ANNUAL
REPORT
[american century logo]
American
Century(reg.sm)
OCTOBER 31, 1997
AMERICAN
CENTURY
GROUP
Real Estate Fund
TABLE OF CONTENTS
Report Highlights ............................................................1
Our Message to You ...........................................................2
Market Perspective ...........................................................3
Performance & Portfolio Information ..........................................4
Management Q & A .............................................................5
Schedule of Investments ......................................................8
Statement of Assets and Liabilities ..........................................9
Statement of Operations .....................................................10
Statements of Changes in Net Assets .........................................11
Notes to Financial Statements ...............................................12
Financial Highlights ........................................................15
Independent Auditors' Report ................................................17
Proxy Voting Results ........................................................18
Share Class and Retirement Account Information ..............................19
Background Information
Investment Philosophy and Policies ...............................20
Fund Management Team .............................................20
Fund Background ..................................................20
Comparative Indices ..............................................20
Investment Team Leaders ..........................................20
Glossary ....................................................................21
American Century Investments offers you nearly 70 fund choices covering
stocks, bonds, money markets, specialty investments and blended portfolios.
We've organized our funds into three distinct groups, based on investment style
and objectives, to help simplify your fund decisions. These groups appear below.
AMERICAN CENTURY INVESTMENTS--FAMILY OF FUNDS
- -------------------------------------------------------------------------------
Benham American Century Twentieth Century(reg. tm)
Group(reg. tm) Group Group
- -------------------------------------------------------------------------------
MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS
GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
- -------------------------------------------------------------------------------
Real Estate Fund
WE WELCOME YOUR COMMENTS OR QUESTIONS ABOUT THIS REPORT.
SEE THE BACK COVER FOR WAYS TO CONTACT US BY MAIL, PHONE OR E-MAIL.
Twentieth Century and American Century are registered marks of American Century
Services Corporation. Benham Group is a registered mark of Benham Management
Corporation.
AMERICAN CENTURY INVESTMENTS
REPORT HIGHLIGHTS
MARKET PERSPECTIVE
* Strong economic growth in 1997 boosted the U.S. real estate market,
increasing demand for space, reducing vacancy rates and supporting higher
rents. Hotel and office properties were the biggest beneficiaries.
* The worst-performing property sector during the period was factory outlet
centers. These properties have been overbuilt, which has resulted in erosion
in their occupancy rates, rents and profits.
* Real estate investment trusts (REITs) generally had an exceptionally strong
year. The Wilshire REIT index posted a 34.11% total return. To put that in
perspective, the index's average annual return for the 10 years ended
October 31, 1997, was 11.28%.
* Looking ahead, we expect real estate fundamentals to remain strong in 1998,
thanks to continued U.S. economic growth and despite higher levels of new
construction. Our research indicates that every major U.S. metropolitan area
should experience job growth in 1998. Expanding local economies should
create additional tenant demand for property.
* We expect higher market rents over the next two years in nearly 90% of the
over 240 submarkets where the fund's subadvisor currently manages property.
* We expect solid, but more moderate REIT returns in 1998. After a spectacular
two-year stretch in 1996 and 1997, the REIT market should post returns
closer to its historical norm, somewhere in the 10-15% range.
REAL ESTATE FUND
INVESTOR CLASS(1)
TOTAL RETURNS: AS OF 10/31/97
6 Months 20.45%(2)
1 Year 40.69%
NET ASSETS: $76.9 million
(AS OF 10/31/97)
INCEPTION DATE: 9/21/95
TICKER SYMBOL: REACX
(1) See Share Classes, page 19.
(2) Not annualized.
MANAGEMENT Q & A
AMERICAN CENTURY CREATED THIS FUND BY JOINING FORCES WITH RREEF REAL ESTATE
SECURITIES ADVISORS L.P. (RREEF), PART OF ONE OF AMERICA'S LARGEST PRIVATE REAL
ESTATE INVESTMENT ADVISORY FIRMS. CHICAGO-BASED RREEF IS THE FUND'S SUBADVISOR
AND IS RESPONSIBLE FOR MANAGING ITS INVESTMENT PORTFOLIO.
* This was American Century's top- performing fund for the year ended October
31, 1997, outpacing the stellar returns of REITs, real estate mutual funds
and the U.S. stock market in general.
* Good sector allocation decisions made the difference. The fund was over-
weighted in the strongest property sectors (hotels and office buildings) and
underweighted in weaker sectors (such as factory outlets).
* It's not realistic to expect the fund's returns to remain at recent levels.
It's more realistic to expect solid returns closer to the historical norm
for REITs (10% to 15%). Against this backdrop, the investment team hopes to
continue to outperform market benchmarks and the fund's peer group.
Many of the investment terms in this report are defined in the Glossary on page
21.
ANNUAL REPORT REPORT HIGHLIGHTS 1
OUR MESSAGE TO YOU
[photo of James E. Stowers III]
We are proud to present the first annual report for the American Century
Real Estate (ACRE) fund, which was launched on June 16, 1997. This report, like
the ACRE fund itself, represents a strong collaboration between American Century
and RREEF Real Estate Securities Advisors L.P. (RREEF), the fund's subadvisor,
meshing the skills and resources of our financial report production team with
the investment knowledge and experience of RREEF's real estate investment
managers. We hope investors who are reading an American Century shareholder
report for the first time appreciate the format and thorough content of this
report, which was designed based on investor input and feedback. Our reports
consistently receive "A" ratings from Morningstar for their design and content.
Offering the ACRE fund was just one of several actions we took in 1997 to
provide better investment tools and services to investors. In July, American
Century agreed to enter into a business partnership with J.P. Morgan & Co.,
Inc., which will become a significant minority shareholder of American Century
Companies, Inc. J.P. Morgan has been in business for more than 150 years,
serving institutions, governments and individuals with complex financial needs.
Within the framework of this proposed relationship, American Century will
continue to operate as an independent company, with the same corporate
management team. No changes in your fund's investment managers, policies or fees
are anticipated as a result of this transaction.
Another issue we began to address in 1997 was the year 2000 problem. As
detailed in numerous news reports, many of the world's computer systems are at
risk because they cannot distinguish between the years 2000 and 1900. A team of
computer professionals is reviewing each of American Century's systems and
programs to identify and fix those that could cause problems. Our goal is to
have all of our computer systems and programs 100% year-2000 compliant by the
end of 1998.
On a more personal note, 1998 will be a landmark year for another reason. It
marks 40 years since we launched our first two funds, Twentieth Century Growth
and Twentieth Century Select. Not many fund companies have a 40-year track
record, nor have many built a fund family that consists of nearly 70 stock,
bond, money market and diversified funds to help you achieve your financial
goals.
We're proud of the investment opportunities and services we can offer you,
and we're looking forward to adding many more distinctive products, such as the
ACRE fund, for your use in the coming years.
Sincerely,
/s/James E. Stowers III
James E. Stowers III
Chief Executive Officer
American Century Companies, Inc.
2 OUR MESSAGE TO YOU AMERICAN CENTURY INVESTMENTS
MARKET PERSPECTIVE
[line graph - data below]
MARKET PERFORMANCE MEASUREMENTS
Comparative growth of $1.00 for the year ended October 31, 1997
WILSHIRE S&P 500
REIT INDEX
Oct-96 $1.00 $1.00
Nov-96 $1.07 $1.05
Dec-96 $1.06 $1.17
Jan-97 $1.12 $1.18
Feb-97 $1.13 $1.17
Mar-97 $1.08 $1.18
Apr-97 $1.15 $1.14
May-97 $1.21 $1.17
Jun-97 $1.27 $1.24
Jul-97 $1.37 $1.27
Aug-97 $1.29 $1.26
Sep-97 $1.37 $1.39
Oct-97 $1.32 $1.34
Comparative one-year returns for the year ended October 31, 1997
Wilshire REIT Index .................. 34.11%
S&P 500 .............................. 32.10%
SOURCE: BLOOMBERG FINANCIAL MARKETS
LOW INFLATION, STRONG GROWTH
The latest U.S. economic expansion reached 80 months on October 31, 1997,
making it the third longest since World War II. What differentiates the 1990s
expansion from those in the 1960s and 1980s is low inflation, with an average
annual rate of just over 2% during the '90s. Wage pressure, a key component of
inflation, hasn't materialized despite the lowest unemployment rates since the
early 1970s. Corporate restructurings and technological advances have increased
productivity more rapidly than the demand for labor.
The absence of inflationary pressure has helped keep interest rates low,
reducing corporate borrowing costs. As a result, corporate profit margins are at
their highest levels since the late 1960s, boosting the U.S. economy. It grew at
a torrid 4.9% annual pace in the first quarter of 1997, the strongest quarter in
more than nine years. Growth in the second and third quarters remained very
strong, at an annual rate of 3.3%.
PROPERTY MARKET
Strong economic growth in 1997 assisted the entire U.S. real estate market,
increasing demand for space, reducing vacancy rates and supporting higher rents.
Hotel and office properties were the biggest beneficiaries. In the hotel market,
the booming economy led to a room shortage, which kept properties near full
occupancy and allowed hotel operators to raise room rates. Because most large
operators have favorable or low financing on their properties, the higher room
rates fell directly to the bottom line, increasing profits significantly. In the
office market, growing corporations absorbed most of the existing space, leading
to higher rents and profits. The office sector was also bolstered by demand from
Wall Street. Even though office buildings represent the largest pool of
commercial properties, they are the least securitized -- most are owned
privately by relatively small groups of investors rather than publicly by large
investment pools. With an increasing investor appetite for securities backed by
office properties, real estate owners and investment bankers are scrambling to
meet that demand.
The worst-performing property sector during the period was factory outlet
centers. These properties have been overbuilt, which has resulted in erosion in
their occupancy rates, rents and profits.
REIT MARKET
Bolstered by strong property performance and increasing investor demand for
real estate securities, real estate investment trusts (REITs) generally
performed very well during the 12 months ended October 31, 1997. The Wilshire
REIT index posted a 34.11% total return for the period, beating even the S&P
500's 32.10% return. To put the REIT market's recent strength in perspective,
the Wilshire REIT index's average annual return for the 10 years ended October
31, 1997, was 11.28%. Clearly, 1997 has been an exceptional year.
Hotel and office REITs topped the list of best-performing real estate
securities. According to RREEF, hotel REITs posted an astonishing 65.33% total
return for the period, while office REITs came in with a 47.96% return. By
contrast, factory outlet REITs returned just 4.97%.
ANNUAL REPORT MARKET PERSPECTIVE 3
<TABLE>
<CAPTION>
PERFORMANCE & PORTFOLIO INFORMATION
TOTAL RETURNS AS OF OCTOBER 31, 1997(1)
6 MONTHS 1 YEAR LIFE OF FUND
- ---------------------------------------------------------------------------------------------------------
INVESTOR CLASS (inception 9/21/95)(2)
<S> <C> <C> <C>
ACRE .............................................. 20.45% 40.69% 31.46%
Wilshire REIT Index ............................... 17.79% 34.11% 26.59%(3)
- ---------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS (inception 6/16/97)
ACRE ................................................................................. 13.40.%
Wilshire REIT Index .................................................................. 8.41%(4)
</TABLE>
(1) RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
(2) THE INCEPTION DATE FOR RREEF REAL ESTATE SECURITIES FUND, ACRE'S
PREDECESSOR. THAT FUND MERGED WITH ACRE ON 6/13/97 AND WAS OFFERED TO THE
PUBLIC ON 6/16/97.
(3) RETURN FROM 9/30/95, THE DATE NEAREST THE CLASS' INCEPTION FOR WHICH DATA
ARE AVAILABLE.
(4) RETURN FROM 6/30/97, THE DATE NEAREST THE CLASS' INCEPTION FOR WHICH DATA
ARE AVAILABLE.
See pages 19, 20 and 21 for more information about share classes, the Wilshire
REIT Index and returns.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND (Investor Class)
$10,000 INVESTMENT made 9/30/95*
WILSHIRE
ACRE REIT
INDEX
9/30/95 $10,000 $10,000
12/31/95 $10,489 $10,405
3/31/96 $10,872 $10,685
6/30/96 $11,338 $11,123
9/30/96 $12,316 $11,873
12/31/96 $14,769 $14,259
3/31/97 $15,304 $14,403
6/30/97 $16,081 $15,076
9/30/97 $18,421 $16,882
10/31/97 $17,790 $16,344
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. Data quoted is for Investor Class only; performance for other
classes will vary due to differences in fee structure (see the Total Returns
table above).
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the index's
total return line does not.
*9/30/95 is the date closest to Investor Class inception for which comparable
performance data exists.
[PIE CHARTS]
FUND ALLOCATION BY PROPERTY TYPE (as of October 31, 1997)
Office 32%
Multi-family Residential 26%
Hotel 14%
Mall & Shopping Center 12%
Industrial 6%
Other 10%
MARKET ALLOCATION BY PROPERTY TYPE (as of October 31, 1997)
Office 27%
Multi-family Residential 22%
Mall & Shopping Center 19%
Hotel 10%
Industrial 8%
Other 14%
SOURCE: RREEF
4 PERFORMANCE & PORTFOLIO INFORMATION AMERICAN CENTURY INVESTMENTS
MANAGEMENT Q&A
An interview with Kim Redding, a portfolio manager on the ACRE fund
investment team.
NOTE: ALL FUND RETURNS REFERENCED IN THIS INTERVIEW ARE FOR INVESTOR CLASS
SHARES.
HOW DID THE FUND PERFORM?
For the fiscal year ended October 31, 1997, ACRE was American Century's
top-performing fund, outpacing the stellar returns of REITs, real estate mutual
funds and the U.S. stock market in general. The fund's total return for the year
was 40.69%, compared to 34.11% for the Wilshire REIT Index (the fund's
benchmark), and 32.10% for the S&P 500. According to Lipper Analytical Services,
an independent mutual fund ranking service, the average return for the 61 funds
in its real estate category was 34.31%. ACRE's return for the period placed it
eighth among those 61 funds.
ACRE's average annual total return from its inception on September 21, 1995,
to the end of the fiscal year was 31.46%, vs. 26.59% for its benchmark.*
Although past performance is no guarantee of future results, ACRE has clearly
provided superior returns for its investors since its inception.
WHY DID THE FUND PERFORM SO WELL AGAINST ITS BENCHMARK INDEX AND OTHER REAL
ESTATE FUNDS THIS YEAR?
Good sector allocation decisions made the difference. ACRE was overweighted
in the strongest property sectors (hotels and office buildings) and
underweighted in weaker sectors (such as factory outlets). Our decisions with
respect to the weighting of these sectors were based on fundamental analysis of
demand, supply and cash flows for these property types.
*THE FUND INCEPTION DATE WAS 9/21/95 FOR RREEF REAL ESTATE SECURITIES FUND,
ACRE'S PREDECESSOR. THAT FUND MERGED WITH ACRE ON 6/13/97. THE INCEPTION DATE
FOR THE BENCHMARK RETURN IS 9/30/95, THE DATE CLOSEST TO THE FUND'S INCEPTION
FOR WHICH DATA ARE AVAILABLE.
[bar chart - data below]
ACRE'S ONE-YEAR RETURNS SINCE INCEPTION (Periods ended October 31)
WILSHIRE
ACRE REIT
INDEX
10/31/95 -1.80% 9.68%
10/31/96 29.28% 25.73%
10/31/97 40.69% 34.11%
This graph illustrates the fund's returns since its inception and compares them
with the index's returns. The fund's total returns include operating expenses,
while the index's returns do not. See page 20 for a description of the index.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
(1) Investor Class.
(2) Return from 9/30/95 (the date closest to the fund's inception for which data
are available) to 10/31/95.
ANNUAL REPORT MANAGEMENT Q & A 5
MANAGEMENT Q&A
SHOULD INVESTORS EXPECT ACRE TO CONTINUE TO PROVIDE SUCH HIGH RETURNS?
Not in absolute terms. Real estate and REITs ride the ups and downs of the
business cycle like other assets; they just behave differently than stocks or
bonds at certain points in the cycle. The last two years have been exceptionally
good for REITs. Even if the market remains strong, it's more realistic to expect
that annual returns might range from 10% to 15% going forward. And at some
point, due to a combination of overbuilding and weak economic growth, it is
likely we will see returns dip into the single digits or lower for a period of
time, though we don't believe that's likely to occur in the immediate future.
We can't guarantee future performance, but we think it's realistic to expect
ACRE to continue to perform well against its benchmark and Lipper peer group. We
believe our overweighting and underweighting of strong and weak property sectors
gives us a strong advantage over the index, and RREEF's national market
presence, experience and analytical resources should continue to favor the fund
over many of its peers.
CAN YOU GIVE US SOME EXAMPLES OF THE REITS THAT PERFORMED WELL FOR THE FUND
DURING THE PERIOD?
Sure. ACRE's best-performing hotel REITs included Starwood Lodging and
Patriot American Hospitality, the two largest companies in the hotel sector.
Their total returns for the period were 92.91% and 107.14% respectively.
Starwood Lodging, the biggest company in the hotel sector (with a total market
capitalization of nearly $5 billion) has also been one of the brightest success
stories in the real estate industry. It specializes in the acquisition and
management of full-service, upscale hotels. With little new construction and
strong demand for upscale hotel rooms, Starwood is a well-managed company that's
been in the right place at the right time. It actually consists of two separate
entities -- Starwood Lodging Trust, a REIT that owns and develops hotel
properties, and Starwood Lodging Corporation, a hotel management company. The
shares of each company are paired and trade together as a single unit on the New
York Stock Exchange (NYSE) under the symbol HOT. Unlike other hotel REITs that
must pay an outside management firm to operate their properties, Starwood
Lodging's shareholders benefit from both the lease payments received by the REIT
and all of the operating profits realized by the management company.
Flush with cash, Starwood has been on a buying binge. Among its biggest and
best-known deals during 1997 was an agreement to acquire Westin Hotels &
Resorts. This transaction is expected to close in January 1998, after which
Starwood Lodging Trust expects to change its name to Starwood Hotels and Resorts
Trust, and Starwood Lodging Corporation would change its name to Westin Hotels
and Resorts Worldwide Inc. The shares of both companies would continue to trade
together on the NYSE under the symbol HOT.
TOP TEN HOLDINGS % of fund investments
As of As of
10/31/97 4/30/97
Cali Realty Corp. 5.0% 3.9%
Highwoods Properties, Inc. 4.9% 5.0%
CarrAmerica Realty Corp. 4.9% 5.2%
General Growth Properties, Inc. 4.6% 3.5%
Crescent Real Estate Equities, Inc. 4.5% 5.4%
Camden Property Trust 4.3% 4.0%
FelCor Suite Hotels, Inc. 4.1% 5.4%
Starwood Lodging Trust 4.0% 5.9%
Patriot American Hospitality, Inc. 3.5% 1.1%
Evans Withycombe Residential, Inc. 3.4% --
6 MANAGEMENT Q & A AMERICAN CENTURY INVESTMENTS
MANAGEMENT Q&A
Patriot American is no slouch either. It too is a major player in the
full-service hotel market (with a total market capitalization of over $3
billion), and has benefited from the same favorable supply and demand factors
that boosted Starwood. It is also in an acquisition mode, having recently paired
with Wyndham Hotel Corporation, which will become Patriot's hotel management
company.
CAN YOU GIVE US SOME EXAMPLES OF ACRE'S BEST-PERFORMING OFFICE REITS FOR THE
PERIOD?
In the office sector, ACRE's top performers were Crescent Real Estate
Equities Company and Highwoods Properties, Inc., which posted total returns of
90.29% and 27.52%, respectively for the period. Similar to Starwood Lodging and
Patriot American, Crescent and Highwoods are among the largest REITs in their
category, though not as dominant as the two hotel companies. Crescent is the
larger of the two, with a total market capitalization of over $6 billion,
compared to approximately $2.5 billion for Highwoods. Both are regional
companies -- Crescent is focused in the southwestern U.S., particularly in Texas
and Colorado, while Highwoods operates in the southeast. They each benefited
from the booming U.S. economy and tightening office markets.
WHAT WERE SOME OF ACRE'S WORST-PERFORMING HOLDINGS?
United Dominion Realty Trust and Weeks Corporation are two examples of what
can happen when property markets are overbuilt. The total returns for United
Dominion and Weeks for the year ended October 31, 1997, were 5.25% and 10.53%
respectively. United Dominion invests primarily in apartment buildings in the
southeast, where too much construction has created an oversupply of apartment
properties, causing occupancy rates and cash flow to fall. Similarly, Weeks was
affected by overbuilding in the Atlanta industrial market, where it has
significant holdings.
WHAT'S YOUR OUTLOOK FOR THE U.S. PROPERTY MARKET IN GENERAL FOR 1998?
We are entering the sixth year of an extended real estate market recovery
and expansion. We expect real estate fundamentals to remain strong in 1998
thanks to continued U.S. economic growth and despite higher levels of new
construction. Every major metropolitan area across the U.S. should experience
some level of job growth in 1998. Expanding local economies will create
additional tenant demand for property.
We expect higher market rents over the next two years in nearly 90% of the
over 240 submarkets where RREEF currently manages property. Office rents should
see the strongest increases. Growth in apartment and industrial rents, which
have risen 30-50% in many areas over the last several years, will probably be
much more moderate. Retail rent growth will likely be mixed. Overall, the rate
of rent increases is moderating, reflecting the age of the recovery and greater
balance between building supply and demand.
We think property prices will generally continue to increase, due in part to
a very active transaction market. The volume of capital seeking investments is
gradually outstripping the supply of quality properties available to buy. We
think capital will continue to flow into real estate from private and public
capital markets, both domestic and overseas. Real returns remain high by
historical standards and should support continued new investment. Sellers should
find a receptive market and good prices for quality property.
WHAT ABOUT THE REIT MARKET?
We expect solid, but more moderate returns. After a spectacular two-year
stretch in 1996 and 1997, the REIT market will probably catch its breath for a
while and post returns closer to its historical norm, somewhere in the 10-15%
range.
ANNUAL REPORT MANAGEMENT Q & A 7
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS & WARRANTS
DIVERSIFIED COMPANIES-3.3%
67,400 Vornado Realty Trust $ 3,007,725
--------------
HOTELS-13.7%
5,200 American General Hospitality Corp. 141,700
100,200 FelCor Suite Hotels, Inc. 3,669,825
105,400 Innkeepers USA Trust 1,758,862
95,010 Patriot American Hospitality, Inc. 3,135,330
59,750 Starwood Lodging Trust 3,573,797
--------------
12,279,514
--------------
INDUSTRIAL-6.4%
38,200 EastGroup Properties 764,000
11,300 First Industrial Realty Trust, Inc. 391,262
96,000 Liberty Property Trust 2,688,000
63,500 Weeks Corp. 1,905,000
--------------
5,748,262
--------------
MULTI-FAMILY RESIDENTIAL-25.5%
35,000 Apartment Investment and
Management Co. 1,240,312
73,200 Avalon Properties, Inc. 2,150,250
45,816 Bay Apartment Communities, Inc. 1,792,551
127,948 Camden Property Trust 3,838,440
19,800 Equity Residential Properties Trust 999,900
84,900 Essex Property Trust, Inc. 2,907,825
120,100 Evans Withycombe Residential, Inc. 3,032,525
4,343 Security Capital Group B Warrants(1) 20,901
59,000 Security Capital Pacific Trust 1,320,125
39,000 Smith (Charles E.) Residential
Realty, Inc. 1,330,875
189,900 United Dominion Realty Trust, Inc. 2,634,863
64,800 Walden Residential Properties, Inc. 1,579,500
--------------
22,848,067
--------------
NEIGHBORHOOD & COMMUNITY
SHOPPING CENTERS-3.2%
25,400 Bradley Real Estate, Inc. 498,475
48,000 Pan Pacific Retail Properties, Inc. 1,044,000
50,000 Regency Realty Corp. 1,287,500
--------------
2,829,975
--------------
Shares Value
- --------------------------------------------------------------------------------
OFFICE-31.6%
56,500 Arden Realty, Inc. $ 1,723,250
65,900 Boston Properties, Inc. 2,108,800
110,200 Cali Realty Corp. 4,463,100
145,800 CarrAmerica Realty Corp. 4,346,662
39,900 Cousins Properties Inc. 1,251,863
112,300 Crescent Real Estate Equities, Inc. 4,042,800
127,000 Highwoods Properties, Inc. 4,381,500
100,600 Kilroy Realty Corp. 2,665,900
50,000 Parkway Properties, Inc. 1,700,000
40,300 Spieker Properties, Inc. 1,576,738
--------------
28,260,613
--------------
REGIONAL MALLS-9.3%
46,600 CBL & Associates Properties, Inc. 1,124,225
120,200 General Growth Properties, Inc. 4,146,900
73,400 Macerich Co. (The) 1,945,100
19,400 Mills Corp. 485,000
20,100 Simon DeBartolo Group Inc. 621,844
--------------
8,323,069
--------------
STORAGE-3.9%
92,300 Public Storage, Inc. 2,538,250
35,600 Storage Trust Realty 910,025
--------------
3,448,275
--------------
TOTAL COMMON STOCKS
& WARRANTS-96.9% 86,745,500
--------------
(Cost $81,265,142)
TEMPORARY CASH INVESTMENTS-3.1%
Repurchase Agreement, Morgan Stanley Group,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.60%, dated 10/31/97,
due 11/3/97 (Delivery value $2,801,307) 2,800,000
--------------
(Cost $2,800,000)
TOTAL INVESTMENT SECURITIES-100.0% $89,545,500
==============
(Cost $84,065,142)
NOTES TO SCHEDULE OF INVESTMENTS
(1) Non-income producing.
SEE NOTES TO FINANCIAL STATEMENTS
8 SCHEDULE OF INVESTMENTS AMERICAN CENTURY INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
ASSETS
Investment securities, at value
(identified cost of $84,065,142) (Note 3) ..................... $89,545,500
Cash .......................................................... 875,280
Receivable for investments sold ............................... 359,417
Dividend and interest receivable .............................. 92,867
Prepaid expenses and other assets ............................. 56,691
-----------
90,929,755
-----------
LIABILITIES
Disbursements in excess of demand deposit cash ................ 36,490
Payable for investments purchased ............................. 469,095
Payable for capital shares redeemed ........................... 19,199
Payable for management fees (Note 2) .......................... 108,152
-----------
632,936
-----------
Net Assets .................................................... $90,296,819
===========
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) ....................... $82,571,985
Undistributed net investment income ........................... 239,230
Accumulated undistributed net realized
gain on investment transactions ............................... 2,005,246
Net unrealized appreciation on investments (Note 3) ........... 5,480,358
-----------
$90,296,819
===========
Investor Class, $0.01 Par Value
Net assets .................................................... $76,932,058
Shares outstanding ............................................ 4,790,207
Net asset value per share ..................................... $ 16.06
Institutional Class, $0.01 Par Value
Net assets .................................................... $13,364,761
Shares outstanding ............................................ 832,057
Net asset value per share ..................................... $ 16.06
SEE NOTES TO FINANCIAL STATEMENTS
ANNUAL REPORT STATEMENT OF ASSETS AND LIABILITIES 9
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997
INVESTMENT INCOME
Income:
Dividend ..................................................... $ 1,490,106
Interest ..................................................... 92,427
-----------
1,582,533
-----------
Expenses (Note 2):
Management fees .............................................. 295,909
Custodian, transfer agent and administrative fees ............ 110,491
Auditing and legal fees ...................................... 13,642
Organizational expenses ...................................... 12,067
Directors' fees and expenses ................................. 11,146
Printing and postage ......................................... 6,916
Registration and filing fees ................................. 3,368
Other operating expenses ..................................... 11,874
-----------
Total expenses ............................................. 465,413
Amount waived ................................................ (147,197)
-----------
Net expenses ............................................... 318,216
-----------
Net investment income ........................................ 1,264,317
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3)
Net realized gain on investments ............................. 2,097,147
Change in net unrealized appreciation on investments ......... 4,737,101
-----------
Net realized and unrealized gain on investments .............. 6,834,248
-----------
Net Increase in Net Assets Resulting from Operations ......... $ 8,098,565
===========
SEE NOTES TO FINANCIAL STATEMENTS
10 STATEMENT OF OPERATIONS AMERICAN CENTURY INVESTMENTS
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED OCTOBER 31, 1997
AND OCTOBER 31, 1996
Increase in Net Assets 1997 1996
OPERATIONS
Net investment income ...................... $ 1,264,317 $ 289,352
Net realized gain on
investment transactions .................... 2,097,147 198,658
Change in net unrealized appreciation
(depreciation) on investments .............. 4,737,101 825,847
------------ ------------
Net increase in net assets
resulting from operations .................. 8,098,565 1,313,857
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ........................... (748,247) (155,292)
Institutional Class ...................... (75,141) --
From net realized gains from
investment transactions:
Investor Class ........................... (643,767) --
------------ ------------
Decrease in net assets
from distributions ......................... (1,467,155) (155,292)
------------ ------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase in net assets
from capital share transactions ............ 76,456,053 3,067,828
------------ ------------
Net increase in net assets ................. 83,087,463 4,226,393
NET ASSETS
Beginning of year .......................... 7,209,356 2,982,963
------------ ------------
End of year ................................ $ 90,296,819 $ 7,209,356
============ ============
SEE NOTES TO FINANCIAL STATEMENTS
ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS 11
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--American Century Capital Portfolios, Inc. (the Corporation) is
registered under the Investment Company Act of 1940 as an open-end management
investment company. American Century Real Estate Fund (the Fund) is one of the
three funds issued by the Corporation. The Fund is non-diversified under the
1940 Act. The Fund's investment objective is long-term capital appreciation with
income as a secondary objective. The Fund seeks to achieve its objective by
investing primarily in securities issued by real estate investment trusts and in
the securities of companies which are principally engaged in the real estate
industry. There are certain additional risks involved in investing in the Fund
than a more diversified portfolio of investments. The Fund may be subject to
certain risks similar to those associated with direct ownership of real estate
including but not limited to: local or regional economic conditions, changes in
zoning laws, credit risk, and interest rate risk. The Fund is authorized to
issue three classes of shares: the Investor Class, the Advisor Class, and the
Institutional Class. The shares outstanding prior to June 13, 1997, were
designated as Investor Class shares. The three classes of shares differ
principally in their respective shareholder servicing and distribution expenses
and arrangements. All shares of the Fund represent an equal pro rata interest in
the assets of the class to which such shares belong, and have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
for class specific expenses and exclusive rights to vote on matters affecting
only individual classes. Sale of the Institutional Class commenced on June 16,
1997. As of October 31, 1997, sale of the Advisor Class had not commenced. The
following significant accounting policies, related to all classes of the Fund,
are in accordance with accounting policies generally accepted in the investment
company industry.
SECURITY VALUATIONS--Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or the mean of
the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. Debt securities not
traded on a principal securities exchange are valued through valuations obtained
from a commercial pricing service or at the mean of the most recent bid and
asked prices. When valuations are not readily available, securities are valued
at fair value as determined in accordance with procedures adopted by the Board
of Directors.
SECURITY TRANSACTIONS--Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of discounts and accretion of premiums.
REPURCHASE AGREEMENTS--The Fund may enter into repurchase agreements with
institutions that the Fund's investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The Fund requires that the securities purchased in a repurchase
transaction be transferred to the custodian in a manner sufficient to enable the
Fund to obtain those securities in the event of a default under the repurchase
agreement. ACIM monitors, on a daily basis, the value of the securities
transferred to ensure that the value, including accrued interest, of the
securities under each repurchase agreement is equal to or greater than amounts
owed to the Fund under each repurchase agreement.
JOINT TRADING ACCOUNT--Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury or Agency obligations.
INCOME TAX STATUS--It is the policy of the Funds to distribute all taxable
income and capital gains to shareholders and to otherwise qualify as a regulated
investment company under provisions of the Internal Revenue Code. Accordingly,
no provision has been made for federal income taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income are declared and
paid quarterly. Distributions from net realized gains are declared and paid
annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences are due to differences in the
recognition of income and expense items for financial statement and tax
purposes.
ADDITIONAL INFORMATION--Certain officers and directors of the Corporation
are also officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc., the parent of the Corporation's investment
12 NOTES TO FINANCIAL STATEMENTS AMERICAN CENTURY INVESTMENTS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
manager, ACIM, the Corporation's distributor, American Century Investment
Services, Inc., and the Corporation's transfer agent, American Century Services
Corporation.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
Effective June 13, 1997, the Fund entered into a Management Agreement with
ACIM that provides the Fund with investment advisory and management services in
exchange for a single, unified management fee per class. This agreement replaced
the previously existing contracts between the Fund and RREEF Real Estate
Securities Advisers L.P. (RREEF) for management and investment advisory
services. (See Note 5 of Notes to Financial Statements.) The Agreement provides
that all expenses of the Fund, except brokerage commissions, taxes, interest,
expenses of those directors who are not considered "interested persons" as
defined in the Investment Company Act of 1940 (including counsel fees) and
extraordinary expense, will be paid by ACIM. The fee is computed daily and paid
monthly based on the Fund's class average daily closing net assets during the
previous month. The annual management fee is 1.20%, 0.95% and 1.00% for the
Investor Class, Advisor Class and Institutional Class, respectively.
ACIM has entered into a Subadvisory Agreement with RREEF on behalf of the
Fund. The subadvisor makes investment decisions for the Fund in accordance with
the Fund's investment objectives, policies, and restrictions under the
supervision of ACIM and the Board of Directors. ACIM pays all costs associated
with retaining RREEF as the subadvisor of the Fund.
The Board of Directors has adopted a shareholder services and distribution
plan for the Advisor Class, pursuant to Rule 12b-1 of the Investment Company Act
of 1940. The Advisor Class Master Distribution and Shareholder Services Plan
provides that the Fund will pay ACIM an annual distribution fee equal to 0.25%
and service fee equal to 0.25%. The fees are computed daily and paid monthly
based on the Advisor Class's average daily closing net assets during the
previous month. The distribution fee provides compensation for distribution
expenses incurred by financial intermediaries in connection with distributing
shares of the Advisor Class including, but not limited to, payments to brokers,
dealers, and financial institutions that have entered into sales agreements with
respect to shares of the Fund. The service fee provides compensation for
shareholder and administrative services rendered by ACIM, its affiliates or
independent third party providers.
Total expenses of $181,227 for the Investor Class and $48,864 for the
Institutional Class, incurred under the new management agreement, are included
in Management Fees in the Statement of Operations. The annualized ratio of
operating expenses to average net assets, under the new agreement, was 1.20% and
1.00% for the Investor Class and Institutional Class, respectively. Total
expenses (net of amount waived), under the old agreement, for the period ended
June 12, 1997 were $88,125. The annualized ratio of operating expenses (net of
amount waived) to average net assets for the same period was 1.00%.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Securities purchased, excluding short-term investments, for the year ended
October 31, 1997, totaled $93,160,600. Securities sold, excluding short-term
investments, totaled $20,226,291.
As of October 31, 1997, accumulated net unrealized appreciation was
$5,702,852, based on the aggregate cost of investments of $83,842,648 for
federal income tax purposes, which consisted of unrealized appreciation of
$6,208,404 and unrealized depreciation of $505,552.
ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 13
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
There are 50,000,000 shares and 25,000,000 shares authorized for issuance by
the Investor Class and Institutional Class, respectively. Transactions in shares
of the Fund were as follows:
INVESTOR CLASS Shares Amount
Year ended October 31, 1997
Sold ......................................... 6,483,094 $ 99,753,311
Issued in reinvestment
of distributions ............................. 84,010 1,191,452
Redeemed ..................................... (2,363,280) (36,295,993)
------------ ------------
Net increase ................................. 4,203,824 $ 64,648,770
============ ============
Year ended October 31, 1996
Sold ......................................... 272,098 $ 2,954,839
Issued in reinvestment of distributions ...... 10,855 116,612
Redeemed ..................................... (339) (3,623)
------------ ------------
Net increase ................................. 282,614 $ 3,067,828
============ ============
INSTITUTIONAL CLASS
June 16, 1997(1) through October 31, 1997
Sold ......................................... 848,207 $ 12,080,751
Shares issued in reinvestment
of distributions ............................. 2,083 33,813
Shares redeemed .............................. (18,233) (307,281)
------------ ------------
Net increase ................................. 832,057 $ 11,807,283
============ ============
- ----------
(1) SALE OF THE INSTITUTIONAL CLASS COMMENCED ON JUNE 16, 1997.
- --------------------------------------------------------------------------------
5. REORGANIZATION PLAN
On June 13, 1997, the Fund acquired all of the net assets of the RREEF Real
Estate Securities Fund (RREEF) pursuant to a plan of reorganization approved by
the acquired fund's shareholders on June 13, 1997.
The acquisition was accomplished by a tax-free exchange of 1,801,272 shares
of the Fund for 1,801,272 shares of RREEF, outstanding on June 13, 1997. The net
assets of RREEF immediately before the acquisition was $25,636,976. RREEF is the
surviving fund for purposes of maintaining the financial statements and
performance history in the post-reorganization fund.
14 NOTES TO FINANCIAL STATEMENTS AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
INVESTOR CLASS
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
1997 1996 1995(1)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C>
Beginning of Period ............... $ 12.29 $ 9.82 $ 10.00
------------ ----------- ---------
Income From Investment Operations
Net Investment Income ........... 0.67(2) 0.55 0.07
Net Realized and Unrealized Gain
(Loss) on Investment Transactions 4.13 2.27 (0.25)
------------ ----------- ---------
Total From Investment Operations 4.80 2.82 (0.18)
------------ ----------- ---------
Distributions
From Net Investment Income ...... (0.48) (0.35) --
From Net Realized Gains on
Investment Transactions ......... (0.55) -- --
------------ ----------- ---------
Total Distributions ............. (1.03) (0.35) --
------------ ----------- ---------
Net Asset Value, End of Period .... $ 16.06 $ 12.29 $ 9.82
============ =========== =========
Total Return(3) ................. 40.69% 29.28% (1.80)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............. 1.17% 1.00% 1.50%(4)
Ratio of Net Investment Income
to Average Net Assets ............. 4.48% 5.84% 6.66%(4)
Portfolio Turnover Rate ........... 69% 86% --
Average Commission Paid per Share
of Equity Security Traded ......... $ 0.0528 $ 0.0545 --
Net Assets, End
of Period (in thousands) .......... $ 76,932 $ 7,209 $ 2,983
</TABLE>
- ----------
(1) SEPTEMBER 21, 1995 (INCEPTION) THROUGH OCTOBER 31, 1995.
(2) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(3) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS, IF ANY. TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
(4) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS
ANNUAL REPORT FINANCIAL HIGHLIGHTS 15
FINANCIAL HIGHLIGHTS
INSTITUTIONAL CLASS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED OCTOBER 31
1997(1)
PER-SHARE DATA
Net Asset Value,
Beginning of Period .................................. $ 14.24
------------
Income From Investment Operations
Net Investment Income(2) ........................... 0.28
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .................. 1.63
------------
Total From Investment Operations ................... 1.91
------------
Distributions
From Net Investment Income ......................... (0.09)
------------
Net Asset Value, End of Period ....................... $ 16.06
============
Total Return(3) .................................... 13.40%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................................ 1.00%(4)
Ratio of Net Investment Income
to Average Net Assets ................................ 4.85%(4)
Portfolio Turnover Rate .............................. 69%
Average Commission Paid per Share
of Equity Security Traded ............................ $ 0.0528
Net Assets, End
of Period (in thousands) ............................. $ 13,365
- ----------
(1) JUNE 16, 1997 (COMMENCEMENT OF SALE) THROUGH OCTOBER 31, 1997.
(2) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(3) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS, IF ANY. TOTAL RETURN IS NOT ANNUALIZED.
(4) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS
16 FINANCIAL HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
American Century Capital Portfolios, Inc:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of American Century Real Estate Fund,
Inc. (formerly RREEF Real Estate Securities Fund) (the "Fund"), one of the funds
comprising American Century Capital Portfolios, Inc. (formerly Twentieth Century
Capital Portfolios, Inc.), as of October 31, 1997, and the related statements of
operations for the year then ended and changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the two-year period then ended and the period September 21, 1995
(commencement of operations) through October 31, 1995. These financial
statements and the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of American Century
Real Estate Fund as of October 31, 1997, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
November 26, 1997
ANNUAL REPORT INDEPENDENT AUDITORS' REPORT 17
PROXY VOTING RESULTS
A special meeting of shareholders, in the RREEF Securities Fund, was held on
June 13, 1997, to vote on the following proposal. The proposal received the
required majority of votes and was adopted.
A summary of voting results is listed below the proposal. See Note 5 in the
Notes to Financial Statements.
PROPOSAL 1:
To vote on the approval of a plan of reorganization.
For: 1,463,948
Withheld: -
Abstain: -
18 PROXY VOTING RESULTS AMERICAN CENTURY INVESTMENTS
SHARE CLASS AND RETIREMENT ACCOUNT INFORMATION
SHARE CLASSES
American Century offers three classes of shares for ACRE. One class is for
investors who buy directly from American Century, one is for investors who buy
through financial intermediaries, and the third is for large institutional
customers.
The original class of ACRE shares is called the INVESTOR CLASS. All shares
issued and outstanding before June 16, 1997, have been designated as Investor
Class shares. Investor Class shares may also be purchased after June 16, 1997.
Investor Class shareholders do not pay any commissions or other fees for
purchase of funds shares directly from American Century. Investors who buy
Investor Class shares through a broker-dealer may be required to pay the
broker-dealer a transaction fee. THE PRICE AND PERFORMANCE OF THE INVESTOR CLASS
SHARES ARE LISTED IN NEWSPAPERS. NO OTHER CLASS IS CURRENTLY LISTED.
In addition, there is an ADVISOR CLASS, which is sold through banks,
broker-dealers, insurance companies and financial advisors. Advisor Class shares
are subject to a 0.50% Rule 12b-1 service and distribution fee. Half of that fee
is available to pay for recordkeeping and administrative services, and half is
available to pay for distribution services provided by the financial
intermediary through which the Advisor Class shares are purchased. The total
expense ratio of the Advisor Class is 0.25% higher than the total expense ratio
of the Investor Class. The ADVISOR CLASS had not commenced as of October 31,
1997.
An INSTITUTIONAL CLASS is also available to endowments, foundations,
defined-benefit pension plans or financial intermediaries serving these
investors. This class recognizes the relatively lower cost of serving
institutional customers and others who invest at least $5 million in an American
Century fund or at least $10 million in multiple funds. In recognition of the
larger investments and account balances and comparatively lower transaction
costs, the total expense ratio of the Institutional Class is 0.20% less than the
total expense ratio of the Investor Class shares.
All classes of shares represent a pro rata interest in the funds and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)]
are subject to federal income tax withholding at the rate of 10% of the total
amount withdrawn, unless you elect not to have withholding apply. If you don't
want us to withhold on this amount, you may send us a written notice not to have
the federal income tax withheld. Your written notice is valid for six months
from the date of receipt at American Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid for only six months from the date of
receipt at American Century. You may revoke your election at any time by sending
a written notice to us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
ANNUAL REPORT RETIREMENT ACCOUNT INFORMATION 19
BACKGROUND INFORMATION
INVESTMENT PHILOSOPHY AND POLICIES
The American Century group offers eight equity funds, including four
"specialty" equity funds that concentrate their holdings in specific industries
or sectors of the stock market. These funds typically respond differently than
general equity funds to changing market or economic conditions. The funds are
managed to provide a broad representation of their respective industries.
AMERICAN CENTURY REAL ESTATE (ACRE) FUND'S primary investment objective is
long-term capital appreciation, with income as a secondary objective.
ACRE typically invests at least 80% of its assets in the equity securities
of real estate investment trusts (REITs) and other companies engaged in the real
estate industry. The fund's management team evaluates potential investments
based on cash flow, property types and exposure to growing property markets.
It's important to understand that real estate investing involves inherent
risks, including interest rate fluctuations, credit risk and the impact of
changing economic conditions.
FUND MANAGEMENT TEAM
American Century has entered into a subadvisory contract with an experienced
real estate investment company, RREEF Real Estate Securities Advisors L.P, part
of the RREEF organization, to manage the fund. Founded in 1975, RREEF is a
Chicago-based real estate investment advisor to large corporate clients, with
assets under management of over $7 billion. The fund management team consists of
two experienced fund managers who select investments within a framework
established by a real estate investment policy committee.
FUND BACKGROUND
To better serve investors, RREEF and American Century merged an existing
fund managed by RREEF, RREEF Real Estate Securities Fund, into ACRE on June 13,
1997.
The RREEF fund commenced operations on September 21, 1995, and had $25
million in assets at the time of the merger. ACRE was offered to the public by
American Century on June 16, 1997.
COMPARATIVE INDICES
The following index is used in the report to serve as a fund performance
comparison. It is not an investment product available for purchase.
The WILSHIRE REIT INDEX (full name: Wilshire Real Estate Securities Index -
REIT component) is a market capitalization-weighted index comprised of 98 equity
REITs. It does not include special purpose or healthcare REITs.
- ------------------------------------------------------
INVESTMENT TEAM LEADERS
- ------------------------------------------------------
Portfolio Managers Kim Redding
Karen Knudson
- ------------------------------------------------------
20 BACKGROUND INFORMATION AMERICAN CENTURY INVESTMENTS
GLOSSARY
RETURNS
o TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on pages 15 and 16.
INVESTMENT TERMS
o REAL ESTATE INVESTMENT TRUST (REIT)--a private or public corporation (or
trust) that enjoys a special status under the U.S. tax code that allows it to
pay no corporate income tax so long as its activities meet statutory tests that
restrict its business to certain commercial real estate activities. Most states
honor this federal treatment and do not require REITs to pay state income tax.
By law, REITs must pay out 95% of their taxable income.
REITs, like mutual funds, issue shares and pool investors' assets. They
invest primarily in income-producing real estate, such as shopping centers,
office buildings, apartment complexes and industrial properties, either through
direct ownership or mortgages. Equity REITs take direct ownership positions
rather than debt positions. As a result, equity REIT shareholders can receive
rental income from the properties in the portfolio and capital gains when
properties are sold at a profit. In a fund that invests in equity REITs, such as
ACRE, the income and capital gains generated by the REITs are passed through to
fund investors.
ANNUAL REPORT GLOSSARY 21
[american century logo]
American
Century(reg.sm)
P.O. BOX 419200
KANSAS CITY, MISSOURI
64141-6200
INVESTOR SERVICES:
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE:
1-800-345-8765
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 OR 816-444-3485
FAX: 816-340-7962
INTERNET: WWW.AMERICANCENTURY.COM
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
SUBADVISOR
RREEF
CHICAGO, ILLINOIS
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
AMERICAN CENTURY INVESTMENT SERVICES, INC.
9712 [recycled logo]
SH-BKT-10469 Recycled
