficult to enforce
contractual obligations.
CLEARANCE AND SETTLEMENT RISK - Foreign securities markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in clearance and settlement could result in temporary periods when assets
of the funds are uninvested and no return is earned. The inability of the funds
to make intended security purchases due to clearance and settlement problems
could cause the funds to miss attractive investment opportunities. Inability
6
to dispose of portfolio securities due to clearance and settlement problems
could result either in losses to the funds due to subsequent declines in the
value of the portfolio security or, if the fund has entered into a contract to
sell the security, liability to the purchaser.
OWNERSHIP RISK - Evidence of securities ownership may be uncertain in many
foreign countries. As a result, there is a risk that a fund's trade details
could be incorrectly or fraudulently entered at the time of the transaction,
resulting in a loss to the fund.
Convertible Debt Securities
A convertible debt security is a fixed-income security that offers the potential
for capital appreciation through a conversion feature that enables the holder to
convert the fixed-income security into a stated number of shares of common
stock. As fixed-income securities, convertible debt securities provide a stable
stream of income, with generally higher yields than common stocks. Convertible
debt securities offer the potential to benefit from increases in the market
price of the underlying common stock, however, they generally offer lower yields
than non-convertible securities of similar quality. Of course, as with all
fixed-income securities, there can be no assurance of current income because the
issuers of the convertible debt securities may default on their obligations. In
addition, there can be no assurance of capital appreciation because the value of
the underlying common stock will fluctuate.
Convertible debt securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. Because of the subordination feature, however, convertible debt
securities typically have lower ratings from ratings organizations than similar
non-convertible securities.
Unlike a convertible security that is a single security, a synthetic convertible
security is comprised of two distinct securities that together resemble
convertible securities in certain respects. Synthetic convertible securities are
created by combining non-convertible bonds or preferred stocks with warrants or
stock call options. The options that will form elements of synthetic convertible
securities will be listed on a securities exchange or NASDAQ. The two components
of a synthetic convertible security, which will be issued with respect to the
same entity, generally are not offered as a unit, and may be purchased and sold
by the fund at different times. Synthetic convertible securities differ from
convertible securities in certain respects. Each component of a synthetic
convertible security has a separate market value and responds differently to
market fluctuations. Investing in a synthetic convertible security involves the
risk normally found in holding the securities comprising the synthetic
convertible security.
Each fund will limit its holdings of convertible debt securities to those that,
at the time of purchase, are rated at least B- by S&P or B3 by Moody's, or, if
not rated by S&P or Moody's, are of equivalent investment quality as determined
by the advisor. Each fund's investments in convertible debt securities and other
high-yield, non-convertible debt securities rated below investment-grade will
comprise less than 35% of the fund's net assets. Debt securities rated below the
four highest categories are not considered "investment-grade" obligations. These
securities have speculative characteristics and present more credit risk than
investment-grade obligations.
Short Sales
A fund may engage in short sales for cash management purposes only if, at the
time of the short sale, the fund owns or has the right to acquire securities
equivalent in kind and amount to the securities being sold short.
In a short sale, the seller does not immediately deliver the securities sold and
is said to have a short position in those securities until delivery occurs. To
make delivery to the purchaser, the executing broker borrows the securities
being sold short on behalf of the
7
seller. While the short position is maintained, the seller collateralizes its
obligation to deliver the securities sold short in an amount equal to the
proceeds of the short sale plus an additional margin amount established by the
Board of Governors of the Federal Reserve. If a fund engages in a short sale,
the fund's custodian will segregate cash, cash equivalents or other appropriate
liquid securities on its records in an amount sufficient to meet the purchase
price. There will be certain additional transaction costs associated with short
sales, but the fund will endeavor to offset these costs with income from the
investment of the cash proceeds of short sales.
Portfolio Lending
In order to realize additional income, a fund may lend its portfolio securities.
Such loans may not exceed one-third of the fund's total assets valued at market
except
* through the purchase of debt securities in accordance with its investment
objectives, policies and limitations, or
* by engaging in repurchase agreements with respect to portfolio securities.
Derivative Securities
To the extent permitted by its investment objectives and policies, each of the
funds may invest in securities that are commonly referred to as derivative
securities. Generally, a derivative security is a financial arrangement the
value of which is based on, or derived from, a traditional security, asset, or
market index. Certain derivative securities are described more accurately as
index/structured securities. Index/structured securities are derivative
securities whose value or performance is linked to other equity securities (such
as depositary receipts), currencies, interest rates, indices or other financial
indicators (reference indices).
Some derivative securities, such as mortgage-related and other asset-backed
securities, are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities.
There are many different types of derivative securities and many different ways
to use them. Futures and options are commonly used for traditional hedging
purposes to attempt to protect a fund from exposure to changing interest rates,
securities prices, or currency exchange rates and for cash management purposes
as a low-cost method of gaining exposure to a particular securities market
without investing directly in those securities.
No fund may invest in a derivative security unless the reference index or the
instrument to which it relates is an eligible investment for the fund. For
example, a security whose underlying value is linked to the price of oil would
not be a permissible investment because the funds may not invest in oil and gas
leases or futures.
The return on a derivative security may increase or decrease, depending upon
changes in the reference index or instrument to which it relates.
There are risks associated with investing in derivative securities, including:
* the risk that the underlying security, interest rate, market index or other
financial asset will not move in the direction the fund managers anticipate;
* the possibility that there may be no liquid secondary market, or the
possibility that price fluctuation limits may be imposed by the exchange,
either of which may make it difficult or impossible to close out a position
when desired;
* the risk that adverse price movements in an instrument can result in a loss
substantially greater than a fund's initial investment; and
* the risk that the counterparty will fail to perform its obligations.
8
The Board of Directors has approved the advisor's policy regarding investments
in derivative securities. That policy specifies factors that must be considered
in connection with a purchase of derivative securities and provides that a fund
may not invest in a derivative security if it would be possible for a fund to
lose more money than it had invested. The policy also establishes a committee
that must review certain proposed purchases before the purchases can be made.
The advisor will report on fund activity in derivative securities to the Board
of Directors as necessary.
Investment in Issuers with Limited Operating Histories
The funds may invest a portion of their assets in the securities of issuers with
limited operating histories. The managers consider an issuer to have a limited
operating history if that issuer has a record of less than three years of
continuous operation. The managers will consider periods of capital formation,
incubation, consolidations, and research and development in determining whether
a particular issuer has a record of three years of continuous operation.
Investments in securities of issuers with limited operating histories may
involve greater risks than investments in securities of more mature issuers. By
their nature, such issuers present limited operating histories and financial
information upon which the managers may base their investment decision on behalf
of the funds. In addition, financial and other information regarding such
issuers, when available, may be incomplete or inaccurate.
For purposes of this limitation, "issuers" refers to operating companies that
issue securities for the purposes of issuing debt or raising capital as a means
of financing their ongoing operations. It does not, however, refer to entities,
corporate or otherwise, that are created for the express purpose of securitizing
obligations or income streams. For example, a fund's investments in a trust
created for the purpose of pooling mortgage obligations would not be subject to
the limitation.
Repurchase Agreements
Each fund may invest in repurchase agreements when they present an attractive
short-term return on cash that is not otherwise committed to the purchase of
securities pursuant to the investment policies of that fund.
A repurchase agreement occurs when, at the time a fund purchases an
interest-bearing obligation, the seller (a bank or a broker-dealer registered
under the Securities Exchange Act of 1934) agrees to purchase it on a specified
date in the future at an agreed-upon price. The repurchase price reflects an
agreed-upon interest rate during the time the fund's money is invested in the
security.
Because the security purchased constitutes collateral for the repurchase
obligation, a repurchase agreement can be considered a loan collateralized by
the security purchased. The fund's risk is the seller's ability to pay the
agreed-upon repurchase price on the repurchase date. If the seller defaults, the
fund may incur costs in disposing of the collateral, which would reduce the
amount realized thereon. If the seller seeks relief under the bankruptcy laws,
the disposition of the collateral may be delayed or limited. To the extent the
value of the security decreases, the fund could experience a loss.
The funds will limit repurchase agreement transactions to securities issued by
the U.S. government and its agencies and instrumentalities, and will enter into
such transactions with those banks and securities dealers who are deemed
creditworthy by the funds' advisor.
Repurchase agreements maturing in more than seven days would count toward a
fund's 15% limit on illiquid securities.
9
When-Issued and Forward Commitment Agreements
The funds may sometimes purchase new issues of securities on a when-issued or
forward commitment basis in which the transaction price and yield are each fixed
at the time the commitment is made, but payment and delivery occur at a future
date.
For example, a fund may sell a security and at the same time make a commitment
to purchase the same or a comparable security at a future date and specified
price. Conversely, a fund may purchase a security and at the same time make a
commitment to sell the same or a comparable security at a future date and
specified price. These types of transactions are executed simultaneously in what
are known as dollar-rolls, cash and carry, or financing transactions. For
example, a broker-dealer may seek to purchase a particular security that a fund
owns. The fund will sell that security to the broker-dealer and simultaneously
enter into a forward commitment agreement to buy it back at a future date. This
type of transaction generates income for the fund if the dealer is willing to
execute the transaction at a favorable price in order to acquire a specific
security.
When purchasing securities on a when-issued or forward commitment basis, a fund
assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. Market rates of interest on debt securities at the time of
delivery may be higher or lower than those contracted for on the when-issued
security. Accordingly, the value of that security may decline prior to delivery,
which could result in a loss to the fund. While the fund will make commitments
to purchase or sell securities with the intention of actually receiving or
delivering them, it may sell the securities before the settlement date if doing
so is deemed advisable as a matter of investment strategy.
In purchasing securities on a when-issued or forward commitment basis, a fund
will segregate cash, cash equivalents or other appropriate liquid securities on
its record in an amount sufficient to meet the purchase price. When the time
comes to pay for the when-issued securities, the fund will meet its obligations
with available cash, through the sale of securities, or, although it would not
normally expect to do so, by selling the when-issued securities themselves
(which may have a market value greater or less than the fund's payment
obligation). Selling securities to meet when-issued or forward commitment
obligations may generate taxable capital gains or losses.
Restricted and Illiquid Securities
The funds may, from time to time, purchase restricted or illiquid securities,
including Rule 144A securities, when they present attractive investment
opportunities that otherwise meet the funds' criteria for selection. Rule 144A
securities are securities that are privately placed with and traded among
qualified institutional investors rather than the general public. Although Rule
144A securities are considered restricted securities, they are not necessarily
illiquid.
With respect to securities eligible for resale under Rule 144A, the staff of the
Securities and Exchange Commission (SEC) has taken the position that the
liquidity of such securities in the portfolio of a fund offering redeemable
securities is a question of fact for the Board of Directors to determine, such
determination to be based upon a consideration of the readily available trading
markets and the review of any contractual restrictions. Accordingly, the Board
of Directors is responsible for developing and establishing the guidelines and
procedures for determining the liquidity of Rule 144A securities. As allowed by
Rule 144A, the Board of Directors has delegated the day-to-day function of
determining the liquidity of Rule 144A securities to the fund managers. The
board retains the responsibility to monitor the implementation of the guidelines
and procedures it has adopted.
Because the secondary market for restricted securities is generally limited to
certain qualified institutional investors, the liquidity of such securities may
be limited accordingly and a fund may, from time to time, hold a Rule 144A or
other security that is illiquid. In such an event, the fund managers will
consider appropriate remedies to minimize the effect on such fund's liquidity.
10
Short-Term Securities
In order to meet anticipated redemptions, anticipated purchases of additional
securities for a fund's portfolio, or, in some cases, for temporary defensive
purposes, these funds may invest a portion of their assets in money market and
other short-term securities.
Examples of those securities include:
* Securities issued or guaranteed by the U.S. government and its agencies and
instrumentalities
* Commercial Paper
* Certificates of Deposit and Euro Dollar Certificates of Deposit
* Bankers' Acceptances
* Short-term notes, bonds, debentures or other debt instruments
* Repurchase agreements
* Money market funds
Under the Investment Company Act, a fund's investment in other investment
companies (including money market funds) currently is limited to (a) 3% of the
total voting stock of any one investment company; (b) 5% of the fund's total
assets with respect to any one investment company; and (c) 10% of a fund's total
assets in the aggregate. These investments may include investments in money
market funds managed by the advisor. Any investment in money market funds must
be consistent with the investment policies and restrictions of the fund making
the investment.
Other Investment Companies
Each of the funds may invest up to 10% of its total assets in other investment
companies, such as mutual funds, provided that the investment is consistent with
the fund's investment policies and restrictions. These investments may include
investments in money market funds managed by the advisor. Under the Investment
Company Act, a fund's investment in such securities, subject to certain
exceptions, currently is limited to
* 3% of the total voting stock of any one investment company;
* 5% of the fund's total assets with respect to any one investment company;
and
* 10% of a fund's total assets in the aggregate.
Such purchases will be made in the open market where no commission or profit to
a sponsor or dealer results from the purchase other than the customary brokers'
commissions. As a shareholder of another investment company, a fund would bear,
along with other shareholders, its pro rata portion of the other investment
company's expenses, including advisory fees. These expenses would be in addition
to the management fee that each fund bears directly in connection with its own
operations.
Futures and Options
Each fund may enter into futures contracts, options or options on futures
contracts. Futures contracts provide for the sale by one party and purchase by
another party of a specific security at a specified future time and price.
Generally, futures transactions will be used to:
* protect against a decline in market value of the fund's securities (taking a
short futures position),
* protect against the risk of an increase in market value for securities in
which the fund generally invests at a time when the fund is not fully
invested (taking a long futures position), or
* provide a temporary substitute for the purchase of an individual security
that may not be purchased in an orderly fashion.
11
Some futures and options strategies, such as selling futures, buying puts and
writing calls, hedge a fund's investments against price fluctuations. Other
strategies, such as buying futures, writing puts and buying calls, tend to
increase market exposure.
Although other techniques may be used to control a fund's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While a fund pays brokerage commissions in connection
with opening and closing out futures positions, these costs are lower than the
transaction costs incurred in the purchase and sale of the underlying
securities.
For example, the sale of a future by a fund means the fund becomes obligated to
deliver the security (or securities, in the case of an index future) at a
specified price on a specified date. The purchase of a future means the fund
becomes obligated to buy the security (or securities) at a specified price on a
specified date. The fund managers may engage in futures and options transactions
based on securities indices, provided that the transactions are consistent with
the fund's investment objectives. Examples of indices that may be used include
the Bond Buyer Index of Municipal Bonds for fixed-income funds, or the S&P 500
Index for equity funds. The managers also may engage in futures and options
transactions based on specific securities, such as U.S. Treasury bonds or notes.
Futures contracts are traded on national futures exchanges. Futures exchanges
and trading are regulated under the Commodity Exchange Act by the Commodity
Futures Trading Commission (CFTC), a U.S. government agency.
Index futures contracts differ from traditional futures contracts in that when
delivery takes place, no stocks or bonds change hands. Instead, these contracts
settle in cash at the spot market value of the index. Although other types of
futures contracts by their terms call for actual delivery or acceptance of the
underlying securities, in most cases the contracts are closed out before the
settlement date. A futures position may be closed by taking an opposite position
in an identical contract (i.e., buying a contract that has previously been sold
or selling a contract that has previously been bought).
Unlike when the fund purchases or sells a security, no price is paid or received
by the fund upon the purchase or sale of the future. Initially, the fund will be
required to deposit an amount of cash or securities equal to a varying specified
percentage of the contract amount. This amount is known as initial margin. The
margin deposit is intended to ensure completion of the contract (delivery or
acceptance of the underlying security) if it is not terminated prior to the
specified delivery date. A margin deposit does not constitute a margin
transaction for purposes of the fund's investment restrictions. Minimum initial
margin requirements are established by the futures exchanges and may be revised.
In addition, brokers may establish margin deposit requirements that are higher
than the exchange minimums. Cash held in the margin accounts generally is not
income-producing. However, coupon bearing securities, such as Treasury bills and
bonds, held in margin accounts generally will earn income. Subsequent payments
to and from the broker, called variation margin, will be made on a daily basis
as the price of the underlying debt securities or index fluctuates, making the
future more or less valuable, a process known as marking the contract to market.
Changes in variation margin are recorded by the fund as unrealized gains or
losses. At any time prior to expiration of the future, the fund may elect to
close the position by taking an opposite position. A final determination of
variation margin is then made; additional cash is required to be paid by or
released to the fund and the fund realizes a loss or gain.
Risks Related to Futures and Options Transactions
Futures and options prices can be volatile, and trading in these markets
involves certain risks. If the fund managers apply a hedge at an inappropriate
time or judge interest rate or equity market trends incorrectly, futures and
options strategies may lower a fund's return.
A fund could suffer losses if it is unable to close out its position because of
an illiquid secondary market. Futures contracts may be closed out only on an
exchange that provides
12
a secondary market for these contracts, and there is no assurance that a liquid
secondary market will exist for any particular futures contract at any
particular time. Consequently, it may not be possible to close a futures
position when the fund managers consider it appropriate or desirable to do so.
In the event of adverse price movements, a fund would be required to continue
making daily cash payments to maintain its required margin. If the fund had
insufficient cash, it might have to sell portfolio securities to meet daily
margin requirements at a time when the fund managers would not otherwise elect
to do so. In addition, a fund may be required to deliver or take delivery of
instruments underlying futures contracts it holds. The fund managers will seek
to minimize these risks by limiting the futures contracts entered into on behalf
of the funds to those traded on national futures exchanges and for which there
appears to be a liquid secondary market.
A fund could suffer losses if the prices of its futures and options positions
were poorly correlated with its other investments, or if securities underlying
futures contracts purchased by a fund had different maturities than those of the
portfolio securities being hedged. Such imperfect correlation may give rise to
circumstances in which a fund loses money on a futures contract at the same time
that it experiences a decline in the value of its hedged portfolio securities. A
fund also could lose margin payments it has deposited with a margin broker, if,
for example, the broker became bankrupt.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of the trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond the limit. However, the daily limit
governs only price movement during a particular trading day and, therefore, does
not limit potential losses. In addition, the daily limit may prevent liquidation
of unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
Options on Futures
By purchasing an option on a futures contract, a fund obtains the right, but not
the obligation, to sell the futures contract (a put option) or to buy the
contract (a call option) at a fixed strike price. A fund can terminate its
position in a put option by allowing it to expire or by exercising the option.
If the option is exercised, the fund completes the sale of the underlying
security at the strike price. Purchasing an option on a futures contract does
not require a fund to make margin payments unless the option is exercised.
Although they do not currently intend to do so, the funds may write (or sell)
call options that obligate them to sell (or deliver) the option's underlying
instrument upon exercise of the option. While the receipt of option premiums
would mitigate the effects of price declines, the funds would give up some
ability to participate in a price increase on the underlying security. If a fund
were to engage in options transactions, it would own the futures contract at the
time a call were written and would keep the contract open until the obligation
to deliver it pursuant to the call expired.
Restrictions on the Use of Futures Contracts and Options
Each fund may enter into futures contracts, options or options on futures
contracts.
Under the Commodity Exchange Act, a fund may enter into futures and options
transactions (a) for hedging purposes without regard to the percentage of assets
committed to initial margin and option premiums or (b) for purposes other than
hedging, provided that assets committed to initial margin and option premiums do
not exceed 5% of the fund's total assets. To the extent required by law, each
fund will segregate cash, cash equivalents or other appropriate liquid
securities on its records in an amount sufficient to cover its obligations under
the futures contracts and options.
13
Forward Currency Exchange Contracts
Each fund may purchase and sell foreign currency on a spot (i.e., cash) basis
and may engage in forward currency contracts, currency options and futures
transactions for hedging or any other lawful purpose. See Derivative Securities,
page 8.
The funds expect to use forward currency contracts under two circumstances:
(1) When the fund managers are purchasing or selling a security denominated in a
foreign currency and wish to lock in the U.S. dollar price of that security,
the fund managers would be able to enter into a forward currency contract to
do so;
(2) When the fund managers believe that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, a fund
would be able to enter into a forward currency contract to sell foreign
currency for a fixed U.S. dollar amount approximating the value of some or
all of its portfolio securities either denominated in, or whose value is
tied to, such foreign currency.
In the first circumstance, when a fund enters into a trade for the purchase or
sale of a security denominated in a foreign currency, it may be desirable to
establish (lock in) the U.S. dollar cost or proceeds. By entering into forward
currency contracts in U.S. dollars for the purchase or sale of a foreign
currency involved in an underlying security transaction, the fund will be able
to protect itself against a possible loss between trade and settlement dates
resulting from the adverse change in the relationship between the U.S. dollar
and the subject foreign currency.
In the second circumstance, when the fund managers believe that the currency of
a particular country may suffer a substantial decline relative to the U.S.
dollar, a fund could enter into a forward currency contract to sell for a fixed
dollar amount the amount in foreign currencies approximating the value of some
or all of its portfolio securities either denominated in, or whose value is tied
to, such foreign currency. The fund will cover outstanding forward contracts by
maintaining liquid portfolio securities denominated in, or whose value is tied
to, the currency underlying the forward contract or the currency being hedged.
The precise matching of forward currency contracts in the amounts and values of
securities involved generally would not be possible because the future values of
such foreign currencies will change as a consequence of market movements in the
values of those securities between the date the forward currency contract is
entered into and the date it matures. Predicting short-term currency market
movements is extremely difficult, and the successful execution of short-term
hedging strategy is highly uncertain. The fund managers do not intend to enter
into such contracts on a regular basis. Normally, consideration of the prospect
for currency parities will be incorporated into the long-term investment
decisions made with respect to overall diversification strategies. However, the
fund managers believe that it is important to have flexibility to enter into
such forward currency contracts when they determine that a fund's best interests
may be served.
When the forward currency contract matures, the fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate the obligation to deliver the foreign currency by
purchasing an offsetting forward currency contract with the same currency trader
that obligates the fund to purchase, on the same maturity date, the same amount
of the foreign currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the forward currency contract.
Accordingly, it may be necessary for a fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign currency the
fund is obligated to deliver and if a decision is made to sell the security to
make delivery of the foreign currency the fund is obligated to deliver.
Equity Equivalents
In addition to investing in common stocks, the funds may invest in other equity
securities and equity equivalents, including securities that permit a fund to
receive an equity interest in an issuer, the opportunity to acquire an equity
interest in an issuer, or the opportunity
14
to receive a return on its investment that permits the fund to benefit from the
growth over time in the equity of an issuer. Examples of equity securities and
equity equivalents include preferred stock, convertible preferred stock and
convertible debt securities.
Equity equivalents also may include securities whose value or return is derived
from the value or return of a different security.
Municipal Notes
Municipal notes are issued by state and local governments or government entities
to provide short-term capital or to meet cash flow needs.
Tax Anticipation Notes (TANs) are issued in anticipation of seasonal tax
revenues, such as ad valorem property, income, sales, use and business taxes,
and are payable from these future taxes. TANs usually are general obligations of
the issuer. General obligations are backed by the issuer's full faith and credit
based on its ability to levy taxes for the timely payment of interest and
repayment of principal, although such levies may be constitutionally or
statutorily limited as to rate or amount.
Revenue Anticipation Notes (RANs) are issued with the expectation that receipt
of future revenues, such as federal revenue sharing or state aid payments, will
be used to repay the notes. Typically, these notes also constitute general
obligations of the issuer.
Bond Anticipation Notes (BANs) are issued to provide interim financing until
long-term financing can be arranged. In most cases, the long-term bonds provide
the money for repayment of the notes.
Municipal Bonds
Municipal bonds, which generally have maturities of more than one year when
issued, are designed to meet longer-term capital needs. These securities have
two principal classifications: general obligation bonds and revenue bonds.
General Obligation (GO) bonds are issued by states, counties, cities, towns and
regional districts to fund a variety of public projects, including construction
of and improvements to schools, highways, and water and sewer systems. GO bonds
are backed by the issuer's full faith and credit based on its ability to levy
taxes for the timely payment of interest and repayment of principal, although
such levies may be constitutionally or statutorily limited as to rate or amount.
Revenue Bonds are not backed by an issuer's taxing authority; rather, interest
and principal are secured by the net revenues from a project or facility.
Revenue bonds are issued to finance a variety of capital projects, including
construction or refurbishment of utility and waste disposal systems, highways,
bridges, tunnels, air and sea port facilities, schools and hospitals. Many
revenue bond issuers provide additional security in the form of a debt-service
reserve fund that may be used to make payments of interest and repayments of
principal on the issuer's obligations. Some revenue bond financings are further
protected by a state's assurance (without obligation) that it will make up
deficiencies in the debt-service reserve fund.
Industrial Development Bonds (IDBs), a type of revenue bond, are issued by or on
behalf of public authorities to finance privately operated facilities. These
bonds are used to finance business, manufacturing, housing, athletic and
pollution control projects, as well as public facilities such as mass transit
systems, air and sea port facilities and parking garages. Payment of interest
and repayment of principal on an IDB depend solely on the ability of the
facility's operator to meet financial obligations, and on the pledge, if any, of
the real or personal property financed. The interest earned on IDBs may be
subject to the federal alternative minimum tax.
Variable- and Floating-Rate Obligations
Variable- and floating-rate demand obligations (VRDOs and FRDOs) carry rights
that permit holders to demand payment of the unpaid principal plus accrued
interest, from the issuers or from financial intermediaries. Floating-rate
securities, or floaters, have interest rates that change whenever there is a
change in a designated base rate; variable-rate
15
instruments provide for a specified, periodic adjustment in the interest rate,
which typically is based on an index. These rate formulas are designed to result
in a market value for the VRDO or FRDO that approximates par value.
Obligations with Term Puts Attached
Balanced and Capital Value may invest in fixed-rate bonds subject to third-party
puts and participation interests in such bonds that are held by a bank in trust
or otherwise, which have tender options or demand features attached. These
tender options or demand features permit the funds to tender (or put) their
bonds to an institution at periodic intervals and to receive the principal
amount thereof. The fund managers expect that the funds will pay more for
securities with puts attached than for securities without these liquidity
features.
Because it is difficult to evaluate the likelihood of exercise or the potential
benefit of a put, puts normally will be determined to have a value of zero,
regardless of whether any direct or indirect consideration is paid. Accordingly,
puts as separate securities are not expected to affect the funds' weighted
average maturities. When a fund has paid for a put, the cost will be reflected
as unrealized depreciation on the underlying security for the period the put is
held. Any gain on the sale of the underlying security will be reduced by the
cost of the put.
There is a risk that the seller of an obligation with a put attached will not be
able to repurchase the underlying obligation when (or if) a fund attempts to
exercise the put. To minimize such risks, the funds will purchase obligations
with puts attached only from sellers deemed creditworthy by the fund managers
under the direction of the Board of Directors.
Tender Option Bonds
Tender Option Bonds (TOBs) were created to increase the supply of high-quality,
short-term tax-exempt obligations, and thus they are of particular interest to
money market funds. However, Capital Value may purchase these instruments.
TOBs are created by municipal bond dealers who purchase long-term tax-exempt
bonds in the secondary market, place the certificates in trusts, and sell
interests in the trusts with puts or other liquidity guarantees attached. The
credit quality of the resulting synthetic short-term instrument is based on the
put provider's short-term rating and the underlying bond's long-term rating.
There is some risk that a remarketing agent will renege on a tender option
agreement if the underlying bond is downgraded or defaults. Because of this, the
fund managers monitor the credit quality of bonds underlying the funds' TOB
holdings and intend to sell or put back any TOB if the rating on the underlying
bond falls below the second-highest rating category designated by a rating
agency.
Zero-Coupon and Step-Coupon Securities
Balanced may purchase zero-coupon debt securities. Zero-coupon securities do not
make regular cash interest payments, and are sold at a deep discount to their
face value.
The fund may also purchase step-coupon or step-rate debt securities. Instead of
having a fixed coupon for the life of the security, coupon or interest payments
may increase to predetermined rates at future dates. The issuer generally
retains the right to call the security. Some step-coupon securities are issued
with no coupon payments at all during an initial period, and only become
interest-bearing at a future date; these securities are sold at a deep discount
to their face value.
Although zero-coupon and certain step-coupon securities may not pay current cash
income, federal income tax law requires the holder to include in income each
year the portion of any original issue discount and other noncash income on such
securities accrued during that year. In order to continue to qualify for
treatment as a regulated investment company under the Internal Revenue Code and
avoid certain excise tax, the
16
funds are required to make distributions of any original issue discount and
other noncash income accrued for each year. Accordingly, the funds may be
required to dispose of other portfolio securities, which may occur in periods of
adverse market prices, in order to generate a case to meet these distribution
requirements.
Inverse Floaters
Balanced and Capital Value may hold inverse floaters. An inverse floater is a
type of derivative security that bears an interest rate that moves inversely to
market interest rates. As market interest rates rise, the interest rate on
inverse floaters goes down, and vice versa. Generally, this is accomplished by
expressing the interest rate on the inverse floater as an above-market fixed
rate of interest, reduced by an amount determined by reference to a market-based
or bond-specific floating interest rate (as well as by any fees associated with
administering the inverse floater program).
Inverse floaters may be issued in conjunction with an equal amount of Dutch
Auction floating-rate bonds (floaters), or a market-based index may be used to
set the interest rate on these securities. A Dutch Auction is an auction system
in which the price of the security is gradually lowered until it meets a
responsive bid and is sold. Floaters and inverse floaters may be brought to
market by (1) a broker-dealer who purchases fixed-rate bonds and places them in
a trust, or (2) an issuer seeking to reduce interest expenses by using a
floater/inverse floater structure in lieu of fixed-rate bonds.
In the case of a broker-dealer structured offering (where underlying fixed-rate
bonds have been placed in a trust), distributions from the underlying bonds are
allocated to floater and inverse floater holders in the following manner:
(i) Floater holders receive interest based on rates set at a six-month interval
or at a Dutch Auction, which is typically held every 28 to 35 days. Current
and prospective floater holders bid the minimum interest rate that they are
willing to accept on the floaters, and the interest rate is set just high
enough to ensure that all of the floaters are sold.
(ii) Inverse floater holders receive all of the interest that remains, if any,
on the underlying bonds after floater interest and auction fees are paid.
The interest rates on inverse floaters may be significantly reduced, even
to zero, if interest rates rise.
Procedures for determining the interest payment on floaters and inverse floaters
brought to market directly by the issuer are comparable, although the interest
paid on the inverse floaters is based on a presumed coupon rate that would have
been required to bring fixed-rate bonds to market at the time the floaters and
inverse floaters were issued.
Where inverse floaters are issued in conjunction with floaters, inverse floater
holders may be given the right to acquire the underlying security (or to create
a fixed-rate bond) by calling an equal amount of corresponding floaters. The
underlying security may then be held or sold. However, typically, there are time
constraints and other limitations associated with any right to combine interests
and claim the underlying security.
Floater holders subject to a Dutch Auction procedure generally do not have the
right to put back their interests to the issuer or to a third party. If a Dutch
Auction fails, the floater holder may be required to hold its position until the
underlying bond matures, during which time interest on the floater is capped at
a predetermined rate.
The secondary market for floaters and inverse floaters may be limited. The
market value of inverse floaters tends to be significantly more volatile than
fixed-rate bonds.
U.S. Government Securities
U.S. Treasury bills, notes, zero-coupon bonds and other bonds are direct
obligations of the U.S. Treasury, which has never failed to pay interest and
repay principal when due. Treasury bills have initial maturities of one year or
less, Treasury notes from two to 10 years, and Treasury bonds more than 10
years. Although U.S. Treasury securities carry little principal risk if held to
maturity, the prices of these securities (like all debt securities) change
between issuance and maturity in response to fluctuating market interest rates.
17
A number of U.S. government agencies and instrumentalities issue debt
securities. These agencies generally are created by Congress to fulfill a
specific need, such as providing credit to home buyers or farmers. Among these
agencies are the Federal Home Loan Banks, the Federal Farm Credit Banks, the
Student Loan Marketing Association and the Resolution Funding Corporation.
Some agency securities are backed by the full faith and credit pledge of the
U.S. government, and some are guaranteed only by the issuing agency. Agency
securities typically offer somewhat higher yields than U.S. Treasury securities
with similar maturities. However, these securities may involve greater risk of
default than securities backed by the U.S. Treasury.
Interest rates on agency securities may be fixed for the term of the investment
(fixed-rate agency securities) or tied to prevailing interest rates
(floating-rate agency securities). Interest rate resets on floating-rate agency
securities generally occur at intervals of one year or less, based on changes in
a predetermined interest rate index.
Floating-rate agency securities frequently have caps limiting the extent to
which coupon rates can be raised. The price of a floating-rate agency security
may decline if its capped coupon rate is lower than prevailing market interest
rates. Fixed- and floating-rate agency securities may be issued with a call date
(which permits redemption before the maturity date). The exercise of a call may
reduce an obligation's yield to maturity.
Interest Rate Resets on Floating-Rate U.S. Government Agency Securities
Interest rate resets on floating-rate U.S. government agency securities
generally occur at intervals of one year or less in response to changes in a
predetermined interest rate index. There are two main categories of indices:
those based on U.S. Treasury securities and those derived from a calculated
measure, such as a cost-of-funds index. Commonly used indices include the
three-month, six-month and one-year Treasury bill rates; the two-year Treasury
note yield; the Eleventh District Federal Home Loan Bank Cost of Funds Index
(EDCOFI); and the London Interbank Offered Rate (LIBOR). Fluctuations in the
prices of floating-rate U.S. government agency securities are typically
attributed to differences between the coupon rates on these securities and
prevailing market interest rates between interest rate reset dates.
Mortgage-Backed Securities
Background
A mortgage-backed security represents an ownership interest in a pool of
mortgage loans. The loans are made by financial institutions to finance home and
other real estate purchases. As the loans are repaid, investors receive payments
of both interest and principal.
Like fixed-income securities such as U.S. Treasury bonds, mortgage-backed
securities pay a stated rate of interest during the life of the security.
However, unlike a bond, which returns principal to the investor in one lump sum
at maturity, mortgage-backed securities return principal to the investor in
increments during the life of the security.
Because the timing and speed of principal repayments vary, the cash flow on
mortgage-backed securities is irregular. If mortgage holders sell their homes,
refinance their loans, prepay their mortgages or default on their loans, the
principal is distributed pro rata to investors.
As with other fixed-income securities, the prices of mortgage-backed securities
fluctuate in response to changing interest rates; when interest rates fall, the
prices of mortgage-backed securities rise, and vice versa. Changing interest
rates have additional significance for mortgage-backed securities investors,
however, because they influence prepayment rates (the rates at which mortgage
holders prepay their mortgages), which in turn affect the yields on
mortgage-backed securities. When interest rates decline, prepayment rates
generally increase. Mortgage holders take advantage of the opportunity to
refinance their
18
mortgages at lower rates with lower monthly payments. When interest rates rise,
mortgage holders are less inclined to refinance their mortgages. The effect of
prepayment activity on yield depends on whether the mortgage-backed security was
purchased at a premium or at a discount.
A fund may receive principal sooner than it expected because of accelerated
prepayments. Under these circumstances, the fund might have to reinvest returned
principal at rates lower than it would have earned if principal payments were
made on schedule. Conversely, a mortgage-backed security may exceed its
anticipated life if prepayment rates decelerate unexpectedly. Under these
circumstances, a fund might miss an opportunity to earn interest at higher
prevailing rates.
GNMA Certificates
The Government National Mortgage Association (GNMA) is a wholly owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. The National Housing Act of 1934 (Housing Act), as amended,
authorizes GNMA to guarantee the timely payment of interest and repayment of
principal on certificates that are backed by a pool of mortgage loans insured by
the Federal Housing Administration under the Housing Act, or by Title V of the
Housing Act of 1949 (FHA Loans), or guaranteed by the Veterans' Affairs under
the Servicemen's Readjustment Act of 1944 (VA Loans), as amended, or by pools of
other eligible mortgage loans. The Housing Act provides that the full faith and
credit of the U.S. government is pledged to the payment of all amounts that may
be required to be paid under any guarantee. GNMA has unlimited authority to
borrow from the U.S. Treasury in order to meet its obligations under this
guarantee.
GNMA certificates represent a pro rata interest in one or more pools of the
following types of mortgage loans: (a) fixed-rate level payment mortgage loans;
(b) fixed-rate graduated payment mortgage loans (GPMs); (c) fixed-rate growing
equity mortgage loans (GEMs); (d) fixed-rate mortgage loans secured by
manufactured (mobile) homes (MHs); (e) mortgage loans on multifamily residential
properties under construction (CLCs); (f) mortgage loans on completed
multifamily projects (PLCs); (g) fixed-rate mortgage loans that use escrowed
funds to reduce the borrower's monthly payments during the early years of the
mortgage loans (buydown mortgage loans); and (h) mortgage loans that provide for
payment adjustments based on periodic changes in interest rates or in other
payment terms of the mortgage loans.
Fannie Mae Certificates
The Federal National Mortgage Association (FNMA or Fannie Mae) is a federally
chartered and privately owned corporation established under the Federal National
Mortgage Association Charter Act. Fannie Mae was originally established in 1938
as a U.S. government agency designed to provide supplemental liquidity to the
mortgage market and was reorganized as a stockholder-owned and privately managed
corporation by legislation enacted in 1968. Fannie Mae acquires capital from
investors who would not ordinarily invest in mortgage loans directly and thereby
expands the total amount of funds available for housing. This money is used to
buy home mortgage loans from local lenders, replenishing the supply of capital
available for mortgage lending.
Fannie Mae certificates represent a pro rata interest in one or more pools of
FHA Loans, VA Loans, or, most commonly, conventional mortgage loans (i.e.,
mortgage loans that are not insured or guaranteed by a government agency) of the
following types: (a) fixed-rate level payment mortgage loans; (b) fixed-rate
growing equity mortgage loans; (c) fixed-rate graduated payment mortgage loans;
(d) adjustable-rate mortgage loans; and (e) fixed-rate mortgage loans secured by
multifamily projects.
Fannie Mae certificates entitle the registered holder to receive amounts
representing a pro rata interest in scheduled principal and interest payments
(at the certificate's pass-through rate, which is net of any servicing and
guarantee fees on the underlying mortgage loans), any principal prepayments, and
a proportionate interest in the full principal amount of any
19
foreclosed or otherwise liquidated mortgage loan. The full and timely payment of
interest and repayment of principal on each Fannie Mae certificate is guaranteed
by Fannie Mae; this guarantee is not backed by the full faith and credit of the
U.S. government.
Freddie Mac Certificates
The Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) is a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970 (FHLMC Act), as amended. Freddie Mac was established
primarily for the purpose of increasing the availability of mortgage credit. Its
principal activity consists of purchasing first-lien conventional residential
mortgage loans (and participation interests in such mortgage loans) and
reselling these loans in the form of mortgage-backed securities, primarily
Freddie Mac certificates.
Freddie Mac certificates represent a pro rata interest in a group of mortgage
loans (a Freddie Mac certificate group) purchased by Freddie Mac. The mortgage
loans underlying Freddie Mac certificates consist of fixed- or adjustable-rate
mortgage loans with original terms to maturity of between 10 and 30 years,
substantially all of which are secured by first-liens on one- to four-family
residential properties or multifamily projects. Each mortgage loan must meet
standards set forth in the FHLMC Act. A Freddie Mac certificate group may
include whole loans, participation interests in whole loans, undivided interests
in whole loans, and participations composing another Freddie Mac certificate
group.
Freddie Mac guarantees to each registered holder of a Freddie Mac certificate
the timely payment of interest at the rate provided for by the certificate.
Freddie Mac also guarantees ultimate collection of all principal on the related
mortgage loans, without any offset or deduction, but generally does not
guarantee the timely repayment of principal. Freddie Mac may remit principal at
any time after default on an underlying mortgage loan, but no later than 30 days
following (a) foreclosure sale, (b) payment of a claim by any mortgage insurer,
or (c) the expiration of any right of redemption, whichever occurs later, and in
any event no later than one year after demand has been made upon the mortgager
for accelerated payment of principal. Obligations guaranteed by Freddie Mac are
not backed by the full faith and credit pledge of the U.S. government.
Collateralized Mortgage Obligations (CMOs)
A CMO is a multiclass bond backed by a pool of mortgage pass-through
certificates or mortgage loans. CMOs may be collateralized by (a) GNMA, Fannie
Mae or Freddie Mac pass-through certificates; (b) unsecured mortgage loans
insured by the Federal Housing Administration or guaranteed by the Department of
Veterans' Affairs; (c) unsecuritized conventional mortgages; or (d) any
combination thereof.
In structuring a CMO, an issuer distributes cash flow from the underlying
collateral over a series of classes called tranches. Each CMO is a set of two or
more tranches, with average lives and cash flow patterns designed to meet
specific investment objectives. The average life expectancies of the different
tranches in a four-part deal, for example, might be two, five, seven and 20
years.
As payments on the underlying mortgage loans are collected, the CMO issuer pays
the coupon rate of interest to the bondholders in each tranche. At the outset,
scheduled and unscheduled principal payments go to investors in the first
tranches. Investors in later tranches do not begin receiving principal payments
until the prior tranches are paid off. This basic type of CMO is known as a
sequential pay or plain vanilla CMO.
Some CMOs are structured so that the prepayment or market risks are transferred
from one tranche to another. Prepayment stability is improved in some tranches
if other tranches absorb more prepayment variability.
The final tranche of a CMO often takes the form of a Z-bond, also known as an
accrual bond or accretion bond. Holders of these securities receive no cash
until the earlier tranches are paid in full. During the period that the other
tranches are outstanding,
20
periodic interest payments are added to the initial face amount of the Z-bond
but are not paid to investors. When the prior tranches are retired, the Z-bond
receives coupon payments on its higher principal balance plus any principal
prepayments from the underlying mortgage loans. The existence of a Z-bond
tranche helps stabilize cash flow patterns in the other tranches. In a changing
interest rate environment, however, the value of the Z-bond tends to be more
volatile.
As CMOs have evolved, some classes of CMO bonds have become more prevalent. The
planned amortization class (PAC) and targeted amortization class (TAC), for
example, were designed to reduce prepayment risk by establishing a sinking-fund
structure. PAC and TAC bonds assure to varying degrees that investors will
receive payments over a predetermined period under various prepayment scenarios.
Although PAC and TAC bonds are similar, PAC bonds are better able to provide
stable cash flows under various prepayment scenarios than TAC bonds because of
the order in which these tranches are paid.
The existence of a PAC or TAC tranche can create higher levels of risk for other
tranches in the CMO because the stability of the PAC or TAC tranche is achieved
by creating at least one other tranche -- known as a companion bond, support or
non-PAC bond -- that absorbs the variability of principal cash flows. Because
companion bonds have a high degree of average life variability, they generally
pay a higher yield. A TAC bond can have some of the prepayment variability of a
companion bond if there is also a PAC bond in the CMO issue.
Floating-rate CMO tranches (floaters) pay a variable rate of interest that is
usually tied to the LIBOR. Institutional investors with short-term liabilities,
such as commercial banks, often find floating-rate CMOs attractive investments.
Super floaters (which float a certain percentage above LIBOR) and inverse
floaters (which float inversely to LIBOR) are variations on the floater
structure that have highly variable cash flows.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are created by segregating the cash flows
from underlying mortgage loans or mortgage securities to create two or more new
securities, each with a specified percentage of the underlying security's
principal or interest payments. Mortgage-backed securities may be partially
stripped so that each investor class receives some interest and some principal.
When securities are completely stripped, however, all of the interest is
distributed to holders of one type of security, known as an interest-only
security, or IO, and all of the principal is distributed to holders of another
type of security known as a principal-only security, or PO. Strips can be
created in a pass-through structure or as tranches of a CMO.
The market values of IOs and POs are very sensitive to interest rate and
prepayment rate fluctuations. POs, for example, increase (or decrease) in value
as interest rates decline (or rise). The price behavior of these securities also
depends on whether the mortgage collateral was purchased at a premium or
discount to its par value. Prepayments on discount coupon POs generally are much
lower than prepayments on premium coupon POs. IOs may be used to hedge a fund's
other investments because prepayments cause the value of an IO strip to move in
the opposite direction from other mortgage-backed securities.
Commercial Mortgage-Backed Securities (CMBS)
CMBS are securities created from a pool of commercial mortgage loans, such as
loans for hotels, shopping centers, office buildings, apartment buildings, and
the like. Interest and principal payments from these loans are passed on to the
investor according to a particular schedule of payments. The credit quality of
CMBS depends primarily on the quality of the underlying loans and on the
structure of the particular deal. Generally, deals are structured with senior
and subordinate classes. Rating agencies that rate the individual classes of the
deal determine the amount of subordination of a particular class. Commercial
mortgages
21
are generally structured with prepayment penalties, which greatly reduces
prepayment risk to the investor. However, the value of these securities may
change because of actual or perceived changes in the creditworthiness of the
individual borrowers, their tenants, the servicing agents, or the general state
of commercial real estate.
Adjustable-Rate Mortgage Loans (ARMs)
ARMs eligible for inclusion in a mortgage pool generally will provide for a
fixed initial mortgage interest rate for a specified period of time, generally
for either the first three, six, 12, 24, 36, 60 or 84 scheduled monthly
payments. Thereafter, the interest rates are subject to periodic adjustment
based on changes in an index.
ARMs have minimum and maximum rates beyond which the mortgage interest rate may
not vary over the lifetime of the loan. Certain ARMs provide for additional
limitations on the maximum amount by which the mortgage interest rate may adjust
for any single adjustment period. Negatively amortizing ARMs may provide
limitations on changes in the required monthly payment. Limitations on monthly
payments can result in monthly payments that are greater or less than the amount
necessary to amortize a negatively amortizing ARM by its maturity at the
interest rate in effect during any particular month.
There are two types of indices that provide the basis for ARM rate adjustments:
those based on market rates and those based on a calculated measure, such as a
cost-of-funds index or a moving average of mortgage rates. Commonly utilized
indices include the one-year, three-year and five-year constant maturity U.S.
Treasury rates (as reported by the Federal Reserve Board); the three-month
Treasury bill rate; the 180-day Treasury bill rate; rates on longer-term
Treasury securities; the Eleventh District Federal Home Loan Bank Cost of Funds
Index (EDCOFI); the National Median Cost of Funds Index; the one-month,
three-month, six-month or one-year London Interbank Offered Rate (LIBOR); or
six-month CD rates. Some indices, such as the one-year constant maturity
Treasury rate or three-month LIBOR, are highly correlated with changes in market
interest rates. Other indices, such as the EDCOFI, tend to lag behind changes in
market rates and be somewhat less volatile over short periods of time.
The EDCOFI reflects the monthly weighted average cost of funds of savings and
loan associations and savings banks whose home offices are located in Arizona,
California and Nevada (the Federal Home Loan Bank Eleventh District) and who are
member institutions of the Federal Home Loan Bank of San Francisco (the FHLB of
San Francisco), as computed from statistics tabulated and published by the FHLB
of San Francisco. The FHLB of San Francisco normally announces the Cost of Funds
Index on the last working day of the month following the month in which the cost
of funds was incurred.
One-year and three-year Constant Maturity Treasury (CMT) rates are calculated by
the Federal Reserve Bank of New York, based on daily closing bid yields on
actively traded Treasury securities submitted by five leading broker-dealers.
The median bid yields are used to construct a daily yield curve.
The National Median Cost of Funds Index, similar to the EDCOFI, is calculated
monthly by the Federal Home Loan Bank Board (FHLBB) and represents the average
monthly interest expenses on liabilities of member institutions. A median,
rather than an arithmetic mean, is used to reduce the effect of extreme numbers.
LIBOR is the rate at which banks in London offer Eurodollars in trades between
banks. LIBOR has become a key rate in the U.S. domestic money market because it
is perceived to reflect the true global cost of money.
The fund managers may invest in ARMs whose periodic interest rate adjustments
are based on new indices as these indices become available.
22
Asset-Backed Securities (ABS)
ABS are structured like mortgage-backed securities, but instead of mortgage
loans or interest in mortgage loans, the underlying assets may include, for
example, such items as motor vehicle installment sales or installment loan
contracts, leases of various types of real and personal property, home equity
loans, student loans, small business loans, and receivables from credit card
agreements. The ability of an issuer of asset-backed securities to enforce its
security interest in the underlying assets may be limited. The value of an ABS
is affected by changes in the market's perception of the assets backing the
security, the creditworthiness of the servicing agent for the loan pool, the
originator of the loans, or the financial institution providing any credit
enhancement.
Payments of principal and interest passed through to holders of ABS are
typically supported by some form of credit enhancement, such as a letter of
credit, surety bond, limited guarantee by another entity or a priority to
certain of the borrower's other securities. The degree of credit enhancement
varies, and generally applies to only a fraction of the asset-backed security's
par value until exhausted. If the credit enhancement of an ABS held by the fund
has been exhausted, and if any required payments of principal and interest are
not made with respect to the underlying loans, the fund may experience losses or
delays in receiving payment.
Some types of ABS may be less effective than other types of securities as a
means of "locking in" attractive long-term interest rates. One reason is the
need to reinvest prepayments of principal; another is the possibility of
significant unscheduled prepayments resulting from declines in interest rates.
These prepayments would have to be reinvested at lower rates. As a result, these
securities may have less potential for capital appreciation during periods of
declining interest rates than other securities of comparable maturities,
although they may have a similar risk of decline in market value during periods
of rising interest rates. Prepayments may also significantly shorten the
effective maturities of these securities, especially during periods of declining
interest rates. Conversely, during periods of rising interest rates, a reduction
in prepayments may increase the effective maturities of these securities,
subjecting them to a greater risk of decline in market value in response to
rising interest rates than traditional debt securities, and, therefore,
potentially increasing the volatility of the fund.
The risks of investing in ABS are ultimately dependent upon the repayment of
loans by the individual or corporate borrowers. Although the fund would
generally have no recourse against the entity that originated the loans in the
event of default by a borrower, ABS typically are structured to mitigate this
risk of default.
INVESTMENT POLICIES
Unless otherwise indicated, with the exception of the percentage limitations on
borrowing, the policies described below apply at the time a fund enters into a
transaction. Accordingly, any later increase or decrease beyond the specified
limitation resulting from a change in a fund's net assets will not be considered
in determining whether it has complied with its investment policies.
Fundamental Investment Policies
The funds' fundamental investment policies are set forth below. These investment
policies and the funds' investment objectives set forth in their prospectuses
may not be changed without approval of a majority of the outstanding votes of
shareholders of a fund, as determined in accordance with the Investment Company
Act.
23
Subject Policy
--------------------------------------------------------------------------------
Senior Securities A fund may not issue senior securities, except as permitted
under the Investment Company Act.
--------------------------------------------------------------------------------
Borrowing A fund may not borrow money, except for temporary or emergency
purposes (not for leveraging or investment) in an amount not
exceeding 33-1/3% of the fund's total assets.
--------------------------------------------------------------------------------
Lending A fund may not lend any security or make any other loan if, as
a result, more than 33-1/3% of the fund's total assets would be
lent to other parties, except (i) through the purchase of debt
securities in accordance with its investment objective,
policies and limitations or (ii) by engaging in repurchase
agreements with respect to portfolio securities.
--------------------------------------------------------------------------------
Real Estate A fund may not purchase or sell real estate unless acquired as
a result of ownership of securities or other instruments. This
policy shall not prevent a fund from investing in securities
or other instruments backed by real estate or securities of
companies that deal in real estate or are engaged in the real
estate business.
--------------------------------------------------------------------------------
Concentration A fund may not concentrate its investments in securities of
issuers in a particular industry (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities).
--------------------------------------------------------------------------------
Underwriting A fund may not act as an underwriter of securities issued by
others, except to the extent that the fund may be considered
an underwriter within the meaning of the Securities Act of
1933 in the disposition of restricted securities.
--------------------------------------------------------------------------------
Commodities A fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other
instruments, provided that this limitation shall not prohibit
the fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments
backed by physical commodities.
--------------------------------------------------------------------------------
Control A fund may not invest for purposes of exercising control over
management.
--------------------------------------------------------------------------------
For purposes of the investment restrictions relating to lending and borrowing,
the funds have received an exemptive order from the SEC regarding an interfund
lending program. Under the terms of the exemptive order, the funds may borrow
money from or lend money to other ACIM-advised funds that permit such
transactions. All such transactions will be subject to the limits for borrowing
and lending set forth above. The funds will borrow money through the program
only when the costs are equal to or lower than the costs of short-term bank
loans. Interfund loans and borrowings normally extend only overnight, but can
have a maximum duration of seven days. The funds will lend through the program
only when the returns are higher than those available from other short-term
instruments (such as repurchase agreements). The funds may have to borrow from a
bank at a higher interest rate if an interfund loan is called or not renewed.
Any delay in repayment to a lending fund could result in a lost investment
opportunity or additional borrowing costs.
For purposes of the investment restriction relating to concentration, a fund
shall not purchase any securities that would cause 25% or more of the value of
the fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that
(a) there is no limitation with respect to obligations issued or guaranteed by
the U.S. government, any state, territory or possession of the United
States, the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions and repurchase agreements
secured by such obligations,
(b) wholly owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of their parents,
(c) utilities will be divided according to their services, for example, gas, gas
transmission, electric and gas, electric and telephone will each be
considered a separate industry, and
(d) personal credit and business credit businesses will be considered separate
industries.
Nonfundamental Investment Policies
In addition, the funds are subject to the following investment policies that are
not fundamental and may be changed by the Board of Directors.
Subject Policy
--------------------------------------------------------------------------------
Leveraging A fund may not purchase additional investment securities at
any time during which outstanding borrowings exceed 5% of the
total assets of the fund.
--------------------------------------------------------------------------------
Liquidity A fund may not purchase any security or enter into a
repurchase agreement if, as a result, more than 15% of its net
assets would be invested in illiquid securities. Illiquid
securities include repurchase agreements not entitling the
holder to payment of principal and interest within seven days,
and securities that are illiquid by virtue of legal or
contractual restrictions on resale or the absence of a readily
available market.
--------------------------------------------------------------------------------
Short Sales A fund may not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount
to the securities sold short, and provided that transactions
in futures contracts and options are not deemed to constitute
selling securities short.
--------------------------------------------------------------------------------
Margin A fund may not purchase securities on margin, except to obtain
such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection
with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
--------------------------------------------------------------------------------
Futures and A fund may enter into futures contracts and write and buy put
Options and call options relating to futures contracts. A fund may
not, however, enter into leveraged futures transactions if it
would be possible for the fund to lose more money than it
invested.
--------------------------------------------------------------------------------
Issuers with A fund may invest a portion of its assets in the securities of
Limited issuers with limited operating histories. An issuer is
Operating considered to have a limited operating history if that issuer
Histories has a record of less than three years of continuous
operation. Periods of capital formation, incubation,
consolidations, and research and development may be
considered in determining whether a particular issuer has a
record of three years of continuous operation.
--------------------------------------------------------------------------------
The Investment Company Act imposes certain additional restrictions upon the
funds' ability to acquire securities issued by insurance companies,
broker-dealers, underwriters or investment advisors, and upon transactions with
affiliated persons as defined by the Act. It also defines and forbids the
creation of cross and circular ownership. Neither the SEC nor any other agency
of the federal or state government participates in or supervises the management
of the funds or their investment practices or policies.
PORTFOLIO TURNOVER
The portfolio turnover rate of each fund is listed in the Financial Highlights
table in that fund's Prospectus.
Capital Value Fund
The fund managers of Capital Value seek to minimize realized capital gains by
keeping portfolio turnover low and generally holding portfolio investments for
long periods. Because a higher turnover rate may increase taxable capital gains,
the managers carefully weigh the potential benefits of short-term investing
against the tax impact such investing would have on the fund's shareholders.
However, the fund managers may sell securities to realize losses that can be
used to offset realized capital gains. They will take such actions when they
believe the tax benefits from realizing losses offset the near-term investment
potential of that security.
25
Other Funds
With respect to each other fund, the managers will sell securities without
regard to the length of time the security has been held. Accordingly, each
fund's portfolio turnover rate may be substantial.
The fund managers intend to purchase a given security whenever they believe it
will contribute to the stated objective of a particular fund. In order to
achieve each fund's investment objective, the managers may sell a given security
regardless of the length of time it has been held in the portfolio, and
regardless of the gain or loss realized on the sale. The managers may sell a
portfolio security if they believe that the security is not fulfilling its
purpose because, among other things, it did not live up to the managers'
expectations, because it may be replaced with another security holding greater
promise, because it has reached its optimum potential, because of a change in
the circumstances of a particular company or industry or in general economic
conditions, or because of some combination of such reasons.
When a general decline in security prices is anticipated, the equity funds may
decrease or eliminate entirely their equity positions and increase their cash
positions, and when a general rise in price levels is anticipated, the equity
funds may increase their equity positions and decrease their cash positions.
However, it should be expected that the funds will, under most circumstances, be
essentially fully invested in equity securities.
Because investment decisions are based on a particular security's anticipated
contribution to a fund's investment objective, the managers believe that the
rate of portfolio turnover is irrelevant when they determine that a change is
required to pursue the fund's investment objective. As a result, a fund's annual
portfolio turnover rate cannot be anticipated and may be higher than that of
other mutual funds with similar investment objectives. Higher turnover would
generate correspondingly greater brokerage commissions, which is a cost the
funds pay directly. Portfolio turnover also may affect the character of capital
gains realized and distributed by the fund, if any, because short-term capital
gains are taxable as ordinary income.
Because the managers do not take portfolio turnover rate into account in making
investment decisions, (1) the managers have no intention of maintaining any
particular rate of portfolio turnover, whether high or low, and (2) the
portfolio turnover rates in the past should not be considered as representative
of the rates that will be attained in the future.
For Veedot, events that occurred in 2001 created significant challenges. For
example, the extreme volatility in the markets in recent months has been
dramatic, causing fund managers to trade more frequently than is typical. In
addition, the collapse of corporate earnings has made it increasingly difficult
to find stocks that consistently demonstrate the characteristics the fund seeks,
which also resulted in more frequent trading. Due to these factors, portfolio
turnover has been uncharacteristically high.
For Vista, Giftrust and New Opportunities, the higher portfolio turnover rate
for 2001 resulted from efforts to improve the fund's performance, which included
replacing underperforming stocks and increasing the fund's diversification
across a broader range of industries. As a result, a greater number of stocks
were sold and purchased during 2001 than has been the fund's historical
practice.
26
MANAGEMENT
The individuals listed below serve as directors or officers of the funds. Each
director serves until his or her successor is duly elected and qualified or
until he or she retires. Mandatory retirement age for independent directors is
75. Those listed as interested directors are "interested" primarily by virtue of
their engagement as officers of American Century Companies, Inc. (ACC) or its
wholly-owned subsidiaries, including the funds' investment adviser, American
Century Investment Management, Inc. (ACIM); the funds' principal underwriter,
American Century Investment Services, Inc. (ACIS); and the funds' transfer
agent, American Century Services Corporation (ACSC).
The other directors, (more than two-thirds of the total number) are independent;
that is, they are not employees or officers of, and have no financial interest
in, ACC or any of its wholly-owned subsidiaries, including ACIM, ACIS and ACSC.
All persons named as officers of the funds also serve in similar capacities for
other funds advised by ACIM. Only officers with policy-making functions are
listed. No officer is compensated for his or her service as an officer of the
funds. The listed officers are interested persons of the funds and appointed or
re-appointed on an annual basis.
Number of
Portfolios
in Fund
Position(s) Length Complex Other
Held of Time Overseen Directorships
with Served Principal Occupation(s) by Held by
Name, Address (Age) Fund (years) During Past 5 Years Director Director
-------------------------------------------------------------------------------------------------------------------
Interested Directors
-------------------------------------------------------------------------------------------------------------------
James E. Stowers, Jr.(1) Director, 44 Chairman, Director and 39 None
4500 Main Street Chairman controlling shareholder, ACC
Kansas City, MO 64111 of the Chairman , ACIM, ACSC and
(79) Board other ACC subsidiaries
Director, ACIM, ACSC and
other ACC subsidiaries
-------------------------------------------------------------------------------------------------------------------
James E. Stowers III(1) Director, 12 Co-Chairman, ACC 39 None
4500 Main Street Chairman (September 2000 to present)
Kansas City, MO 64111 of the Chief Executive Officer, ACC
(44) Board (June 1996 to September 2000)
Chief Executive Officer,
ACIM, ACSC and
other ACC subsidiaries
Director, ACC, ACIM, ACSC
and other ACC subsidiaries
-------------------------------------------------------------------------------------------------------------------
Independent Directors
-------------------------------------------------------------------------------------------------------------------
Thomas A. Brown Director 22 Strategic Account 39 None
4500 Main Street Implementation Manager,
Kansas City, MO 64111 Applied Industrial
(62) Technologies, Inc.,
a corporation engaged in
the sale of bearings and
power transmission products
-------------------------------------------------------------------------------------------------------------------
Robert W. Doering, M.D. Director 1 Retired, formerly a 39 None
4500 Main Street Emeritus(2) general surgeon
Kansas City, MO 64111
(70)
-------------------------------------------------------------------------------------------------------------------
Andrea C. Hall, Ph.D. Director 5 Senior Vice President, 39 Director, Midwest
4500 Main Street Midwest Research Institute Research Institute
Kansas City, MO 64111
(58)
-------------------------------------------------------------------------------------------------------------------
(1) James E. Stowers, Jr. is the father of James E. Stowers III.
(2) Dr. Robert Doering resigned as a full-time director, effective November 5,
2001, after serving in such capacity for 33 years. Dr. Doering continues to
serve the board in an advisory capacity. His position as Director Emeritus
is an advisory position and involves attendance at one board meeting per
year to review prior year-end results for the funds. He receives all regular
board communications, including monthly mailings, industry newsletters,
email communications, and company information, but not quarterly board and
committee materials relating to meetings that he does not attend. Dr.
Doering is not a director or a member of the board, and has no voting power
relating to fund operations. He is not an interested person of the funds or
ACIM. He receives an annual stipend of $2,500 for his services.
27
Number of
Portfolios
in Fund
Position(s) Length Complex Other
Held of Time Overseen Directorships
with Served Principal Occupation(s) by Held by
Name, Address (Age) Fund (years) During Past 5 Years Director Director
-----------------------------------------------------------------------------------------------------------------------
D.D. (Del) Hock Director 6 Retired, formerly Chairman, 39 Director, Allied
4500 Main Street Public Service Company Motion Technologies, Inc.
Kansas City, MO 64111 of Colorado and J.D.
(68) Edwards & Company
-----------------------------------------------------------------------------------------------------------------------
Donald H. Pratt Director, 7 Chairman, 39 Director, Butler
4500 Main Street Vice Western Investments, Inc. Manufacturing
Kansas City, MO 64111 Chairman Retired Chairman of the Board, Company
(65) of the Butler Manufacturing Company Director, Atlas-Copco,
Board North America Inc.
-----------------------------------------------------------------------------------------------------------------------
Gale E. Sayers Director 2 President, Chief Executive 39 None
4500 Main Street Officer and Founder,
Kansas City, MO 64111 Sayers Computer Source
(60)
-----------------------------------------------------------------------------------------------------------------------
M. Jeannine Strandjord Director 8 Senior Vice President, 39 Director, DST
4500 Main Street Long Distance Finance, Systems, Inc.
Kansas City, MO 64111 Sprint Corporation
(57)
-----------------------------------------------------------------------------------------------------------------------
Timothy S. Webster Director 1 President and Chief 39 None
4500 Main Street Executive Officer,
Kansas City, MO 64111 American Italian Pasta
(41) Company
-----------------------------------------------------------------------------------------------------------------------
Officers
-----------------------------------------------------------------------------------------------------------------------
William M. Lyons President 2 Chief Executive Officer, ACC Not Not
4500 Main St. and other ACC subsidiaries applicable applicable
Kansas City, MO 64111 (September 2000 to present)
(47) President, ACC
(June 1997 to present)
President, ACIM
(September 2002 to present)
Chief Operating Officer, ACC
(June 1996 to September 2000)
Also serves as: Executive Vice
President, ACIM, ACIS, ACSC
and other ACC subsidiaries, and
Executive Vice President of
other ACC subsidiaries
-----------------------------------------------------------------------------------------------------------------------
Robert T. Jackson Executive 7 Chief Administrative Officer, Not Not
4500 Main St. Vice ACC (August 1997 to present) applicable applicable
Kansas City, MO 64111 President Chief Financial Officer, ACC
(57) (May 1995 to October 2002)
President, ACSC
(January 1999 to present)
Executive Vice President,
ACC (May 1995 to present)
Also serves as: Executive
Vice President and Chief
Financial Officer, ACIM, ACIS
and other ACC subsidiaries,
and Treasurer, ACIM
-----------------------------------------------------------------------------------------------------------------------
28
Number of
Portfolios
in Fund
Position(s) Length Complex Other
Held of Time Overseen Directorships
with Served Principal Occupation(s) by Held by
Name, Address (Age) Fund (years) During Past 5 Years Director Director
-------------------------------------------------------------------------------------------------------------------
Maryanne Roepke, CPA Senior 2 Senior Vice President and Not Not
4500 Main St. Vice Assistant Treasurer, ACSC applicable applicable
Kansas City, MO 64111 President,
(47) Treasurer
and Chief
Accounting
Officer
-------------------------------------------------------------------------------------------------------------------
David C. Tucker Senior 2 Senior Vice President, ACIM, Not Not
4500 Main St. Vice ACIS, ACSC and other ACC applicable applicable
Kansas City, MO 64111 President subsidiaries
(45) and (June 1998 to present)
General General Counsel, ACC, ACIM,
Counsel ACIS, ACSC and other
ACC subsidiaries
(June 1998 to present)
-------------------------------------------------------------------------------------------------------------------
Robert Leach Controller 5 Vice President, ACSC Not Not
4500 Main St. February 2000 to present) applicable applicable
Kansas City, MO 64111 Controller-Fund Accounting,
(37) ACSC
-------------------------------------------------------------------------------------------------------------------
Jon Zindel Tax Officer 5 Vice President, Corporate Tax, Not Not
4500 Main St. ACSC (April 1998 to present) applicable applicable
Kansas City, MO 64111 Vice President, ACIM, ACIS and
(36) other ACC subsidiaries
(April 1999 to present)
President, American Century
Employee Benefit Services, Inc.
(January 2000 to December 2000)
Treasurer, American Century
Employee Benefit Services, Inc.
(December 2000 to present)
Treasurer, American Century
Ventures, Inc.
(December 1999 to present)
-------------------------------------------------------------------------------------------------------------------
On December 23, 1999, American Century Services Corporation (ACSC) entered into
an agreement with DST Systems, Inc. (DST) under which DST would provide back
office software for transfer agency services provided by ACSC (the Agreement).
For its software, ACSC pays DST fees based in part on the number of accounts and
the number and type of transactions processed for those accounts. Through
December 31, 2002, DST received $29,967,576 in fees from ACSC. DST's revenue for
the calendar year ended December 31, 2002 was approximately $2.38 billion.
Ms. Strandjord is a director of DST and a holder of 26,491 shares and possesses
options to acquire an additional 55, 890 shares of DST common stock, the sum of
which is less than one percent (1%) of the shares outstanding. Because of her
official duties as a director of DST, she may be deemed to have an "indirect
interest" in the Agreement. However, the Board of Directors of the funds was not
required to nor did it approve or disapprove the Agreement, since the provision
of the services covered by the Agreement is within the discretion of ACSC. DST
was chosen by ACSC for its industry-leading role in providing cost-effective
back office support for mutual fund service providers such as ACSC. DST is the
largest mutual fund transfer agent, servicing more than 75 million mutual fund
accounts on its shareholder recordkeeping system. Ms. Strandjord's role as a
director of DST was not considered by ACSC; she was not involved in any way with
the negotiations between ACSC and DST; and her status as a director of either
DST or the funds was not a factor in the negotiations. The Board of Directors of
the funds and Bryan Cave LLP, counsel to the independent directors of the funds,
have concluded that the existence of this Agreement does not impair Ms.
Strandjord's ability to serve as an independent director under the Investment
Company Act.
29
THE BOARD OF DIRECTORS
The Board of Directors oversees the management of the funds and meets at least
quarterly to review reports about fund operations. Although the Board of
Directors does not manage the funds, it has hired the advisor to do so. The
directors, in carrying out their fiduciary duty under the Investment Company Act
of 1940, are responsible for approving new and existing management contracts
with the funds' advisor. In carrying out these responsibilities, the board
reviews material factors to evaluate such contracts, including (but not limited
to) assessment of information related to the advisor's performance and expense
ratios, estimates of income and indirect benefits (if any) accruing to the
advisor, the advisor's overall management and projected profitability, and
services provided to the funds and their investors.
The board has the authority to manage the business of the funds on behalf of
their investors, and it has all powers necessary or convenient to carry out that
responsibility. Consequently, the directors may adopt Bylaws providing for the
regulation and management of the affairs of the funds and may amend and repeal
them to the extent that such Bylaws do not reserve that right to the funds'
investors. They may fill vacancies in or reduce the number of board members, and
may elect and remove such officers and appoint and terminate such agents as they
consider appropriate. They may appoint from their own number and establish and
terminate one or more committees consisting of two or more directors who may
exercise the powers and authority of the board to the extent that the directors
determine. They may, in general, delegate such authority as they consider
desirable to any officer of the funds, to any committee of the board, to any
agent or employee of the funds, or to any custodian, transfer or investor
servicing agent, or principal underwriter. Any determination as to what is in
the interests of the funds made by the directors in good faith shall be
conclusive.
Board Review of Investment Management Contracts
The Board of Directors oversees each fund's management and performance on a
continuous basis, and the board determines annually whether to approve and renew
the fund's investment management agreement. ACIM provides the board with
monthly, quarterly, or annual analyses of ACIM's performance in the following
areas:
* Investment performance of the funds (short-, medium- and long-term);
* Management of brokerage commission and trading costs (equity funds only);
* Shareholder services provided;
* Compliance with investment restrictions; and
* Fund accounting services provided (including the valuation of portfolio
securities);
Leaders of each fund's portfolio management team meet with the board
periodically to discuss the management and performance of the fund.
When considering whether to renew an investment advisory contract, the board
examines several factors, but does not identify any particular factor as
controlling their decision. Some of the factors considered by the board include:
the nature, extent, and quality of the advisory services provided as well as
other material facts, such as the investment performance of the fund's assets
managed by the adviser and the fair market value of the services provided. To
assess these factors, the board reviews both ACIM's performance and that of its
peers, as reported by independent gathering services such as Lipper Analytical
Services (for fund performance and expenses) and National Quality Review (for
shareholder services).
Additional information is provided to the board detailing other sources of
revenue to ACIM or its affiliates from its relationship with the fund and
intangible or "fall-out" benefits that accrue to the adviser and its affiliates,
if relevant, and the adviser's control of the investment expenses of the fund,
such as transaction costs, including ways in which portfolio transactions for
the fund are conducted and brokers are selected.
30
The board also reviews the investment performance of each fund compared with a
peer group of funds and an appropriate index or combination of indexes, in
addition to a comparative analysis of the total expense ratios of, and advisory
fees paid by, similar funds.
At the last review of the investment advisory contract, the board considered the
level of ACIM's profits in respect to the management of the American Century
family of funds, including the profitability of managing each fund. The board
conducted an extensive review of ACIM's methodology in allocating costs to the
management of each fund. The board concluded that the cost allocation
methodology employed by ACIM has a reasonable basis and is appropriate in light
of all of the circumstances. They considered the profits realized by ACIM in
connection with the operation of each fund and whether the amount of profit is a
fair entrepreneurial profit for the management of each fund. The board also
considered ACIM's profit margins in comparison with available industry data,
both accounting for and excluding marketing expenses.
Based on their evaluation of all material factors assisted by the advice of
independent legal counsel, the board, including the independent
[directors/trustees], concluded that the existing management fee structures are
fair and reasonable and that the existing investment management contracts should
be continued.
Committees
The board has four standing committees to oversee specific functions of the
funds' operations. Information about these committees appears in the table
below. The director first named serves as chairman of the committee.
Number of
Meetings Held
During Last
Committee Members Function Fiscal Year
-----------------------------------------------------------------------------------------------------------------
Executive James E. Stowers, Jr. The Executive Committee performs the functions 0
James E. Stowers III of the Board of Directors between board meetings,
Donald H. Pratt subject to the limitations on its power set out in
the Maryland General Corporation Law, and except
for matters required by the Investment Company
Act to be acted upon by the whole board.
-----------------------------------------------------------------------------------------------------------------
Compliance Andrea C. Hall, PhD The Compliance and Shareholder Communications 4
and Shareholder Thomas A. Brown Committee reviews the results of the funds'
Communications Gale E. Sayers compliance testing program, reviews quarterly
Timothy S. Webster reports from the Communications advisor
to the board regarding various compliance matters
and monitors the implementation of the funds'
Code of Ethics, including any violations.
-----------------------------------------------------------------------------------------------------------------
Audit D.D. (Del) Hock The Audit Committee recommends the engagement 4
Donald H. Pratt of the funds' independent auditors and oversees its
Jeannine Strandjord activities. The Committee receives reports from the
advisor's Internal Audit Department, which is
accountable to the Committee. The Committee also
receives reporting about compliance matters
affecting the funds.
-----------------------------------------------------------------------------------------------------------------
Governance Donald H. Pratt The Board Governance Committee primarily considers and 0
Jeannine Strandjord recommends individuals for nomination as directors.
Thomas A. Brown The names of potential director candidates are
drawn from a number of sources, including
recommendations from members of the board,
management and shareholders. This committee also
reviews and makes recommendations to the board
with respect to the composition of board committees
and other board-related matters, including its
organization, size, composition, responsibilities,
functions and compensation. The Governance
Committee does not currently have a policy
regarding whether it will consider nominees
recommended by shareholders.
-----------------------------------------------------------------------------------------------------------------
31
Compensation of Directors
The directors serve as directors for five American Century investment companies.
Each director who is not an interested person as defined in the Investment
Company Act receives compensation for service as a member of the board of all
five such companies based on a schedule that takes into account the number of
meetings attended and the assets of the funds for which the meetings are held.
These fees and expenses are divided among the five investment companies based,
in part, upon their relative net assets. Under the terms of the management
agreement with the advisor, the funds are responsible for paying such fees and
expenses.
The following table shows the aggregate compensation paid by the funds for the
periods indicated and by the five investment companies served by the board to
each director who is not an interested person as defined in the Investment
Company Act.
AGGREGATE DIRECTOR COMPENSATION FOR FISCAL YEAR ENDED OCTOBER 31, 2002
----------------------------------------------------------------------------
Total Total Compensation
Compensation from the
from the American Century
Name of Director Funds(1) Family of Funds(2)
----------------------------------------------------------------------------
Thomas A. Brown $50,348 $72,250
----------------------------------------------------------------------------
Robert W. Doering, M.D. $5,630 $7,833
----------------------------------------------------------------------------
Andrea C. Hall, Ph.D. $52,798 $75,750
----------------------------------------------------------------------------
D.D. (Del) Hock $51,761 $74,250
----------------------------------------------------------------------------
Donald H. Pratt $52,642 $75,500
----------------------------------------------------------------------------
Gale E. Sayers $49,827 $71,500
----------------------------------------------------------------------------
M. Jeannine Strandjord $49,670 $71,250
----------------------------------------------------------------------------
Timothy S. Webster (3) $49,875 $71,500
----------------------------------------------------------------------------
(1) Includes compensation paid to the directors during the fiscal year ended
October 31, 2002, and also includes amounts deferred at the election of the
directors under the American Century Mutual Funds' Independent Directors'
Deferred Compensation Plan.
(2) Includes compensation paid by the five investment company members of the
American Century family of funds served by this Board at the end of the
fiscal year. The total amount of deferred compensation included in the
preceding table is as follows: Mr. Brown, $12,850; Dr. Hall, $66,750; Mr.
Hock, $66,750; Mr. Pratt, $3,685; Mr. Sayers, $12,167 and Mr. Webster,
$26,667.
(3) Mr. Webster joined the board on November 16, 2001.
The funds have adopted the American Century Mutual Funds' Independent Directors'
Deferred Compensation Plan. Under the plan, the independent directors may defer
receipt of all or any part of the fees to be paid to them for serving as
directors of the funds.
All deferred fees are credited to an account established in the name of the
directors. The amounts credited to the account then increase or decrease, as the
case may be, in accordance with the performance of one or more of the American
Century funds that are selected by the director. The account balance continues
to fluctuate in accordance with the performance of the selected fund or funds
until final payment of all amounts credited to the account. Directors are
allowed to change their designation of mutual funds from time to time.
No deferred fees are payable until such time as a director resigns, retires or
otherwise ceases to be a member of the Board of Directors. Directors may receive
deferred fee account balances either in a lump sum payment or in substantially
equal installment payments to be made over a period not to exceed 10 years. Upon
the death of a director, all remaining deferred fee account balances are paid to
the director's beneficiary or, if none, to the director's estate.
32
The plan is an unfunded plan and, accordingly, the funds have no obligation to
segregate assets to secure or fund the deferred fees. To date, the funds have
voluntarily funded their obligations. The rights of directors to receive their
deferred fee account balances are the same as the rights of a general unsecured
creditor of the funds. The plan may be terminated at any time by the
administrative committee of the plan. If terminated, all deferred fee account
balances will be paid in a lump sum.
No deferred fees were paid to any director under the plan during the fiscal year
ended October 31, 2002.
OWNERSHIP OF FUND SHARES
The directors owned shares in the funds as of December 31, 2002, as shown in the
table below:
NAME OF DIRECTORS
-------------------------------------------------------------------------------------------------------------------
James E. James E. Thomas A. Robert W. Andrea C
Stowers, Jr. Stowers III Brown Doering Hall, Ph.D.
-------------------------------------------------------------------------------------------------------------------
Dollar Range of Equity Securities in the Funds:
Growth E C B E A
-------------------------------------------------------------------------------------------------------------------
Ultra B E B E A
-------------------------------------------------------------------------------------------------------------------
Select C E C E A
-------------------------------------------------------------------------------------------------------------------
Vista E E C A C
-------------------------------------------------------------------------------------------------------------------
Heritage A C B A A
-------------------------------------------------------------------------------------------------------------------
Giftrust B C A A A
-------------------------------------------------------------------------------------------------------------------
Balanced A A B A A
-------------------------------------------------------------------------------------------------------------------
New Opportunities A E C E C
-------------------------------------------------------------------------------------------------------------------
New Opportunities II A A A A A
-------------------------------------------------------------------------------------------------------------------
Capital Value A A A A A
-------------------------------------------------------------------------------------------------------------------
Veedot A E B A A
-------------------------------------------------------------------------------------------------------------------
High-Yield(1) A A A A A
-------------------------------------------------------------------------------------------------------------------
Aggregate Dollar Range of Equity Securities
in all Registered Investment Companies Overseen
by Director in Family of Investment Companies E E E E E
-------------------------------------------------------------------------------------------------------------------
Ranges: A--none, B--$1-$10,000, C--$10,001-$50,000, D--$50,001-$100,000, E--More
than $100,000
(1) Effective July 1, 2002, the fund's assets were transferred to the High-Yield
Fund, a series of American Century Investment Trust.
NAME OF DIRECTORS
-------------------------------------------------------------------------------------------------------------------
D.D. (Del) Donald Gale E. M. Jeannine Timothy S.
Hock H. Pratt Sayers Strandjord Webster
-------------------------------------------------------------------------------------------------------------------
Dollar Range of Equity Securities in the Funds:
Growth D A A A B
-------------------------------------------------------------------------------------------------------------------
Ultra D A A D C
-------------------------------------------------------------------------------------------------------------------
Select C A A A B
-------------------------------------------------------------------------------------------------------------------
Vista D A A A C
-------------------------------------------------------------------------------------------------------------------
Heritage A A A A A
-------------------------------------------------------------------------------------------------------------------
Giftrust A A A A A
-------------------------------------------------------------------------------------------------------------------
Balanced A A C A A
-------------------------------------------------------------------------------------------------------------------
New Opportunities A A A A B
-------------------------------------------------------------------------------------------------------------------
New Opportunities II A A A A A
-------------------------------------------------------------------------------------------------------------------
Capital Value A A A A A
-------------------------------------------------------------------------------------------------------------------
Veedot A A A A C
-------------------------------------------------------------------------------------------------------------------
High-Yield(1) A A A A A
-------------------------------------------------------------------------------------------------------------------
Aggregate Dollar Range of Equity Securities
in all Registered Investment Companies Overseen
by Director in Family of Investment Companies E E C E E
-------------------------------------------------------------------------------------------------------------------
Ranges: A--none, B--$1-$10,000, C--$10,001-$50,000, D--$50,001-$100,000, E--More
than $100,000
(1) Effective July 1, 2002, the fund's assets were transferred to the High-Yield
Fund, a series of American Century Investment Trust.
33
CODE OF ETHICS
The funds, their investment advisor and principal underwriter have adopted a
code of ethics under Rule 17j-1 of the Investment Company Act and the code of
ethics permits personnel subject to the code to invest in securities, including
securities that may be purchased or held by the funds, provided that they first
obtain approval from the compliance department before making such investments.
Proxy Voting Guidelines
The Advisor is responsible for exercising the voting rights associated with the
securities purchased and/or held by the funds. In exercising its voting
obligations, the Advisor is guided by general fiduciary principles. It must act
prudently, solely in the interest of the funds, and for the exclusive purpose of
providing benefits to them. The Advisor attempts to consider all factors of its
vote that could affect the value of the investment. The funds' Board of
Directors has approved the Advisor's Proxy Voting Guidelines to govern the
Advisor's proxy voting activities.
The Advisor and the board have agreed on certain significant contributors to
shareholder value with respect to a number of matters that are often the subject
of proxy solicitations for shareholder meetings. The Proxy Voting Guidelines
specifically address these considerations and establish a framework for the
Advisor's consideration of the vote that would be appropriate for the funds. In
particular, the Proxy Voting Guidelines outline principles and factors to be
considered in the exercise of voting authority for proposals addressing:
* Election of Directors
* Ratification of Selection of Auditors
* Equity-Based Compensation Plans
* Anti-Takeover Proposals
* Cumulative Voting
* Staggered Boards
* "Blank Check" Preferred Stock
* Elimination of Preemptive Rights
* Non-targeted Share Repurchase
* Increase in Authorized Common Stock
* "Supermajority" Voting Provisions or Super Voting Share Classes
* "Fair Price" Amendments
* Limiting the Right to Call Special Shareholder Meetings
* Poison Pills or Shareholder Rights Plans
* Golden Parachutes
* Reincorporation
* Confidential Voting
* Opting In or Out of State Takeover Laws
* Shareholder Proposals Involving Social, Moral or Ethical Matters
* Anti-Greenmail Proposals
* Changes to Indemnification Provisions
* Non-Stock Incentive Plans
* Director Tenure
* Directors' Stock Options Plans
* Director Share Ownership
Finally, the Proxy Voting Guidelines establish procedures for voting of proxies
in cases in which the Advisor may have a potential conflict of interest.
Companies with which the Advisor has direct business relationships could
theoretically use these relationships to attempt to unduly influence the manner
in which American Century votes on matters for
34
the funds. To ensure that such a conflict of interest does not affect proxy
votes cast for the funds, all discretionary (including case-by-case) voting for
these companies will be voted in direct consultation with a committee of the
independent directors of the funds.
A copy of the Advisor's Proxy Voting Guidelines are available on the funds'
website at www.americancentury.com.
THE FUNDS' PRINCIPAL SHAREHOLDERS
As of August 1, 2003, the following companies were the record owners of more
than 5% of the outstanding shares of any class of the funds:
Percentage of
Fund/Class Shareholder Outstanding Shares Owned
--------------------------------------------------------------------------------
Growth
--------------------------------------------------------------------------------
Investor
None
--------------------------------------------------------------------------------
Advisor
Charles Schwab & Co., Inc. 14%
San Francisco, California
Nationwide Trust Co. 14%
Columbus, Ohio
Nationwide Insurance Co. 7%
Columbus, Ohio
--------------------------------------------------------------------------------
Institutional
State Street Bank & Trust Co. TR 86%
Martin Marietta PSP & Trust
Boston, Massachusetts
--------------------------------------------------------------------------------
C
Pershing LLC 48%
Jersey City, New Jersey
Circle Trust Company Custodian 9%
Warlock OSP Services Inc. 401K Plan
Stamford, Connecticut
Raymond James & Assoc. Inc. 7%
FBO Maples IRA
St. Petersburg, Florida
--------------------------------------------------------------------------------
Select
--------------------------------------------------------------------------------
Investor
None
--------------------------------------------------------------------------------
Advisor
Principal Life Insurance 36%
Des Moines, Iowa
Orchard Trust Company Custodian 11%
RHD Investors Choice 403B7
Englewood, Colorado
MLPF&S for the Sole 10%
Benefit of Its Customers
Jacksonville, Florida
Saxon & Co. 8%
Philadelphia, Pennsylvania
--------------------------------------------------------------------------------
35
Percentage of
Fund/Class Shareholder Outstanding Shares Owned
--------------------------------------------------------------------------------
Select
--------------------------------------------------------------------------------
Institutional
Northern Trust Co. TR 33%
CSX Corp Master Savings Plan
Chicago, Illinois
The Chase Manhattan Bank NA Trustee 28%
Robert Bosch Corporation New Star
Plan and Trust
New York, New York
The Chase Manhattan Bank NA TR 12%
Winnebago Industries Inc. Profit Sharing
& Deferred Savings Investment Plan
New York, New York
The Chase Manhattan Bank NA TR 9%
Huntsman Corp Salary Deferral Plan & Trust
New York, New York
--------------------------------------------------------------------------------
A
Charles Schwab & Co., Inc. 80%
San Francisco, California
--------------------------------------------------------------------------------
B
American Enterprise Investment Svcs 31%
Minneapolis, Minnesota
M L P F & S Inc. 5%
Jacksonville, Florida
--------------------------------------------------------------------------------
C
M L P F & S Inc 45%
Jacksonville, Florida
American Enterprise Investment Svcs 16%
Minneapolis, Minnesota
--------------------------------------------------------------------------------
Heritage
--------------------------------------------------------------------------------
Investor
State Street Bank & Trust Co TTEE 23%
FBO Kraft Foods Inc.
Westwood, Massachusetts
Bankers Trust Company Trustee 11%
Philip Morris Deferred Profit
Sharing Plan and Trust
Jersey City, New Jersey
--------------------------------------------------------------------------------
Advisor
Charles Schwab & Co., Inc. 21%
San Francisco, California
Saxon & Co 20%
Philadelphia, Pennsylvania
UMBSC & Co. FBO 10%
Association of Unity Church
Kansas City, Missouri
BNY Clearing Services LLC 6%
Milwaukee, Wisconsin
--------------------------------------------------------------------------------
36
Percentage of
Fund/Class Shareholder Outstanding Shares Owned
--------------------------------------------------------------------------------
Heritage
--------------------------------------------------------------------------------
Institutional
Chase Manhattan Bank Trustee 47%
The BOC Group Inc. Savings
Investment Plan Trust
New York, New York
The Chase Manhattan Bank NA TTEE 31%
The Reynolds and Reynolds Co. 401(k)
Savings Plan Trust
New York, New York
JP Morgan Chase & Co. 12%
Marconi USA Wealth
Accumulation Plan Trust
New York, New York
Trustees of American Century 8%
P/S & 401K Savings Plan & Trust
Kansas City, Missouri
--------------------------------------------------------------------------------
C
Mobank & Co. EB 42%
Monroe, Michigan
American Enterprise Investment Svcs 12%
Minneapolis, Minnesota
Pershing LLC 11%
Jersey City, New Jersey
--------------------------------------------------------------------------------
Ultra
--------------------------------------------------------------------------------
Investor
Charles Schwab & Co., Inc. 7%
San Francisco, California
--------------------------------------------------------------------------------
Advisor
Principal Life Insurance 21%
Des Moines, Iowa
National Financial Services Corp 11%
New York, New York
Nationwide Trust Company FSB 8%
Columbus, Ohio
Connecticut General Life 6%
Hartford, Connecticut
--------------------------------------------------------------------------------
Institutional
JP Morgan Chase Bank Trustee 16%
401(k) Savings Plan of
JP Morgan Chase & Co. Trust
Brooklyn, New York
The Chase Manhattan Bank NA Trustee 14%
Robert Bosch Corporation
New Star Plan and Trust
New York, New York
JP Morgan Chase Trustee 13%
The Interpublic Group of
Companies Inc.
Savings Plan Trust
New York, New York
Nationwide Insurance Company 8%
QPVA
Columbus, Ohio
--------------------------------------------------------------------------------
37
Percentage of
Fund/Class Shareholder Outstanding Shares Owned
--------------------------------------------------------------------------------
Ultra
--------------------------------------------------------------------------------
Institutional
Fidelity FIIOC TR 8%
Covington, Kentucky
Fidelity FIIOC TR 8%
FBO Certain Employee Benefit Plans
Covington, Kentucky
The Chase Manhattan Bank NA TR 5%
Huntsman Corp Salary Deferral Plan
New York, New York
Chase Manhattan Bank Trustee 5%
Hayes Lemmerz International Inc.
Retirement Savings Plan Trust
New York, New York
--------------------------------------------------------------------------------
C
Mobank & Co EB 14%
Monroe, Michigan
Boone County National Bank Cust 9%
FBO MO Bar 457(B) Plan
Columbia, Missouri
Pershing LLC 5%
Jersey City, New Jersey
--------------------------------------------------------------------------------
Giftrust
None
--------------------------------------------------------------------------------
Vista
--------------------------------------------------------------------------------
Investor
None
--------------------------------------------------------------------------------
Advisor
James B Anderson TR 42%
American Chamber of Commerce Executives
Amended & Restated 401k Plan & Trust
Springfield, Missouri
Charles Schwab & Co., Inc. 11%
San Francisco, California
Orchard Trust Company Custodian 9%
RHD Investors Choice 403B7
Englewood, Colorado
James B Anderson TR 7%
American Chamber of Commerce Executives
Amended & Restated MPP Plan and Trust
Springfield, Missouri
--------------------------------------------------------------------------------
Institutional
American Century Profit Sharing 44%
and 401K Savings Plan and Trust
Kansas City, Missouri
The Chase Manhattan Bank NA TR 28%
Huntsman Corp Salary Deferral Plan & Trust
New York, New York
Chase Manhattan Bank Trustee 11%
Thrift Plan for Employees of Conoco Inc.
New York, New York
The Chase Manhattan Bank NA TR 7%
Huntsman Corp MPP Plan & Trust
New York, New York
--------------------------------------------------------------------------------
38
Percentage of
Fund/Class Shareholder Outstanding Shares Owned
--------------------------------------------------------------------------------
Vista
--------------------------------------------------------------------------------
C
FMT Co Cust IRA Rollover 36%
FBO Richard F. Zenko
Granville, Ohio
American Enterprise Investment Services 30%
Minneapolis, Minnesota
Circle Trust Company Custodian 11%
Rhodes Grocery Inc 401K Plan
Stamford, Connecticut
Microspec Inc Profit Sharing 10%
Plan & Trust U/A/D 09/30/85
John Theodore Lisbon Trustee
New York, New York
National Investor Services 5%
New York, New York
--------------------------------------------------------------------------------
Balanced
--------------------------------------------------------------------------------
Investor
None
--------------------------------------------------------------------------------
Advisor
Fulvest & Co 33%
Lancaster, Pennsylvania
MLPF&S 10%
For the Sole Benefit of Its Customers
Jacksonville, Florida
Circle Trust Co. Custodian 7%
FBO Gold Banc Corp Inc
Employees 401K Plan
Stamford, Connecticut
UMBSC & Co 7%
FBO Parmelee Industries Inc. 401k
Kansas City, Missouri
--------------------------------------------------------------------------------
Institutional
Trustees of American Century 99%
Mutual Funds Indep Directors
Def Comp Plan
Kansas City, Missouri
--------------------------------------------------------------------------------
New Opportunities
--------------------------------------------------------------------------------
Investor
Trustees of American Century Profit 7%
Sharing and 401K Savings Plan & Trust
Kansas City, Missouri
--------------------------------------------------------------------------------
Veedot
--------------------------------------------------------------------------------
Investor
None
--------------------------------------------------------------------------------
39
Percentage of
Fund/Class Shareholder Outstanding Shares Owned
--------------------------------------------------------------------------------
Veedot
--------------------------------------------------------------------------------
Institutional
Trustees of American Century P/S 56%
& 401K Savings Plan & Trust
Kansas City, Missouri
American Century Investment 17%
Management Inc.
Kansas City, Missouri
UMB TR
American Century Executive 14%
Deferred Comp Plan Trust
Kansas City, Missouri
UMB TR
American Century Services Corp. 7%
Stock Option Surrender Plan
Kansas City, Missouri
--------------------------------------------------------------------------------
Capital Value
--------------------------------------------------------------------------------
Investor
Saxon & Co 33%
Philadelphia, Pennsylvania
--------------------------------------------------------------------------------
Advisor
Charles Schwab & Co., Inc. 100%
San Francisco, California
--------------------------------------------------------------------------------
Institutional
Charles Schwab & Co., Inc. 99%
San Francisco, California
--------------------------------------------------------------------------------
New Opportunities II
--------------------------------------------------------------------------------
Investor
None
--------------------------------------------------------------------------------
Institutional
None
--------------------------------------------------------------------------------
A
American Enterprise Investment Svcs 33%
Minneapolis, Minnesota
Charles Schwab & Co., Inc. 31%
San Francisco
--------------------------------------------------------------------------------
B
American Enterprise Investment Svcs 37%
Minneapolis, Minnesota
Pershing LLC 27%
Jersey City, New Jersey
Andrea Huntington 17%
Oakdale, Connecticut
LPL Financial Services 13%
San Diego, California
--------------------------------------------------------------------------------
C(1)
American Century Investment 100%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
(1) These shares represent American Century Companies' seed capital pursuant to
section 14(a)(1) of the Investment Company Act of 1940.
The funds are unaware of any other shareholders, beneficial or of record, who
own more than 5% of any class of a fund's outstanding shares. The funds are
unaware of any other
40
shareholders, beneficial or of record, who own more than 25% of the voting
securities of American Century Mutual Funds, Inc. As of July 31, 2003, the
officers and directors of the funds, as a group, owned less than 1% of any class
of a fund's outstanding shares.
SERVICE PROVIDERS
The funds have no employees. To conduct the funds' day-to-day activities, the
funds have hired a number of service providers. Each service provider has a
specific function to fill on behalf of the funds that is described below.
ACIM, ACSC and ACIS are wholly owned by ACC. James E. Stowers Jr., Chairman of
ACC, controls ACC by virtue of his ownership of a majority of its voting stock.
INVESTMENT ADVISOR
American Century Investment Management, Inc. (ACIM) serves as the investment
advisor for each of the funds. A description of the responsibilities of the
advisor appears in each Prospectuses under the heading Management.
For services provided to each fund, the advisor receives a monthly fee based on
a percentage of the average net assets of each fund. Ultra, Balanced, Capital
Value and Veedot have a stepped fee structure. The management fees for the funds
are as follows:
Fund Class Percentage of Net Assets
------------------------------------------------------------------------------
Growth Investor, C and R 1.000%
------------------------------------------------------------------------------
Institutional 0.800%
------------------------------------------------------------------------------
Advisor 0.750%
------------------------------------------------------------------------------
Ultra Investor, C and R 1.000% of first $20 billion
0.950% more than $20 billion to $30 billion
0.925% more than $30 billion to $40 billion
0.900% over $40 billion
------------------------------------------------------------------------------
Institutional 0.800% of first $20 billion
0.750% more than $20 billion to $30 billion
0.725% more than $30 billion to $40 billion
0.700% over $40 billion
------------------------------------------------------------------------------
Advisor 0.750% of first $20 billion
0.700% more than $20 billion to $30 billion
0.675% more than $30 billion to $40 billion
0.650% over $40 billion
------------------------------------------------------------------------------
Select Investor, A, B and C 1.000%
------------------------------------------------------------------------------
Institutional 0.800%
------------------------------------------------------------------------------
Advisor 0.750%
------------------------------------------------------------------------------
Vista Investor and C 1.000%
------------------------------------------------------------------------------
Institutional 0.800%
------------------------------------------------------------------------------
Advisor 0.750%
------------------------------------------------------------------------------
Heritage Investor and C 1.000%
------------------------------------------------------------------------------
Institutional 0.800%
------------------------------------------------------------------------------
Advisor 0.750%
------------------------------------------------------------------------------
Balanced Investor 0.900% of first $1 billion
0.800% over $1 billion
------------------------------------------------------------------------------
Institutional 0.700% of first $1 billion
0.600% over $1 billion
------------------------------------------------------------------------------
Advisor 0.650% of first $1 billion
0.550% over $1 billion
------------------------------------------------------------------------------
41
Fund Class Percentage of Net Assets
------------------------------------------------------------------------------
Capital Value Investor 1.10% of first $500 million
1.00% of next $500 million
0.90% over $1 billion
------------------------------------------------------
Institutional 0.90% of first $500 million
0.80% of next $500 million
0.70% over $1 billion
------------------------------------------------------
Advisor 0.85% of first $500 million
0.75% of next $500 million
0.65% over $1 billion
------------------------------------------------------------------------------
Giftrust Investor 1.00%
------------------------------------------------------------------------------
New Opportunities Investor 1.50%
------------------------------------------------------------------------------
New Opportunities II Investor, A, B and C 1.50%
------------------------------------------------------
Institutional 1.30%
------------------------------------------------------------------------------
Veedot Investor 1.50% of first $500 million
1.45% of next $500 million
1.40% over $1 billion
------------------------------------------------------
Institutional 1.30% of first $500 million
1.25% of next $500 million
1.20% over $1 billion
------------------------------------------------------
Advisor 1.25% of first $500 million
1.20% of next $500 million
1.15% over $1 billion
------------------------------------------------------------------------------
On the first business day of each month, the funds pay a management fee to the
advisor for the previous month at the specified rate. The fee for the previous
month is calculated by multiplying the applicable fee for the fund by the
aggregate average daily closing value of a fund's net assets during the previous
month. This number is then multiplied by a fraction, the numerator of which is
the number of days in the previous month and the denominator of which is 365
(366 in leap years).
The management agreement between the corporation and the advisor shall continue
in effect until the earlier of the expiration of two years from the date of its
execution or until the first meeting of fund shareholders following such
execution and for as long thereafter as its continuance is specifically approved
at least annually by
(1) the funds' Board of Directors, or a majority of outstanding shareholder
votes (as defined in the Investment Company Act) and
(2) the vote of a majority of the directors of the funds who are not parties to
the agreement or interested persons of the advisor, cast in person at a
meeting called for the purpose of voting on such approval.
The management agreement states that the funds' Board of Directors or a majority
of outstanding shareholder votes may terminate the management agreement at any
time without payment of any penalty on 60 days' written notice to the advisor.
The management agreement shall be automatically terminated if it is assigned.
The management agreement states the advisor shall not be liable to the funds or
their shareholders for anything other than willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
The management agreement also provides that the advisor and its officers,
directors and employees may engage in other business, render services to others,
and devote time and attention to any other business whether of a similar or
dissimilar nature.
Certain investments may be appropriate for the funds and also for other clients
advised by the advisor. Investment decisions for the funds and other clients are
made with a view to achieving their respective investment objectives after
consideration of such factors as their current holdings, availability of cash
for investment and the size of their investment generally. A particular security
may be bought or sold for only one client or fund, or in different amounts and
at different times for more than one but less than all clients or funds. In
addition, purchases or sales of the same security may be made for two or more
clients or
42
funds on the same date. Such transactions will be allocated among clients in a
manner believed by the advisor to be equitable to each. In some cases this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by a fund.
The advisor may aggregate purchase and sale orders of the funds with purchase
and sale orders of its other clients when the advisor believes that such
aggregation provides the best execution for the funds. The Board of Directors
has approved the policy of the advisor with respect to the aggregation of
portfolio transactions. Where portfolio transactions have been aggregated, the
funds participate at the average share price for all transactions in that
security on a given day and allocate transaction costs on a pro rata basis. The
advisor will not aggregate portfolio transactions of the funds unless it
believes such aggregation is consistent with its duty to seek best execution on
behalf of the funds and the terms of the management agreement. The advisor
receives no additional compensation or remuneration as a result of such
aggregation.
Unified management fees incurred by each fund by class for the fiscal periods
ended October 31, 2002, 2001 and 2000, are indicated in the following tables.
Unified Management Fees
------------------------------------------------------------------------------
Fund/Class 2002 2001 2000
------------------------------------------------------------------------------
Growth
Investor Class $53,431,278 $71,751,032 $100,365,047
------------------------------------------------------------------------------
Advisor Class $245,976 $201,692 $149,577
------------------------------------------------------------------------------
Institutional Class $1,444,918 $627,513 $212,927
------------------------------------------------------------------------------
C Class $2,123(1) N/A N/A
------------------------------------------------------------------------------
Ultra
Investor Class $231,562,879 $296,533,074 $411,243,949
------------------------------------------------------------------------------
Advisor $3,304,275 $3,481,936 $3,157,451
------------------------------------------------------------------------------
Institutional $5,253,092 $5,269,404 $3,661,448
------------------------------------------------------------------------------
C Class $2,726 $5(2) N/A
------------------------------------------------------------------------------
Select
Investor Class $43,411,463 $57,594,371 $74,410,279
------------------------------------------------------------------------------
Advisor $174,038 $168,511 $111,586
------------------------------------------------------------------------------
Institutional $1,657,448 $1,726,156 $1,578,151
------------------------------------------------------------------------------
Vista
Investor Class $11,472,288 $16,438,598 $21,675,209
------------------------------------------------------------------------------
Advisor $101,047 $123,077 $128,782
------------------------------------------------------------------------------
Institutional $357,642 $438,762 $246,228
------------------------------------------------------------------------------
C Class $399 $14(2) N/A
------------------------------------------------------------------------------
Heritage
Investor Class $12,137,959 $15,634,691 $16,346,863
------------------------------------------------------------------------------
Advisor $23,346 $18,536 $12,566
------------------------------------------------------------------------------
Institutional $928,931 $219,138 $46,536
------------------------------------------------------------------------------
C Class $557 $8(2) N/A
------------------------------------------------------------------------------
(1) Fees accrued from November 28, 2001 (class inception) through
October 31, 2002.
(2) Fees accrued from class inception through October 31, 2001. The inception
dates for the class are: Ultra, October 29, 2001; Vista, July 18, 2001;
and Heritage, June 26, 2001.
43
Unified Management Fees
---------------------------------------------------------------------------
Fund/Class 2002 2001 2000
---------------------------------------------------------------------------
Balanced
Investor Class $5,583,056 $6,728,534 $8,703,277
---------------------------------------------------------------------------
Advisor $103,396 $124,391 $93,449
---------------------------------------------------------------------------
Institutional $128,656 $154,486 $76,113
---------------------------------------------------------------------------
Capital Value
Investor Class $568,432 $476,718 $445,431
---------------------------------------------------------------------------
Institutional $18,575(1) N/A N/A
---------------------------------------------------------------------------
Giftrust
Investor Class $8,744,135 $12,140,513 $19,959,904
---------------------------------------------------------------------------
New Opportunities
Investor Class $5,552,493 $7,596,803 $12,892,612
---------------------------------------------------------------------------
New Opportunities II
Investor Class $385,262 $100,936(2) N/A
---------------------------------------------------------------------------
Veedot
Investor Class $3,397,163 $4,287,497 $4,117,607
---------------------------------------------------------------------------
Institutional $128,328 $145,476 $36,251
---------------------------------------------------------------------------
(1) Fees accrued from March 1, 2002 (class inception) through October 31, 2002.
(2) Fees accrued from June 1, 2001 (class inception) through October 31, 2001.
TRANSFER AGENT AND ADMINISTRATOR
American Century Services Corporation, 4500 Main Street, Kansas City, Missouri
64111, serves as transfer agent and dividend-paying agent for the funds. It
provides physical facilities, computer hardware and software and personnel for
the day-to-day administration of the funds and the advisor. The advisor pays
ACSC for these services.
From time to time, special services may be offered to shareholders who maintain
higher share balances in our family of funds. These services may include the
waiver of minimum investment requirements, expedited confirmation of shareholder
transactions, newsletters and a team of personal representatives. Any expenses
associated with these special services will be paid by the advisor.
DISTRIBUTOR
The funds' shares are distributed by American Century Investment Services, Inc.,
a registered broker-dealer. The distributor is a wholly owned subsidiary of ACC
and its principal business address is 4500 Main Street, Kansas City, Missouri
64111.
The distributor is the principal underwriter of the funds' shares. The
distributor makes a continuous, best-efforts underwriting of the funds' shares.
This means the distributor has no liability for unsold shares.
Certain financial intermediaries unaffiliated with the distributor or the funds
may perform various administrative and shareholder services for their clients
who are invested in the funds. These services may include assisting with fund
purchases, redemptions and exchanges, distributing information about the funds
and their performance, preparing and distributing client account statements, and
other administrative and shareholder services, and would otherwise be provided
by the distributor or its affiliates. The distributor may pay fees out of its
own resources to such financial intermediaries for providing these services.
44
OTHER SERVICE PROVIDERS
CUSTODIAN BANKS
J.P. Morgan Chase and Co., 770 Broadway, 10th Floor, New York, New York
10003-9598, and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105,
each serves as custodian of the funds' assets. The custodians take no part in
determining the investment policies of the funds or in deciding which securities
are purchased or sold by the funds. The funds, however, may invest in certain
obligations of the custodians and may purchase or sell certain securities from
or to the custodians.
INDEPENDENT AUDITORS
Deloitte & Touche LLP is the independent auditors of the funds. The address of
Deloitte & Touche LLP is 1010 Grand Boulevard, Kansas City, Missouri 64106. As
the independent auditors of the funds, Deloitte & Touche LLP provides services
including
(1) auditing the annual financial statements for each fund,
(2) assisting and consulting in connection with SEC filings and
(3) reviewing the annual federal income tax return filed for each fund.
BROKERAGE ALLOCATION
GROWTH, ULTRA, SELECT, VISTA, HERITAGE, CAPITAL VALUE, GIFTRUST, NEW
OPPORTUNITIES, NEW OPPORTUNITIES II, VEEDOT AND THE EQUITY PORTION OF BALANCED
Under the management agreement between the funds and the advisor, the advisor
has the responsibility of selecting brokers and dealers to execute portfolio
transactions. The funds' policy is to secure the most favorable prices and
execution of orders on its portfolio transactions. So long as that policy is
met, the advisor may take into consideration the factors discussed below when
selecting brokers.
The advisor receives statistical and other information and services, including
research, without cost from brokers and dealers. The advisor evaluates such
information and services, together with all other information that it may have,
in supervising and managing the investments of the funds. Because such
information and services may vary in amount, quality and reliability, their
influence in selecting brokers varies from none to very substantial. The advisor
intends to continue to place some of the funds' brokerage business with one or
more brokers who provide information and services. Such information and services
will be in addition to and not in lieu of services required to be performed by
the advisor. The advisor does not utilize brokers that provide such information
and services for the purpose of reducing the expense of providing required
services to the funds.
45
In the years ended October 31, 2002, 2001 and 2000, the brokerage commissions of
each fund were:
Fund 2002 2001 2000
--------------------------------------------------------------------------
Growth $10,370,502 $12,572,889 $9,949,477
--------------------------------------------------------------------------
Ultra $41,568,399 $39,761,395 $22,096,395
--------------------------------------------------------------------------
Select $11,315,541 $10,237,183 $6,782,094
--------------------------------------------------------------------------
Vista $5,892,458 $9,833,296 $4,205,307
--------------------------------------------------------------------------
Heritage $2,503,500 $4,214,257 $2,949,237
--------------------------------------------------------------------------
Balanced $522,702 $655,072 $493,080
--------------------------------------------------------------------------
Capital Value $39,193 $42,231 $39,005
--------------------------------------------------------------------------
Giftrust $1,674,254 $2,935,931 $1,087,217
--------------------------------------------------------------------------
New Opportunities $1,192,917 $1,181,493 $464,626
--------------------------------------------------------------------------
New Opportunities II $116,276 $35,650(1) N/A
--------------------------------------------------------------------------
Veedot $1,741,747 $2,774,001 $1,095,419
--------------------------------------------------------------------------
(1) From June 1, 2001 (inception) to October 31. 2001.
The brokerage commissions paid by the funds may exceed those that another broker
might have charged for effecting the same transactions, because of the value of
the brokerage and research services provided by the broker. Research services
furnished by brokers through whom the funds effect securities transactions may
be used by the advisor in servicing all of its accounts, and not all such
services may be used by the advisor in managing the portfolios of the funds.
The staff of the SEC has expressed the view that the best price and execution of
over-the-counter transactions in portfolio securities may be secured by dealing
directly with principal market makers, thereby avoiding the payment of
compensation to another broker. In certain situations, the officers of the funds
and the advisor believe that the facilities, expert personnel and technological
systems of a broker often enable the funds to secure as good a net price by
dealing with a broker instead of a principal market maker, even after payment of
the compensation to the broker. The funds regularly place their over-the-counter
transactions with principal market makers, but also may deal on a brokerage
basis when utilizing electronic trading networks or as circumstances warrant.
THE FIXED-INCOME PORTION OF BALANCED
Under the management agreement between the funds and the advisor, the advisor
has the responsibility of selecting brokers and dealers to execute portfolio
transactions. In many transactions, the selection of the broker or dealer is
determined by the availability of the desired security and its offering price.
In other transactions, the selection of the broker or dealer is a function of
market selection and price negotiation, as well as the broker's general
execution and operational and financial capabilities in the type of transaction
involved. The advisor will seek to obtain prompt execution of orders at the most
favorable prices or yields. The advisor may choose to purchase and sell
portfolio securities from and to dealers who provide services or research,
statistical and other information to the funds and to the advisor. Such
information or services will be in addition to, and not in lieu of, the services
required to be performed by the advisor, and the expenses of the advisor will
not necessarily be reduced as a result of the receipt of such supplemental
information.
The funds generally purchase and sell debt securities through principal
transactions, meaning the funds normally purchase securities on a net basis
directly from the issuer or a primary market-maker acting as principal for the
securities. The funds do not pay brokerage commissions on these transactions,
although the purchase price for debt securities usually includes an undisclosed
compensation. Purchases of securities from underwriters typically include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market-makers typically include a dealer's mark-up
(i.e., a spread between the bid and asked prices).
46
INFORMATION ABOUT FUND SHARES
Each of the funds named on the front of this Statement of Additional Information
is a series of shares issued by the corporation, and shares of each fund have
equal voting rights. In addition, each series (or fund) may be divided into
separate classes. See Multiple Class Structure, which follows. Additional funds
and classes may be added without a shareholder vote.
Each fund votes separately on matters affecting that fund exclusively. Voting
rights are not cumulative, so investors holding more than 50% of the
corporation's (all funds') outstanding shares may be able to elect a Board of
Directors. The corporation undertakes dollar-based voting, meaning that the
number of votes a shareholder is entitled to is based upon the dollar amount of
the shareholder's investment. The election of directors is determined by the
votes received from all the corporation's shareholders without regard to whether
a majority of shares of any one fund voted in favor of a particular nominee or
all nominees as a group.
The assets belonging to each series are held separately by the custodian and the
shares of each series represent a beneficial interest in the principal, earnings
and profit (or losses) of investments and other assets held for each series.
Your rights as a shareholder are the same for all series of securities unless
otherwise stated. Within their respective series, all shares have equal
redemption rights. Each share, when issued, is fully paid and non-assessable.
In the event of complete liquidation or dissolution of the funds, shareholders
of each series or class of shares will be entitled to receive, pro rata, all of
the assets less the liabilities of that series or class.
Each shareholder has rights to dividends and distributions declared by the fund
he or she owns and to the net assets of such fund upon its liquidation or
dissolution proportionate to his or her share ownership interest in the fund.
MULTIPLE CLASS STRUCTURE
The corporation's Board of Directors has adopted a multiple class plan (the
Multiclass Plan) pursuant to Rule 18f-3 adopted by the SEC. The plan is
described in the prospectus of any fund that offers more than one class.
Pursuant to such plan, the funds may issue up to seven classes of shares:
Investor Class, Institutional Class, A Class, B Class, C Class, R Class and
Advisor Class. Not all funds offer all seven classes.
The Investor Class of most funds is made available to investors directly without
any load or commission, for a single unified management fee. It is also
available through some financial intermediaries. The Investor Class of those
funds which have A and B Classes is not available directly at no load. The
Institutional and Advisor Classes are made available to institutional
shareholders or through financial intermediaries that do not require the same
level of shareholder and administrative services from the advisor as Investor
Class shareholders. As a result, the advisor is able to charge these classes a
lower total management fee. In addition to the management fee, however, the
Advisor Class shares are subject to a Master Distribution and Shareholder
Services Plan (the Advisor Class Plan). The A, B and C Classes also are made
available through financial intermediaries, for purchase by individual investors
who receive advisory and personal services from the intermediary. The R Class is
made available through financial intermediaries and is generally used in 401(k)
and other retirement plans. The total management fee for the A, B, C and R
classes is the same as for Investor Class, but the A, B, C and R Class shares
each are subject to a separate Master Distribution and Individual Shareholder
Services Plan (the A Class Plan, B Class Plan, C Class Plan and R Class Plan,
respectively and collectively with the Advisor Class Plan, the Plans) described
below. The Plans have been adopted by the funds' Board of Directors in
accordance with Rule 12b-1 adopted by the SEC under the Investment Company Act.
47
Rule 12b-1
Rule 12b-1 permits an investment company to pay expenses associated with the
distribution of its shares in accordance with a plan adopted by its Board of
Directors and approved by its shareholders. Pursuant to such rule, the Board of
Directors and initial shareholder of the funds' A, B, C, R and Advisor Classes
have approved and entered into the A Class Plan, B Class Plan, C Class Plan, R
Class Plan and Advisor Class Plan, respectively. The Plans are described below.
In adopting the Plans, the Board of Directors (including a majority of directors
who are not interested persons of the funds [as defined in the Investment
Company Act], hereafter referred to as the independent directors) determined
that there was a reasonable likelihood that the Plans would benefit the funds
and the shareholders of the affected class. Pursuant to Rule 12b-1, information
with respect to revenues and expenses under the Plans is presented to the Board
of Directors quarterly for its consideration in connection with its
deliberations as to the continuance of the Plans. Continuance of the Plans must
be approved by the Board of Directors (including a majority of the independent
directors) annually. The Plans may be amended by a vote of the Board of
Directors (including a majority of the independent directors), except that the
Plans may not be amended to materially increase the amount to be spent for
distribution without majority approval of the shareholders of the affected
class. The Plans terminate automatically in the event of an assignment and may
be terminated upon a vote of a majority of the independent directors or by vote
of a majority of outstanding shareholder votes of the affected class.
All fees paid under the Plans will be made in accordance with Section 26 of the
Conduct Rules of the National Association of Securities Dealers (NASD).
A Class Plan
As described in the Prospectuses, the A Class shares of the funds are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through broker-dealers, banks, insurance companies and
other financial intermediaries that provide various administrative, shareholder
and distribution services. The funds' distributor enters into contracts with
various banks, broker-dealers, insurance companies and other financial
intermediaries, with respect to the sale of the funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.
Certain recordkeeping and administrative services that are provided by the
funds' transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for A Class
investors. In addition to such services, the financial intermediaries provide
various individual shareholder and distribution services.
To enable the funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
Board of Directors has adopted the A Class Plan. Pursuant to the A Class Plan,
the A Class pays the Advisor, as paying agent for the fund, a fee equal to 0.25%
annually of the average daily net asset value of the A Class shares. The A Class
had not been offered as of October 31, 2002, and therefore no fees have been
paid.
Payments may be made for a variety of individual shareholder services,
including, but not limited to:
(a) providing individualized and customized investment advisory services,
including the consideration of shareholder profiles and specific goals;
(b) creating investment models and asset allocation models for use by
shareholders in selecting appropriate funds;
(c) conducting proprietary research about investment choices and the market in
general;
48
(d) periodic rebalancing of shareholder accounts to ensure compliance with the
selected asset allocation;
(e) consolidating shareholder accounts in one place; and
(f) other individual services.
Individual shareholder services do not include those activities and expenses
that are primarily intended to result in the sale of additional shares of the
funds.
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of A Class shares, which services
may include but are not limited to:
(a) the payment of sales commissions, on-going commissions and other payments to
brokers, dealers, financial institutions or others who sell A Class shares
pursuant to selling agreements;
(b) compensation to registered representatives or other employees of the
distributor who engage in or support distribution of the funds' A Class
shares;
(c) compensation to, and expenses (including overhead and telephone expenses)
of, the distributor;
(d) printing prospectuses, statements of additional information and reports for
other-than-existing shareholders;
(e) preparing, printing and distributing sales literature and advertising
materials provided to the funds' shareholders and prospective shareholders;
(f) receiving and answering correspondence from prospective shareholders,
including distributing prospectuses, statements of additional information,
and shareholder reports;
(g) providing facilities to answer questions from prospective shareholders about
fund shares;
(h) complying with federal and state securities laws pertaining to the sale of
fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the distribution of
fund shares;
(k) organizing and conducting sales seminars and payments in the form of
transactional and compensation or promotional incentives;
(l) profit on the foregoing;
(m) paying service fees for providing personal, continuing services to
investors, as contemplated by the Conduct Rules of the NASD; and
(n) such other distribution and services activities as the advisor determines
may be paid for by the funds pursuant to the terms of the agreement between
the corporation and the funds' distributor and in accordance with Rule 12b-1
of the Investment Company Act.
B Class Plan
As described in the Prospectuses, the B Class shares of the funds are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through broker-dealers, banks, insurance companies and
other financial intermediaries that provide various administrative, shareholder
and distribution services. The funds' distributor enters into contracts with
various banks, broker-dealers, insurance companies and other financial
intermediaries, with respect to the sale of the funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.
Certain recordkeeping and administrative services that are provided by the
funds' transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for B Class
investors. In addition to such services, the financial intermediaries provide
various individual shareholder and distribution services.
49
To enable the funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
Board of Directors has adopted the B Class Plan. Pursuant to the B Class Plan,
the B Class pays the Advisor, as paying agent for the fund, a fee equal to 1.00%
annually of the average daily net asset value of the B Class shares. The B Class
had not been offered as of October 31, 2002, and therefore no fees have been
paid.
Payments may be made for a variety of individual shareholder services,
including, but not limited to:
(a) providing individualized and customized investment advisory services,
including the consideration of shareholder profiles and specific goals;
(b) creating investment models and asset allocation models for use by
shareholders in selecting appropriate funds;
(c) conducting proprietary research about investment choices and the market in
general;
(d) periodic rebalancing of shareholder accounts to ensure compliance with the
selected asset allocation;
(e) consolidating shareholder accounts in one place; and
(f) other individual services.
Individual shareholder services do not include those activities and expenses
that are primarily intended to result in the sale of additional shares of the
funds.
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of B Class shares, which services
may include but are not limited to:
(a) the payment of sales commissions, on-going commissions and other payments to
brokers, dealers, financial institutions or others who sell B Class shares
pursuant to selling agreements;
(b) compensation to registered representatives or other employees of the
distributor who engage in or support distribution of the funds' B Class
shares;
(c) compensation to, and expenses (including overhead and telephone expenses)
of, the distributor;
(d) printing prospectuses, statements of additional information and reports for
other-than-existing shareholders;
(e) preparing, printing and distributing sales literature and advertising
materials provided to the funds' shareholders and prospective shareholders;
(f) receiving and answering correspondence from prospective shareholders,
including distributing prospectuses, statements of additional information,
and shareholder reports;
(g) providing facilities to answer questions from prospective shareholders about
fund shares;
(h) complying with federal and state securities laws pertaining to the sale of
fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the distribution of
fund shares;
(k) organizing and conducting sales seminars and payments in the form of
transactional and compensation or promotional incentives;
(l) profit on the foregoing;
(m) paying service fees for providing personal, continuing services to
investors, as contemplated by the Conduct Rules of the NASD; and
(n) such other distribution and services activities as the advisor determines
may be paid for by the funds pursuant to the terms of the agreement between
the corporation and the funds' distributor and in accordance with Rule 12b-1
of the Investment Company Act.
50
C Class Plan
As described in the Prospectuses, the C Class shares of the funds are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through broker-dealers, banks, insurance companies and
other financial intermediaries that provide various administrative, shareholder
and distribution services. The funds' distributor enters into contracts with
various banks, broker-dealers, insurance companies and other financial
intermediaries, with respect to the sale of the funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.
Certain recordkeeping and administrative services that are provided by the
funds' transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for C Class
investors. In addition to such services, the financial intermediaries provide
various individual shareholder and distribution services.
To enable the funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
Board of Directors has adopted the C Class Plan. Pursuant to the C Class Plan,
the C Class pays the Advisor, as paying agent for the fund, 1.00% annually of
the average daily net asset value of the C Class shares of Ultra, Vista, Growth,
Heritage, Select and New Opportunities II. During the fiscal year ended October
31, 2002, the aggregate amount of fees paid under the C Class Plan was:
Ultra $2,745
Vista $399
Heritage $557
Growth $2,123
Payments may be made for a variety of individual shareholder services,
including, but not limited to:
(a) providing individualized and customized investment advisory services,
including the consideration of shareholder profiles and specific goals;
(b) creating investment models and asset allocation models for use by
shareholders in selecting appropriate funds;
(c) conducting proprietary research about investment choices and the market in
general;
(d) periodic rebalancing of shareholder accounts to ensure compliance with the
selected asset allocation;
(e) consolidating shareholder accounts in one place; and
(f) other individual services.
Individual shareholder services do not include those activities and expenses
that are primarily intended to result in the sale of additional shares of the
funds.
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of C Class shares, which services
may include but are not limited to:
(a) the payment of sales commissions, on-going commissions and other payments to
brokers, dealers, financial institutions or others who sell C Class shares
pursuant to selling agreements;
(b) compensation to registered representatives or other employees of the
distributor who engage in or support distribution of the funds' C Class
shares;
(c) compensation to, and expenses (including overhead and telephone expenses)
of, the distributor;
(d) printing prospectuses, statements of additional information and reports for
other-than-existing shareholders;
51
(e) preparing, printing and distributing sales literature and advertising
materials provided to the funds' shareholders and prospective shareholders;
(f) receiving and answering correspondence from prospective shareholders,
including distributing prospectuses, statements of additional information,
and shareholder reports;
(g) providing facilities to answer questions from prospective shareholders about
fund shares;
(h) complying with federal and state securities laws pertaining to the sale of
fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the distribution of
fund shares;
(k) organizing and conducting of sales seminars and payments in the form of
transactional and compensation or promotional incentives;
(l) profit on the foregoing;
(m) paying service fees for providing personal, continuing services to
investors, as contemplated by the Conduct Rules of the NASD; and
(n) such other distribution and services activities as the advisor determines
may be paid for by the funds pursuant to the terms of the agreement between
the corporation and the funds' distributor and in accordance with Rule 12b-1
of the Investment Company Act.
R Class Plan
As described in the Prospectuses, the R Class shares of the funds are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through broker-dealers, banks, insurance companies and
other financial intermediaries that provide various administrative, shareholder
and distribution services. The funds' distributor enters into contracts with
various banks, broker-dealers, insurance companies and other financial
intermediaries, with respect to the sale of the funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.
Certain recordkeeping and administrative services that are provided by the
funds' transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for R Class
investors. In addition to such services, the financial intermediaries provide
various individual shareholder and distribution services.
To enable the funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
Board of Directors has adopted the R Class Plan. Pursuant to the R Class Plan,
the R Class pays the Advisor, as paying agent for the fund, 0.50% annually of
the average daily net asset value of the R Class shares. The R Class had not
been offered as of October 31, 2002, and therefore ho fees have been paid.
Payments may be made for a variety of individual shareholder services,
including, but not limited to:
(a) providing individualized and customized investment advisory services,
including the consideration of shareholder profiles and specific goals;
(b) creating investment models and asset allocation models for use by
shareholders in selecting appropriate funds;
(c) conducting proprietary research about investment choices and the market in
general;
(d) periodic rebalancing of shareholder accounts to ensure compliance with the
selected asset allocation;
(e) consolidating shareholder accounts in one place; and
(f) other individual services.
52
Individual shareholder services do not include those activities and expenses
that are primarily intended to result in the sale of additional shares of the
funds.
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of R Class shares, which services
may include but are not limited to:
(a) the payment of sales commissions, on-going commissions and other payments to
brokers, dealers, financial institutions or others who sell R Class shares
pursuant to selling agreements;
(b) compensation to registered representatives or other employees of the
distributor who engage in or support distribution of the funds' R Class
shares;
(c) compensation to, and expenses (including overhead and telephone expenses)
of, the distributor;
(d) printing prospectuses, statements of additional information and reports for
other-than-existing shareholders;
(e) preparing, printing and distributing sales literature and advertising
materials provided to the funds' shareholders and prospective shareholders;
(f) receiving and answering correspondence from prospective shareholders,
including distributing prospectuses, statements of additional information,
and shareholder reports;
(g) providing facilities to answer questions from prospective shareholders about
fund shares;
(h) complying with federal and state securities laws pertaining to the sale of
fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the distribution of
fund shares;
(k) organizing and conducting of sales seminars and payments in the form of
transactional and compensation or promotional incentives;
(l) profit on the foregoing;
(m) paying service fees for providing personal, continuing services to
investors, as contemplated by the Conduct Rules of the NASD; and
(n) such other distribution and services activities as the advisor determines
may be paid for by the funds pursuant to the terms of the agreement between
the corporation and the funds' distributor and in accordance with Rule 12b-1
of the Investment Company Act.
Advisor Class Plan
As described in the Prospectuses, the funds' Advisor Class shares are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through financial intermediaries such as banks,
broker-dealers and insurance companies. The funds' distributor enters into
contracts with various banks, broker-dealers, insurance companies and other
financial intermediaries, with respect to the sale of the funds' shares and/or
the use of the funds' shares in various investment products or in connection
with various financial services.
Certain recordkeeping and administrative services that are provided by the
funds' transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for Advisor Class
investors. In addition to such services, the financial intermediaries provide
various distribution services.
To enable the funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
advisor has reduced its management fee by 0.25% per annum with respect to the
Advisor Class shares, and the funds' Board of Directors has adopted the Advisor
Class Plan. Pursuant to the Advisor Class Plan, the Advisor Class pays the
distributor a fee of 0.50% annually of the aggregate average daily asset value
of the funds' Advisor Class shares, 0.25% of which is paid for
53
shareholder services (as described below) and 0.25% of which is paid for
distribution services. During the fiscal year ended October 31, 2002, the
aggregate amount of fees paid under the Advisor Class Plan was:
Growth $163,872
Ultra $2,228,284
Select $115,924
Vista $67,305
Heritage $15,564
Balanced $79,480
Payments may be made for a variety of shareholder services, including, but not
limited to:
(a) receiving, aggregating and processing purchase, exchange and redemption
requests from beneficial owners (including contract owners of insurance
products that utilize the funds as underlying investment media) of shares
and placing purchase, exchange and redemption orders with the funds'
distributor;
(b) providing shareholders with a service that invests the assets of their
accounts in shares pursuant to specific or pre-authorized instructions;
(c) processing dividend payments from a fund on behalf of shareholders and
assisting shareholders in changing dividend options, account designations
and addresses;
(d) providing and maintaining elective services such as check writing and wire
transfer services;
(e) acting as shareholder of record and nominee for beneficial owners;
(f) maintaining account records for shareholders and/or other beneficial owners;
(g) issuing confirmations of transactions;
(h) providing subaccounting with respect to shares beneficially owned by
customers of third parties or providing the information to a fund as
necessary for such subaccounting;
(i) preparing and forwarding investor communications from the funds (such as
proxies, shareholder reports, annual and semi-annual financial statements
and dividend, distribution and tax notices) to shareholders and/or other
beneficial owners;
(j) providing other similar administrative and sub-transfer agency services; and
(k) paying service fees for the provision of personal, continuing services to
the shareholders as contemplated by the Conduct Rules of the NASD.
Shareholder services do not include those activities and expenses that are
primarily intended to result in the sale of additional shares of the funds.
During the fiscal year ended October 31, 2002, the amount of fees paid under the
Advisor Class Plan for shareholder services was:
Growth $81,936
Ultra $1,114,147
Select $57,962
Vista $33,653
Heritage $7,777
Balanced $39,740
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of Advisor Class shares, which
services may include but are not limited to:
(a) the payment of sales commissions, on-going commissions and other payments to
brokers, dealers, financial institutions or others who sell Advisor Class
shares pursuant to selling agreements;
(b) compensation to registered representatives or other employees of the
distributor who engage in or support distribution of the funds' Advisor
Class shares;
54
(c) compensation to, and expenses (including overhead and telephone expenses)
of, the distributor;
(d) printing prospectuses, statements of additional information and reports for
other-than-existing shareholders;
(e) preparing, printing and distributing of sales literature and advertising
materials provided to the funds' shareholders and prospective shareholders;
(f) receiving and answering correspondence from prospective shareholders,
including distributing prospectuses, statements of additional information,
and shareholder reports;
(g) providing facilities to answer questions from prospective shareholders about
fund shares;
(h) complying with federal and state securities laws pertaining to the sale of
fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the distribution of
fund shares;
(k) organizing and conducting of sales seminars and payments in the form of
transactional and compensation or promotional incentives;
(l) profit on the foregoing;
(m) paying service fees for the provision of personal, continuing services to
investors, as contemplated by the Conduct Rules of the NASD; and
(n) such other distribution and services activities as the advisor determines
may be paid for by the funds pursuant to the terms of the agreement between
the corporation and the funds' distributor and in accordance with Rule 12b-1
of the Investment Company Act.
During the fiscal year ended October 31, 2002, the amount of fees paid under the
Advisor Class Plan for distribution services was:
Growth $81,936
Ultra $1,114,147
Select $57,962
Vista $33,653
Heritage $7,777
Balanced $39,740
Sales Charges
The sales charges applicable to the A, B and C Classes of the funds are
described in the prospectuses for those classes in the section titled "Choosing
a Share Class." Shares of the A Class are subject to an initial sales charge,
which declines as the amount of the purchase increases pursuant to the schedule
set forth in the prospectus. This charge may be waived in the following
situations:
* Qualified retirement plan purchases
* Certain individual retirement account rollovers
* Purchases by registered representatives and other employees of certain
financial intermediaries (and their immediate family members) having sales
agreements with the advisor or the distributor
* Wrap accounts maintained for clients of certain financial intermediaries who
have entered into agreements with American Century
* Purchases by current and retired employees of American Century and their
immediate family members (spouses and children under age 21) and trusts or
qualified retirement plans established by those persons
* Purchases by certain other investors that American Century deems
appropriate, including but not limited to current or retired directors,
trustees and officers of funds managed by the advisor and trusts and
qualified retirement plans established by those persons
55
There are several ways to reduce the sales charges applicable to a purchase of A
Class shares. These methods are described in the relevant prospectuses. You or
your financial advisor must indicate at the time of purchase that you intend to
take advantage of one of these reductions.
Shares of the A, B and C Classes are subject to a contingent deferred sales
charge upon redemption of the shares in certain circumstances. The specific
charges and when they apply are described in the relevant prospectuses. The
contingent deferred sales charge may be waived for certain redemptions by some
shareholders, as described in the prospectuses.
Shares of the A and B Classes of the funds have not been offered as of the date
of this Statement of Additional Information. The aggregate contingent deferred
sales charges paid to the Distributor for the C Class shares in the fiscal year
ended October 31, 2002 were Growth, $307; Ultra; $421; and Heritage, $50.
Dealer Concessions
The funds' distributor expects to pay sales commissions to the financial
intermediaries who sell A, B and/or C Class shares of the fund at the time of
such sales. Payments for A Class shares will be as follows:
Purchase Amount Dealer Concession
--------------------------------------------------------------------------------
Less than $50,000 5.00%
--------------------------------------------------------------------------------
$50,000 - $99,999 4.00%
--------------------------------------------------------------------------------
$100,000 - $249,999 3.25%
--------------------------------------------------------------------------------
$250,000 - $499,999 2.00%
--------------------------------------------------------------------------------
$500,000 - $999,999 1.75%
--------------------------------------------------------------------------------
$1,000,000 - $3,999,999 1.00%
--------------------------------------------------------------------------------
$4,000,000 - $9,999,999 0.50%
--------------------------------------------------------------------------------
Greater than $10,000,000 0.25%
--------------------------------------------------------------------------------
No concession will be paid on purchases by qualified retirement plans. Payments
will equal 4.00% of the purchase price of B Class shares and 1.00% of the
purchase price of the C Class shares sold by the intermediary. The distributor
will retain the 12b-1 fee paid by the C Class of funds for the first 13 months
after the shares are purchased. This fee is intended in part to permit the
distributor to recoup a portion of on-going sales commissions to dealers plus
financing costs, if any. After the first 13 months, the distributor will make
the C Class distribution and individual shareholder services fee payments
described above to the financial intermediaries involved on a quarterly basis.
In addition, B and C Class purchases and A Class purchases greater than
$1,000,000 are subject to a contingent deferred sales charge as described in the
prospectuses.
From time to time, the distributor may provide additional concessions to
dealers, including but not limited to payment assistance for conferences and
seminars, provision of sales or training programs for dealer employees and/or
the public (including, in some cases, payment for travel expenses for registered
representatives and other dealer employees who participate), advertising and
sales campaigns about a fund or funds, and assistance in financing
dealer-sponsored events. Other concessions may be offered as well, and all such
concessions will be consistent with applicable law, including the then-current
rules of the National Association of Securities Dealers, Inc. Such concessions
will not change the price paid by investors for shares of the funds.
56
BUYING AND SELLING FUND SHARES
Information about buying, selling and exchanging fund shares is contained in the
funds' Prospectuses and in Your Guide to American Century Services. The
Prospectuses and guide are available to investors without charge and may be
obtained by calling us.
VALUATION OF A FUND'S SECURITIES
All classes of the funds except the A Class are offered at their net asset
value, as described below. The A Class of the funds are offered at their public
offering price, which is the net asset value plus the appropriate sales charge.
This calculation may be expressed as a formula:
Offering Price = Net Asset Value/(1 - Sales Charge as a % of Offering Price)
For example, if the net asset value of a fund's A Class shares is $5.00, the
public offering price would be $5/(1-5.75%) = $5.31.
Each fund's net asset value per share (NAV) is calculated as of the close of
business of the New York Stock Exchange (the Exchange) each day the Exchange is
open for business. The Exchange usually closes at 4 p.m. Eastern time. The
Exchange typically observes the following holidays: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. Although the funds expect
the same holidays to be observed in the future, the Exchange may modify its
holiday schedule at any time.
Each fund's NAV is calculated by adding the value of all portfolio securities
and other assets, deducting liabilities and dividing the result by the number of
shares outstanding. Expenses and interest earned on portfolio securities are
accrued daily.
The portfolio securities of each fund that are listed or traded on a domestic
securities exchange are valued at the last sale price on that exchange, except
as otherwise noted. Portfolio securities primarily traded on foreign securities
exchanges generally are valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or if
local convention or regulation so provides, the mean of the latest bid and asked
prices is used. Depending on local convention or regulation, securities traded
over-the-counter are priced at the mean of the latest bid and asked prices, the
last sale price, or the official closing price. When market quotations are not
readily available, securities and other assets are valued at fair value as
determined in accordance with procedures adopted by the Board of Directors.
Debt securities not traded on a principal securities exchange are valued through
valuations obtained from a commercial pricing service or at the most recent mean
of the bid and asked prices provided by investment dealers in accordance with
procedures established by the Board of Directors.
Because there are hundreds of thousands of municipal issues outstanding, and the
majority of them do not trade daily, the prices provided by pricing services for
these types of securities are generally determined without regard to bid or last
sale prices. In valuing securities, the pricing services generally take into
account institutional trading activity, trading in similar groups of securities,
and any developments related to specific securities. The methods used by the
pricing service and the valuations so established are reviewed by the advisor
under the general supervision of the Board of Directors. There are a number of
pricing services available, and the advisor, on the basis of ongoing evaluation
of these services, may use other pricing services or discontinue the use of any
pricing service in whole or in part.
Securities maturing within 60 days of the valuation date may be valued at cost,
plus or minus any amortized discount or premium, unless the directors determine
that this would not result in fair valuation of a given security. Other assets
and securities for which quotations are not readily available are valued in good
faith at their fair value using methods approved by the Board of Directors.
57
The value of an exchange-traded foreign security is determined in its national
currency as of the close of trading on the foreign exchange on which it is
traded or as of the close of business on the New York Stock Exchange, if that is
earlier. That value is then translated to dollars at the prevailing foreign
exchange rate.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed at various times before the close
of business on each day that the New York Stock Exchange is open. If an event
were to occur after the value of a security was established, but before the net
asset value per share was determined, that was likely to materially change the
net asset value, then that security would be valued at fair value as determined
in accordance with procedures adopted by the Board of Directors.
Trading of these securities in foreign markets may not take place on every day
that the Exchange is open. In addition, trading may take place in various
foreign markets and on some electronic trading networks on Saturdays or on other
days when the Exchange is not open and on which the funds' net asset values are
not calculated. Therefore, such calculations do not take place contemporaneously
with the determination of the prices of many of the portfolio securities used in
such calculation, and the value of the funds' portfolios may be affected on days
when shares of the funds may not be purchased or redeemed.
TAXES
Federal Income Tax
Each fund intends to qualify annually as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). By so
qualifying, a fund will be exempt from federal income taxes to the extent that
it distributes substantially all of its net investment income and net realized
capital gains (if any) to investors. If a fund fails to qualify as a regulated
investment company, it will be liable for taxes, significantly reducing its
distributions to investors and eliminating investors' ability to treat
distributions received from the funds in the same manner in which they were
realized by the funds.
If fund shares are purchased through taxable accounts, distributions of net
investment income and net short-term capital gains are taxable to you as
ordinary income, unless they are designated as qualified dividend income and you
meet a minimum required holding period with respect to your shares of a fund, in
which case such distributions are taxed as long-term capital gains. Qualified
dividend income is a dividend received by a fund from the stock of a domestic or
qualifying foreign corporation, provided that the fund has held the stock for a
required holding period. The required holding period for qualified dividend
income is met if the underlying shares are held more than 60 days in the 120-day
period beginning 60 days prior to the ex-dividend date. Dividends received by
the funds on shares of stock of domestic corporations may qualify for the 70%
dividends-received deduction to the extent that the fund held those shares for
more than 45 days.
Distributions from gains on assets held by the funds longer than 12 months are
taxable as long-term gains regardless of the length of time you have held your
shares in the fund. If you purchase shares in the fund and sell them at a loss
within six months, your loss on the sale of those shares will be treated as a
long-term capital loss to the extent of any long-term capital gains dividend you
received on those shares.
Dividends and interest received by a fund on foreign securities may give rise to
withholding and other taxes imposed by foreign countries. However, tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. Foreign countries generally do not impose taxes on capital
gains with respect to investments by non-resident investors. Any foreign taxes
paid by a fund will reduce its dividend distributions to investors.
If more than 50% of the value of a fund's total assets at the end of its fiscal
year consists of securities of foreign corporations, the fund may qualify for
and make an election with the Internal Revenue Service with respect to such
fiscal year so that fund shareholders may be able to claim a foreign tax credit
in lieu of a deduction for foreign income taxes paid by the
58
fund. If such an election is made, the foreign taxes paid by the fund will be
treated as income received by you. In order for you to utilize the foreign tax
credit, you must have held your shares for 16 days or more during the 30-day
period, beginning 15 days prior to the ex-dividend date for the mutual fund
shares. The mutual fund must meet a similar holding period requirement with
respect to foreign securities to which a dividend is attributable. Any portion
of the foreign tax credit that is ineligible as a result of the fund not meeting
the holding period requirement will be deducted in computing net investment
income.
If a fund purchases the securities of certain foreign investment funds or trusts
called passive foreign investment companies (PFIC), capital gains on the sale of
such holdings will be deemed ordinary income regardless of how long the fund
holds the investment. The fund also may be subject to corporate income tax and
an interest charge on certain dividends and capital gains earned from these
investments, regardless of whether such income and gains are distributed to
shareholders. In the alternative, the fund may elect to recognize cumulative
gains on such investments as of the last day of its fiscal year and distribute
them to shareholders. Any distribution attributable to a PFIC is characterized
as ordinary income.
As of October 31, 2002, the funds in the table below had the following capital
loss carryovers. When a fund has a capital loss carryover, it does not make
capital gains distributions until the loss has been offset or expired.
Fund Capital Loss Carryover
--------------------------------------------------------------------------------
Growth $2,180,900,791 (expiring 2009 through 2010)
--------------------------------------------------------------------------------
Ultra $3,430,907,312 (expiring 2009 through 2010)
--------------------------------------------------------------------------------
Select $1,112,272,417 (expiring 2009 through 2010)
--------------------------------------------------------------------------------
Vista $492,680,978 (expiring 2009 through 2010)
--------------------------------------------------------------------------------
Heritage $316,040,766 (expiring 2009 through 2010)
--------------------------------------------------------------------------------
Balanced $59,727,433 (expiring 2009 through 2010)
--------------------------------------------------------------------------------
Capital Value $2,173,713 (expiring 2007 through 2010)
--------------------------------------------------------------------------------
Giftrust $597,522,294 (expiring 2009 through 2010)
--------------------------------------------------------------------------------
New Opportunities $230,866,499 (expiring 2009 through 2010)
--------------------------------------------------------------------------------
New Opportunities II $4,852,132 (expiring 2009 through 2010)
--------------------------------------------------------------------------------
Veedot $172,894,183 (expiring 2008 through 2010)
--------------------------------------------------------------------------------
If you have not complied with certain provisions of the Internal Revenue Code
and Regulations, either American Century or your financial intermediary is
required by federal law to withhold and remit to the IRS the applicable federal
withholding rate of reportable payments (which may include dividends, capital
gains distributions and redemption proceeds). Those regulations require you to
certify that the Social Security number or tax identification number you provide
is correct and that you are not subject to withholding for previous
under-reporting to the IRS. You will be asked to make the appropriate
certification on your account application. Payments reported by us to the IRS
that omit your Social Security number or tax identification number will subject
us to a non-refundable penalty of $50, which will be charged against your
account if you fail to provide the certification by the time the report is
filed.
A redemption of shares of a fund (including a redemption made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
you generally will recognize gain or loss in an amount equal to the difference
between the basis of the shares and the amount received. If a loss is realized
on the redemption of fund shares, the reinvestment in additional fund shares
within 30 days before or after the redemption may be subject to the "wash sale"
rules of the Code, resulting in a postponement of the recognition of such loss
for federal income tax purposes.
59
State and Local Taxes
Distributions by the funds also may be subject to state and local taxes, even if
all or a substantial part of such distributions are derived from interest on
U.S. government obligations which, if you received such interest directly, would
be exempt from state income tax. However, most but not all states allow this tax
exemption to pass through to fund shareholders when a fund pays distributions to
its shareholders. You should consult your tax advisor about the tax status of
such distributions in your state.
The information above is only a summary of some of the tax considerations
affecting the funds and their shareholders. No attempt has been made to discuss
individual tax consequences. A prospective investor should consult with his or
her tax advisors or state or local tax authorities to determine whether the
funds are suitable investments.
HOW FUND PERFORMANCE INFORMATION IS CALCULATED
The funds may quote performance in various ways. Fund performance may be shown
by presenting one or more performance measurements, including cumulative total
return, average annual total return or yield.
All performance information advertised by the funds is historical in nature and
is not intended to represent or guarantee future results. The value of fund
shares when redeemed may be more or less than their original cost.
All Funds
Total returns quoted in advertising and sales literature reflect all aspects of
a fund's return, including the effect of reinvesting dividends and capital gains
distributions (if any) and any change in the fund's NAV during the period.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in a fund during a stated
period and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over 10 years would produce an average annual return of 7.18%, which is the
steady annual rate that would equal 100% growth on a compounded basis in 10
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the funds' performance is
not constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance.
In addition to average annual total returns, each fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period, including periods other than one, five and 10 years.
Average annual and cumulative total returns may be quoted as percentages or as
dollar amounts and may be calculated for a single investment, a series of
investments, or a series of redemptions over any time period. Total returns may
be broken down into components of income and capital (including capital gains
and changes in share price) to illustrate the relationship of these factors and
their contributions to total return.
The following tables show the average annual total returns calculated three
different ways. As new classes, performance information for the A, B and C
Classes of New Opportunities II and Select and for the Institutional Class of
Capital Value is not available as of the fiscal year end.
Return Before Taxes shows the actual change in the value of the fund shares over
the time periods shown, but does not reflect the impact of taxes on fund
distributions or the sale of fund shares. The two after-tax returns take into
account taxes that may be associated with
60
owning the fund shares. Return After Taxes on Distributions is a fund's actual
performance, adjusted by the effect of taxes on distributions made by the fund
during the periods shown. Return After Taxes on Distributions and the Sale of
Fund Shares is further adjusted to reflect the tax impact on any change in the
value of fund shares as if they had been sold on the last day of the period.
After-tax returns are calculated using the historical highest federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor's tax situation and may differ from
those shown. After-tax returns shown are not relevant to investors who hold fund
shares through tax-deferred arrangements such as 401(k) plans or IRAs.
AVERAGE ANNUAL TOTAL RETURNS - INVESTOR CLASS AS OF OCTOBER 31, 2002
------------------------------------------------------------------------------------------------------
1 5 10 From Inception
Fund year years years Inception(1) Date
------------------------------------------------------------------------------------------------------
Growth 06/30/1971(2)
Return Before Taxes -17.09% -0.33% 6.36% 15.27%
Return After Taxes on Distributions -17.09% -2.99% 3.58% N/A
Return After Taxes on Distributions
and Sale of Fund Shares -10.49% 0.06% 4.78% N/A
------------------------------------------------------------------------------------------------------
Ultra 11/02/1981
Return Before Taxes -12.99% 1.22% 10.22% 13.65%
Return After Taxes on Distributions -12.99% -0.94% 8.61% N/A
Return After Taxes on Distributions
and Sale of Fund Shares -7.98% 0.94% 8.52% N/A
------------------------------------------------------------------------------------------------------
Select 06/30/1971(2)
Return Before Taxes -17.11% 0.46% 7.39% 14.18%
Return After Taxes on Distributions -17.17% -2.17% 4.55% N/A
Return After Taxes on Distributions
and Sale of Fund Shares -10.50% 0.20% 5.37% N/A
------------------------------------------------------------------------------------------------------
Vista 11/25/1983
Return Before Taxes -12.90% 0.47% 6.86% 9.49%
Return After Taxes on Distributions -12.90% -1.65% 4.70% N/A
Return After Taxes on Distributions
and Sale of Fund Shares -7.92% 0.50% 5.36% N/A
------------------------------------------------------------------------------------------------------
Heritage 11/10/1987
Return Before Taxes -10.07% 1.48% 9.01% 11.50%
Return After Taxes on Distributions -10.07% -1.54% 6.41% N/A
Return After Taxes on Distributions
and Sale of Fund Shares -6.18% 0.57% 6.76% N/A
------------------------------------------------------------------------------------------------------
Balanced 10/20/1988
Return Before Taxes -6.80% 1.81% 6.63% 8.67%
Return After Taxes on Distributions -7.70% -0.95% 4.21% N/A
Return After Taxes on Distributions
and Sale of Fund Shares -4.15% 0.76% 4.65% N/A
------------------------------------------------------------------------------------------------------
(1) Only funds with performance history less than 10 years show after-tax
returns from inception.
(2) Commenced operations on June 30, 1971. This inception date corresponds with
the management company's implementation of its current investment
philosophy and practices, although the fund's actual inception date was
October 31, 1958.
61
AVERAGE ANNUAL TOTAL RETURNS - INVESTOR CLASS AS OF OCTOBER 31, 2002
-------------------------------------------------------------------------------------------------
1 5 10 From Inception
Fund year years years Inception(1) Date
-------------------------------------------------------------------------------------------------
Giftrust 11/25/1983
Return Before Taxes -15.38% -8.10% 6.04% 11.67%
Return After Taxes on Distributions -15.39% -9.23% 4.18% N/A
Return After Taxes on Distributions
and Sale of Fund Shares -9.45% -5.52% 5.03% N/A
-------------------------------------------------------------------------------------------------
New Opportunities(2) 12/26/1996
Return Before Taxes -18.13% 4.06% N/A 4.53%
Return After Taxes on Distributions -18.13% 1.56% N/A 2.38%
Return After Taxes on Distributions
and Sale of Fund Shares -11.13% 3.69% N/A 4.04%
-------------------------------------------------------------------------------------------------
New Opportunities II 06/01/2001
Return Before Taxes -8.19% N/A N/A -12.33%
Return After Taxes on Distributions -8.19% N/A N/A -12.33%
Return After Taxes on Distributions
and Sale of Fund Shares -5.03% N/A N/A -9.81%
-------------------------------------------------------------------------------------------------
Capital Value 03/31/1999
Return Before Taxes -8.49% N/A N/A 0.33%
Return After Taxes on Distributions -8.87% N/A N/A -0.07%
Return After Taxes on Distributions
and Sale of Fund Shares -5.18% N/A N/A 0.08%
-------------------------------------------------------------------------------------------------
Veedot(2) 11/30/1999
Return Before Taxes -14.48% N/A N/A -9.85%
Return After Taxes on Distributions -14.48% N/A N/A -9.85%
Return After Taxes on Distributions
and Sale of Fund Shares -8.89% N/A N/A -7.72%
-------------------------------------------------------------------------------------------------
(1) Only funds with performance history less than 10 years show after-tax
returns from inception.
(2) Returns reflect the deduction of a 2% redemption fee, incurred only if
shares were redeemed within the first five years after purchase.
AVERAGE ANNUAL TOTAL RETURNS - ADVISOR CLASS AS OF OCTOBER 31, 2002
---------------------------------------------------------------------------------------
1 5 From Inception
Fund year years Inception(1) Date
---------------------------------------------------------------------------------------
Growth 06/04/1997
Return Before Taxes -17.32% -0.62% 1.91%
Return After Taxes on Distributions -17.32% -3.20% -0.54%
Return After Taxes on Distributions
and Sale of Fund Shares -10.64% -0.13% 1.90%
---------------------------------------------------------------------------------------
Ultra 10/02/1996
Return Before Taxes -13.24% 0.99% 3.80%
Return After Taxes on Distributions -13.24% -1.14% 1.75%
Return After Taxes on Distributions
and Sale of Fund Shares -8.13% 0.78% 2.99%
---------------------------------------------------------------------------------------
(1) Only funds with performance history less than 10 years show after-tax
returns from inception.
62
AVERAGE ANNUAL TOTAL RETURNS - ADVISOR CLASS AS OF OCTOBER 31, 2002
----------------------------------------------------------------------------------------
1 5 From Inception
Fund year years Inception(1) Date
----------------------------------------------------------------------------------------
Select 08/08/1997
Return Before Taxes -17.36% 0.21% -0.30%
Return After Taxes on Distributions -17.36% -2.38% -2.76%
Return After Taxes on Distributions
and Sale of Fund Shares -10.66% 0.03% -0.37%
----------------------------------------------------------------------------------------
Vista 10/02/1996
Return Before Taxes -13.11% 0.23% -1.00%
Return After Taxes on Distributions -13.11% -1.86% -3.04%
Return After Taxes on Distributions
and Sale of Fund Shares -8.05% 0.34% -0.77%
----------------------------------------------------------------------------------------
Heritage 07/11/1997
Return Before Taxes -10.31% 1.22% 1.97%
Return After Taxes on Distributions -10.31% -1.74% -0.84%
Return After Taxes on Distributions
and Sale of Fund Shares -6.33% 0.40% 1.03%
----------------------------------------------------------------------------------------
Balanced 01/06/1997
Return Before Taxes -7.04% 1.54% 3.54%
Return After Taxes on Distributions -7.85% -1.12% 1.12%
Return After Taxes on Distributions
and Sale of Fund Shares -4.30% 0.60% 2.26%
----------------------------------------------------------------------------------------
(1) Only funds with performance history less than 10 years show after-tax
returns from inception.
AVERAGE ANNUAL TOTAL RETURNS - INSTITUTIONAL CLASS AS OF OCTOBER 31, 2002
------------------------------------------------------------------------------------------------
Fund 1 year 5 years From Inception Inception Date
------------------------------------------------------------------------------------------------
Growth 06/16/1997
Return Before Taxes -16.93% -0.11% 1.39%
Return After Taxes on Distributions -16.93% -2.82% -1.18%
Return After Taxes on Distributions
and Sale of Fund Shares -10.39% 0.20% 1.39%
------------------------------------------------------------------------------------------------
Ultra 11/14/1996
Return Before Taxes -12.76% 1.43% 3.64%
Return After Taxes on Distributions -12.76% -0.77% 1.49%
Return After Taxes on Distributions
and Sale of Fund Shares -7.83% 1.07% 2.79%
------------------------------------------------------------------------------------------------
Select 03/13/1997
Return Before Taxes -16.93% 0.67% 3.74%
Return After Taxes on Distributions -17.05% -2.00% 1.29%
Return After Taxes on Distributions
and Sale of Fund Shares -10.38% 0.33% 2.85%
------------------------------------------------------------------------------------------------
Vista 11/14/1996
Return Before Taxes -12.71% 0.67% 0.59%
Return After Taxes on Distributions -12.71% -1.48% -1.57%
Return After Taxes on Distributions
and Sale of Fund Shares -7.80% 0.64% 0.45%
------------------------------------------------------------------------------------------------
63
AVERAGE ANNUAL TOTAL RETURNS - INSTITUTIONAL CLASS AS OF OCTOBER 31, 2002
----------------------------------------------------------------------------------------------
Fund 1 year 5 years From Inception Inception Date
----------------------------------------------------------------------------------------------
Heritage 06/16/1997
Return Before Taxes -9.83% 1.73% 3.31%
Return After Taxes on Distributions -9.83% -1.34% 0.41%
Return After Taxes on Distributions
and Sale of Fund Shares -6.04% 0.74% 2.05%
----------------------------------------------------------------------------------------------
Balanced 05/01/ 2000
Return Before Taxes -6.54% N/A -7.03%
Return After Taxes on Distributions -7.52% N/A -8.34%
Return After Taxes on Distributions
and Sale of Fund Shares -3.99% N/A -6.01%
----------------------------------------------------------------------------------------------
Veedot(1) 08/01/2000
Return Before Taxes -14.22% N/A -19.92%
Return After Taxes on Distributions -14.22% N/A -19.92%
Return After Taxes on Distributions
and Sale of Fund Shares -8.73% N/A -15.46%
----------------------------------------------------------------------------------------------
(1) Returns reflect the deduction of a 2% redemption fee, incurred only if
shares were redeemed within the first five years after purchase.
AVERAGE ANNUAL TOTAL RETURNS - C CLASS(1) AS OF OCTOBER 31, 2002
------------------------------------------------------------------------------
Fund 1 year From Inception Inception Date
------------------------------------------------------------------------------
Vista 07/18/2001
Return Before Taxes -13.88% -19.56%
Return After Taxes on Distributions -14.74% -19.88%
Return After Taxes on Distributions
and Sale of Fund Shares -9.05% -15.80%
------------------------------------------------------------------------------
Ultra 10/29/2001
Return Before Taxes -13.95% -15.36%
Return After Taxes on Distributions -14.81% -16.21%
Return After Taxes on Distributions
and Sale of Fund Shares -9.09% -12.96%
------------------------------------------------------------------------------
Heritage 06/26/2001
Return Before Taxes -10.99% -21.37%
Return After Taxes on Distributions -11.88% -21.58%
Return After Taxes on Distributions
and Sale of Fund Shares -7.29% -17.11%
------------------------------------------------------------------------------
64
Balanced
Yield is calculated by adding over a 30-day (or one-month) period all interest
and dividend income (net of fund expenses) calculated on each day's market
values, dividing this sum by the average number of fund shares outstanding
during the period, and expressing the result as a percentage of the fund's share
price on the last day of the 30-day (or one-month) period. The percentage is
then annualized. Capital gains and losses are not included in the calculation.
The following table sets forth yield quotations pursuant to computation methods
prescribed by the SEC for the various classes of Balanced for the 30-day period
ended October 31, 2002, the last day of the fund's most recent fiscal year.
Fund Investor Class Institutional Class Advisor Class
------------------------------------------------------------------------------
Balanced 2.36% 2.55% 2.11%
------------------------------------------------------------------------------
Balanced may also elect to advertise an annualized distribution rate, computed
by multiplying the ordinary dividends earned by a fund the most recent calendar
quarter (excluding capital gains) by 4, dividing by the fund's share price (net
asset value or maximum offering price) at the end of the period, and then
multiplying that amount by 100:
Dividends Earned Over Last Calendar Quarter X 4
----------------------------------------------- X 100 = Annualized Distribution Rate
Current Share Price
The annual distribution rate for a fund will differ from the fund's 30-day SEC
yield.
PERFORMANCE COMPARISONS
The funds' performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indices of market
performance. This may include comparisons with funds that are sold with a sales
charge or deferred sales charge. Sources of economic data that may be used for
such comparisons may include, but are not limited to: U.S. Treasury bill, note
and bond yields, money market fund yields, U.S. government debt and percentage
held by foreigners, the U.S. money supply, net free reserves, and yields on
current-coupon GNMAs (source: Board of Governors of the Federal Reserve System);
the federal funds and discount rates (source: Federal Reserve Bank of New York);
yield curves for U.S. Treasury securities and AA/AAA-rated corporate securities
(source: Bloomberg Financial Markets); yield curves for AAA-rated, tax-free
municipal securities (source: Telerate); yield curves for foreign government
securities (sources: Bloomberg Financial Markets and Data Resources, Inc.);
total returns on foreign bonds (source: J.P. Morgan Securities Inc.); various
U.S. and foreign government reports; the junk bond market (source: Data
Resources, Inc.); the CRB Futures Index (source: Commodity Index Report); the
price of gold (sources: London a.m./p.m. fixing and New York Comex Spot Price);
rankings of any mutual fund or mutual fund category tracked by Lipper, Inc. or
Morningstar, Inc.; mutual fund rankings published in major, nationally
distributed periodicals; data provided by the Investment Company Institute;
Ibbotson Associates, Stocks, Bonds, Bills, and Inflation; major indices of stock
market performance; and indices and historical data supplied by major securities
brokerage or investment advisory firms. The funds also may utilize reprints from
newspapers and magazines furnished by third parties to illustrate historical
performance or to provide general information about the funds.
65
PERMISSIBLE ADVERTISING INFORMATION
From time to time, the funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders:
(1) discussions of general economic or financial principles (such as the effects
of compounding and the benefits of dollar-cost averaging);
(2) discussions of general economic trends;
(3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the funds;
(5) descriptions of investment strategies for one or more of the funds;
(6) descriptions or comparisons of various savings and investment products
(including, but not limited to, qualified retirement plans and individual
stocks and bonds), which may or may not include the funds;
(7) comparisons of investment products (including the funds) with relevant
market or industry indices or other appropriate benchmarks;
(8) discussions of fund rankings or ratings by recognized rating organizations;
and
(9) testimonials describing the experience of persons who have invested in one
or more of the funds.
The funds also may include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of any of the funds.
MULTIPLE CLASS PERFORMANCE ADVERTISING
Pursuant to the Multiple Class Plans, the corporation may issue additional
classes of existing funds or introduce new funds with multiple classes available
for purchase. To the extent a new class is added to an existing fund, the
advisor may, in compliance with SEC and NASD rules, regulations and guidelines,
market the new class of shares using the historical performance information of
the original class of shares. When quoting performance information for a new
class of shares for periods prior to the first full quarter after inception, the
original class' performance will be restated to reflect the expenses of the new
class and for periods after the first full quarter after inception, actual
performance of the new class will be used.
FINANCIAL STATEMENTS
The financial statements for the funds have been audited by Deloitte & Touche
LLP, independent auditors. Their Independent Auditors' Reports and the financial
statements included in the funds' Annual Reports for the fiscal year ended
October 31, 2002, are incorporated herein by reference.
66
EXPLANATION OF FIXED-INCOME SECURITIES RATINGS
As described in the Prospectuses, some of the funds will invest in fixed-income
securities. Those investments, however, are subject to certain credit quality
restrictions, as noted in the Prospectuses. The following is a summary of the
rating categories referenced in the prospectus.
RATINGS OF CORPORATE DEBT SECURITIES
--------------------------------------------------------------------------------
Standard & Poor's
--------------------------------------------------------------------------------
AAA This is the highest rating assigned by S&P to a debt obligation. It
indicates an extremely strong capacity to pay interest and repay
principal.
--------------------------------------------------------------------------------
AA Debt rated in this category is considered to have a very strong capacity
to pay interest and repay principal. It differs from the highest-rated
obligations only in small degree.
--------------------------------------------------------------------------------
A Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories.
--------------------------------------------------------------------------------
BBB Debt rated in this category is regarded as having an adequate capacity
to pay interest and repay principal. While it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories. Debt rated below BBB is regarded as having
significant speculative characteristics.
--------------------------------------------------------------------------------
BB Debt rated in this category has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions that could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating also is used for debt
subordinated to senior debt that is assigned an actual or implied BBB
rating.
--------------------------------------------------------------------------------
B Debt rated in this category is more vulnerable to nonpayment than
obligations rated 'BB', but currently has the capacity to pay interest
and repay principal. Adverse business, financial, or economic conditions
will likely impair the obligor's capacity or willingness to pay interest
and repay principal.
--------------------------------------------------------------------------------
CCC Debt rated in this category is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event
of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
--------------------------------------------------------------------------------
CC Debt rated in this category is currently highly vulnerable to
nonpayment. This rating category is also applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
--------------------------------------------------------------------------------
C The rating C typically is applied to debt subordinated to senior debt,
and is currently highly vulnerable to nonpayment of interest and
principal. This rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action taken, but debt
service payments are being continued.
--------------------------------------------------------------------------------
D Debt rated in this category is in default. This rating is used when
interest payments or principal repayments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. It also will
be used upon the filing of a bankruptcy petition for the taking of a
similar action if debt service payments are jeopardized.
--------------------------------------------------------------------------------
67
Moody's Investors Service, Inc.
--------------------------------------------------------------------------------
Aaa This is the highest rating assigned by Moody's to a debt obligation. It
indicates an extremely strong capacity to pay interest and repay
principal.
--------------------------------------------------------------------------------
Aa Debt rated in this category is considered to have a very strong capacity
to pay interest and repay principal and differs from Aaa issues only in
a small degree. Together with Aaa debt, it comprises what are generally
known as high-grade bonds.
--------------------------------------------------------------------------------
A Debt rated in this category possesses many favorable investment
attributes and is to be considered as upper-medium-grade debt. Although
capacity to pay interest and repay principal are considered adequate, it
is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated
categories.
--------------------------------------------------------------------------------
Baa Debt rated in this category is considered as medium-grade debt having an
adequate capacity to pay interest and repay principal. While it normally
exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for debt in this category than in
higher-rated categories. Debt rated below Baa is regarded as having
significant speculative characteristics.
--------------------------------------------------------------------------------
Ba Debt rated Ba has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions that
could lead to inadequate capacity to meet timely interest and principal
payments. Often the protection of interest and principal payments may be
very moderate.
--------------------------------------------------------------------------------
B Debt rated B has a greater vulnerability to default, but currently has
the capacity to meet financial commitments. Assurance of interest and
principal payments or of maintenance of other terms of the contract over
any long period of time may be small. The B rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied Ba or Ba3 rating.
--------------------------------------------------------------------------------
Caa Debt rated Caa is of poor standing, has a currently identifiable
vulnerability to default, and is dependent upon favorable business,
financial and economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business, financial or
economic conditions, it is not likely to have the capacity to pay
interest and repay principal. Such issues may be in default or there may
be present elements of danger with respect to principal or interest. The
Caa rating is also used for debt subordinated to senior debt that is
assigned an actual or implies B or B3 rating.
--------------------------------------------------------------------------------
Ca Debt rated in this category represent obligations that are speculative
in a high degree. Such debt is often in default or has other marked
shortcomings.
--------------------------------------------------------------------------------
C This is the lowest rating assigned by Moody's, and debt rated C can be
regarded as having extremely poor prospects of attaining investment
standing.
--------------------------------------------------------------------------------
Fitch, Inc.
--------------------------------------------------------------------------------
AAA Debt rated in this category has the lowest expectation of credit risk.
Capacity for timely payment of financial commitments is exceptionally
strong and highly unlikely to be adversely affected by foreseeable
events.
--------------------------------------------------------------------------------
AA Debt rated in this category has a very low expectation of credit risk.
Capacity for timely payment of financial commitments is very strong and
not significantly vulnerable to foreseeable events.
--------------------------------------------------------------------------------
A Debt rated in this category has a low expectation of credit risk.
Capacity for timely payment of financial commitments is strong, but may
be more vulnerable to changes in circumstances or in economic conditions
than debt rated in higher categories.
--------------------------------------------------------------------------------
BBB Debt rated in this category currently has a low expectation of credit
risk and an adequate capacity for timely payment of financial
commitments. However, adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is the lowest
investment grade category.
--------------------------------------------------------------------------------
BB Debt rated in this category has a possibility of developing credit risk,
particularly as the result of adverse economic change over time.
However, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are
not investment grade.
--------------------------------------------------------------------------------
B Debt rated in this category has significant credit risk, but a limited
margin of safety remains. Financial commitments currently are being met,
but capacity for continued debt service payments is contingent upon a
sustained, favorable business and economic environment.
--------------------------------------------------------------------------------
58
Fitch, Inc.
--------------------------------------------------------------------------------
CCC, CC, C Debt rated in these categories has a real possibility for
default. Capacity for meeting financial commitments depends
solely upon sustained, favorable business or economic
developments. A CC rating indicates that default of some kind
appears probable; a C rating signals imminent default.
--------------------------------------------------------------------------------
DDD, DD, D The ratings of obligations in this category are based on their
prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated
with any precision, the following serve as general guidelines.
'DDD' obligations have the highest potential for recovery,
around 90%- 100% of outstanding amounts and accrued interest.
'DD' indicates potential recoveries in the range of 50%-90% and
'D' the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of
their obligations. Entities rated 'DDD' have the highest
prospect for resumption of performance or continued operation
with or without a formal reorganization process. Entities rated
'DD' and 'D' are generally undergoing a formal reorganization or
liquidation process; those rated 'DD' are likely to satisfy a
higher portion of their outstanding obligations, while entities
rated 'D' have a poor prospect of repaying all obligations.
--------------------------------------------------------------------------------
To provide more detailed indications of credit quality, the Standard & Poor's
ratings from AA to CCC may be modified by the addition of a plus or minus sign
to show relative standing within these major rating categories. Similarly,
Moody's adds numerical modifiers (1,2,3) to designate relative standing within
its major bond rating categories.
Commercial Paper Ratings
-----------------------------------------------------------------------------------
S&P Moody's Description
-----------------------------------------------------------------------------------
A-1 Prime-1 This indicates that the degree of safety regarding timely payment
(P-1) is strong. Standard & Poor's rates those issues determined to
possess extremely strong safety characteristics as A-1+.
-----------------------------------------------------------------------------------
A-2 Prime-2 Capacity for timely payment on commercial paper is satisfactory,
(P-2) but the relative degree of safety is not as high as for issues
designated A-1. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization
characteristics, while still appropriated, may be more affected by
external conditions. Ample alternate liquidity is maintained.
-----------------------------------------------------------------------------------
A-3 Prime-3 Satisfactory capacity for timely repayment. Issues that carry this
(P-3) rating are somewhat more vulnerable to the adverse changes in
circumstances than obligations carrying the higher designations.
-----------------------------------------------------------------------------------
Note Ratings
-------------------------------------------------------------------------------------------
S&P Moody's Description
-------------------------------------------------------------------------------------------
SP-1 MIG-1; VMIG-1 Notes are of the highest quality enjoying strong protection from
established cash flows of funds for their servicing or from
established and broad-based access to the market for
refinancing, or both.
-------------------------------------------------------------------------------------------
SP-2 MIG-2; VMIG-2 Notes are of high quality, with margins of protection ample,
although not so large as in the preceding group.
-------------------------------------------------------------------------------------------
SP-3 MIG-3; VMIG-3 Notes are of favorable quality, with all security elements
accounted for, but lacking the undeniable strength of the
preceding grades. Market access for refinancing, in particular, is
likely to be less well established.
-------------------------------------------------------------------------------------------
SP-4 MIG-4; VMIG-4 Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
-------------------------------------------------------------------------------------------
69
MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS
ANNUAL AND SEMIANNUAL REPORTS
Annual and semiannual reports contain more information about the funds'
investments and the market conditions and investment strategies that
significantly affected the funds' performance during the most recent fiscal
period.
You can receive a free copy of the annual and semiannual reports, and ask
questions about the funds and your accounts, by contacting American Century at
the address or telephone numbers listed below.
If you own or are considering purchasing fund shares through
* an employer-sponsored retirement plan
* a bank
* a broker-dealer
* an insurance company
* another financial intermediary
you can receive the annual and semiannual reports directly from them.
You also can get information about the funds from the Securities and Exchange
Commission (SEC). The SEC charges a duplicating fee to provide copies of this
information.
In person SEC Public Reference Room
Washington, D.C.
Call 202-942-8090 for location and hours.
On the Internet * EDGAR database at www.sec.gov
* By email request at publicinfo@sec.gov
By mail SEC Public Reference Section
Washington, D.C. 20549-0102
Investment Company Act File No. 811-0816
[american century logo and text logo (reg sm)]
AMERICAN CENTURY INVESTMENTS
P.O. Box 419200
Kansas City, Missouri 64141-6200
INVESTOR RELATIONS
1-800-345-2021 or 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
WWW.AMERICANCENTURY.COM
FAX
816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 or 816-444-3485
BUSINESS; NOT-FOR-PROFIT AND
EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
SH-SAI-34921 0308
PART C. OTHER INFORMATION.
ITEM 23. Exhibits (all exhibits not filed herewith are being incorporated
herein by reference)
(a) (1) Articles of Incorporation of Twentieth Century Investors, Inc.,
dated June 26, 1990 (filed electronically as Exhibit b1a to
Post-Effective Amendment No. 73 to the Registration Statement of the
Registrant on February 29, 1996, File No. 2-14213).
(2) Articles of Amendment of Twentieth Century Investors, Inc., dated
November 19, 1990 (filed electronically as Exhibit b1b to
Post-Effective Amendment No. 73 to the Registration Statement of the
Registrant on February 29, 1996, File No. 2-14213).
(3) Articles of Merger of Twentieth Century Investors, Inc., a
Maryland corporation and Twentieth Century Investors, Inc., a Delaware
corporation, dated February 22, 1991 (filed electronically as Exhibit
b1c to Post-Effective Amendment No. 73 to the Registration Statement
of the Registrant on February 29, 1996, File No. 2-14213).
(4) Articles of Amendment of Twentieth Century Investors, Inc., dated
August 10, 1993 (filed electronically as Exhibit b1d to Post-Effective
Amendment No. 73 to the Registration Statement of the Registrant on
February 29, 1996, File No. 2-14213).
(5) Articles Supplementary of Twentieth Century Investors, Inc., dated
September 2, 1993 (filed electronically as Exhibit b1e to
Post-Effective Amendment No. 73 to the Registration Statement of the
Registrant on February 29, 1996, File No. 2-14213).
(6) Articles Supplementary of Twentieth Century Investors, Inc., dated
April 24, 1995 (filed electronically as Exhibit b1f to Post-Effective
Amendment No. 73 to the Registration Statement of the Registrant on
February 29, 1996, File No. 2-14213).
(7) Articles Supplementary of Twentieth Century Investors, Inc., dated
October 11, 1995 (filed electronically as Exhibit b1g to
Post-Effective Amendment No. 73 to the Registration Statement of the
Registrant on February 29, 1996, File No. 2-14213).
(8) Articles Supplementary of Twentieth Century Investors, Inc., dated
January 22, 1996 (filed electronically as Exhibit b1h to
Post-Effective Amendment No. 73 to the Registration Statement of the
Registrant on February 29, 1996, File No. 2-14213).
(9) Articles Supplementary of Twentieth Century Investors, Inc., dated
March 11, 1996 (filed electronically as Exhibit b1i to Post-Effective
Amendment No. 75 to the Registration Statement of the Registrant on
June 14, 1996, File No. 2-14213).
(10) Articles Supplementary of Twentieth Century Investors, Inc.,
dated September 9, 1996 (filed electronically as Exhibit a10 to
Post-Effective Amendment No. 85 to the Registration Statement of the
Registrant on September 1, 1999, File No. 2-14213).
(11) Articles of Amendment of Twentieth Century Investors, Inc., dated
December 2, 1996 (filed electronically as Exhibit b1j to
Post-Effective Amendment No. 76 to the Registration Statement of the
Registrant on February 28, 1997, File No. 2-14213).
(12) Articles Supplementary of American Century Mutual Funds, Inc.,
dated December 2, 1996 (filed electronically as Exhibit b1k to
Post-Effective Amendment No. 76 to the Registration Statement of the
Registrant on February 28, 1997, File No. 2-14213).
(13) Articles Supplementary of American Century Mutual Funds, Inc.,
dated July 28, 1997 (filed electronically as Exhibit b1l to
Post-Effective Amendment No. 78 to the Registration Statement of the
Registrant on February 26, 1998, File No. 2-14213).
(14) Articles Supplementary of American Century Mutual Funds, Inc.,
dated November 28, 1997 (filed electronically as Exhibit a13 to
Post-Effective Amendment No. 83 to the Registration Statement of the
Registrant on February 26, 1999, File No. 2-14213).
(15) Certificate of Correction to Articles Supplementary of American
Century Mutual Funds, Inc., dated December 18, 1997 (filed
electronically as Exhibit a14 to Post-Effective Amendment No. 83 to
the Registration Statement of the Registrant on February 26, 1999,
File No. 2-14213).
(16) Articles Supplementary of American Century Mutual Funds, Inc.,
dated December 18, 1997 (filed electronically as Exhibit b1m to
Post-Effective Amendment No. 78 to the Registration Statement of the
Registrant on February 26, 1998, File No. 2-14213).
(17) Articles Supplementary of American Century Mutual Funds, Inc.,
dated January 25, 1999 (filed electronically as Exhibit a16 to
Post-Effective Amendment No. 83 to the Registration Statement of the
Registrant on February 26, 1999, File No. 2-14213).
(18) Articles Supplementary of American Century Mutual Funds, Inc.,
dated February 16, 1999 (filed electronically as Exhibit a17 to
Post-Effective Amendment No. 83 to the Registration Statement of the
Registrant on February 26, 1999, File No. 2-14213).
(19) Articles Supplementary of American Century Mutual Funds, Inc.,
dated August 2, 1999 (filed electronically as Exhibit a19 to
Post-Effective Amendment No. 89 to the Registration Statement of the
Registrant on December 1, 2000, File No. 2-14213).
(20) Articles Supplementary of American Century Mutual Funds, Inc.,
dated November 11, 1999 (filed electronically as Exhibit a19 to
Post-Effective Amendment No. 87 to the Registration Statement of the
Registrant on November 29, 1999, File No. 2-14213).
(21) Articles Supplementary of American Century Mutual Funds, Inc.,
dated March 5, 2001 (filed electronically as Exhibit a21 to
Post-Effective Amendment No. 93 to the Registration Statement of the
Registrant on April 20, 2001, File No. 2-14213).
(22) Certificate of Correction to Articles Supplementary, dated April
3, 2001 (filed electronically as Exhibit a22 to Post-Effective
Amendment No. 93 to the Registration Statement of the Registrant on
April 20, 2001, File No. 2-14213).
(23) Articles Supplementary of American Century Mutual Funds, Inc.,
dated June 14, 2002 (filed electronically as Exhibit a23 to
Post-Effective Amendment No. 98 to the Registration Statement of the
Registrant on October 10, 2002, File No. 2-14213).
(24) Certificate of Correction to Articles Supplementary of American
Century Mutual Funds, Inc., dated June 25, 2002 (filed electronically
as Exhibit a24 to Post-Effective Amendment No. 98 to the Registration
Statement of the Registrant on October 10, 2002, File No. 2-14213).
(25) Articles Supplementary of American Century Mutual Funds, Inc.,
dated February 12, 2002 (filed electronically as Exhibit a25 to
Post-Effective Amendment No. 100 to the Registration Statement of the
Registrant on February 28, 2003, File No. 2-14213).
(26) Certificate of Correction to Articles Supplementary of American
Century Mutual Funds, Inc., dated February 28, 2003 (filed
electronically as Exhibit a26 to Post-Effective Amendment No. 101 to
the Registration Statement of the Registrant on June 16, 2003, File
No. 2-14213).
(27) Articles Supplementary of American Century Mutual Funds, Inc.,
dated August 14, 2003, are included herein.
(b) (1) By-laws of Twentieth Century Investors, Inc., (filed
electronically as Exhibit b2 to Post-Effective Amendment No. 73 to the
Registration Statement of the Registrant on February 29, 1996, File
No. 2-14213).
(2) Amendment to By-laws of American Century Mutual Funds, Inc.,
American Century Capital Portfolios, Inc., American Century World
Mutual Funds, Inc. and American Century Strategic Asset Allocations,
Inc. (filed electronically as Exhibit b2b to Post-Effective Amendment
No. 9 to the Registration Statement of American Century Capital
Portfolios, Inc. on February 17, 1998, File No. 33-64872).
(c) Registrant hereby incorporates by reference, as though set forth fully
herein, Article Fifth, Article Seventh, and Article Eighth, of
Registrant's Articles of Incorporation, appearing as Exhibit (a)(1) to
Post-Effective Amendment No. 76 on Form N-1A of the Registrant, and
Article Fifth of Registrant's Articles of Amendment, appearing as
Exhibit (a)(4) to Post-Effective Amendment No. 76 on Form N-1A of the
Registrant, to the Registration Statement on February 28, 1997; and
Sections 3, 4, 5, 6, 7, 8, 9, 10, 11, 22, 24, 25, 30, 31, 33, 39, 45
and 46 of Registrant's By-Laws appearing as Exhibit (b)(2) to
Post-Effective Amendment No. 73 on Form N-1A, and Sections 25, 30 & 31
of Registrant's By-Laws appearing as Exhibit (b)(2) to Post-Effective
Amendment No. 9 on Form N-1A of American Century Capital Portfolios,
Inc., File No. 33-64872.
(d) (1) Management Agreement between American Century Mutual Funds, Inc.
and American Century Investment Management, Inc., dated August 1, 1997
(filed electronically as Exhibit b5 to Post-Effective Amendment No. 78
to the Registration Statement of the Registrant on February 26, 1998,
File No. 2-14213).
(2) Addendum to the Management Agreement between American Century
Mutual Funds, Inc. and American Century Investment Management, Inc.,
dated September 15, 1997 (filed electronically as Exhibit d2 to
Post-Effective Amendment No. 89 to the Registration Statement of the
Registrant on December 1, 2000, File No. 2-14213).
(3) Addendum to the Management Agreement between American Century
Mutual Funds, Inc. and American Century Investment Management, Inc.,
dated February 16, 1999 (filed electronically as Exhibit d2 to
Post-Effective Amendment No. 83 to the Registration Statement of the
Registrant on February 26, 1999, File No. 2-14213).
(4) Addendum to the Management Agreement between American Century
Mutual Funds, Inc. and American Century Investment Management, Inc.,
dated November 30, 1999 (filed electronically as Exhibit d3 to
Post-Effective Amendment No. 87 to the Registration Statement of the
Registrant on November 29, 1999, File No. 2-14213).
(5) Amendment No. 1 to the Management Agreement between American
Century Mutual Funds, Inc. and American Century Investment Management,
Inc., dated August 1, 2000 (filed electronically as Exhibit d5 to
Post-Effective Amendment No. 89 to the Registration Statement of the
Registrant on December 1, 2000, File No. 2-14213).
(6) Addendum to the Management Agreement between American Century
Mutual Funds, Inc. and American Century Investment Management, Inc.,
dated May 1, 2001 (filed electronically as Exhibit d6 to
Post-Effective Amendment No. 93 to the Registration Statement of the
Registrant on April 20, 2001, File No. 2-14213).
(7) Addendum to the Management Agreement between American Century
Mutual Funds, Inc. and American Century Investment Management, Inc.,
dated September 3, 2002 (filed electronically as Exhibit d7 to
Post-Effective Amendment No. 98 to the Registration Statement of the
Registrant on October 10, 2002, File No. 2-14213).
(8) Addendum to the Management Agreement between American Century
Mutual Funds, Inc. and American Century Investment Management, Inc.,
dated August 29, 2003, is included herein.
(e) (1) Amended and Restated Distribution Agreement between American
Century California Tax-Free and Municipal Funds, American Century
Capital Portfolios, Inc., American Century Government Income Trust,
American Century International Bond Funds, American Century Investment
Trust, American Century Municipal Trust, American Century Mutual
Funds, Inc., American Century Quantitative Equity Funds, American
Century Strategic Asset Allocations, Inc., American Century Target
Maturities Trust, American Century Variable Portfolios, Inc., American
Century Variable Portfolios II, Inc., American Century World Mutual
Funds, Inc. and American Century Investment Services, Inc., dated
September 3, 2002 (filed electronically as Exhibit e1 to
Post-Effective Amendment No. 35 to the Registration Statement of
American Century Municipal Trust on September 30, 2002, File No.
2-91229).
(2) Amendment No. 1 to the Amended and Restated Distribution Agreement
between American Century California Tax-Free and Municipal Funds,
American Century Capital Portfolios, Inc., American Century Government
Income Trust, American Century International Bond Funds, American
Century Investment Trust, American Century Municipal Trust, American
Century Mutual Funds, Inc., American Century Quantitative Equity
Funds, American Century Strategic Asset Allocations, Inc., American
Century Target Maturities Trust, American Century Variable Portfolios,
Inc., American Century Variable Portfolios II, Inc., American Century
World Mutual Funds, Inc. and American Century Investment Services,
Inc., dated December 31, 2002 (filed electronically as Exhibit e2 to
Post-Effective Amendment No. 4 to the Registration Statement of
American Century Variable Portfolios II, Inc. on December 20, 2002,
File No. 333-46922).
(3) Amendment No. 2 to the Amended and Restated Distribution Agreement
between American Century California Tax-Free and Municipal Funds,
American Century Capital Portfolios, Inc., American Century Government
Income Trust, American Century International Bond Funds, American
Century Investment Trust, American Century Municipal Trust, American
Century Mutual Funds, Inc., American Century Quantitative Equity Funds,
American Century Strategic Asset Allocations, Inc., American Century
Target Maturities Trust, American Century Variable Portfolios, Inc.,
American Century Variable Portfolios II, Inc., American Century World
Mutual Funds, Inc. and American Century Investment Services, Inc.,
dated August 29, 2003, (filed electronically as Exhibit e3 to
Post-Effective Amendment No. 17 to the Registration Statement of
American Century Strategic Asset Allocations, Inc. on August 28, 2003,
File No. 33-79482).
(f) Not Applicable.
(g) (1) Master Agreement by and between Commerce Bank, N.A. and Twentieth
Century Services, Inc., dated January 22, 1997 (filed electronically
as Exhibit b8e to Post-Effective Amendment No. 76 to the Registration
Statement of the Registrant on February 28, 1997, File No. 2-14213).
(2) Global Custody Agreement between American Century Investments and
The Chase Manhattan Bank, dated August 9, 1996 (filed electronically
as Exhibit b8 to Post-Effective Amendment No. 31 to the Registration
Statement of American Century Government Income Trust on February 7,
1997, File No. 2-99222).
(3) Amendment to the Global Custody Agreement between American Century
Investments and The Chase Manhattan Bank, dated December 9, 2000
(filed electronically as Exhibit g2 to Pre-Effective Amendment No. 2
to the Registration Statement of American Century Variable Portfolios
II, Inc. on January 9, 2001, File No. 333-46922).
(h) (1) Transfer Agency Agreement by and between Twentieth Century
Investors, Inc. and Twentieth Century Services, Inc., dated as of
March 1, 1991 (filed electronically as Exhibit 9 to Post-Effective
Amendment No. 76 to the Registration Statement of the Registrant on
February 28, 1997, File No. 2-14213).
(2) Credit Agreement between American Century Funds and The Chase
Manhattan Bank, as Administrative Agent, dated as of December 18, 2001
(filed electronically as Exhibit h9 to Post-Effective Amendment No. 33
to the Registration Statement of American Century California Tax-Free
and Municipal Funds on December 28, 2001, File No. 2-82734).
(i) Opinion and Consent of Counsel (filed electronically as Exhibit i to
Post-Effective Amendment No. 89 to the Registration Statement of the
Registrant on December 1, 2000, File No. 2-14213).
(j) (1) Consent of Deloitte & Touche.
(2) Power of Attorney, dated November 15, 2002 (filed electronically
as Exhibit j2 to the Registration Statement of the Registrant on
December 17, 2002, File No. 2-14213).
(3) Secretary's Certificate, dated November 25, 2002 (filed
electronically as Exhibit j3 to the Registration Statement of the
Registrant on December 17, 2002, File No. 2-14213).
(k) Not applicable.
(l) Not applicable.
(m) (1) Master Distribution and Shareholder Services Plan of Twentieth
Century Capital Portfolios, Inc., Twentieth Century Investors, Inc.,
Twentieth Century Strategic Asset Allocations, Inc. and Twentieth
Century World Investors, Inc. (Advisor Class), dated September 3, 1996
(filed electronically as Exhibit b15a to Post-Effective Amendment No.
9 to the Registration Statement of American Century Capital
Portfolios, Inc. on February 17, 1998, File No. 33-64872).
(2) Amendment No. 1 to the Master Distribution and Shareholder
Services Plan of American Century Capital Portfolios, Inc., American
Century Mutual Funds, Inc., American Century Strategic Asset
Allocations, Inc. and American Century World Mutual Funds, Inc.
(Advisor Class), dated June 13, 1997 (filed electronically as Exhibit
b15b to Post-Effective Amendment No. 77 to the Registration Statement
of the Registrant on July 17, 1997, File No. 2-14213).
(3) Amendment No. 2 to the Master Distribution and Shareholder
Services Plan of American Century Capital Portfolios, Inc., American
Century Mutual Funds, Inc., American Century Strategic Asset
Allocations, Inc. and American Century World Mutual Funds, Inc.
(Advisor Class), dated September 30, 1997 (filed electronically as
Exhibit b15c to Post-Effective Amendment No. 78 to the Registration
Statement of the Registrant on February 26, 1998, File No. 2-14213).
(4) Amendment No. 3 to the Master Distribution and Shareholder
Services Plan of American Century Capital Portfolios, Inc., American
Century Mutual Funds, Inc., American Century Strategic Asset
Allocations, Inc. and American Century World Mutual Funds, Inc.
(Advisor Class), dated June 30, 1998 (filed electronically as Exhibit
b15e to Post-Effective Amendment No. 11 to the Registration Statement
of American Century Capital Portfolios, Inc. on June 26, 1998, File
No. 33-39242).
(5) Amendment No. 4 to the Master Distribution and Shareholder
Services Plan of American Century Capital Portfolios, Inc., American
Century Mutual Funds, Inc., American Century Strategic Asset
Allocations, Inc. and American Century World Mutual Funds, Inc.
(Advisor Class), dated November 13, 1998 (filed electronically as
Exhibit b15e to Post-Effective Amendment No. 12 to the Registration
Statement of American Century World Mutual Funds, Inc. on November 13,
1998, File No. 33-39242).
(6) Amendment No. 5 to the Master Distribution and Shareholder
Services Plan of American Century Capital Portfolios, Inc., American
Century Mutual Funds, Inc., American Century Strategic Asset
Allocations, Inc. and American Century World Mutual Funds, Inc.
(Advisor Class), dated February 16, 1999 (filed electronically as
Exhibit m6 to Post-Effective Amendment No. 83 to the Registration
Statement of the Registrant on February 26, 1999, File No. 2-14213).
(7) Amendment No. 6 to the Master Distribution and Shareholder
Services Plan of American Century Capital Portfolios, Inc., American
Century Mutual Funds, Inc., American Century Strategic Asset
Allocations, Inc. and American Century World Mutual Funds, Inc.
(Advisor Class), dated July 30, 1999 (filed electronically as Exhibit
m7 to Post-Effective Amendment No. 16 to the Registration Statement of
American Century Capital Portfolios, Inc. on July 29, 1999, File No.
33-64872).
(8) Amendment No. 7 to the Master Distribution and Shareholder
Services Plan of American Century Capital Portfolios, Inc., American
Century Mutual Funds, Inc., American Century Strategic Asset
Allocations, Inc. and American Century World Mutual Funds, Inc.
(Advisor Class), dated November 19, 1999 (filed electronically as
Exhibit m8 to Post-Effective Amendment No. 87 to the Registration
Statement of the Registrant on November 29, 1999, File No. 2-14213).
(9) Amendment No. 8 to the Master Distribution and Shareholder
Services Plan of American Century Capital Portfolios, Inc., American
Century Mutual Funds, Inc., American Century Strategic Asset
Allocations, Inc., and American Century World Mutual Funds, Inc.
(Advisor Class), dated June 1, 2000 (filed electronically as Exhibit
m9 to Post-Effective Amendment No. 19 to the Registration Statement of
American Century World Mutual Funds, Inc. on May 24, 2000, File No.
33-39242).
(10) Amendment No. 9 to the Master Distribution and Shareholder
Services Plan of American Century Capital Portfolios, Inc., American
Century Mutual Funds, Inc., American Century Strategic Asset
Allocations, Inc. and American Century World Mutual Funds, Inc.
(Advisor Class), dated April 30, 2001 (filed electronically as Exhibit
m10 to Post-Effective Amendment No. 24 to the Registration Statement
of American Century World Mutual Funds, Inc. on April 19, 2001, File
No. 33-39242).
(11) Amendment No. 10 to the Master Distribution and Shareholder
Services Plan of American Century Capital Portfolios, Inc., American
Century Mutual Funds, Inc., American Century Strategic Asset
Allocations, Inc. and American Century World Mutual Funds, Inc.
(Advisor Class), dated December 3, 2001 (filed electronically as
Exhibit m11 to Post-Effective Amendment No. 94 to the Registration
Statement of the Registrant on December 13, 2001, File No. 2-14213).
(12) Amendment No. 11 to the Master Distribution and Shareholder
Services Plan of American Century Capital Portfolios, Inc., American
Century Mutual Funds, Inc., American Century Strategic Asset
Allocations, Inc. and American Century World Mutual Funds, Inc.
(Advisor Class), dated September 3, 2002 (filed electronically as
Exhibit m12 to Post-Effective Amendment No. 26 to the Registration
Statement of American Century World Mutual Funds, Inc. on October 1,
2002, File No. 33-39242).
(13) Master Distribution and Individual Shareholder Services Plan of
American Century Capital Portfolios, Inc., American Century Mutual
Funds, Inc., American Century Strategic Asset Allocations, Inc. and
American Century World Mutual Funds, Inc. (C Class), dated March 1,
2001 (filed electronically as Exhibit m11 to Post-Effective Amendment
No. 24 to the Registration Statement of American Century World Mutual
Funds, Inc. on April 19, 2001, File No. 33-39242).
(14) Amendment No. 1 to Master Distribution and Individual Shareholder
Services Plan of American Century Capital Portfolios, Inc., American
Century Mutual Funds, Inc., American Century Strategic Asset
Allocations, Inc. and American Century World Mutual Funds, Inc. (C
Class), dated April 30, 2001 (filed electronically as Exhibit m12 to
Post-Effective Amendment No. 24 to the Registration Statement of
American Century World Mutual Funds, Inc. on April 19, 2001, File No.
33-39242).
(15) Amendment No. 2 to Master Distribution and Individual Shareholder
Services Plan of American Century Capital Portfolios, Inc., American
Century Mutual Funds, Inc., American Century Strategic Asset
Allocations, Inc. and American Century World Mutual Funds, Inc. (C
Class), dated September 3, 2002 (filed electronically as Exhibit m15
to Post-Effective Amendment No. 26 to the Registration Statement of
American Century World Mutual Funds, Inc. on October 1, 2002, File No.
33-39242).
(16) Master Distribution and Individual Shareholder Services Plan of
American Century World Mutual Funds, Inc., American Century Mutual
Funds, Inc., American Century Capital Portfolios, Inc., American
Century Investment Trust, American Century Municipal Trust and
American Century California Tax-Free and Municipal Funds (A Class)
dated September 3, 2002 (filed electronically as Exhibit m6 to
Post-Effective Amendment No. 34 to the Registration Statement of
American Century California Tax-Free and Municipal Funds on October 1,
2002, File No. 2-82734).
(17) Master Distribution and Individual Shareholder Services Plan of
American Century World Mutual Funds, Inc., American Century Mutual
Funds, Inc., American Century Capital Portfolios, Inc., American
Century Investment Trust, American Century Municipal Trust and
American Century California Tax-Free and Municipal Funds (B Class)
dated September 3, 2002 (filed electronically as Exhibit m7 to
Post-Effective Amendment No. 34 to the Registration Statement of
American Century California Tax-Free and Municipal Funds on October 1,
2002, File No. 2-82734).
(18) Master Distribution and Individual Shareholder Services Plan of
American Century Mutual Funds, Inc., American Century Capital
Portfolios, Inc., American Century Quantitative Equity Funds, American
Century World Mutual Funds, Inc. and American Century Strategic Asset
Allocations, Inc. (R Class), dated August 29, 2003 (filed
electronically as Exhibit m16 to Post-Effective Amendment No. 17 to
the Registration Statement of American Century Strategic Asset
Allocations, Inc. on August 28, 2003, File No. 33-79482).
(n) (1) Amended and Restated Multiple Class Plan of American Century
Capital Portfolios, Inc., American Century Mutual Funds, Inc.,
American Century Strategic Asset Allocations, Inc., American Century
World Mutual Funds, Inc., American Century California Tax-Free and
Municipal Funds, American Century Government Income Trust, American
Century Investment Trust, American Century International Bond Funds,
American Century Municipal Trust, American Century Quantitative Equity
Funds and American Century Target Maturities Trust, dated September 3,
2002 (filed electronically as Exhibit n1 to Post-Effective Amendment
No. 35 to the Registration Statement of American Century California
Tax-Free and Municipal Funds on December 17, 2002, File No. 2-82734).
(2) Amendment No. 1 to the Amended and Restated Multiple Class Plan of
American Century California Tax-Free and Municipal Funds, American
Century Government Income Trust, American Century International Bond
Funds, American Century Investment Trust, American Century Municipal
Trust, American Century Target Maturities Trust and American Century
Quantitative Equity Funds, American Century Capital Portfolios, Inc,
American Century Mutual Funds, Inc., American Century Strategic Asset
Allocations, Inc, and American Century World Mutual Funds, Inc., dated
December 31, 2002 (filed electronically as Exhibit n2 to
Post-Effective Amendment No. 39 to the Registration Statement of
American Century Municipal Trust on December 23, 2002, File No.
2-91229).
(3) Amendment No. 2 to the Amended and Restated Multiple Class Plan of
American Century California Tax-Free and Municipal Funds, American
Century Government Income Trust, American Century International Bond
Funds, American Century Investment Trust, American Century Municipal
Trust, American Century Target Maturities Trust and American Century
Quantitative Equity Funds, American Century Capital Portfolios, Inc,
American Century Mutual Funds, Inc., American Century Strategic Asset
Allocations, Inc, and American Century World Mutual Funds, Inc., dated
August 29, 2003 (filed electronically as Exhibit n3 to Post-Effective
Amendment No. 17 to the Registration Statement of American Century
Strategic Asset Allocations, Inc. on August 28, 2003, File No.
33-79482).
(o) Not applicable.
(p) American Century Investments Code of Ethics (filed electronically as
Exhibit p to Post-Effective Amendment No. 35 to the Registration
Statement of American Century California Tax-Free and Municipal Funds
on December 17, 2002, File No. 2-82734).
ITEM 24. Persons Controlled by or Under Common Control with Registrant.
None.
ITEM 25. Indemnification.
The Registrant is a Maryland corporation. Section 2-418 of the General
Corporation Law of Maryland allows a Maryland corporation to indemnify its
directors, officers, employees and agents to the extent provided in such
statute.
Article Eighth of the Registrant's Articles of Incorporation requires the
indemnification of the corporation's directors and officers to the extent
permitted by the General Corporation Law of Maryland, the Investment Company Act
and all other applicable laws.
The Registrant has purchased an insurance policy insuring its officers and
directors against certain liabilities which such officers and directors may
incur while acting in such capacities and providing reimbursement to the
Registrant for sums which it may be permitted or required to pay to its officers
and directors by way of indemnification against such liabilities, subject in
either case to clauses respecting deductibility and participation.
ITEM 26. Business and Other Connections of Investment Advisor.
None.
ITEM 27. Principal Underwriter.
I. (a) American Century Investment Services, Inc. (ACIS) acts as principal
underwriter for the following investment companies:
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century Variable Portfolios II, Inc.
American Century World Mutual Funds, Inc.
ACIS is registered with the Securities and Exchange Commission as a
broker-dealer and is a member of the National Association of Securities Dealers.
ACIS is located at 4500 Main Street, Kansas City, Missouri 64111. ACIS is a
wholly-owned subsidiary of American Century Companies, Inc.
(b) The following is a list of the directors, executive officers and
partners of ACIS:
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
------------------------------------------------------------------------
James E. Stowers, Jr. Chairman and Director Chairman and
Director
James E. Stowers III Co-Chairman and Director Director
William M. Lyons President, Chief Executive President
Officer and Director
Robert T. Jackson Executive Vice President, Executive Vice
Chief Financial Officer President
and Chief Accounting Officer
Joseph Greene Senior Vice President none
Brian Jeter Senior Vice President none
Mark Killen Senior Vice President none
Dave Larrabee Senior Vice President none
Barry Mayhew Senior Vice President none
David C. Tucker Senior Vice President Senior Vice
and General Counsel President
* All addresses are 4500 Main Street, Kansas City, Missouri 64111
(c) Not applicable.
ITEM 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act, and the rules promulgated thereunder, are in the
possession of American Century Mutual Funds, Inc., American Century Services
Corporation and American Century Investment Management, Inc., all located at
American Century Tower, 4500 Main Street, Kansas City, Missouri 64111.
ITEM 29. Management Services
Not Applicable.
ITEM 30. Undertakings.
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement under Rule
485(b) under the Securities Act and has duly caused this Amendment No. 102 to
this Registration Statement to be signed on its behalf by the undersigned, duly
authorized, in the City of Kansas City, State of Missouri on the 28th day of
August, 2003.
American Century Mutual Funds, Inc.
(Registrant)
By: /*/William M. Lyons
President and Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 102 has been signed below by the following persons
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
*William M. Lyons President and August 28, 2003
William M. Lyons Principal Executive Officer
*Maryanne Roepke Senior Vice President, August 28, 2003
Maryanne Roepke Treasurer and Chief
Accounting Officer
*James E. Stowers, Jr. Chairman of the Board and August 28, 2003
James E. Stowers, Jr. Director
*James E. Stowers III Director August 28, 2003
James E. Stowers III
*Thomas A. Brown Director August 28, 2003
Thomas A. Brown
*Andrea C. Hall, Ph.D. Director August 28, 2003
Andrea C. Hall, Ph.D.
*D. D. (Del) Hock Director August 28, 2003
D. D. (Del) Hock
*Donald H. Pratt Director August 28, 2003
Donald H. Pratt
*Gale E. Sayers Director August 28, 2003
Gale E. Sayers
*M. Jeannine Strandjord Director August 28, 2003
M. Jeannine Strandjord
*Timothy S. Webster Director August 28, 2003
Timothy S. Webster
*By /s/ Charles A. Etherington
Charles A. Etherington
Attorney-in-Fact