ANNUAL REPORT
[american century logo]
American
Century(sm)
MARCH 31, 1997
AMERICAN
CENTURY
GROUP
Value
Equity Income
[front cover]
TABLE OF CONTENTS
Report Highlights ....................................................... 1
Our Message to You ...................................................... 2
Period Overview ......................................................... 3
Value
Performance & Portfolio Information ................................ 4
Management Q & A ................................................... 5
Schedule of Investments ............................................ 8
Financial Highlights ...............................................26
Equity Income
Performance & Portfolio Information ................................11
Management Q & A ...................................................12
Schedule of Investments ............................................15
Financial Highlights ...............................................27
Statements of Assets and Liabilities ....................................18
Statements of Operations ................................................19
Statements of Changes in Net Assets .....................................20
Notes to Financial Statements ...........................................21
Report of Independent Auditors ..........................................28
Share Class and Retirement Information ..................................29
Background Information
Investment Philosophy & Policies ...................................32
Comparative Indices ................................................32
Portfolio Management Team ..........................................32
Glossary ................................................................33
American Century Investments offers you nearly 70 fund choices covering
stocks, bonds, money markets, specialty investments and blended portfolios. To
help you find the funds that may meet your needs, we have divided American
Century funds into three groups based on investment style and objectives. These
groups, which appear below, are designed to help simplify your fund decisions.
AMERICAN CENTURY INVESTMENTS-FAMILY OF FUNDS
Benham Group American Century Group Twentieth Century 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
Value
Equity Income
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 the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
REPORT HIGHLIGHTS
PERIOD OVERVIEW
o Strong economic growth and low inflation helped boost the U.S. stock market
during the year ended March 31, 1997. The S&P 500 gained nearly 20% and the
Nasdaq Composite rose nearly 11%.
o A large capitalization (large-cap) bias by investors caused the stock
market and its benchmark indices to experience narrow leadership. A limited
number of large-cap stocks was responsible for a disproportionate share of
performance.
o Economic and interest rate uncer-tainty, reinforced by an interest rate
hike by the Federal Reserve (the first in more than two years), caused
heightened market volatility at the end of the period. The Dow Jones
Industrial Average, the S&P 500 and the Nasdaq Composite each fell about 7%
from March 11 to March 31.
VALUE
o The fund performed well during the year ended March 31, 1997, posting a
15.92% total return. It slightly underperformed its benchmark, the
S&P/BARRA Value Index, for the period, but it outperformed the index for
the three-year period ended March 31, 1997, and since the fund's inception.
o Returns for the period were enhanced by good stock selection across several
industries, including energy stocks, stocks of major retailers and
newspaper firms.
o We increased our positions in retail grocery store, transportation and
general merchandise stocks, which were inexpensive by historical standards.
We trimmed our holdings of energy, tobacco, food and beverage stocks as
their prices climbed.
EQUITY INCOME
o The fund posted a 16.24% total return for the year ended March 31, 1997. It
outperformed its benchmark, the Lipper Equity Income Fund Index, both
during the period and since the fund's inception.
o Returns were boosted by energy stocks and real estate investment trusts
(REITs). Energy shares rallied as oil prices rose, while REITs appreciated
strongly as demand for commercial properties increased.
o The fund maintained its yield with a large stake in income-producing
securities, including convertibles, as well as utility and chemical stocks.
o We sold most of our REIT holdings at attractive gains, reinvesting the
proceeds in electric utility stocks. We also eliminated some consumer
product and food company holdings as they reached fair valuation.
o We increased our investment in retail stocks that were depressed by a
seasonal softness in retail sales.
VALUE
INVESTOR CLASS(1)
Total Returns: AS OF 3/31/97
6 Months 9.18%(2)
1 Year 15.92%
Net Assets: $1.8 billion
(AS of 3/31/97)
Inception Date: 9/1/93
Ticker Symbol: TWVLX
EQUITY INCOME
INVESTOR CLASS(1)
Total Returns: AS OF 3/31/97
6 Months 8.33%(2)
1 Year 16.24%
Net Assets: $199.4 million
(AS of 3/31/97)
Inception Date: 8/1/94
Ticker Symbol: TWEIX
(1) See Share Classes, page 29.
(2) Not annualized.
Many of the investment terms in this report are defined in the Glossary on
page 33.
Annual Report Report Highlights 1
OUR MESSAGE TO YOU
[photo of James E. Stowers, Jr. and James E. Stowers, III]
March 31, 1997, marked the end of an eventful period for our company and
the Value and Equity Income funds. In January, nearly two years of integration
between Twentieth Century and The Benham Group culminated when we began serving
you as American Century Investments. Under this new name we have combined our
offerings of nearly 70 funds.
The new name also introduces three new groupings for the funds - the Benham
Group (money market and bond funds), the American Century Group (asset
allocation, balanced, conservative equity and specialty funds) and the Twentieth
Century Group (aggressive growth and international equity funds). The Value and
Equity Income funds are part of the American Century Group because their
investment style is in line with the risk-adjusted approach and returns of the
other conservative equity funds within the group.
In reviewing this report you may notice some changes. Based on investors'
feedback, our shareholder reports have been redesigned with added features,
including a one-page report summary, a glossary, more charts and graphs, and
expanded Management Q&A and background information sections. By June, all
American Century shareholder reports will have been converted to this format.
During the past year, we also began to offer multiple classes of shares for
many funds. Value and Equity Income currently have two share classes-the
Investor Class, which is designed for investors who buy directly from American
Century, and the Advisor Class, which is designed for investors who buy through
certain financial intermediaries. We introduced the Advisor Class so financial
intermediaries can be compensated for the additional services they provide to
investors.
We appreciate your confidence in American Century and look forward to
continuing to serve you.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder President and Chief Executive Officer
2 Our Message to You American Century Investments
PERIOD OVERVIEW
STRONG PERFORMANCE
The most widely followed U.S. stock market indices posted favorable returns
for the year ended March 31, 1997. As shown in the accompanying chart, the S&P
500 gained nearly 20% and the Nasdaq returned nearly 11%. The S&P 500 measures
the performance of large-capitalization, blue chip companies while the Nasdaq
Index is the benchmark for stocks traded "over-the-counter" (not on the major
exchanges). The companies represented by these stocks tend to be smaller and
faster-growing.
The indices' performance reflected the favorable conditions-strong economic
growth and low inflation-that persisted throughout the period.
NARROW LEADERSHIP
Rising concerns that the six-year economic expansion might be coming to an
end caused skittish investors to favor the stocks of large well-known companies
with relatively predictable earnings, such as General Electric, Coca-Cola,
Philip Morris and Procter & Gamble. These U.S.-based multinationals, with their
extensive foreign operations, were also widely recommended as a way for
investors to participate in economic growth overseas.
As a result of this large-capitalization (large-cap) bias by investors, a
limited number of large-cap stocks was responsible for a disproportionate share
of the market's (and the indices') upward march. This was fueled to some degree
by the popularity of index mutual funds that attempt to replicate market indices
such as the S&P 500. With more investor dollars chasing stocks in the S&P 500,
the prices of these shares rose faster than the growth rates of the underlying
companies, a phenomenon we believe is unsustainable.
HEIGHTENED VOLATILITY
IN MARCH
Increased investor nervousness, reinforced by a pre-emptive interest rate
hike by the Federal Reserve, caused heightened market volatility at the end of
the period. Reports indicating surprising economic strength in the fourth
quarter of 1996 and the first quarter of 1997 increased the markets' sensitivity
to indications of inflationary pressure and higher interest rates. An
unexpectedly strong retail sales report on March 13 caused the Dow Jones
Industrial Average to fall 161 points. At the same time, the 30-year Treasury
bond yield soared to nearly 7%, a psychological barrier that some investors view
as a signal to switch from stocks to bonds.
THE FED RAISES INTEREST RATES
On March 25, 1997, the Fed voted to increase short-term interest rates for
the first time in more than two years. That led to even more interest rate
uncertainty, and both bonds and stocks fell precipitously during the closing
days of the first quarter. The 30-year Treasury yield rose above 7% for the
first time in six months, and the Dow fell 140 points on March 27. From March
11, 1997, when the Dow peaked at 7085, to March 31, the Dow fell about 7%, as
did the S&P 500 and Nasdaq. It's still uncertain if this was the start of a
routine market correction (a 10% decline which normally occurs after a period of
strong advance) or the beginning of a bigger downward movement. In keeping with
their charters, Value and Equity Income exhibited lower volatility than the
broad market, similar to the performance of the S&P/BARRA Value Index in the
graph above. We expect the funds to continue to be more stable than the market
in the months ahead.
[line graph - data described below]
U.S. STOCK MARKET PERFORMANCE (Growth of $1.00)
For the One-year period ended march 31, 1997
S&P 500/ BARRA Nasdaq Composite
Value Index S&P 500 Index
1.00 1.00 1.00
1.01 1.01 1.08
1.03 1.04 1.13
1.02 1.04 1.08
0.98 1.00 0.98
1.00 1.02 1.04
1.05 1.08 1.11
1.08 1.10 1.11
1.17 1.19 1.17
1.15 1.17 1.17
1.20 1.24 1.25
1.21 1.25 1.19
1.17 1.20 1.11
S&P 500 19.82%
S&P/BARRA Value Index 16.70%
Nasdaq Composite Index 10.93%
Annual Report Period Overview 3
VALUE
TOTAL RETURNS AS OF MARCH 31, 1997
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
----------------------
6 MONTHS 1 YEAR 3 YEARS LIFE OF FUND
- --------------------------------------------------------------------------------
INVESTOR CLASS (inception 9/1/93)
VALUE................... 9.18% 15.92% 20.74% 17.39%
S&P 500................. 11.27% 19.82% 22.26% 17.77%
S&P/BARRA Value......... 11.41% 16.70% 20.45% 15.90%
- --------------------------------------------------------------------------------
ADVISOR CLASS (inception 10/2/96)
VALUE......................................................... 8.07%
S&P 500....................................................... 10.20%
S&P/BARRA Value............................................... 11.41%
See pages 29, 32 and 33 for more information about share classes, the
comparative indices and returns.
[line graph - data described below]
GROWTH OF $10,000 OVER LIFE OF FUND
S & P BARRA S & P 500
VALUE VALUE INDEX* INDEX
$10,000 $10,000 $10,000
$10,000 $9,996 $9,978
$10,120 $10,050 $10,171
$10,000 $9,870 $10,040
$10,307 $10,038 $10,209
$10,649 $10,506 $10,540
$10,448 $10,125 $10,224
$10,083 $9,709 $9,825
$10,265 $9,914 $9,938
$10,407 $10,079 $10,061
$10,270 $9,799 $9,867
$10,657 $10,131 $10,178
$10,983 $10,417 $10,560
$10,741 $10,051 $10,349
$10,844 $10,270 $10,565
$10,542 $9,854 $10,148
$10,718 $9,975 $10,347
$11,198 $10,245 $10,598
$11,677 $10,643 $10,981
$11,955 $10,937 $11,352
$12,283 $11,296 $11,669
$12,611 $11,799 $12,093
$12,744 $11,889 $12,432
$12,987 $12,299 $12,827
$13,075 $12,404 $12,823
$13,307 $12,835 $13,417
$13,174 $12,635 $13,350
$13,795 $13,297 $13,898
$14,234 $13,665 $14,222
$14,475 $14,074 $14,685
$14,716 $14,206 $14,788
$15,295 $14,539 $14,984
$15,624 $14,687 $15,185
$15,915 $14,908 $15,533
$16,121 $14,837 $15,654
$15,171 $14,211 $14,939
$15,707 $14,603 $15,220
$16,254 $15,228 $16,135
$16,474 $15,745 $16,557
$17,525 $16,949 $17,772
$17,685 $16,671 $17,483
$17,873 $17,440 $18,550
$18,195 $17,567 $18,660
$17,747 $16,966 $17,954
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 TOTAL RETURN LINES OF THE INDICES DO NOT.
PORTFOLIO CHARACTERISTICS AT A GLANCE
3/31/97 3/31/96
Number of Companies 72 64
Average Dividend
Yield of Holdings 2.6% 2.9%
Price/Earnings Ratio 14.8 14.8
Portfolio Turnover 111% 145%
Expense Ratio (for Investor Class) 1.00% 0.97%
4 Value American Century Investments
VALUE
MANAGEMENT Q & A
An interview with Phil Davidson and Peter Zuger, portfolio managers on the
Value fund management team.
HOW DID THE FUND PERFORM?
For the year ended March 31, 1997, Value performed strongly, posting a
15.92% total return. It slightly underperformed the S&P/BARRA Value Index's
16.70% return and trailed the S&P 500's 19.82% return. The fund's performance
lagged during the second half of its fiscal year, with Value posting a 9.18%
gain compared to the S&P/BARRA Value Index's 11.41% return and the S&P 500's
gain of 11.27%.
HOW DO YOU EXPLAIN THE FUND'S PERFORMANCE COMPARED TO THAT OF ITS BENCHMARK, THE
S&P/ BARRA VALUE INDEX?
The most significant factor was Value's over-weighting in utilities, which
represented 8.7% of the fund's portfolio at the end of the period, compared to
the Index's 5.4% weighting. The electric utility sector underperformed the
market due to rising interest rates and investor concern over recent regulatory
changes that could increase competition. However, we continue to hold several
utility stocks that fit our requirements for stability, high quality and
attractive price. One such holding is Union Electric. It has performed poorly
due to market concerns over interest rates and industry consolidation, but by
our
[bar graph - data below]
VALUE'S FISCAL YEAR RETURNS (1) (Periods ending March 31)
1994 1995 1996 1997
Value(1) 0.85% 18.56% 28.06% 15.92%
S&P/BARRA Value -2.91% 12.64% 32.94% 16.70%
This chart 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 32 for a description of the index.
Past performance is no guarantee of future results.
(1) Investor Class.
(2) Return from the fund's 9/1/93 inception date to 3/31/94.
Annual Report Value 5
measures has excellent fundamentals and future appreciation potential.
Another factor that worked against the fund in comparison to the index is
that we were underweighted in financial stocks, particularly
large-capitalization banks, which performed well during much of the year. Our
research suggested that their earnings might be unsustainable, so we were more
conservative than the index. We may have been premature in our concern, but we
continue to be cautious about financial services stocks. Our underweighting in
financials actually benefited the fund during the March correction, when bank
stocks in general corrected much more than the market.
WHAT HOLDINGS CONTRIBUTED TO THE FUND'S STRONG RETURN?
Good stock selection across several industries played a key role in the
fund's solid performance. As oil and gas prices rose significantly during the
first half of last year, energy stocks generated substantial gains for the fund.
Not only did our energy holdings do well, but many companies in other industries
that supply energy companies also excelled. Our best-performing stock was
Petrolite, a St. Louis-based specialty chemical company whose clients include
large energy firms. The company's business improved steadily throughout the
period, and then its stock value appreciated sharply when Baker Hughes, an oil
service company, announced a bid to purchase the firm in February.
Value's other strong performers included major retailers, such as Dillard
Department Stores and Dayton-Hudson (an owner of discount stores and department
store chains), whose stock prices were driven up by better-than-expected retail
sales last summer and fall. The fund also benefited from its holdings in Central
Newspapers and McClatchy Newspapers, two firms whose earnings increased as
newsprint costs declined and advertising revenues strengthened.
HOW DID FUND PERFORMANCE DIFFER FROM THAT OF THE BROAD MARKET, AS REPRESENTED BY
THE S&P 500?
During much of the period, the market generally favored
large-capitalization, steady-growth-oriented companies, such as those found in
the S&P 500. Most of these companies were outside our investment parameters for
this fund. Currently, we are finding the best opportunities in the
medium-capitalization range. Furthermore, Value's portfolio seeks superior
risk-adjusted returns, and it is managed to be less volatile than the market
overall. That means that it may underperform during strong rallies (such as
those that characterized most of the period covered by this report) and
outperform during sharp declines. True to its nature,
TOP TEN HOLDINGS % of fund investments
As of As of
3/31/97 9/30/96
Giant Food Inc. Cl A 4.5% 4.2%
Dillard Department Stores, Inc. Cl A 3.0% 2.1%
AMP, Inc. 2.6% -
Archer-Daniels-Midland Co. 2.6% 1.8%
Litton Industries, Inc. 2.6% 0.2%
Superior Industries International, Inc. 2.5% 1.5%
Cooper Industries, Inc. 2.4% 2.2%
Great Lakes Chemical Corp. 2.4% -
Reynolds Metals Co. 2.4% -
Florida Progress Corp. 2.3% -
TOP FIVE HOLDINGS % of fund investments
As of As of
3/31/97 9/30/96
Utilities 8.7% 10.5%
Chemicals & Resins 8.6% 10.2%
Retail (Food & Drug) 8.2% 4.2%
Energy (Production & Marketing) 7.9% 10.6%
Automobiles & Auto Parts 5.8% 1.9%
6 Value American Century Investments
Value did not keep pace with the market as it gained momentum but outdistanced
it when the market declined. Specifically, the S&P 500 declined 6.48% between
the market peak on March 10, 1997, and the end of the period, while Value
dropped just 3.88%.
The fund's risk-adjusted performance has attracted favorable attention from
industry analysts. As of March 31, 1997, Morningstar, the mutual-fund rating
company, awarded Value its top five-star overall rating for risk-adjusted
performance out of 1,919 domestic equity funds(1). Morningstar measures risk by
comparing a fund's returns to those of the "risk-free" 90-day Treasury bill and
to other funds in its investment category, and awards its top rating to just 10%
of the equity funds it evaluates. Value's five-star rating reflects the fact
that the fund's returns are attractive compared with its level of risk.
WHAT SIGNIFICANT CHANGES DID YOU MAKE TO THE PORTFOLIO?
As their prices climbed and they met fewer of our investment criteria, we
significantly trimmed our holdings of energy stocks, as well as some tobacco,
food and beverage stocks. While we maintained positions in many electric
utilities, we cut back our holdings in telephone utilities because we were
satisfied with the gains achieved.
On the buy side, we increased our positions in retail grocery store,
transportation and general merchandise stocks, all of which were historically
inexpensive and for which expectations were low based on slower near-term
growth. We also bought several well-positioned companies in the automobile and
auto parts sector.
WHAT IS YOUR OUTLOOK?
Although the markets overall are richly valued, we are not finding it
difficult to fill the portfolio with what we believe are attractively valued
companies, particularly in the mid-cap range. Our emphasis continues to be on
individual stock selection. Rather than focus on the market in general or on
specific sectors or themes, we concentrate on fundamentals a stock's quality,
yield, price and the issuing company's business potential in our effort to
provide investors with attractive returns and lower risk consistent with
conservative equity funds.
(1) Morningstar proprietary ratings reflect risk-adjusted performance as of
3/31/97. Value received a four-star rating out of 3,048 funds for the
one-year period and a five-star rating out of 1,919 funds for the five-year
period ending 3/31/97. The overall rating, which may change monthly, is
calculated from the fund's 3-, 5- and 10 year (when available) average
total returns in excess of 90-day Treasury bill returns with appropriate
fee adjustments and a risk factor that reflects fund performance below
90-day Treasury bill returns. The one year rating is calculated using the
same methodology but is not a component of the overall rating. Ten percent
of the funds in an investment category receive five stars. Past performance
is no guarantee of future results.
Annual Report Value 7
SCHEDULE OF INVESTMENTS
VALUE
MARCH 31, 1997
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS
AEROSPACE & DEFENSE-2.6%
1,155,600 Litton Industries, Inc.(1) $ 46,512,900
-------------
AIRLINES-0.9%
185,000 AMR Corp.(1) 15,262,500
-------------
AUTOMOBILES & AUTO PARTS-5.8%
1,727,000 Cooper Tire and Rubber Company 31,949,500
834,000 Echlin Inc. 28,356,000
1,954,400 Superior Industries
International, Inc.(2) 44,218,300
-------------
104,523,800
-------------
BANKING-3.5%
537,000 First Virginia Banks, Inc. 27,521,250
673,000 Mercantile Bancorporation Inc. 35,669,000
-------------
63,190,250
-------------
CHEMICALS & RESINS-8.6%
190,600 Albemarle Corp. 3,406,975
245,000 Dow Chemical Co. 19,600,000
938,100 Great Lakes Chemical Corp. 43,152,600
700,000 Lubrizol Corp. 22,750,000
2,021,400 Millennium Chemicals Inc. 37,901,250
720,900 Nalco Chemical Co. 26,943,637
-------------
153,754,462
-------------
COMMUNICATIONS SERVICES-2.0%
2,005,300 Frontier Corp. 35,844,737
-------------
COMPUTER SYSTEMS-1.0%
136,000 International Business
Machines Corp. 18,683,000
-------------
CONSUMER PRODUCTS-1.4%
591,200 Tambrands, Inc. 25,347,700
-------------
ELECTRICAL & ELECTRONIC
COMPONENTS-3.1%
1,333,600 AMP, Inc. 45,842,500
158,000 Tecumseh Products Cl A 8,986,250
-------------
54,828,750
-------------
Shares Value
- --------------------------------------------------------------------------------
ENERGY (PRODUCTION & MARKETING)-7.9%
447,500 Amoco Corp. $ 38,764,688
129,000 Diamond Shamrock, Inc. 4,095,750
1,044,900 MAPCO Inc. 32,391,900
589,200 Murphy Oil Corp. 27,692,400
2,152,700 Seagull Energy Corp.(1) 38,748,600
-------------
141,693,338
-------------
ENVIRONMENTAL SERVICES-1.9%
1,185,500 Browning-Ferris Industries, Inc. 34,231,312
-------------
FOOD & BEVERAGE-5.6%
2,623,850 Archer-Daniels-Midland Co. 46,901,319
1,460,000 Ralcorp Holdings, Inc.(1) 14,965,000
141,800 Savannah Foods & Industries, Inc. 1,861,125
1,115,200 Universal Foods Corp. 37,080,400
-------------
100,807,844
-------------
HEALTHCARE-1.3%
322,900 Bausch & Lomb Inc. 12,754,550
320,000 Seafield Capital Corp. 10,480,000
-------------
23,234,550
-------------
INDUSTRIAL EQUIPMENT & MACHINERY-5.0%
999,400 Cooper Industries, Inc. 43,348,975
1,497,100 Gerber Scientific, Inc.(2) 23,205,050
819,000 Keystone International, Inc. 14,537,250
335,000 Watts Industries, Inc. 7,788,750
-------------
88,880,025
-------------
INSURANCE-4.3%
525,000 Argonaut Group, Inc. 14,700,000
352,000 CNA Financial Corp.(1) 37,752,000
342,900 Home Beneficial Corp. Cl B 13,008,769
333,700 NAC Re Corp. 11,888,063
-------------
77,348,832
-------------
METALS & MINING-3.2%
578,000 Ashland Coal, Inc. 14,161,000
689,000 Reynolds Metals Co. 42,718,000
-------------
56,879,000
-------------
PACKAGING & CONTAINERS-1.9%
416,800 ACX Technologies, Inc.(1) 8,023,400
985,000 Ball Corporation 26,102,500
-------------
34,125,900
-------------
See Notes to Financial Statements
8 Value American Century Investments
SCHEDULE OF INVESTMENTS
VALUE
MARCH 31, 1997
Shares Value
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS-4.7%
683,500 Chesapeake Corp. $ 18,796,250
653,600 Rayonier, Inc. 24,346,600
471,000 Union Camp Corp. 22,195,875
744,400 Westvaco Corp. 18,703,050
-------------
84,041,775
-------------
PUBLISHING-4.3%
442,000 American Greetings Corp. Cl A 14,088,750
1,090,000 Banta Corp. 28,067,500
209,000 Central Newspapers, Inc. Cl A 10,476,125
1,003,900 McClatchy Newspapers, Inc. 23,968,112
-------------
76,600,487
-------------
RAILROAD-2.3%
874,000 CSX Corp. 40,641,000
-------------
RETAIL (FOOD & DRUG)-8.2%
1,181,000 Albertson's, Inc. 40,154,000
1,317,700 Brinker International, Inc.(1) 16,635,963
2,526,600 Giant Food Inc. Cl A 80,851,200
264,500 Hannaford Brothers Co. 8,794,625
-------------
146,435,788
-------------
RETAIL (GENERAL MERCHANDISE)-5.1%
1,725,000 Dillard Department Stores, Inc. Cl A 54,337,500
389,400 Mercantile Stores Co., Inc. 18,058,425
239,500 Nordstrom, Inc. 9,086,031
217,000 Penney (J.C.) Company, Inc. 10,334,625
-------------
91,816,581
-------------
TRANSPORTATION-2.5%
900,000 Rollins Truck Leasing Corp. 11,925,000
773,400 XTRA Corp.(2) 31,999,425
-------------
43,924,425
-------------
UTILITIES-8.7%
1,350,300 Florida Progress Corp. 41,015,363
950,000 Kansas City Power & Light Co. 26,600,000
411,500 New York State Electric & Gas Corp. 8,898,687
170,000 Northern States Power Co. (Minn.) 8,053,750
723,000 Potomac Electric Power Co. 17,713,500
420,000 Union Electric Co. 15,487,500
1,546,600 Wisconsin Energy Corp. 37,891,700
-------------
155,660,500
-------------
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
MISCELLANEOUS-0.5%
197,800 Juno Lighting, Inc. $ 3,177,163
141,000 National Service Industries 5,516,625
-------------
8,693,788
-------------
TOTAL COMMON STOCKS-96.3% 1,722,963,244
-------------
(Cost $1,677,297,374)
CONVERTIBLE BONDS-0.5%
COMMUNICATIONS EQUIPMENT
$12,534,000 Motorola Inc.,
1.612%, 9/27/13(3) 9,619,845
-------------
(Cost $9,154,429)
TEMPORARY CASH INVESTMENTS
$30,000,000 par value FHLB Discount Note,
5.45%, 4/10/97(4)
29,960,925
-------------
Repurchase Agreement, Merrill Lynch & Co. Inc.,
(U.S. Treasury obligations), in a joint trading
account at 6.25%, dated 3/31/97, due
4/1/97 (Delivery value $27,704,809) 27,700,000
-------------
TOTAL TEMPORARY CASH INVESTMENTS-3.2% 57,660,925
-------------
(Cost $57,660,925)
TOTAL INVESTMENT SECURITIES-100.0% $1,790,244,014
==============
(Cost $1,744,112,728)
See Notes to Financial Statements
Annual Report Value 9
SCHEDULE OF INVESTMENTS
VALUE
NOTES TO SCHEDULE OF INVESTMENTS
FHLB = Federal Home Loan Bank
(1) Non-income producing.
(2) Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as defined in the
Investment Company Act of 1940. (See Note 5 in Notes to Financial
Statements for a summary of transactions for each issuer which is or was an
affiliate at or during the year ended March 31, 1997.)
(3) This security is a zero-coupon bond. The effective yield to maturity at
March 31, 1997 is indicated. Zero coupon securities are purchased at a
substantial discount from their value at maturity.
(4) The rates for U.S. Government Agency discount notes are the yield to
maturity at March 31, 1997.
See Notes to Financial Statements
10 Value American Century Investments
EQUITY INCOME
TOTAL RETURNS AS OF MARCH 31, 1997
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR LIFE OF FUND
- --------------------------------------------------------------------------------
INVESTOR CLASS (inception 8/1/94)
EQUITY INCOME........................... 8.33% 16.24% 19.78%
S&P 500.................................11.27% 19.82% 23.48%
Lipper Equity Income Fund Index......... 9.78% 15.39% 17.73%
- --------------------------------------------------------------------------------
ADVISOR CLASS (inception 3/7/97)
EQUITY INCOME................................................... -2.89%
S&P 500......................................................... -5.47%
Lipper Equity Income Fund Index................................. -3.24%
See pages 29, 32 and 33 for more information about share classes, comparative
indices and returns.
PORTFOLIO CHARACTERISTICS AT A GLANCE
3/31/97 3/31/96
Number of Companies 65 64
Average Dividend
Yield of Holdings 4.1% 4.1%
Price/Earnings Ratio 14.9 15.1
Portfolio Turnover 159% 170%
Expense Ratio (for Investor Class) 1.00% 0.98%
[line graph - data described below]
GROWTH OF $10,000 OVER LIFE OF FUND (Investor Class)
EQUITY EQUITY INCOME S & P 500
INCOME FUND INDEX* INDEX
$10,000 $10,000 $10,000
$10,360 $10,333 $10,314
$10,248 $10,137 $10,108
$10,349 $10,192 $10,319
$10,038 $9,810 $9,911
$10,053 $9,888 $10,106
$10,499 $10,064 $10,351
$10,884 $10,388 $10,725
$11,069 $10,632 $11,087
$11,417 $10,886 $11,397
$11,641 $11,220 $11,811
$11,809 $11,369 $12,142
$12,056 $11,680 $12,528
$12,097 $11,824 $12,524
$12,347 $12,191 $13,104
$12,285 $12,018 $13,039
$12,763 $12,520 $13,574
$13,031 $12,827 $13,890
$13,325 $13,120 $14,343
$13,506 $13,218 $14,443
$13,913 $13,385 $14,635
$14,026 $13,513 $14,831
$14,345 $13,713 $15,171
$14,558 $13,734 $15,289
$14,029 $13,285 $14,591
$14,466 $13,584 $14,865
$14,927 $14,075 $15,759
$15,043 $14,408 $16,171
$15,830 $15,232 $17,357
$16,069 $15,131 $17,075
$16,272 $15,686 $18,118
$16,576 $15,969 $18,225
$16,171 $15,452 $17,536
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 total return lines of the indices do not.
11 Equity Income American Century Investments
EQUITY INCOME
Management Q & A
An interview with Phil Davidson and Peter Zuger, portfolio managers on the
Equity Income fund management team.
HOW DID THE FUND PERFORM?
For the year ended March 31, 1997, Equity Income posted a strong
performance, providing a total return of 16.24%. It outperformed its benchmark,
the Lipper Equity Income Fund Index, which returned 15.39%. Neither the fund nor
its benchmark matched the 19.82% gain recorded by the S&P 500 for the same
period.
WHAT FACTORS HELPED THE FUND PERFORM BETTER THAN ITS BENCHMARK?
The fund had a significant concentration of energy stocks and real estate
investment trusts (REITs). Investments in the energy sector, where we had a
relatively large weighting at the beginning of the fiscal year, contributed
positively to returns as stock performance followed the price of oil and gas
upward.
REITs produced above-average yields, while appreciating handsomely. This
group had underperformed the market in 1994 as interest rates climbed, creating
an attractive investment opportunity in 1995. The market perception of REITs
improved in 1996 as a nationwide oversupply of office buildings and apartments
diminished and interest rates declined. We sold most of our REIT holdings during
the final six months of the fiscal year at attractive gains and reinvested the
proceeds in electric utility stocks, which helped maintain the fund's yield.
WILL YOU DISCUSS THE FUND'S PERFORMANCE IN RELATION TO THE S&P 500?
In periods of above-average returns, such as the period covered by this
report, equity income funds tend to lag the S&P 500. As described in the Period
Overview on page 3, the S&P 500's performance came primarily from a narrow list
of large-company stocks with household names. Many of these "blue-chips" with
predictable earnings, such as Coca-Cola and Procter & Gamble, attracted a strong
investor following. However, most of these companies did not
[bar graph - data below]
EQUITY INCOME'S FISCAL YEAR RTURNS (1) (Periods ending March 31)
1995 1996 1997
Equity Income (1) 10.69% 25.67% 16.24%
Lipper Equity Income Fund Index 6.32% 25.95% 15.39%
This chart illustrates the fund's returns since its inception and compares them
with the index's returns. See page 32 for a description of the index.
Past performance is no guarantee of future results.
(1) Investor Class.
(2) Return from the fund's 8/1/94 inception date to 3/31/95.
Annual Report Equity Income 12
EQUITY INCOME
meet our criteria for dividend yield or price, so we didn't participate in their
gains. Instead, we focused more on medium-capitalization companies, where we
felt the valuations were more attractive and the potential return for investors
were greater.
Another factor that lowered the fund's return was our sizable investment in
electric utility stocks. These companies were out of favor during the period
because of rising interest rates and the competitive environment that utilities
face because of deregulation. However, selected utilities met our criteria for
fundamentally strong companies that are fairly valued or are temporarily out of
favor with investors. Moreover, we believe that well-positioned, low-cost
producers of electric power, like the electric utilities in the fund, will
prosper in an era of deregulation. At the prices that prevailed when the period
closed, these stocks offered good dividend yields and appreciation potential.
For the period, Equity Income performed in line with expectations: while it
lagged the S&P 500 during sharp advances, it outpaced the index during declines,
resulting in lower overall volatility. For example, in late March, many
investors left the market after the Federal Reserve raised short-term interest
rates. From the market peak on March 10, 1997, to the end of the period three
weeks later, the S&P 500 dropped 6.48% compared with a decline of only 3.33% for
Equity Income.
WHAT WAS THE YIELD OF THE FUND'S HOLDINGS AT THE END OF THE PERIOD? HOW WAS
THAT YIELD MAINTAINED?
The 4.11% average yield of Equity Income's holdings on March 31, 1997, was
well ahead of the S&P 500's 1.99% yield. One way the fund maintained its yield
was by continuing to own convertible securities, which are income-paying
investments that can be converted into common stock. The fund's 18% weighting in
convertibles as of March 31, 1997, was at the low end of its more typical range
of 20% to 40%. This was because many of the securities available in the market
were expensive and of lower quality. Because we want yield without sacrificing
quality, we looked beyond convertibles to meet the fund's income requirements.
We identified several high-yielding common stocks within the chemical
industry. Among the companies we have invested in to the benefit of the fund are
Nalco Chemical Co., Dow Chemical Co. and Millennium Chemical Co. These companies
are attractive investments because they are mature businesses that pay generous
dividends.
TOP TEN HOLDINGS % of fund investments
As of As of
3/31/97 9/30/96
Giant Food Inc. Cl A 4.8% 4.2%
Tambrands, Inc. 3.5% 1.9%
Price/Costco, Inc., 5.75%,
5/15/02 (convertible bond) 3.1% 2.9%
Florida Progress Corp. 2.7% 0.4%
General Mills, Inc. 2.7% 1.3%
Kansas City Power & Light Co. 2.6% 2.6%
NAC Re Corp., 5.25%,
12/15/02 (convertible bond) 2.6% 2.8%
Argonaut Group, Inc. 2.5% 2.0%
Penney (J.C.) Company, Inc. 2.4% -
Wisconsin Energy Corp. 2.4%-
TOP FIVE HOLDINGS % of fund investments
As of As of
3/31/97 9/30/96
Utilities 14.9% 14.9%
Food & Beverage 7.6% 7.6%
Banking 7.5% 3.4%
Retail (General Merchandise) 7.4% 2.9%
Retail (Food & Drug) 7.2% 4.8%
13 Equity Income American Century Investments
EQUITY INCOME
WHAT STOCKS ADDED MOST TO THE FUND'S RETURNS?
The best performance by far was turned in by Petrolite, a mid-sized St.
Louis manufacturer of chemicals used in oil fields. We sold the stock after
Baker Hughes, an oil services company, announced it was acquiring the firm. Once
a stock's price surpasses what we determine to be its fair value, we sell it to
make room for other stocks whose prices are depressed and represent more
attractive opportunities for the fund.
BellSouth, a regional phone company, also contributed to the fund's
returns. BellSouth's stock fluctuated within a tight range as concerns over
possible deregulation increased and then abated. We bought the stock when
worries about deregulation depressed its price, creating an attractive yield and
appreciation potential. We subsequently sold the position at a favorable price
as market sentiment pushed the shares above our measure of fair value.
Another strong performer was Societe Nationale Elf Aquitaine, a global
energy company with improving oil production rates. We bought the stock at a
discount, due partly to the market's perception that the French government
exerted too much control over management. In the second half of 1996, the stock
rebounded as the state's influence eased and oil prices climbed. Additionally,
oil discoveries on the West African coast exceeded investor expectations,
further boosting the company's price. The stock was then sold early this year
after it exceeded our expectations.
WHICH HOLDINGS PERFORMED POORLY?
One disappointment has been Frontier Corp., a regional phone company
serving western New York state. Increased competitive pressure in the long
distance market has led to a decline in the stock's price. The company is
participating in building a long distance network, an investment we believe will
ultimately result in lower operating costs when capital improvements are
complete next year.
Argonaut Group Inc., a California insurance company, did not appreciate as
we expected, partly due to limited growth in its market. However, we like the
stock because it has a healthy 5.28% yield, it sells at a discount to its peers,
and the company is a leader in insuring workmen's compensation risks.
WHAT SIGNIFICANT CHANGES DID YOU MAKE TO THE FUND'S PORTFOLIO SINCE THE
SEMIANNUAL REPORT?
As mentioned earlier, we sold the fund's REIT holdings in favor of other
moderate- to higher-yielding stocks. We also sold some consumer product and food
company holdings as they reached fair valuation. In other cases, we sold the
stocks of companies that successfully spun off less attractive divisions,
leading to improved shareholder value and higher stock prices. For example,
American Brands is spinning off its British tobacco subsidiary, while 3M spun
off its information data and storage division.
We increased our investment in retail stocks, such as Dillard Department
Stores and Mercantile Stores Co. We bought these stocks at prices that were
depressed by a seasonal softness in retail sales. The fundamentals of these
companies remain strong, and we think they will add value to the portfolio over
time.
WHAT'S YOUR OUTLOOK FOR THE FUND?
The market may be entering a period of volatility driven by uncertainty
over the future of interest rates. Equity Income can be expected to do well
relative to the broader market in a more volatile environment. Given the fund's
conservative charter, it invests in mature, out-of-favor companies with good
relative yields and fundamentally sound underlying businesses. This combination
of above-average yields, reasonable valuations and solid longer-term business
prospects should help cushion the fund's performance during market weakness.
Annual Report Equity Income 14
SCHEDULE OF INVESTMENTS
EQUITY INCOME
MARCH 31, 1997
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS
BANKING-5.3%
84,000 First Virginia Banks, Inc. $ 4,305,000
80,095 Mercantile Bancorporation Inc. 4,245,035
38,200 UMB Financial Corp. 1,542,325
--------------
10,092,360
--------------
CHEMICALS & RESINS-5.1%
28,000 Dow Chemical Co. 2,240,000
41,900 Great Lakes Chemical Corp. 1,927,400
24,000 Lubrizol Corp. 780,000
182,000 Millennium Chemicals Inc. 3,412,500
35,300 Nalco Chemical Co. 1,319,337
--------------
9,679,237
--------------
COMMUNICATIONS SERVICES-2.2%
235,200 Frontier Corp. 4,204,200
--------------
CONSUMER PRODUCTS-6.2%
80,000 National Presto Industries, Inc. 2,870,000
153,100 Tambrands, Inc. 6,564,163
44,000 WD-40 Co. 2,227,500
--------------
11,661,663
--------------
ELECTRICAL & ELECTRONIC
COMPONENTS-1.2%
64,000 AMP, Inc. 2,200,000
--------------
ENERGY (PRODUCTION & MARKETING)-3.2%
45,000 Amoco Corp. 3,898,125
47,000 Murphy Oil Corp. 2,209,000
--------------
6,107,125
--------------
ENVIRONMENTAL SERVICES-0.5%
36,400 Browning-Ferris Industries, Inc. 1,051,050
--------------
FOOD & BEVERAGE-7.6%
124,000 Archer-Daniels-Midland Co. 2,216,500
83,300 General Mills, Inc. 5,175,012
87,500 International Multifoods Corp. 1,793,750
40,000 McCormick & Co., Inc. 977,500
125,300 Universal Foods Corp. 4,166,225
--------------
14,328,987
--------------
Shares Value
- --------------------------------------------------------------------------------
HEALTHCARE-2.1%
120,000 Seafield Capital Corp. $ 3,930,000
--------------
INDUSTRIAL EQUIPMENT & MACHINERY-4.3%
154,000 Goulds Pumps, Inc. 3,628,625
253,000 Keystone International, Inc. 4,490,750
--------------
8,119,375
--------------
INSURANCE-3.7%
170,500 Argonaut Group, Inc. 4,774,000
59,100 Home Beneficial Corp. Cl B 2,242,106
--------------
7,016,106
--------------
METALS & MINING-1.9%
55,000 Ashland Coal, Inc. 1,347,500
35,000 Reynolds Metals Co. 2,170,000
--------------
3,517,500
--------------
PACKAGING & CONTAINERS-1.9%
76,400 AptarGroup, Inc. 2,922,300
26,500 Ball Corporation 702,250
--------------
3,624,550
--------------
PAPER & FOREST PRODUCTS-5.2%
90,000 Rayonier, Inc. 3,352,500
89,000 Union Camp Corp. 4,194,125
95,700 Westvaco Corp. 2,404,463
--------------
9,951,088
--------------
PUBLISHING-1.1%
40,000 Banta Corp. 1,030,000
30,000 Deluxe Corp. 971,250
--------------
2,001,250
--------------
RAILROAD-0.6%
23,000 CSX Corp. 1,069,500
--------------
REAL ESTATE-0.4%
30,000 Chateau Properties, Inc. 776,250
--------------
RESTAURANTS-2.2%
164,000 Luby's Cafeterias, Inc. 3,054,500
40,000 Sbarro, Inc. 1,130,000
--------------
4,184,500
--------------
RETAIL (FOOD & DRUG)-6.1%
281,100 Giant Food Inc. Cl A 8,995,200
93,000 Weis Markets, Inc. 2,580,750
--------------
11,575,950
--------------
See Notes to Financial Statements
15 Equity Income American Century Investments
SCHEDULE OF INVESTMENTS
EQUITY INCOME
MARCH 31, 1997
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-4.3%
65,000 Dillard Department Stores, Inc. Cl A $ 2,047,500
31,200 Mercantile Stores Co., Inc. 1,446,900
96,500 Penny (J.C.) Company, Inc. 4,595,812
--------------
8,090,212
--------------
UTILITIES-14.9%
125,500 AGL Resources Inc. 2,306,063
92,000 CIPSCO Inc. 3,254,500
170,200 Florida Progress Corp. 5,169,825
16,444 IPALCO Enterprises, Inc. 499,486
174,600 Kansas City Power & Light Co. 4,888,800
195,200 New York State Electric & Gas Corp. 4,221,200
98,000 Potomac Electric Power Co. 2,401,000
44,500 South Jersey Industries, Inc. 951,188
184,000 Wisconsin Energy Corp. 4,508,000
--------------
28,200,062
--------------
MISCELLANEOUS-1.4%
50,000 Juno Lighting, Inc. 803,125
46,000 National Service Industries 1,799,750
--------------
2,602,875
--------------
TOTAL COMMON STOCKS-81.4% 153,983,840
--------------
(Cost $152,086,907)
CONVERTIBLE PREFERRED STOCKS
BANKING-2.2%
165,000 National Australia Bank Ltd. SA(1) 4,125,000
--------------
ENERGY (PRODUCTION & MARKETING)-3.1%
46,100 Ultramar Diamond Shamrock, Inc.(1) 2,892,775
55,500 Unocal Corp. 3,010,875
--------------
5,903,650
--------------
TOTAL CONVERTIBLE PREFERRED
STOCKS-5.3% 10,028,650
--------------
(Cost $10,023,513)
CONVERTIBLE BONDS
BUILDING & HOME IMPROVEMENTS-1.0%
$2,000,000 Masco Corp., 5.25%, 2/15/12 1,977,500
--------------
Principal Amount Value
- --------------------------------------------------------------------------------
CHEMICALS & RESINS-1.7%
$7,000,000 RPM, Inc., 5.20%, 9/30/12(2) $ 3,158,750
--------------
INDUSTRIAL EQUIPMENT & MACHINERY-2.0%
3,605,000 Cooper Industries, Inc.,
7.05%, 1/1/15 3,812,288
--------------
INSURANCE-2.6%
5,000,000 NAC Re Corp., 5.25%, 12/15/02
(Acquired 5/1/96 through
1/13/97, Cost $4,826,000)(3) 4,875,000
--------------
RETAIL (FOOD & DRUG)-1.1%
2,000,000 Food Lion, Inc., 5.00%, 6/1/03
(Acquired 2/20/97,
Cost $2,161,100)(3) 2,170,000
--------------
RETAIL (GENERAL MERCHANDISE)-3.1%
6,000,000 Price/Costco, Inc., 5.75%, 5/15/02 5,872,500
--------------
RETAIL (SPECIALTY)-1.2%
3,000,000 Jacobson Stores Inc.,
6.75%, 12/15/11 2,280,000
--------------
TOTAL CONVERTIBLE BONDS-12.7% 24,146,038
--------------
(Cost $23,564,482)
TEMPORARY CASH INVESTMENTS-0.6%
Repurchase Agreement, Goldman Sachs & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 6.40%, dated 3/31/97,
due 4/1/97 (Delivery value $1,100,196) 1,100,000
--------------
(Cost $1,100,000)
TOTAL INVESTMENT SECURITIES-100.0% $189,258,528
============
(Cost $186,774,902)
See Notes to Financial Statements
Annual Report Equity Income 16
SCHEDULE OF INVESTMENTS
EQUITY INCOME
NOTES TO SCHEDULE OF INVESTMENTS
(1) Non-income producing.
(2) This security is a zero-coupon bond. The effective yield to maturity at
March 31, 1997 is indicated. Zero-coupon securities are purchased at a
substantial discount from their value at maturity.
(3) Security was purchased under Rule 144A of the Securities Act of 1933 and,
unless registered under the Act or exempted from registration, may only be
sold to qualified institutional investors. The aggregate value of
restricted securities at March 31, 1997, was $7,045,000, which represented
3.5% of the net assets of Equity Income.
See Notes to Financial Statements
17 Equity Income American Century Investments
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1997
EQUITY
VALUE INCOME
ASSETS
<S> <C> <C>
Investment securities, at value (identified cost of $1,744,112,728
and $186,774,902, respectively) (Note 3)................................... $1,790,244,014 $189,258,528
Cash ........................................................................... 3,824,081 454,103
Receivable for investments sold................................................. 30,412,383 12,882,158
Receivable for capital shares sold.............................................. 582,974 2,603
Dividends and interest receivable............................................... 2,149,874 696,844
--------------- ------------
1,827,213,326 203,294,236
--------------- ------------
LIABILITIES
Disbursements in excess of demand deposit cash.................................. 1,701,295 536,202
Payable for investments purchased............................................... 45,145,976 2,813,809
Payable for capital shares redeemed............................................. 5,983,403 364,664
Accrued management fees (Note 2)................................................ 1,534,791 172,366
Distribution fees payable (Note 2).............................................. 6,641 3
Service fees payable (Note 2)................................................... 6,641 3
Other liabilities............................................................... 2,463 496
--------------- ------------
54,381,210 3,887,543
--------------- ------------
NET ASSETS...................................................................... $1,772,832,116 $199,406,693
=============== ============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)......................................... $1,635,980,794 $184,481,504
Distributions in excess of net investment income................................ (356,054) (68,274)
Accumulated net realized gain on investment
and foreign currency transactions............................................... 91,074,081 12,509,837
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies (Note 3)...................... 46,133,295 2,483,626
--------------- ------------
$1,772,832,116 $199,406,693
=============== ============
INVESTOR CLASS
Net assets...................................................................... $1,743,581,944 $199,388,323
Shares outstanding.............................................................. 265,122,707 31,585,437
Net asset value per share ...................................................... $6.58 $6.31
ADVISOR CLASS
Net assets...................................................................... $29,250,172 $18,370
Shares outstanding.............................................................. 4,447,036 2,910
Net asset value per share....................................................... $ 6.58 $6.31
See Notes to Financial Statements
</TABLE>
18 Statements of Assets and Liabilities American Century Investments
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
EQUITY
YEAR ENDED MARCH 31, 1997 VALUE INCOME
INVESTMENT INCOME
INCOME:
<S> <C> <C>
Dividends (net of foreign taxes withheld
of $243,038 and $15,770, respectively)........................... $34,406,618 $5,343,135
Interest............................................................. 3,046,989 1,710,627
------------ ----------
37,453,607 7,053,762
------------ ----------
EXPENSES (NOTE 2):
Management fees...................................................... 13,047,153 1,579,957
Distribution fees-Advisor Class...................................... 35,593 3
Shareholder service fees-Advisor Class .............................. 35,593 3
Directors' fees and expenses......................................... 12,363 1,484
------------ ----------
13,130,702 1,581,447
------------ ----------
NET INVESTMENT INCOME..................................................... 24,322,905 5,472,315
------------ ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3)
Net realized gain on:
Investments.......................................................... 167,586,702 21,971,370
Foreign currency transactions........................................ 1,002,205 41,708
------------ ----------
168,588,907 22,013,078
------------ ----------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments.......................................................... (11,159,747) (4,218,228)
Translation of assets and liabilities
in foreign currencies............................................. 142,480 21,426
----------- ----------
(11,017,267) (4,196,802)
------------ ----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS....................................................... 157,571,640 17,816,276
------------ ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS................................................. $181,894,545 $23,288,591
============ ===========
See Notes to Financial Statements
</TABLE>
Annual Report Statements of Operations 19
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED MARCH 31, 1997 EQUITY
AND MARCH 31, 1996 VALUE INCOME
----- ------
March 31, March 31, March 31, March 31,
INCREASE (DECREASE) IN NET ASSETS 1997 1996 1997 1996
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income....................................... $24,322,905 $12,842,485 $5,472,315 $2,971,057
Net realized gain on investments
and foreign currency transactions........................ 168,588,907 93,357,747 22,013,078 11,637,714
Change in net unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities in foreign currencies.................... (11,017,267) 42,011,788 (4,196,802) 4,726,626
-------------- ----------- ----------- ----------
Net increase in net assets
resulting from operations................................... 181,894,545 148,212,020 23,288,591 19,335,397
-------------- ----------- ----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class........................................... (24,153,903) (12,842,485) (5,494,780) (2,971,057)
Advisor Class............................................ (213,484) - (20) -
In excess of net investment income:.........................
Investor Class........................................... (120,914) (698,226) (5,884) (99,756)
Advisor Class............................................ (397) - (184) -
From net realized gains from investment transactions:.......
Investor Class........................................... (123,357,187) (47,886,954) (14,539,539) (6,912,073)
Advisor Class............................................ (2,470,879) - - -
-------------- ----------- ----------- ----------
Decrease in net assets from distributions................... (150,316,764) (61,427,665) (20,040,407) (9,982,886)
-------------- ----------- ----------- ----------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase in net assets
from capital share transactions............................. 859,369,095 446,819,834 79,466,151 55,127,007
-------------- ----------- ----------- ----------
NET INCREASE IN NET ASSETS.................................. 890,946,876 533,604,189 82,714,335 64,479,518
NET ASSETS
Beginning of year........................................... 881,885,240 348,281,051 116,692,358 52,212,840
-------------- ----------- ----------- ----------
End of year................................................. $1,772,832,116 $881,885,240 $199,406,693 $116,692,358
============== ============ ============ ============
Undistributed (distributions in excess of)
net investment income....................................... $(356,054) $44,482 $(68,274) $22,485
============== ============ ============ ===========
See Notes to Financial Statements
</TABLE>
20 Statements of Changes in Net Assets American Century Investments
NOTES TO FINANCIAL STATEMENTS
MARCH 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 diversified
management investment company. Two series of shares, investing primarily in
equity securities, are currently issued as American Century Value Fund (Value)
and American Century Equity Income Fund (Equity Income) (the Funds). The
investment objective of Value is long-term capital growth. Income is a secondary
objective. The fund seeks to achieve its investment objectives by investing in
securities that management believes to be undervalued at the time of purchase.
The investment objective of Equity Income is the production of current income.
Capital appreciation is a secondary objective. The fund seeks to achieve its
objectives by investing primarily in income-producing equity securities. In the
pursuit of its objectives, the fund seeks a yield that exceeds the yield of
securities comprising the Standard & Poor's 500 Composite Stock Price Index. On
September 3, 1996, the Funds implemented a multiple class structure whereby each
Fund is authorized to issue three classes of shares: the Investor Class, the
Institutional Class and the Advisor Class. The shares outstanding prior to
September 3, 1996, are 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 each Fund represent an
equal pro rata interest in the assets of the class to which such shares belong,
and have identical voting, dividend, liquidation and other rights and the same
terms and conditions, except for class specific expenses and exclusive rights to
vote on matters affecting only individual classes. Sale of the Advisor Class for
Value and Equity Income commenced on October 2, 1996 and March 7, 1997,
respectively. Sale of the Institutional Class for each Fund had not commenced as
of March 31, 1997. The following significant accounting policies related to the
Funds 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 premiums.
FOREIGN CURRENCY TRANSACTIONS-The accounting records of the Funds are
maintained in U.S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at prevailing exchange rates.
Purchases and sales of investment securities, dividend and interest income, and
certain expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.
Net realized foreign currency exchange gains or losses arise from sales of
foreign currencies and the difference between asset and liability amounts
initially stated in foreign currencies and the U.S. dollar value of the amounts
actually received or paid. Net unrealized foreign currency exchange gains or
losses arise from changes in the value of assets and liabilities, other than
portfolio securities, resulting from changes in the exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of portfolio securities are a component of
realized gain (loss) on investments and unrealized appreciation (depreciation)
on investments, respectively.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS-The Funds may enter into
forward foreign currency exchange contracts for the purpose of settling specific
purchases or sales of securities denominated in a foreign currency or to hedge
the Fund's exposure to foreign currency exchange rate fluctuations. When
required, the Funds will segregate assets in an amount sufficient to cover its
obligations under the hedge contracts. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the Funds and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. Forward contracts involve elements of market risk in
excess of the amount reflected in the Statements of Assets and Liabilities. The
Funds bear the risk of an unfavorable change in the foreign currency exchange
rate underlying the forward contract. Additionally, losses may arise if the
counterparties do not perform under the contract terms. There were no open
forward foreign currency exchange contracts at March 31, 1997.
FUTURES CONTRACTS-The Funds may enter into stock index futures contracts in
order to manage each Fund's exposure to
Annual Report Notes to Financial Statements 21
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
changes in market conditions. One of the risks of entering into futures
contracts includes the possibility that the change in value of the contract may
not correlate with the changes in value of the underlying securities. Upon
entering into a futures contract, each Fund is required to deposit either cash
or securities in an amount equal to a certain percentage of the contract value
(initial margin). Subsequent payments (variation margin) are made or received
daily, in cash, by the Funds. The variation margin is equal to the daily change
in the contract value and is recorded as unrealized gains and losses. Each Fund
recognizes a realized gain or loss when the contract is closed or expires. Net
realized and unrealized gains or losses occurring during the holding period of
futures contracts are a component of realized gain (loss) on investments and
unrealized appreciation (depreciation) on investments, respectively. There were
no open futures contracts at March 31, 1997
REPURCHASE AGREEMENTS-The Funds may enter into repurchase agreements with
institutions that the Funds' investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. Each Fund requires that the securities purchased in a repurchase
transaction be transferred to the custodian in a manner sufficient to enable
each Fund to obtain those securities in the event of a default under the
repurchase agreement. ACIM monitors, on a daily basis, the 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 each Fund under each repurchase agreement.
JOINT TRADING ACCOUNT-Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, each Fund, along with other registered
investment companies having management agreements with ACIM and Benham
Management Corporation, 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 income dividends paid by the Funds are taxable to most shareholders as
ordinary income. The portion of the ordinary income dividends (including net
short-term capital gains) attributable to the fiscal year ended March 31, 1997,
that qualified for the dividends received deduction for corporate shareholders
was 19% and 22% for Value and Equity Income, respectively.
Value and Equity Income have designated $13,551,959 and $1,457,582,
respectively, as a capital gain dividend for the purpose of the dividends paid
deduction.
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 primarily due to differing
treatments for foreign currency transactions and wash sales.
SUPPLEMENTARY 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
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
The Corporation has entered into a Management Agreement with ACIM that
provides the Funds with investment advisory and management services in exchange
for a single, unified management fee per class. Additional fees apply to the
Advisor Class shares, as described in the respective prospectus. The Agreement
provides that all expenses of the Funds, except brokerage commissions, taxes,
interest, expenses of those directors who are not considered "interested
persons" as defined in the 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 each Fund's average daily closing net assets during
the previous
22 Notes to Financial Statements American Century Investments
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
month. The annual management fee for each class is 1.00% and 0.75% for the
Investor Class and Advisor Class, respectively.
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 Funds will pay ACIM an annual distribution fee equal to 0.25%
and service fee equal to 0.25%. The fees are computed daily and paid monthly
based on the Advisor Class's average daily closing net assets during the
previous month. The distribution fee provides compensation for distribution
expenses incurred in connection with distributing shares of the Advisor Class
including, but not limited to, payments to brokers, dealers, and financial
institutions that have entered into sales agreements with ACIS and/or ACIM. The
service fee provides compensation for shareholder and administrative services
rendered by ACIM, its affiliates or independent third party providers. Fees
incurred under the Master Distribution and Shareholder Services Plan during the
period October 2, 1996 (commencement of sale of Advisor class for Value) and
March 7, 1997 (commencement of sale of Advisor class for Equity Income) through
March 31, 1997, were $71,186 for Value and $6 for Equity Income.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
The aggregate cost of investment securities purchased (excluding short-term
investments) for the year ended March 31, 1997, for Value and Equity Income
totaled $2,149,773,060, and $239,921,378, respectively, for common stocks;
$18,680,084 for Equity Income for preferred stock; and $18,979,682 and
$44,788,000, respectively, for other debt obligations. Proceeds from investment
securities sold (excluding short-term investments) totaled $1,370,687,532 and
$191,651,950, respectively, for common stocks; $17,009,823 for Equity Income for
preferred stocks; $40,303,713 and $38,479,356, respectively for other debt
obligations.
As of March 31, 1997, accumulated net unrealized appreciation for Value and
Equity Income was $42,803,299 and $2,180,703, based on the aggregate cost of
investments of $1,747,440,715 and $187,077,825, respectively, for federal income
tax purposes. Accumulated net unrealized appreciation consisted of unrealized
appreciation of $89,881,965 and $7,086,079 for Value and Equity Income and
unrealized depreciation of $47,078,666 and $4,905,376, respectively.
Annual Report Notes to Financial Statements 23
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
4. CAPITAL SHARE TRANSACTIONS
There are 350,000,000 and 150,000,000 shares of the Investor Class
authorized for issuance for Value and Equity Income, respectively, and
145,000,000 and 62,500,000 shares of the Advisor Class authorized for issuance
for Value and Equity Income, respectively. All shares are $0.01 par value.
Transactions in shares of the Funds were as follows:
<TABLE>
VALUE EQUITY INCOME
Shares Amount Shares Amount
INVESTOR CLASS
YEAR ENDED MARCH 31, 1997:
<S> <C> <C> <C> <C>
Shares sold........................................... 196,286,153 $1,303,453,155 24,431,148 $156,236,587
Shares issued in reinvestment of distributions........ 22,400,228 144,836,133 3,056,977 19,088,856
Shares redeemed....................................... (93,171,882) (618,750,013) (15,045,815) (95,878,404)
------------- -------------- ------------ ------------
Net increase.......................................... 125,514,499 $ 829,539,275 12,442,310 $ 79,447,039
============= ============== ============ ============
YEAR ENDED MARCH 31, 1996:
Shares sold........................................... 108,909,750 $ 643,896,003 14,703,393 $ 85,832,083
Shares issued in reinvestment of distributions........ 10,332,725 60,265,897 1,672,244 9,607,360
Shares redeemed....................................... (43,370,111) (257,342,066) (6,860,307) (40,312,436)
------------- ------------- ------------ ------------
Net increase.......................................... 75,872,364 $ 446,819,834 9,515,330 $ 55,127,007
============= ============== ============ ============
ADVISOR CLASS
OCTOBER 2, 1996(1) THROUGH MARCH 31, 1997
Shares sold........................................... 4,417,250 $ 29,766,624 2,878 $ 18,908
Shares issued in reinvestment of distributions........ 416,263 2,684,756 32 204
Shares redeemed....................................... (386,477) (2,621,560) - -
------------- ------------- ------------ ------------
Net increase ......................................... 4,447,036 $29,829,820 2,910 $19,112
============= ============== ============ ============
(1) Sale of the Advisor Class commenced on October 2, 1996 for Value and March
7, 1997 for Equity Income.
</TABLE>
24 Notes to Financial Statement American Century Investments
NOTES TO FINANCIAL STATEMENTS
5. AFFILIATED COMPANY TRANSACTIONS
A summary of transactions for each issuer which is or was an affiliate at
or during the year ended March 31, 1997, follows:
<TABLE>
March 31, 1997
Share Realized
Balance Purchase Sales Gain Share Market
Fund/Issuer 3/31/96 Cost Cost (Loss) Income Balance Value
VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
Gerber Scientific, Inc. 530,800 $13,178,946 $54,425 $7,190 $347,456 1,497,100 $23,205,050
Petrolite Corporation 461,600 9,412,625 21,819,222 22,114,279 599,032 - -
Superior Industries
International, Inc. - 46,886,319 - - 157,992 1,954,400 44,218,300
XTRA Corp. 200,000 24,679,584 196,997 (76) 326,872 773,400 31,999,425
----------- ----------- ----------- ---------- -----------
$94,157,474 $22,070,644 $22,121,393 $1,431,352 $99,422,775
=========== =========== =========== ========== ============
</TABLE>
- --------------------------------------------------------------------------------
6. CORPORATE EVENTS
The following name changes became effective January 1, 1997:
<TABLE>
NEW NAMES FORMER NAMES
<S> <C> <C>
FUNDS' ISSUER: American Century Capital Portfolios, Inc. Twentieth Century Capital Portfolios, Inc.
FUNDS: American Century Value Fund Twentieth Century Value
American Century Equity Income Fund Twentieth Century Equity Income
PARENT COMPANY: American Century Companies, Inc. Twentieth Century Companies, Inc.
DISTRIBUTOR: American Century Investment Services, Inc. Twentieth Century Securities, Inc.
TRANSFER AGENT: American Century Services Corporation Twentieth Century Services, Inc.
</TABLE>
Annual Report Notes to Financial Statement 25
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
VALUE
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
Advisor
Investor Class Class
1997 1996 1995 1994(1) 1997(2)
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............... $6.32 $5.46 $4.98 $ 5.01 $6.71
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income (3)....................... 0.12 0.13 0.12 0.08 0.05
Net Realized and Unrealized Gain
(Loss) on Investment Transactions............. 0.87 1.34 0.75 (0.04) 0.48
------- ------- ------- ------- -------
Total From Investment Operations................ 0.99 1.47 0.87 0.04 0.53
------- ------- ------- ------- -------
Distributions
From Net Investment Income...................... (0.12) (0.12) (0.12) (0.07) (0.05)
In Excess of Net Investment Income.............. - (0.01) - - -
From Net Realized Gains
on Investment Transactions.................... (0.61) (0.48) (0.27) - (0.61)
------- ------- ------- ------- -------
Total Distributions............................. (0.73) (0.61) (0.39) (0.07) (0.66)
------- ------- ------- ------- -------
Net Asset Value, End of Period..................... $6.58 $6.32 $5.46 $4.98 $6.58
======= ======= ======= ======= =======
Total Return(4)................................. 15.92% 28.06% 18.56% 0.83% 8.07%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets.............................. 1.00% 0.97% 1.00% 1.00%(5) 1.25%(5)
Ratio of Net Investment Income
to Average Net Assets.............................. 1.86% 2.17% 2.65% 3.37%(5) 1.50%(5)
Portfolio Turnover Rate............................ 111% 145% 94% 79% 111%
Average Commission Paid per
Investment Security Traded......................... $0.0459 $0.0409 -(6) -(6) $0.0459
Net Assets, End of Period
(in thousands)................................ $1,743,582 $881,885 $348,281 $87,798 $29,250
(1) September 1, 1993 (inception) through March 31, 1994.
(2) October 2, 1996 (commencement of sale of Advisor class) through March 31,
1997.
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
(6) Disclosure of average commission paid per investment security traded was
not required prior to the year ended March 31, 1995.
</TABLE>
See Notes to Financial Statements
26 Financial Highlights American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
EQUITY INCOME
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
Investor Advisor
Class Class
1997 1996 1995(1) 1997(2)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......................... $6.10 $5.42 $5.00 $6.57
------- ------- ------- -------
Income From Investment Operations
Net Investment Income(3).................................. 0.22 0.20 0.09 0.02
Net Realized and Unrealized Gain
(Loss) on Investment Transactions...................... 0.75 1.13 0.44 (0.21)
------- ------- ------- -------
Total From Investment Operations.......................... 0.97 1.33 0.53 (0.19)
------- ------- ------- -------
Distributions
From Net Investment Income................................ (0.21) (0.19) (0.09) (0.07)
In Excess of Net Investment Income........................ - (0.01) - -
From Net Realized Gains
on Investment Transactions............................. (0.55) (0.45) (0.02) -
------- ------- ------- -------
Total Distributions....................................... (0.76) (0.65) (0.11) (0.07)
------- ------- ------- -------
Net Asset Value, End of Period............................... $6.31 $6.10 $5.42 $6.31
======== ======= ======= =======
Total Return(4)........................................... 16.24% 25.67% 10.69% (2.89)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets.................................. 1.00% 0.98% 1.00%(5) 1.25%(5)
Ratio of Net Investment Income
to Average Net Assets.................................. 3.46% 3.51% 4.04%(5) 1.64%(5)
Portfolio Turnover Rate...................................... 159% 170% 45% 159%
Average Commission Paid per
Investment Security Traded............................. $0.0440 $0.0378 -(6) $0.0440
Net Assets, End of Period (in thousands)..................... $199,388 $116,692 $52,213 $18
(1) August 1, 1994 (inception) through March 31, 1995.
(2) March 7, 1997 (commencement of sale of Advisor class) through March 31,
1997.
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are
not annualized.
(5) Annualized.
(6) Disclosure of average commission paid per investment security traded was
not required prior to the year ended March 31, 1995.
</TABLE>
See Notes to Financial Statements
Annual Report Financial Highlights 27
REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Directors
American Century Capital Portfolios, Inc.
We have audited the accompanying statements of assets and liabilities of
American Century Capital Portfolios, Inc. (formerly Twentieth Century Capital
Portfolios, Inc.) (comprised of the Value and Equity Income portfolios) (the
Funds), including the schedules of investments, as of March 31, 1997, the
related statements of operations for the year then ended, statements of changes
in net assets for each of the two years then ended and financial highlights for
each of the three years then ended and for the period from September 1, 1993
(inception) to March 31, 1994 for the Value portfolio and the related statements
of operations for the year then ended and statements of changes in net assets
for each of the two years then ended and financial highlights for each of the
two years then ended and for the period from August 1, 1994 (inception) to March
31, 1995 for the Equity Income portfolio. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
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 as of March
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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios comprising American Century Capital
Portfolios, Inc. at March 31, 1997, and the results of their operations, changes
in their net assets, and financial highlights for the periods indicated above,
in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
April 25, 1997
28 Report of Independent Auditors American Century Investments
SHARE CLASS AND RETIREMENT
INFORMATION
SHARE CLASSES
Until September 3, 1996, the Value and Equity Income funds issued one class
of fund shares, reflecting the fact that most investors bought their shares
directly from American Century. All investors paid the same annual unified
management fee and did not pay any commissions or other fees to purchase shares
from American Century.
But increasing numbers of investors are purchasing fund shares through
financial intermediaries who expect to be compensated for the additional
services they provide. In September, American Century began to offer three
classes of shares for the Value and Equity Income funds. One class is for
investors who still buy directly from American Century, the other for investors
who buy through financial intermediaries.
The original class of Value and Equity Income fund shares is called the
Investor Class. All shares issued and outstanding before September 3, 1996, have
been designated as Investor Class shares. Investor Class shares may also be
purchased after September 3, 1996. Investor Class shareholders do not pay any
commissions or other fees for purchase of fund shares directly from American
Century. Investors who buy Investor Class shares through a broker-dealer may be
required to pay the broker-dealer a transaction fee. 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
investors pay an annual management fee that is 0.25% less than that paid by
Investor Class investors, but Advisor Class investors also pay 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 third class, the Investor Class, had not commenced as of March 31,
1997.
Both classes of shares represent a pro rata interest in the funds and
generally have the same rights and conditions.
IMPORTANT NOTICE FOR ALL IRA AND 403(B) SHAREHOLDERS
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 Share Class and Retirement Information 29
NOTES
30 Notes American Century Investments
NOTES
Annual Report Notes 31
BACKGROUND INFORMATION
INVESTMENT PHILOSOPHY & POLICIES
The American Century Group offers seven equity funds, including Value and
Equity Income. These two funds are general equity funds managed to provide
growth over time with less volatility than more aggressive growth funds. Stock
purchases are based on a company-by-company analysis to determine whether a
stock is trading below what the fund management team considers fair value. Once
the management team understands why the stock's price is depressed and the team
is convinced the undervaluation is temporary, the stock may be purchased and
held until it appreciates to fair value, when it is sold. Equity Income may buy
stocks that are trading at fair value if the stock pays a generous dividend. In
both funds, broad diversification across many industries is stressed to prevent
the performance of one sector from dominating fund returns.
AMERICAN CENTURY VALUE invests in the equity securities of seasoned,
established businesses that the fund's management team believes are temporarily
undervalued. This is determined by comparing a stock's share price with key
financial measures, including earnings, book value, cash flow and dividends. If
the stock's price relative to these measures is low and the company's balance
sheet is solid, its securities are candidates for purchase. The management team
may secondarily look for income when making portfolio selections.
AMERICAN CENTURY EQUITY INCOME purchases the securities of seasoned
companies that pay steady income, with the goal of providing shareholders a
higher yield than the aggregate yield of the stocks making up the S&P 500. The
team may secondarily search out stocks whose share prices are undervalued or
fairly valued. To help increase the fund's yield and help reduce the impact of
stock market value changes, the team maintains a relatively large percentage of
assets in convertible securities. These are income-paying issues that may, at
some later date, be converted into equity securities at favorable prices. The
prices of convertibles usually do not fluctuate as much as those of common
stocks, and they generally pay higher interest and dividends than common stocks.
Under normal circumstances, the fund can be expected to have less share-price
volatility than American Century Value.
COMPARATIVE INDICES
The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.
The S&P 500 is an index created by Standard & Poor's Corporation that is
considered to be a broad measure of U.S. stock market performance. It is
composed primarily of large-capitalization stocks.
The S&P/BARRA VALUE INDEX is a capitalization-weighted index consisting of
S&P 500 stocks that have lower price-to-book ratios and in general share other
characteristics associated with value-style stocks.
THE LIPPER EQUITY INCOME FUND INDEX is a non-weighted index of the 30
largest equity income mutual funds. Lipper Analytical Services, Inc., is an
independent mutual fund ranking service.
PORTFOLIO MANAGEMENT TEAM
-------------------------
Vice President & Portfolio Manager Phil Davidson
Vice President & Portfolio Manager Peter Zuger
32 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 26-27.
PORTFOLIO STATISTICS
o NUMBER OF COMPANIES- the number of different companies held by a fund on a
given date.
o AVERAGE DIVIDEND YIELD OF HOLDINGS- a percentage return calculated by
dividing a company's annual cash dividend by the current market value of
the company's stock.
o PRICE/EARNINGS (P/E) RATIO- a stock value measurement calculated by
dividing a company's stock price by its earnings per share, with the result
expressed as a multiple instead of as a percentage. (Earnings per share is
calculated by dividing the after-tax earnings of a corporation by its
outstanding shares.)
o PORTFOLIO TURNOVER- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed
portfolios tend to have higher turnover than passively managed portfolios
such as index funds.
o EXPENSE RATIO- the operating expenses of the fund, expressed as a
percentage of average net assets. Shareholders pay an annual fee to the
investment manager for investment advisory and management services. The
expenses and fees are deducted from fund income, not from each shareholder.
(See Note 2 in the Notes to Financial Statements.)
TYPES OF STOCKS
o BLUE-CHIP STOCKS- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth
potential. Examples include General Electric and Coca-Cola.
o CYCLICAL STOCKS- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle.
Examples include the stocks of automobile manufacturers, steel producers
and textile operators.
o GROWTH STOCKS- stocks of companies that have experienced above-average
earnings growth and appear likely to continue such growth. These stocks
often sell at high P/E ratios. Examples can include the stocks of
high-tech, computer hardware and computer software companies.
o LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS- generally considered to be
stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of more than $5 billion. These tend to be the
stocks that make up the Dow Jones Industrial Average and the S&P 500.
o MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS-generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of between $1 billion and $5 billion. These tend to be
the stocks that make up the S&P 400.
o SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS- generally considered to be
stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of less than $1 billion. These tend to be the
stocks that make up the Russell 2000 Index.
o VALUE STOCKS- generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized
by low P/E ratios.
STATISTICAL TERMINOLOGY
o PRICE/BOOK RATIO- a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result
expressed as a multiple instead of as a percentage. (Book value per share
is calculated by subtracting a company's liabilities from its assets, then
dividing that value by the number of outstanding shares.)
Annual Report Glossary 33
[american century logo]
American
Century(sm)
P.O. Box 419200
Kansas City, Missouri
64141-6200
Person-to-Person Assistance:
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
This report and the financial statements
contained herein 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.
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