[front cover] September 30, 1998
SEMIANNUAL REPORT
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AMERICAN CENTURY
[montage of computer keyboard, eyeglasses and field of numbers and letters]
AMERICAN CENTURY GROUP
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VALUE
EQUITY INCOME
SMALL CAP VALUE
[american century logo (reg. sm)
American
Century
[inside front cover]
A Note from the Founder
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On our 40th anniversary, I would personally like to express my profound
appreciation for the confidence you have shown in American Century. We are
grateful for the opportunity to manage your money, and we will do our utmost to
continue to meet your expectations and justify your confidence in us.
I founded American Century on the belief that if we can make you
successful, you, in turn, will make us successful. That is the principle that
will guide us in the future.
Sincerely,
/s/James E. Stowers
About our New Report Design
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WHY WE CHANGED.
We're trying hard to be reader-friendly. Our reports contain a lot of very good
information, from fund statistics and financials to Q & As with fund managers.
We hope the new design will make the reports more interesting and
understandable, and easier for you to keep abreast of your fund's strategy and
performance.
WHAT'S NEW.
The reports are designed to be attractive and easy to use whether you're reading
them in depth or just skimming.
New features include:
* Larger type size in many sections.
* Brief explanations of the financial statements.
* More prominent graphs and charts.
* Quotes in the margins to highlight report content.
THE BOTTOM LINE.
The new design actually costs slightly less than the old one. We reallocated
costs and eliminated a cover letter and the envelope that previously came with
your report enclosed. This not only saves money, but cuts down on the number of
mailing pieces you receive.
The new reports also use roughly the same amount of paper as the old ones.
Previously, paper was trimmed and thrown away to produce the smaller report
size.
We believe we've come up with a more interesting, informative, and user-friendly
publication.
We hope you enjoy it.
[left margin]
AMERICAN CENTURY GROUP
VALUE
(TWVLX)
AMERICAN CENTURY GROUP
EQUITY INCOME
(TWEIX)
AMERICAN CENTURY GROUP
SMALL CAP VALUE
(N/A)
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century
1958-1998
Our Message to You
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[photo James E. Stowers, Jr. and James E. Stowers III]
James E. Stowers III, seated, with James E. Stowers, Jr.
The six months from March 31 through September 30 were a period of sharp
contrasts. Helped along by a healthy economy and widespread market optimism,
many market averages set records in the first three months and then tumbled
dramatically, as the outlook for the U.S. economy and for corporate earnings
turned pessimistic. The mood swing in market psychology seemed especially
pronounced after the gains of the last several years--gains that were
accompanied by relatively few, and very shallow, downdrafts in stock prices.
In the earlier, heady atmosphere, value stocks did not perform as well as
growth stocks, but that changed somewhat after the market peaked in July.
Although the general market continued to flounder, small- to mid-sized value
stocks have performed more in line with larger stocks.
Still, given the gains of the last several years, and the low market
volatility, it is understandable that many investors--especially those who are
new to the stock market-- are finding the declines of the last three months, and
the broad market price swings, fairly stressful. We can only assure you that we
believe these swings are an inevitable, even necessary part of the investment
process. They often are a precursor for further advances. But whatever your
tolerance for risk, it does not pay to get caught up in market excesses, whether
overly optimistic or overly negative. If you have an investment plan, try to
stick to it. If you don't have a plan, this might be a good time to develop
one.
Turning to the corporate front, we have a substantial effort underway to
prepare American Century's computer systems for the year 2000 (Y2K). Our
technology team is working to address Y2K-related issues. Through the rest of
1998 and 1999, we will be extensively testing our systems, including those
involved with fund performance and distributions, to make sure these
calculations remain accurate and reliable.
Finally, we hope you like the new design of this report. It's intended to
make the important information you need about your fund easier to find and read
We appreciate your investment with American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
VALUE
Performance Information ................................................ 5
Management Q&A ......................................................... 6
Schedule of Investments ................................................ 9
Financial Highlights ................................................... 31
EQUITY INCOME
Performance Information ................................................ 11
Management Q&A ......................................................... 12
Schedule of Investments ................................................ 15
Financial Highlights ................................................... 34
SMALL CAP VALUE
Performance Information ................................................ 17
Management Q&A ......................................................... 18
Schedule of Investments ................................................ 21
Financial Highlights ................................................... 37
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities ............................................................ 23
Statements of Operations ............................................... 24
Statements of Changes
in Net Assets .......................................................... 25
Notes to Financial
Statements ............................................................. 26
OTHER INFORMATION
Share Class and Retirement
Account Information .................................................... 38
Background Information
Investment Philosophy
and Policies ........................................................... 39
Comparative Indices ................................................. 39
Portfolio Managers .................................................. 39
Glossary ............................................................... 40
www.americancentury.com 1
Report Highlights
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MARKET PERSPECTIVE
O The six months ending September 30, 1998, marked one of the most volatile
periods for the U.S. stock market since the end of World War II. The U.S.
economy demonstrated strong growth during the first half of 1998. However,
deteriorating global economic and financial conditions fueled investor
anxiety and caused stock prices to drop dramatically in the third quarter.
O Strong performance by a small number of large companies masked the poor
performance of smaller stocks, which corrected long before the decline in
the major market indices began. International pressures, worries about
corporate earnings, and increased market volatility reintroduced the
concept of risk to the market.
VALUE
O Value posted a total return of -15.21% for the six-month period. The fund
lagged its benchmark, the S&P 500/BARRA Value Index, which fell 12.46%. The
S&P 500 dropped 6.96%.
O Value was underweighted, relative to the index, in the shares of
telecommunications companies (primarily regional Bell operating companies),
which performed exceptionally well.
O Acquisitions in several sectors added to returns. Chemical supplier
BetzDearborn was acquired by a rival chemical company. Value also benefited
from its stake in retail giant Mercantile Stores, which was acquired by
Dillard's, Inc.
O We increased holdings in financial services companies and in electric
utilities as their prices became attractive. Holdings in basic materials
companies were reduced when the dollar weakened against foreign currencies
EQUITY INCOME
O Equity Income declined 8.49% for the six-month period. It outperformed its
benchmark, the Lipper Equity Income Fund Index, which fell 10.35%.
o Equity Income's relatively small weighting in banks and healthcare
companies helped performance. Good individual stock selection and a wave
of merger and acquisition activity also helped.
O Although energy companies in general performed well during the six months,
several smaller-cap energy holdings hurt performance.
O We increased holdings in utilities and consumer non-cyclical companies as
their prices became more attractive.
SMALL CAP VALUE
O In its first two months of operation, Small Cap Value lost 9.80%. The fund
nonetheless beat its benchmark, the S&P SmallCap 600/BARRA Value Index,
which fell 13.69%.
o Small Cap Value's better relative performance was the result of good
individual stock selection and merger and acquisition activity in several
sectors.
O We reduced holdings in basic materials companies as their stock prices
reached fair value. We increased holdings in utilities and consumer
non-cyclical companies when their prices and prospects became attractive.
[left margin]
VALUE (TWVLX)(1)
TOTAL RETURNS: AS OF 9/30/98
6 Months -15.21%(2)
1 Year -5.98%
NET ASSETS: $2.0 billion
INCEPTION DATE: 9/1/93
EQUITY INCOME (TWEIX)(1)
TOTAL RETURNS: AS OF 9/30/98
6 Months -8.49%(2)
1 Year 1.67%
NET ASSETS: $279.1 million
INCEPTION DATE: 8/1/94
SMALL CAP VALUE(1)
TOTAL RETURNS: AS OF 9/30/98
Since Inception -9.80%(2)
NET ASSETS: $4.8 million
INCEPTION DATE: 7/31/98
(1) Investor Class.
(2) Not annualized.
Investment terms are defined in the Glossary on page 40.
2 1-800-345-2021
Market Perspective from Mark Mallon
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[photo of Mark Mallon]
Mark Mallon, head of conservative equity, specialty, and asset allocation funds
at American Century
STOCKS TURN VOLATILE
The six months ended September 30, 1998, saw U.S. stocks reach an all-time
high, then enter one of the most volatile periods since the end of World War II.
As deteriorating global economic and financial conditions turned market
psychology negative, stock prices dropped sharply, and wide intra-day swings
became common.
Between July 17, when the best-known U.S. stock indices peaked, and
September 30, stock prices dropped dramatically. The S&P 500 Index (representing
the largest and most influential U.S. companies) fell nearly 14%, while the
Russell 2000 (a leading small company index) was down over 21%.
The falling prices and increased volatility were not a complete surprise.
Major market declines are a normal part of the investment process, but they have
been notably absent in the 1990s. In prior decades, moderate corrections of 10%
happened about once a year and more severe corrections of up to 15% occurred
about once every two years. A market correction in the 20% range occurred about
every three to four years. We haven't seen downturns this frequently in the
1990s. On a historical basis, a correction was overdue.
A BANNER DECADE
Even with the recession in 1990-1991 and the recent decline, U.S. stock
returns since 1990 have been unusually robust, as the accompanying chart
illustrates. The gains, however, have not been spread evenly. Larger company
stocks were the best performers. The S&P 500's average annual return from
January 1, 1990, to September 30, 1998, was 15.82%, well above its historical
average of roughly 11%.
LARGE GROWTH COMPANIES LED THE WAY
In 1998, the strong performance of a handful of blue-chip companies, which
make up the bulk of the large-company indices such as the Dow Jones Industrial
Average and the S&P 500, masked the price deterioration of smaller stocks. The
vast majority of the other 9,000 stocks traded in the United States was much
weaker and correcting well before the decline in the major market indices began
THE ASIAN CONTAGION
What dampened the market euphoria that was so prevalent earlier in the
year?
The catalyst was the much-publicized Asian economic and currency crisis,
which began in the summer of 1997. The "Asian contagion" spread quickly to Latin
America, Russia and Japan, raising concerns about the future of the global
economy.
Although the troubles in emerging markets took a while to reach our
[right margin]
"IN 1998, THE STRONG PERFORMANCE OF A HANDFUL OF BLUE-CHIP COMPANIES, WHICH MAKE
UP THE BULK OF THE LARGE COMPANY INDICES SUCH AS THE DOW JONES INDUSTRIAL
AVERAGE AND THE S&P 500, MASKED THE PRICE DETERIORATION OF SMALLER STOCKS."
[mountain chart - data below]
MARKET PERFORMANCE (GROWTH OF $1.00)
FROM JANUARY 1, 1990 TO SEPTEMBER 30, 1998
S&P 500 S&P MidCap 400 Russell 2000
12/31/89 $1.00 $1.00 $1.00
12/31/90 $0.97 $0.95 $0.81
12/31/91 $1.26 $1.42 $1.18
12/31/92 $1.36 $1.59 $1.39
12/31/93 $1.50 $1.82 $1.66
12/31/94 $1.52 $1.75 $1.63
12/31/95 $2.08 $2.29 $2.09
12/31/96 $2.56 $2.73 $2.43
12/31/97 $3.41 $3.61 $2.98
YTD 1998 $3.62 $3.37 $2.49
These indices represent the performance of large-, medium- and
small-capitalization stocks.
www.americancentury.com 3
Market Perspective from Mark Mallon
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(Continued)
shores, U.S. companies eventually proved susceptible to the turmoil. Stocks
of large U.S. multinational firms that derive a major portion of their profits
from foreign markets were hit hard. Shrinking U.S. exports to Asia hurt earnings
growth and contributed to the decline in stock prices.
WHAT MOVES MARKETS?
The problems in Asia have been known since 1997 and have been affecting
U.S. corporate earnings since early 1998. So, why did it take so long for the
U.S. stock market to react? To answer this question, it might be worth looking
at some general factors that influence markets.
THE ECONOMIC PICTURE: For the first half of 1998, the U.S. economy was very
healthy, with strong growth and low inflation. Corporate America had become lean
and flexible, and unemployment dropped below 5%. The federal budget showed a
surplus for the first time in nearly 30 years. Those conditions sustained the
stock market rally. The U.S. economy remains fundamentally sound, but now the
outlook is less certain. Weakening global economic conditions are affecting the
earnings outlook for more U.S. companies. This change in the economic climate
helped precipitate the decline in stocks.
INTEREST RATES/INFLATION: The threat of slower economic growth has removed
the near-term threat of inflation, while the ripple effects from Asia and
Russia's virtual default on its debt sparked a "flight to quality" in the bond
market. Foreign investors snapped up U.S. Treasurys and sent U.S. interest rates
down to levels not seen in nearly three decades. The Federal Reserve
acknowledged the economic outlook had weakened, however, and lowered short-term
rates for the first time in three years.
LIQUIDITY/CASH FLOW: Cash flowing into equities remains favorable in some
areas-- 401(k) plans, for instance. Other signs are less positive.
In August, for the first time since 1990, mutual fund investors withdrew
more money than they put into equities. Mergers and acquisitions (M&A), which
were another factor in the strong equity markets in recent years, have also
slowed dramatically. M&A activity increased in 1997 and into 1998, topping $200
billion per month in April. By late September, it had dropped to $21 billion per
month.
PSYCHOLOGY: Perhaps the biggest change during the last several months has
been in investor psychology. Persistent international pressures, corporate
earnings worries, and increased market volatility have impacted investor
confidence and returned the concept of risk to the stock market.
AN OPPORTUNITY FOR VALUE
Because value investing looks for undervalued stocks and gives more
emphasis to dividend yields, it is more risk-averse than growth investing and
tends to perform well in times of market uncertainty. The search for value has
also been facilitated by the market's decline. Not surprisingly, many stocks
became more attractively priced after the market decline, increasing the pool of
high-quality value opportunities.
[left margin]
MARKET RETURNS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
S&P 500 -6.96%
S&P 500/BARRA VALUE INDEX -12.46%
S&P SMALLCAP 600/BARRA VALUE INDEX -24.64%
Source: Lipper Analytical Services, Inc. and Frank Russell Co.
"THE U.S. ECONOMY REMAINS FUNDAMENTALLY SOUND, BUT NOW THE OUTLOOK IS LESS
CERTAIN."
[mountain chart - data below]
MARKET PERFORMANCE (PERFORMANCE OF $1.00)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
S&P 500 S&P 500/BARRA Value S&P500/BARRA Value
3/31/98 $1.00 $1.00 $1.00
4/30/98 $1.01 $1.01 $1.01
5/31/98 $0.99 $1.00 $0.96
6/30/98 $1.03 $1.01 $0.96
7/31/98 $1.02 $0.98 $0.87
8/31/98 $0.87 $0.83 $0.72
9/30/98 $0.93 $0.88 $0.75
4 1-800-345-2021
Value--Performance
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TOTAL RETURNS AS OF SEPTEMBER 30, 1998
INVESTOR CLASS ADVISOR CLASS INSTITUTIONAL CLASS
(INCEPTION 9/1/93) (INCEPTION 10/2/96) (INCEPTION 7/31/97)
VALUE S&P 500/ VALUE S&P 500/ VALUE S&P 500/
BARRA VALUE BARRA VALUE BARRA VALUE
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6 MONTHS(1) ..... -15.21% -12.46% -15.30% -12.46% -14.98% -12.46%
1 YEAR .......... -5.98% -0.18% -6.21% -0.18% -5.68% -0.18%
AVERAGE ANNUAL RETURNS
3 YEARS ......... 16.52% 18.14% -- -- -- --
5 YEARS ......... 16.06% 16.18% -- -- -- --
LIFE OF FUND .... 15.79% 15.89% 13.08% 16.68%(2) -0.35% 0.77%
(1) Returns for periods less than one year are not annualized.
(2) Return from 10/31/96, the date nearest the class's inception for which data
are available.
See pages 38, 39 and 40 for information about share classes, the S&P 500/BARRA
Value Index and returns.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value S&P 500 S&P/BARRA 500 Value
9/30/93 $10,000 $10,000 $10,000
12/31/93 $10,307 $10,232 $10,042
3/31/94 $10,083 $9,844 $9,714
6/30/94 $10,270 $9,886 $9,804
9/30/94 $10,741 $10,368 $10,055
12/31/94 $10,718 $10,366 $9,980
3/31/95 $11,954 $11,374 $10,942
6/30/95 $12,745 $12,458 $11,895
9/30/95 $13,307 $13,448 $12,841
12/31/95 $14,234 $14,257 $13,672
3/31/96 $15,310 $15,023 $14,546
6/30/96 $16,122 $15,696 $14,844
9/30/96 $16,254 $16,181 $15,236
12/31/96 $17,684 $17,529 $16,679
3/31/97 $17,746 $18,000 $16,974
6/30/97 $20,030 $21,140 $19,430
9/30/97 $22,398 $22,723 $21,210
12/31/97 $22,283 $23,375 $21,681
3/31/98 $24,835 $26,633 $24,185
6/30/98 $23,623 $27,518 $24,311
9/30/98 $21,059 $24,752 $21,172
The chart at left shows the growth of a $10,000 investment over the life of the
fund, while the chart below shows the fund's year-by-year performance. The S&P
500/BARRA Value Index is provided for comparison in each chart. 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. The
charts are based on Investor Class shares only; performance for other classes
will vary due to differences in fee structures (see the Total Returns table
above). Value's total returns include operating expenses (such as transaction
costs and management fees) that reduce returns, while the total returns of the
S&P 500/BARRA Value Index do not.
[bar chart - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED SEPTEMBER 30)
Value S&P/ BARRA 500 Value
9/30/93* 0.00% -0.04%
9/30/94 7.41% 0.55%
9/30/95 23.88% 27.70%
9/30/96 22.15% 18.64%
9/30/97 37.80% 39.22%
9/30/98 -5.98% -0.18%
* Return from 9/1/93 to 9/30/93.
www.americancentury.com 5
Value--Q&A
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[photo of Phil Davidson]
Phil Davidson, portfolio manager on the Value fund
An interview with Phil Davidson, portfolio manager on the Value investment
team.
HOW DID VALUE PERFORM DURING THE FIRST SIX MONTHS OF ITS FISCAL YEAR?
For the six months ended September 30, 1998, Value lost 15.21%. The fund's
benchmark, the S&P 500/BARRA Value Index, fell 12.46%, while the S&P 500 dropped
6.96%.
WHAT WERE SOME OF THE FACTORS THAT INFLUENCED PERFORMANCE IN THE FIRST HALF?
The fund's investment style and capitalization were probably the primary
factors. The market continued to favor a handful of large-cap growth stocks,
while value stocks in general, and mid- to small-cap value stocks in particular,
struggled. As of September 30, 1998, about 60% of Value's assets were invested
in mid-cap stocks, with another 10% in small-caps and the remainder in larger
companies. In general, the performance of small- and mid-cap stocks and those
with lower price-to-earnings ratios--precisely the types of stocks we want for
the Value portfolio--were punished the most. This was especially true before the
market peaked on July 17. Since then, we've seen the tide turn somewhat. While
the general market has continued to flounder, small- to mid-sized value stocks
have performed more in line with their larger-cap counterparts. In fact, the
bulk of Value's positive relative performance occurred between the July 17 peak
and September 30. In that timeframe, Value fell 10.85%, significantly less than
the 16.26% drop recorded by the S&P 500/BARRA Value Index. One of Value's goals
is to outperform the broader market during downturns. While we'd like to have
produced six-month returns that were more competitive with the index, we feel
the fund's performance, at least on a relative basis, has been acceptable given
the difficult conditions in recent months.
CAN YOU EXPLAIN THE FUND'S PERFORMANCE VERSUS ITS BENCHMARK INDEX?
Value was underweighted versus the index at the beginning of the period in
the shares of telecommunications companies (regional Bell operating companies,
or RBOCs), which represented a healthy 9% stake of the S&P 500/BARRA Value
Index. This underweighting caused the fund to underperform the index. RBOCs did
exceptionally well because their stable earnings looked more attractive when the
market became choppy. Telephone companies and utilities tend to do well in a
declining market; we gravitated toward electric utilities and, as a result,
benefited from our relative overweighting in that sector.
Performance also was dampened by our relative overweighting in basic
materials companies -- a sector that includes chemical companies, metal and
mining companies, and paper producers -- which generally suffered the effects of
deflationary pricing pressures. We began increasing Value's stake in basic
materials companies as commodity prices fell in response to the effects of the
global economic slowdown and industry overcapacity. In hindsight, we were a bit
premature. However, when prices are depressed, production decreases and
inventories
[left margin]
"THE MARKET CONTINUED TO FAVOR A HANDFUL OF LARGE-CAP GROWTH Value--Q&A
STOCKS, WHILE VALUE STOCKS IN GENERAL, AND MID- TO SMALL-CAP VALUE STOCKS IN
PARTICULAR, STRUGGLED."
PORTFOLIO AT A GLANCE
9/30/98 3/31/98
NO. OF COMPANIES 67 72
MEDIAN P/E RATIO 14.9 19.0
MEDIAN MARKET CAPITALIZATION $2.56 BILLION $2.50 BILLION
PORTFOLIO TURNOVER 60%(1) 130%(2)
EXPENSE RATIO (FOR INVESTOR CLASS) 1.00%(3) 1.00%
(1) Six months ended 9/30/98.
(2) Year ended 3/31/98.
(3) Annualized.
Investment terms are defined in the Glossary on page 40.
6 1-800-345-2021
Value--Q&A
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(Continued)
get smaller. That leads us to believe that over time, prices should recover
as inventories dwindle and further demand remains steady.
On a more positive note, the fund benefited from its relative
underweighting in banks and financial services companies, which began to falter
in July. We've been significantly underweighted in this sector versus the index
for some time because we anticipated it was unlikely that these companies --
particularly the big money-center banks and brokerages -- could sustain their
already-extended run of outperformance.
WHAT OTHER STOCKS OR SECTORS CONTRIBUTED TO PERFORMANCE?
Value's best-performing holding was BetzDearborn, a supplier of chemicals,
equipment and services for treating industrial and commercial water systems.
It's ironic that this stock performed so well while chemical companies in
general were struggling. We built a position in BetzDearborn when its stock was
depressed due to costs associated with the merger of Dearborn with Betz in 1996.
We added to that position recently when prices were further depressed by the
perception that economic problems in the Far East may cause a slowdown in some
of BetzDearborn's key markets there. We were confident the company would
overcome these short-term difficulties, and then in September Hercules, Inc., a
worldwide producer of chemicals and related products, announced it would acquire
BetzDearborn. We purchased BetzDearborn between $36 and $56, and sold it at $68
when the takeover was announced.
Acquisitions in several other sectors also added to performance. Giant
Foods, a leading chain of retail food stores and pharmacies, has been one of
Value's largest holdings and also one of its top performers for several
consecutive periods. Giant's stock price rose sharply in May 1998 upon news that
it would be acquired by Ahold, a Netherlands-based global food retailer with
significant properties in the United States We subsequently sold our position at
a substantial gain. Another fund holding, retailer Mercantile Stores, a
department store chain in the Midwest and South, had been struggling in the wake
of lower-than-expected revenue growth and rising costs. In May, however, a rival
department store chain, Dillard's, Inc. announced it would acquire Mercantile,
and its stock price improved dramatically.
Although Value's performance was certainly helped by merger activity, we
would like to stress that we do not specifically look for companies that are
likely to merge or be acquired. However, companies that are attractive
candidates for acquisition frequently are ones with relatively low valuations or
whose stock is depressed by transitory or temporary factors that do not affect
the company's underlying strength. These are exactly the types of companies our
Value strategy attempts to uncover. Our goal is to purchase these stocks at
attractive prices and then sell them when they reach what we believe is fair
market value.
WHICH STOCKS HURT PERFORMANCE?
Value's weakest investment was Mallinckrodt Inc. This company manufactures
medical products and specialty chemicals and is recognized as a leader in its
industry. However, Mallinckrodt's earnings have tapered off recently due to
increasing competition in its key product line, an X-ray imaging substance
called Optiray. In addition, the company's August 1998 acquisition of Nellcor
Puritan Bennet, which makes products that diagnose and treat respiratory
[right margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
9/30/98 3/31/98
MERCANTILE
BANCORPORATION INC. 4.5% 2.0%
ARCHER-DANIELS-
MIDLAND CO. 2.8% 1.5%
NATIONSBANK CORP. 2.7% --
TYSON FOODS, INC. CL A 2.7% 1.9%
SUPERIOR INDUSTRIES
INTERNATIONAL, INC. 2.7% 2.4%
GTECH HOLDINGS CORP. 2.6% 1.7%
BROWNING-FERRIS
INDUSTRIES, INC. 2.4% 2.0%
BURLINGTON
RESOURCES INC. 2.4% 2.4%
PACIFICORP 2.4% --
COOPER
INDUSTRIES, INC. 2.3% 1.6%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
9/30/98 3/31/98
BANKING 9.4% 5.6%
ENERGY (PRODUCTION &
MARKETING) 8.5% 11.4%
FOOD & BEVERAGE 7.8% 7.4%
HEALTHCARE 6.8% 8.3%
UTILITIES 6.7% 3.1%
www.americancentury.com 7
Value--Q&A
- -----------------------------------------------------------------------------
(Continued)
problems, has yet to pay off. We feel that Mallinckrodt is well positioned
to demonstrate healthy growth and earnings going forward, so we are maintaining
our position.
Superior Industries, which ironically was the fund's second-best performer
at March 31, was another disappointing holding. Superior designs and
manufactures aluminum and steel wheels for the automotive industry. Sales
declined due to labor problems at General Motors, a customer that accounts for
nearly half of Superior's revenues. The perception that auto production will
decelerate in response to the slowing global economy also hurt the stock. We
believe Superior's prospects are brighter than those of the pure automakers
based on the company's healthy profit structure and its industry dominance. We
are not only holding our position but are continuing to buy Superior at its
current depressed levels.
WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO DURING THE SIX MONTHS?
We increased our position in the now much-cheaper financial services
companies (primarily regional banks). We also doubled the fund's weighting in
electric utilities as their valuations and prospects became increasingly
attractive.
On the sell side, we reduced holdings in basic materials companies as the
dollar weakened against foreign currencies. A weaker dollar puts pricing
pressure on domestic companies that must compete with foreign producers. We also
trimmed our position in retail grocery stores and general retailers when prices
in those sectors approached fair value.
WHAT IS YOUR OUTLOOK FOR VALUE INVESTING?
Clearly, value investing has lagged significantly during much of the past
five years--a time when large-cap growth stocks have dominated. That trend
certainly continued and even intensified this year. The value style of investing
will undoubtedly return to favor at some point, and in the meantime, it still
offers a measure of diversification to a growth-oriented portfolio.
Overall, I think our ability to avoid low-quality, highly leveraged
companies has enabled us to produce competitive returns in an environment that
has not favored value investing. Throughout the bull market of the mid- and late
1990s, Value has maintained its four-star overall rating for risk-adjusted
performance from Morningstar, the mutual fund rating company, and for the three-
and five-year periods ending September 30, 1998. Morningstar measures risk by
comparing a fund's returns to those of the "risk-free" 90-day Treasury bill, to
2,678 other domestic equity funds for the three-year period, and to 1,584 other
domestic equity funds for the five-year period. It awards its top rating to 10%
of the funds it evaluates, and it awards a four-star rating to the next 22.5%.
Past performance is not a guarantee of future results. We believe the fact that
Value has maintained this high rating indicates that we have been accomplishing
the fund's goal of strong returns with limited volatility.
[left margin]
"WE INCREASED OUR POSITION IN THE NOW MUCH-CHEAPER FINANCIAL SERVICES COMPANIES
(PRIMARILY REGIONAL BANKS). WE ALSO DOUBLED THE FUND'S WEIGHTING IN ELECTRIC
UTILITIES AS THEIR VALUATIONS AND PROSPECTS BECAME INCREASINGLY ATTRACTIVE."
[pie charts]
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF SEPTEMBER 30, 1998
Common Stocks 94.4%
Temporary Investments 5.6%
AS OF MARCH 31, 1998
Common Stocks 96.9%
Temporary Investments 3.1%
8 1-800-345-2021
Value--Schedule of Investments
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1998 (UNAUDITED)
Shares Value
- -----------------------------------------------------------------------------
COMMON STOCKS
AUTOMOBILES & AUTO PARTS--4.7%
2,300,800 Cooper Tire and Rubber Company $ 41,414,400
2,425,300 Superior Industries International, Inc.(1) 55,478,739
------------
96,893,139
------------
BANKING--9.4%
827,250 First Virginia Banks, Inc. 36,760,922
1,941,700 Mercantile Bancorporation Inc. 93,929,738
1,058,000 NationsBank Corp.(2) 56,603,000
231,800 Regions Financial Corp. 8,395,506
------------
195,689,166
------------
BUSINESS SERVICES & SUPPLIES--0.8%
915,000 Reynolds & Reynolds Co. 16,298,438
------------
CHEMICALS & RESINS--4.7%
527,600 Air Products and Chemicals, Inc. 15,696,100
1,150,000 Lubrizol Corp. 30,546,875
1,131,000 Morton International, Inc. 24,740,625
890,000 Nalco Chemical Co. 26,255,000
------------
97,238,600
------------
COMMUNICATIONS EQUIPMENT--3.1%
3,286,100 Andrew Corp.(2) 43,643,516
102,100 Harris Corp. 3,267,200
400,000 Motorola, Inc. 17,075,000
------------
63,985,716
------------
COMPUTER SOFTWARE & SERVICES--4.3%
1,514,000 First Data Corp. 35,579,000
2,037,100 GTECH Holdings Corp.(2) 54,110,469
------------
89,689,469
------------
CONTROL & MEASUREMENT--0.9%
917,900 Elsag Bailey Process
Automation N.V.(2) 19,333,269
------------
DIVERSIFIED COMPANIES--2.0%
565,200 Minnesota Mining &
Manufacturing Co. 41,648,175
------------
ELECTRICAL & ELECTRONIC
COMPONENTS--0.9%
527,800 AMP, Inc. 18,868,850
------------
ENERGY (PRODUCTION & MARKETING)--8.5%
1,094,600 Apache Corp. 29,348,963
1,315,600 Burlington Resources Inc. 49,170,550
691,000 Murphy Oil Corp. 26,776,250
2,087,900 Seagull Energy Corp.(2) 25,707,269
974,800 Swift Energy Co.(1) 9,443,375
1,100,000 Ultramar Diamond Shamrock Corp. 25,025,000
275,000 Unocal Corp. 9,968,750
------------
175,440,157
------------
Shares Value
- ------------------------------------------------------------------------------
ENERGY (SERVICES)--2.0%
1,993,200 Baker Hughes Inc. $ 41,732,625
------------
ENVIRONMENTAL SERVICES--2.4%
1,641,000 Browning-Ferris Industries, Inc. 49,640,250
------------
FINANCIAL SERVICES--2.2%
1,823,300 CIT Group Holdings, Inc. (The) Cl A 46,722,063
------------
FOOD & BEVERAGE--7.8%
3,461,264 Archer-Daniels-Midland Co. 57,976,172
1,537,300 Chiquita Brands International, Inc. 16,237,731
1,041,000 IBP, Inc. 21,080,250
283,000 Nabisco Holdings Corp. Cl A 10,170,313
2,837,000 Tyson Foods, Inc. Cl A 56,385,367
------------
161,849,833
------------
HEALTHCARE--6.8%
600,000 Aetna Inc. 41,700,000
621,500 Beckman Coulter Inc. 32,084,938
1,057,800 Dentsply International Inc. 23,602,163
420,000 Lab Holdings Inc.(1) 6,667,500
1,790,000 Mallinckrodt Inc. 36,359,375
------------
140,413,976
------------
INDUSTRIAL EQUIPMENT & MACHINERY--1.2%
497,600 Tecumseh Products Cl A 24,646,750
------------
INSURANCE--2.9%
513,300 Argonaut Group, Inc. 13,153,313
541,800 Berkley (W.R.) Corp. 16,287,863
530,000 CNA Financial Corp.(2) 19,875,000
211,200 NAC Re Corp. 10,401,600
------------
59,717,776
------------
MACHINERY & EQUIPMENT--3.4%
1,189,600 Cooper Industries, Inc. 48,476,200
1,084,000 Flowserve Corp.(1) 21,951,000
------------
70,427,200
------------
METALS & MINING--3.1%
372,000 Aluminum Co. of America 26,412,000
567,000 Arch Coal Inc. 8,434,125
593,000 Reynolds Metals Co. 30,131,813
------------
64,977,938
------------
PACKAGING & CONTAINERS--2.1%
1,309,600 Tenneco Inc. 43,053,100
------------
PAPER & FOREST PRODUCTS--3.1%
805,000 Rayonier, Inc. 31,395,000
1,350,000 Westvaco Corp. 32,400,000
------------
63,795,000
------------
PRINTING & PUBLISHING--1.5%
1,165,000 Banta Corp. 31,309,375
------------
See Notes to Financial Statements
www.americancentury.com 9
Value--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998 (UNAUDITED)
Shares Value
- -----------------------------------------------------------------------------
RAILROAD--2.0%
980,000 CSX Corp. $ 41,221,250
--------------
RETAIL (FOOD & DRUG)--0.9%
438,900 Hannaford Brothers Co. 18,543,525
--------------
RETAIL (GENERAL MERCHANDISE)--2.4%
884,000 Dillard's Inc. Cl A 25,028,250
574,700 Penney (J.C.) Company, Inc. 25,825,581
--------------
50,853,831
--------------
RETAIL (SPECIALTY)--0.5%
600,000 Toys 'R' Us, Inc.(2) 9,712,500
--------------
RUBBER & PLASTICS--0.9%
773,900 Rubbermaid Inc. 18,525,231
--------------
TEXTILES & APPAREL--0.9%
1,206,000 Fruit of the Loom, Inc.(2) 18,165,375
--------------
TOBACCO--2.3%
317,100 Schweitzer-Mauduit International, Inc. 6,896,925
1,403,000 UST Inc. 41,476,188
--------------
48,373,113
--------------
UTILITIES--6.7%
753,000 Ameren Corporation 31,578,938
1,038,700 Kansas City Power & Light Co. 31,615,431
576,200 Niagara Mohawk Power Corp.(2) 8,859,075
2,630,000 PacifiCorp 50,463,125
413,000 Sierra Pacific Resources 16,029,563
--------------
138,546,132
--------------
TOTAL COMMON STOCKS--94.4% 1,957,311,822
--------------
(Cost $2,190,240,602)
Value
- ----------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS
Repurchase Agreement, Merrill Lynch & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.30%, dated 9/30/98,
due 10/1/98 (Delivery value $63,409,334) $ 63,400,000
Repurchase Agreement, Morgan Stanley Group,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.30%, dated 9/30/98,
due 10/1/98 (Delivery value $53,107,818) 53,100,000
-----------------
TOTAL TEMPORARY CASH INVESTMENTS--5.6% 116,500,000
-----------------
(Cost $116,500,000)
TOTAL INVESTMENT SECURITIES--100.0% $2,073,811,822
=================
(Cost $2,306,740,602)
NOTES TO SCHEDULE OF INVESTMENTS
(1) 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 who is or was an affiliate at or
during the six months ended September 30, 1998.)
(2) Non-income producing.
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
O a list of each investment
O the number of shares of each stock
O the market value of each investment
O the percentage of total investments in each industry
O the percent and dollar breakdown of each investment category
See Notes to Financial Statements
10 1-800-345-2021
Equity Income--Performance
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF SEPTEMBER 30, 1998
INVESTOR CLASS ADVISOR CLASS INSTITUTIONAL CLASS
(INCEPTION 8/1/94) (INCEPTION 3/7/97) (INCEPTION 7/8/98)
EQUITY INCOME LIPPER EQUITY EQUITY INCOME LIPPER EQUITY EQUITY INCOME LIPPER EQUITY
INCOME INDEX INCOME INDEX INCOME INDEX
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) ................ -8.49% -10.35% -8.66% -10.35% -- --
1 YEAR ..................... 1.67% 1.29% 1.40% 1.29% -- --
AVERAGE ANNUAL RETURNS
3 YEARS .................... 18.18% 15.95% -- -- -- --
LIFE OF FUND ............... 18.66% 16.67% 13.62% 15.08%(2) -6.72% -7.54%(3)
(1) Returns for periods less than one year are not annualized.
(2) Return from 3/31/97, the date nearest the class's inception for which data are available.
(3) Return from 7/31/98, the date nearest the class's inception for which data are available.
</TABLE>
See pages 38, 39 and 40 for information about share classes, the Lipper Equity
Income Index and returns.
[mountain chart - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Equity Income S&P 500 Lipper Equity Income Fund Index
8/1/94 $10,000 $10,000 $10,000
9/30/94 $10,248 $10,108 $10,137
12/31/94 $10,051 $10,106 $9,887
3/31/95 $11,067 $11,089 $10,632
6/30/95 $11,807 $12,146 $11,369
9/30/95 $12,345 $13,110 $12,192
12/31/95 $13,029 $13,900 $12,834
3/31/96 $13,910 $14,646 $13,390
6/30/96 $14,555 $15,302 $13,733
9/30/96 $14,925 $15,775 $14,083
12/31/96 $16,067 $17,089 $15,142
3/31/97 $16,168 $17,549 $15,398
6/30/97 $18,336 $20,609 $17,403
9/30/97 $20,050 $22,153 $18,767
12/31/97 $20,606 $22,789 $19,255
3/31/98 $22,277 $25,966 $21,204
6/30/98 $21,740 $26,828 $21,102
9/30/98 $20,388 $24,121 $19,009
The chart at left shows the growth of a $10,000 ONE-YEAR RETURNS OVER LIFE OF
FUND investment over the life of the fund, while the chart below shows the
fund's year-by-year performance. The Lipper Equity Income Index is provided for
comparison in each chart. 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. The charts are based on Investor Class
shares only; performance for other classes will vary due to differences in fee
structures (see the Total Returns table above). Equity Income's total returns
include operating expenses (such as transaction costs and management fees) that
reduce returns, while the total returns of the Lipper Equity Income Index do
not.
[bar chart]
ONE-YEAR RETURNS OVER LIFE OF FUND
(PERIODS ENDED SEPTEMBER 30)
Equity Income Lipper Equity Income Fund Index
9/30/94* 2.48% 1.37%
9/30/95 20.48% 20.28%
9/30/96 20.89% 15.44%
9/30/97 34.35% 33.71%
9/30/98 1.67% 1.29%
* Return from 8/1/94 to 9/30/94.
www.americancentury.com 11
Equity Income--Q&A
- -----------------------------------------------------------------------------
An interview with Phil Davidson, portfolio manager on the Equity Income
investment team. A photo of Phil appears on page 6.
HOW DID THE FUND PERFORM DURING THE FIRST HALF OF ITS FISCAL YEAR?
For the six months ended September 30, 1998, Equity Income was down 8.49%.
The fund outperformed its benchmark, the Lipper Equity Income Fund Index, which
fell 10.35%. The S&P 500 Index declined 6.96%.
CAN YOU ADDRESS EQUITY INCOME'S PERFORMANCE RELATIVE TO THAT OF ITS INDEX AND
THE BROADER MARKET?
As our most conservative all-equity fund, Equity Income is managed to
protect assets in times of market volatility. Conversely, in more bullish
markets, the fund usually does not perform as strongly as more aggressive funds.
During periods of market turmoil, the fund has typically outperformed not only
the broad market but also most funds in the Lipper Equity Income universe.
Equity Income is more defensive in nature due to its dividend yield, convertible
securities, and the conservative valuation of its holdings. Therefore, we
believe it should perform well on a relative basis during difficult market
environments.
WHICH STOCKS OR SECTORS HELPED PERFORMANCE?
Although there were no central themes or trends within specific business
sectors that affected performance, returns were helped somewhat by the
portfolio's relatively small weighting in banks and healthcare companies, both
of which stumbled during the period. Equity Income's better performance relative
to its benchmark was largely the result of effective individual stock selection
and also merger and acquisition activity within several sectors. In fact, three
of Equity Income's best performing holdings, BetzDearborn, Giant Foods and
Mercantile Stores, are examples of companies that recently merged with or were
acquired by other companies. Each holding represented a value-oriented
opportunity that also offered high relative yields, which is exactly what we
look for in selecting stocks for Equity Income's portfolio.
BetzDearborn supplies chemicals, equipment and services for treating
industrial and commercial water systems. The company's stock price was depressed
due to a recent acquisition and slowing sales in Southeast Asia. We bought the
stock at very attractive prices. The investment paid off nicely in September
when Hercules, a rival chemical company, acquired BetzDearborn.
Giant Foods is a leading chain of retail food stores and pharmacies. We've
held Giant for some time, and it has consistently contributed to returns. We
sold the stock at a good profit in May 1998, when food-retailing giant Ahold
announced it was acquiring Giant.
Another fund holding, Mercantile Stores, saw its stock price rise
dramatically in late spring when rival department store chain Dillard's, Inc.
announced it would acquire Mercantile. Mercantile had been struggling in the
wake of lower-than-expected revenue growth and rising costs.
A fourth holding that added significantly to performance was Pall
Corporation, a leading manufacturer of fluid filters used in healthcare and
basic industry. We purchased Pall in early 1998, and holdings at September 30
represented just under 2% of investments. The company's stock price had been
driven down due to operating inefficiencies. However, global concerns over HIV-
and Hepatitis B-tainted blood
[left margin]
"...THREE OF EQUITY INCOME'S BEST- PERFORMING HOLDINGS, BETZDEARBORN, GIANT
FOODS AND MERCANTILE STORES, ARE EXAMPLES OF COMPANIES THAT RECENTLY MERGED
WITH OR WERE ACQUIRED BY OTHER COMPANIES."
PORTFOLIO AT A GLANCE
9/30/98 3/31/98
NO. OF COMPANIES 68 72
MEDIAN P/E RATIO 16.1 18.5
MEDIAN MARKET $2.15 $1.95
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 79%(1) 158%(2)
EXPENSE RATIO (FOR
INVESTOR CLASS) 1.00%(3) 1.00%
(1) Six months ended 9/30/98.
(2) Year ended 3/31/98.
(3) Annualized.
Investment terms are defined in the Glossary on page 40.
12 1-800-345-2021
Equity Income--Q&A
- -----------------------------------------------------------------------------
(Continued)
transfusions have spurred a move to increase the quality of blood
filtration, which should be very good for Pall's business going forward.
WHICH HOLDINGS NEGATIVELY AFFECTED PERFORMANCE?
Several energy holdings dampened returns. Belco Oil and Gas Corporation and
Swift Energy were two of the worst- performing securities in Equity Income's
portfolio. Although energy companies in general did very well in recent months,
neither of these smaller-cap exploration and production companies was able to
participate in the energy rally to the extent that larger, more liquid energy
providers did. In the case of Swift, we held the company's convertible bond,
which is an income-paying investment, rather than its common stock. We owned
Belco's convertible preferred stock. Convertibles can be converted into common
stock at pre-set prices. They are particularly attractive because, in addition
to offering an income stream, they are a higher quality security and tend to
perform better than common stock in times of market turbulence. However, even
convertibles issued by the smaller energy companies suffered when prices for oil
and gas began to soften. In our opinion, performance was a function of size
rather than the result of a fundamental problem in their operations or
management. Despite their recent trouble, we believe both companies are sound
and well- managed and will go on to produce good returns. We also expect to
continue to benefit from the good income stream and downside protection offered
by these convertible securities, so we are sitting tight.
Argonaut Group was also a disappointment. This company provides workers'
compensation insurance and various other types of commercial insurance. We were
attracted to Argonaut because of its high dividend yield and cheap valuation.
However, insurance companies in general suffered along with banks and other
financial institutions when investors' anxiety over the economic and currency
crises overseas intensified. The insurance industry is also very competitive and
has suffered from significant pricing pressures in recent months. Argonaut has
explored alternative strategies to improve its bottom line, including putting
itself up for sale. The action has generated little interest, and the company's
stock price has dropped due to the perception that no one wants to buy it.
However, perception changes faster than fact, and we remain confident about this
well-managed company's sound fundamentals and good prospects going forward.
WHAT SIGNIFICANT CHANGES DID YOU MAKE TO THE PORTFOLIO SINCE THE ANNUAL REPORT?
Our greatest shift was in basic materials companies, such as chemical
companies and paper producers, where we eliminated several holdings that we
believe had reached fair value. We also reduced the fund's stake in energy
companies as their prices strengthened. On the buy side, we were led to several
opportunities in consumer non-cyclical companies, which are not directly
affected by economic changes. One such holding is Sbarro, Inc., which is
currently one of the fund's largest holdings. We also increased weightings in
utilities as their prices became more attractive in the wake of the Asian
crisis. Utilities typically perform well in down markets and are also currently
well positioned to benefit from cooling temperatures, increased demand for
product, and declining interest rates. Equity Income continues to maintain
meaningful positions in financial companies.
[right margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
9/30/98 3/31/98
MERCANTILE
BANCORPORATION INC. 4.5% 2.2%
NATIONAL PRESTO
INDUSTRIES, INC. 3.5% 1.9%
SBARRO, INC. 3.4% 0.9%
HOMESTAKE MINING CO., 5.50%, 6/23/00
(CONVERTIBLE BOND) 3.2% 2.8%
UNOCAL CORP. $3.125
(CONVERTIBLE PREFERRED) 3.1% 3.5%
MEDICAL CARE INTL.
INC., 6.75%, 10/1/06 2.7% 2.4%
(CONVERTIBLE BOND)
SWIFT ENERGY CO.,
6.25%, 11/15/06 2.7% 3.1%
(CONVERTIBLE BOND)
ELSAG BAILEY PROCESS
AUTOMATION N.V. 2.6% --
WD-40 CO. 2.5% 1.8%
AGL RESOURCES INC. 2.5% 2.6%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
9/30/98 3/31/98
UTILITIES 10.2% 7.9%
ENERGY (PRODUCTION
& MARKETING) 8.4% 12.0%
BANKING 8.0% 7.4%
MACHINERY
& EQUIPMENT 7.7% 1.5%
HEALTHCARE 7.2% 7.4%
www.americancentury.com 13
Equity Income--Q&A
- -----------------------------------------------------------------------------
(Continued)
WHAT IS YOUR OUTLOOK FOR THE MARKET AND THE FUND GOING FORWARD?
The crisis in global markets may continue to have implications for the
domestic market for some time to come. There have not been many hiding places
and all companies, regardless of sector or location, have experienced some
degree of pain. Our strategy is not to make a top-down economic forecast, but
rather to make our investment decisions purely on a bottom-up,
security-by-security basis. We want to understand the relative risks and
potential rewards offered by each company. We will continue to search for
companies that appear to be undervalued, as well as dividend-paying securities,
across a variety of sectors and industries. The fund's strategic use of
dividend-paying stocks and bonds enabled the portfolio to produce a 4.3% 30-day
yield as of September 30, which far outpaced the S&P 500's 1.6% yield. We
believe the portfolio's combination of companies with solid, longer-term
business prospects and above-average yields should help cushion performance if
the current market volatility continues.
We are also pleased to note that Equity Income has again been awarded a
five-star overall rating by Morningstar for its risk-adjusted performance for
the three- and five-year periods ending September 30. Morningstar measures risk
by comparing a fund's returns to a "risk-free" 90-day Treasury bill, to 2,678
other domestic equity funds for the three-year period, and to 1,584 other
domestic equity funds for the five-year period. It awards its top rating to just
10% of the funds it evaluates. Past performance is not a guarantee of future
results. We believe Equity Income's five-star rating reflects the fact that
the fund's returns have been attractive compared with its level of risk.
[left margin]
"THE CRISIS IN GLOBAL MARKETS MAY CONTINUE TO HAVE IMPLICATIONS FOR THE DOMESTIC
MARKET FOR SOME TIME TO COME. THERE HAVE NOT BEEN MANY HIDING PLACES AND ALL
COMPANIES, REGARDLESS OF SECTOR OR LOCATION, HAVE EXPERIENCED SOME DEGREE OF
PAIN."
[pie charts]
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF SEPTEMBER 30, 1998
Temporary Investments 2.9%
Corporate Industrial Bonde 3.7%
Convertible Preferred Stocks 9.1%
Convertible Bonds 11.1%
Common Stocks 73.2%
AS OF MARCH 31, 1998
Temporary Investments 1.5%
Corporate Industrial Bonde 1.8%
Convertible Preferred Stocks 10.2%
Convertible Bonds 14.1%
Common Stocks 72.4%
14 1-800-345-2021
Equity Income--Schedule of Investments
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1998 (UNAUDITED)
Shares Value
- -----------------------------------------------------------------------------
COMMON STOCKS
AUTOMOBILES & AUTO PARTS--0.6%
70,600 Superior Industries International, Inc. $ 1,614,975
------------
BANKING--8.0%
61,000 First Virginia Banks, Inc. 2,710,688
266,492 Mercantile Bancorporation Inc. 12,891,542
24,000 NationsBank Corp.(1) 1,284,000
94,710 UMB Financial Corp. 4,495,765
59,000 Washington Federal, Inc. 1,476,844
------------
22,858,839
------------
BUILDING & HOME IMPROVEMENTS--1.0%
136,000 Juno Lighting, Inc. 3,026,000
------------
BUSINESS SERVICES & SUPPLIES--0.7%
106,300 Reynolds & Reynolds Co. 1,893,469
------------
CHEMICALS & RESINS--1.2%
128,000 Lubrizol Corp. 3,400,000
------------
COMMUNICATIONS EQUIPMENT--0.1%
14,000 Harris Corp. 448,000
------------
CONSUMER PRODUCTS--6.0%
265,700 National Presto Industries, Inc. 9,963,750
304,000 WD-40 Co. 7,248,500
------------
17,212,250
------------
CONTROL & MEASUREMENT--2.6%
350,200 Elsag Bailey Process Automation N.V.(1) 7,376,088
------------
DIVERSIFIED COMPANIES--2.3%
88,000 Minnesota Mining
& Manufacturing Co. 6,484,500
------------
ELECTRICAL & ELECTRONIC
COMPONENTS--0.9%
72,400 AMP, Inc. 2,588,300
------------
ENERGY (PRODUCTION & MARKETING)--0.6%
45,000 Murphy Oil Corp. 1,743,750
------------
ENERGY (SERVICES)--0.5%
65,000 Baker Hughes Inc. 1,360,938
------------
ENVIRONMENTAL SERVICES--1.4%
132,000 Browning-Ferris Industries, Inc. 3,993,000
------------
FINANCIAL SERVICES--0.5%
61,300 CIT Group Holdings, Inc. (The) Cl A 1,570,813
------------
FOOD & BEVERAGE--4.6%
85,750 Archer-Daniels-Midland Co. 1,436,313
236,000 International Multifoods Corp. 3,879,250
323,200 Lance, Inc. 6,363,000
38,700 Nabisco Holdings Corp. Cl A 1,390,781
------------
13,069,344
------------
HEALTHCARE--1.0%
185,000 Lab Holdings Inc. 2,936,875
------------
Shares Value
- ------------------------------------------------------------------------------
INSURANCE--5.3%
69,000 American Financial Group, Inc. $ 2,233,875
248,000 Argonaut Group, Inc. 6,355,000
100,000 Unitrin, Inc. 6,456,250
--------------
15,045,125
--------------
MACHINERY & EQUIPMENT--7.7%
104,000 Cooper Industries, Inc. 4,238,000
348,000 Flowserve Corp. 7,047,000
113,100 Nordson Corp. 5,266,219
249,000 Pall Corp. 5,524,688
--------------
22,075,907
--------------
PACKAGING & CONTAINERS--4.4%
188,800 Bemis Co., Inc. 6,619,800
180,600 Tenneco Inc. 5,937,225
--------------
12,557,025
--------------
PAPER & FOREST PRODUCTS--2.8%
60,000 Consolidated Papers, Inc. 1,507,500
71,500 Union Camp Corp. 2,815,313
150,000 Westvaco Corp. 3,600,000
--------------
7,922,813
--------------
RAILROAD--0.4%
25,000 CSX Corp. 1,051,563
--------------
REAL ESTATE--0.1%
49,500 Annaly Mortgage Management, Inc. 402,188
--------------
RESTAURANTS--4.5%
185,000 Luby's Cafeterias, Inc. 2,983,125
438,500 Sbarro, Inc. 9,784,031
--------------
12,767,156
--------------
RETAIL (GENERAL MERCHANDISE)--1.5%
94,600 Penney (J.C.) Company, Inc. 4,251,088
--------------
RUBBER & PLASTICS--2.2%
258,500 Rubbermaid Inc. 6,187,844
--------------
STEEL--0.6%
47,000 Carpenter Technology Corp. 1,718,438
--------------
TOBACCO--2.7%
137,000 Schweitzer-Mauduit International, Inc. 2,979,750
163,200 UST Inc. 4,824,600
--------------
7,804,350
--------------
UTILITIES--9.0%
365,000 AGL Resources Inc. 7,071,875
50,070 Ameren Corp. 2,099,811
105,000 CTG Resources, Inc. 2,539,688
95,000 Kansas City Power & Light Co. 2,891,563
170,000 Laclede Gas Company 3,920,625
54,900 Nevada Power Co. 1,475,438
296,000 PacifiCorp 5,679,500
--------------
25,678,500
--------------
TOTAL COMMON STOCKS--73.2% 209,039,138
--------------
(Cost $233,346,438)
See Notes to Financial Statements
www.americancentury.com 15
Equity Income--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998 (UNAUDITED)
Shares/Principal Amount Value
- -----------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS
COMMUNICATIONS EQUIPMENT--0.5%
28,000 Corning Delaware L.P., 6.00% $ 1,428,000
-----------
CONTROL & MEASUREMENT--0.9%
67,000 Elsag Bailey Financial Trust, 5.50% 2,667,438
-----------
ENERGY (PRODUCTION & MARKETING)--5.1%
339,000 Belco Oil & Gas Corp., 6.50% 5,593,500
170,000 Unocal Corp., 3.125%
(Acquired 1/22/97-4/23/98,
Cost $9,364,300)(2) 8,893,125
-----------
14,486,625
-----------
FOOD & BEVERAGE--1.9%
117,000 Chiquita Brands International, Inc.
Series B, 7.50% 5,382,000
-----------
HEALTHCARE--0.5%
20,000 Aetna Inc., 6.25% 1,401,250
-----------
METALS & MINING--0.2%
33,000 Freeport-McMoRan
Copper & Gold Inc., 7.00% 532,125
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS--9.1% 25,897,438
-----------
(Cost $20,556,399)
CONVERTIBLE BONDS
ENERGY (PRODUCTION & MARKETING)--2.7%
$ 9,500,000 Swift Energy Co., 6.25%, 11/15/06 7,600,000
-----------
ENERGY (SERVICES)--0.3%
1,000,000 Diamond Offshore
Drilling, Inc., 3.75%, 2/15/07 940,000
-----------
HEALTHCARE--3.3%
2,300,000 HEALTHSOUTH Corp., 3.25%,
4/1/03 1,739,499
9,000,000 Medical Care Intl. Inc., 6.75%,
10/1/06 7,740,000
-----------
9,479,499
-----------
Principal Amount Value
- -----------------------------------------------------------------------------
METALS & MINING--3.2%
$10,000,000 Homestake Mining Co., 5.50%,
6/23/00 (Acquired 10/31/97-
12/15/97, Cost $9,502,500)(2) $ 9,200,000
------------
RETAIL (FOOD & DRUG)--1.2%
3,170,000 Koninklijke Ahold nv, 3.00%, 9/30/03 3,269,570
------------
RETAIL (SPECIALTY)--0.5%
2,000,000 Office Depot, Inc., 5.00%, 12/11/07(3) 1,392,500
------------
TOTAL CONVERTIBLE BONDS--11.2% 31,881,569
------------
(Cost $36,207,094)
CORPORATE INDUSTRIAL BONDS
HEALTHCARE--2.4%
6,500,000 Beckman Coulter Inc., 7.45%,
3/4/08 (Acquired 2/25/98,
Cost $6,498,180)(2) 6,812,650
-------------
UTILITIES--1.2%
2,000,000 Niagara Mohawk Power Corp.,
Series E, 7.375%, 7/1/03 2,035,000
2,250,000 Niagara Mohawk Power Corp.,
Series H, 8.50%, 7/1/10 1,594,688
-------------
3,629,688
-------------
TOTAL CORPORATE INDUSTRIAL BONDS--3.6% 10,442,338
-------------
(Cost $8,490,280)
TEMPORARY CASH INVESTMENTS-2.9%
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 5.38%, dated 9/30/98,
due 10/1/98 (Delivery value $8,201,225) 8,200,000
-------------
(Cost $8,200,000)
TOTAL INVESTMENT SECURITIES--100.0% $ 285,460,483
=============
(Cost $306,800,211)
NOTES TO SCHEDULE OF INVESTMENTS
(1) Non-income producing.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at September 30, 1998, was $24,905,775,
which represented 8.8% of net assets.
(3) Security is a zero-coupon bond. The yield to maturity at purchase is
indicated. Zero coupon securities are purchased at a substantial discount from
their value at maturity.
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
O a list of each investment
O the number of shares of each stock or the principal amount of each bond
O the market value of each investment
O the percentage of total investments in each industry
O the percent and dollar breakdown of each investment category
See Notes to Financial Statements
16 1-800-345-2021
Small Cap Value--Performance
- -----------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1998
INVESTOR CLASS (INCEPTION 7/31/98)
SMALL CAP VALUE S&P SMALLCAP 600/ BARRA VALUE INDEX
SINCE INCEPTION* ....... -9.80% -13.69%
* Returns for periods less than one year are not annualized.
See pages 39 and 40 for information about the S&P SmallCap 600/BARRA Value Index
And returns.
[mountain chart - data below]
PERFORMANCE OF $10,000 OVER LIFE OF FUND
Small Cap Value S&P/BARRA 600 Value
7/31/98 $10,000 $10,000
8/31/98 $8,620 $8,196
9/30/98 $9,020 $8,630
The chart at left shows the performance of a $10,000 investment over the life of
the fund. The S&P SmallCap 600/BARRA Value Index is provided for comparison.
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. Small Cap Value's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the total
return of the S&P SmallCap 600/BARRA Value Index does not.
www.americancentury.com 17
Small Cap Value--Q&A
- -----------------------------------------------------------------------------
[photo of Phil Davidson and Todd Vingers]
Phil Davidson and Todd Vingers, portfolio managers on Small Cap Value
An interview with Todd Vingers, a portfolio manager with Phil Davidson on Small
Cap Value Fund
SMALL CAP VALUE OPENED ON JULY 31, 1998. HOW DID IT PERFORM DURING ITS FIRST
TWO MONTHS?
We are pleased to welcome investors to our new fund, but we wish market
conditions had been more favorable when Small Cap Value was launched. The
equity markets were in great disarray when the fund opened. In fact the market
reached an all-time record high on July 17 -- just two weeks before Small Cap
Value opened for business -- and then began to drop steadily. The economic and
currency crises of Southeast Asia were wreaking havoc in global markets and
creating a difficult investment environment in the United States As a result,
returns were negative during the two months. Small Cap Value was down 9.80%.
However, it still beat its benchmark, the S&P SmallCap 600/BARRA Value Index,
which declined 13.69% for the two months.
WHAT FACTORS HELPED SMALL CAP VALUE OUTPERFORM ITS BENCHMARK INDEX?
The primary reason Small Cap Value was able to produce better relative
performance was that it had fewer assets invested in banks and financial
service companies, whose stock prices were severely punished in the wake of
crises in many foreign banking systems and global economic concerns.
Small Cap Value was also overweighted relative to its index in the shares
of both gas energy producers and electric utilities, which were among
the portfolio's largest holdings. Gas and electric utilities performed
exceptionally well. In addition, the fund's somewhat larger stake in
food and beverage companies was helpful, as these stocks demonstrated very
strong relative performance in August and September. Outside of these
differences in sector allocations, I think we just had some very solid
individual stock selections and were effective in picking companies that in
general fared better than the broader small-cap market.
[left margin]
"SMALL CAP VALUE WAS ALSO OVERWEIGHTED RELATIVE TO ITS INDEX IN THE SHARES OF
BOTH GAS ENERGY PRODUCERS AND ELECTRIC UTILITIES, WHICH WERE AMONG THE FUND'S
LARGEST HOLDINGS."
PORTFOLIO AT A GLANCE
9/30/98
NO. OF COMPANIES 64
MEDIAN P/E RATIO 13.3
MEDIAN MARKET $623
CAPITALIZATION MILLION
PORTFOLIO TURNOVER 38%
EXPENSE RATIO (FOR
INVESTOR CLASS) 1.25%*
* Annualized.
Investment terms are defined in the Glossary on page 40.
18 1-800-345-2021
Small Cap Value--Q&A
- -----------------------------------------------------------------------------
(Continued)
WHICH STOCKS ADDED THE MOST TO RETURNS?
The top-performing stocks were Idaho Power and Nevada Power, electric
utilities that together represented 2.56% of assets at September 30. Idaho Power
serves Idaho and parts of Oregon and Nevada. Nevada Power serves Las Vegas and
southeastern Nevada. Both utilities are benefiting from steady to increasing
demand for electricity, the low interest-rate environment, and their generally
defensive characteristics. A third energy holding, Devon Energy, also was
helpful. This Oklahoma-based oil and gas producer recently expanded its
operations with the profitable acquisition of a Canadian company, Northstar
Energy Corp. Like other energy companies, Devon benefited from a rebound in
energy prices and investor sentiment. We expect that Devon will continue to
perform well going forward, given its low-cost production, geographical
diversity, and healthy balance sheet.
Another good performer was Marshall Industries, a distributor of electronic
parts and components such as computer microprocessors and memory and logic
devices. We acquired the stock at very attractive prices after an industry-wide
decline in customer demand and pricing pressures hurt the company's bottom line.
We expect good growth for Marshall thanks to its efforts to cut costs and its
recent reorganization following a lucrative acquisition of another electronics
company. We believe Marshall is undervalued relative to its long-term prospects.
WHICH STOCKS OR SECTORS HURT PERFORMANCE?
Although food and agriculture stocks were relatively strong contributors,
one holding, Omega Protein, was disappointing. Omega is a manufacturer of fish
meal used to make cattle feed and other products. The company harvests fish
primarily in the Gulf and mid-Atlantic. However, severe weather in these key
fishing regions disrupted Omega's operations. A lack of liquidity in the stock
exacerbated the selling pressures. We believe these issues are transitory and
have used them as an opportunity to build the position.
[right margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF 9/30/98
GTECH HOLDINGS CORP. 2.9%
AMERIN CORP. 2.9%
ELSAG BAILEY PROCESS
AUTOMATION N.V. 2.9%
SBARRO, INC. 2.9%
DENTSPLY INTERNATIONAL INC. 2.4%
INTERNATIONAL MULTIFOODS CORP. 2.4%
BELCO OIL & GAS CORP. 2.4%
CTG RESOURCES, INC. 2.4%
SEAGULL ENERGY CORP. 2.3%
SUPERIOR INDUSTRIES
INTERNATIONAL, INC. 2.1%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF 9/30/98
ENERGY
(PRODUCTION & MARKETING) 9.7%
FOOD & BEVERAGE 9.2%
INSURANCE 8.8%
UTILITIES 8.5%
BANKING 7.3%
www.americancentury.com 19
Small Cap Value--Q&A
- -----------------------------------------------------------------------------
(Continued)
Amerin Corporation was another disappointment. Amerin provides private
mortgage insurance to mortgage bankers, savings institutions, commercial banks,
and other lenders. This is a sound, well-managed company that, unfortunately,
suffered by association, as did most mortgage insurers, when the financial
sector was punished in July and August. Again, we believe the stock's
underperformance is short-term and unrelated to its underlying business, and we
are therefore maintaining the position.
VLSI Technology was also a negative for performance. VLSI supplies software
design tools and services and manufactures computer chips and integrated
circuits. Small Cap Value's technology holdings are slight, representing just 8%
of investments at September 30, which has been helpful given the sector's
underperformance in recent months. Along with other technology manufacturers,
the weak worldwide semiconductor markets, especially in a major market like
Asia, have troubled VLSI. Due to its increasingly uncertain prospects, we
eliminated the stock from the portfolio.
WHAT IS YOUR OUTLOOK FOR SMALL-CAP VALUE INVESTING?
We are satisfied with Small Cap Value's relative performance so far, given
its brief history and the difficult market environment in which it has had to
operate since its inception. While we certainly cannot predict when the market's
preference for large-cap stocks will change, we believe that the risk-reward
tradeoff is beginning to favor smaller issues. They are becoming cheaper, which
means we are increasingly able to find small-cap stocks offering similar quality
and returns at more attractive prices than larger-cap stocks. This suggests that
a shift in investor sentiment regarding small-cap stocks may be on the horizon.
In the meantime, we will continue to search for and purchase companies we
believe are undervalued.
[left margin]
"WHILE WE CERTAINLY CANNOT PREDICT WHEN THE MARKET'S PREFERENCE FOR LARGE-CAP
STOCKS WILL CHANGE, WE BELIEVE THAT THE RISK-REWARD TRADEOFF IS BEGINNING TO
FAVOR SMALLER ISSUES."
[pie chart - data below]
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF SEPTEMBER 30, 1998
Temporary Investments 9.9%
Common Stocks 90.1%
20 1-800-345-2021
Small Cap Value--Schedule of Investments
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1998 (UNAUDITED)
Shares Value
- -----------------------------------------------------------------------------
COMMON STOCKS
AUTOMOBILES & AUTO PARTS--2.1%
4,600 Superior Industries International, Inc. $ 105,225
----------
BANKING--7.3%
700 F & M Bancorporation, Inc. 23,013
4,600 Industrial Bancorp, Inc. 81,650
1,700 Keystone Financial, Inc. 50,363
2,300 One Valley Bancorp, Inc. 74,319
2,800 UST Corp. 59,675
3,200 Washington Federal, Inc. 80,100
----------
369,120
----------
BUSINESS SERVICES & SUPPLIES--1.8%
1,300 Primark Corp.(1) 39,650
3,000 Reynolds & Reynolds Co. 53,438
----------
93,088
----------
CHEMICALS & RESINS--0.9%
2,600 Lilly Industries, Inc. Cl A 45,825
----------
COMMUNICATIONS EQUIPMENT--2.0%
7,700 Andrew Corp.(1) 102,266
----------
COMPUTER SOFTWARE & SERVICES--2.9%
5,600 GTECH Holdings Corp.(1) 148,750
----------
CONSTRUCTION & PROPERTY
DEVELOPMENT--1.1%
7,900 AmeriLink Corp.(1) 58,016
----------
CONSUMER PRODUCTS--4.7%
2,200 National Presto Industries, Inc. 82,500
1,700 Russ Berrie and Co., Inc. 32,406
4,100 WD-40 Co. 97,759
2,100 Wolverine World Wide, Inc. 22,838
----------
235,503
----------
CONTROL & MEASUREMENT--4.3%
7,000 Elsag Bailey Process
Automation N.V.(1) 147,438
7,100 X-Rite, Incorporated 70,334
----------
217,772
----------
DIVERSIFIED COMPANIES--0.9%
5,300 Griffon Corp.(1) 46,375
----------
ELECTRICAL & ELECTRONIC
COMPONENTS--3.3%
2,200 DuPont Photomasks, Inc.(1) 47,575
3,500 Kent Electronics Corp.(1) 35,000
1,500 Marshall Industries(1) 33,094
3,300 Methode Electronics, Inc. Cl A 49,294
----------
164,963
----------
Shares Value
- -------------------------------------------------------------------------------
ENERGY (PRODUCTION & MARKETING)--9.7%
17,700 Belco Oil & Gas Corp.(1) $ 119,475
9,500 Crown Central Petroleum
Corp. Cl B(1) 93,219
3,000 Devon Energy Corp. 98,813
8,500 Range Resources Corp. 60,031
9,500 Seagull Energy Corp.(1) 116,973
----------
488,511
----------
FOOD & BEVERAGE--9.2%
2,300 Corn Products International, Inc. 58,075
2,300 IBP, Inc. 46,575
7,300 International Multifoods Corp. 119,994
2,300 Lance, Inc. 45,281
10,000 Omega Protein Corp.(1) 55,625
3,100 Richfood Holdings, Inc. 47,663
1,400 Universal Foods Corp. 29,225
3,400 Vlasic Foods, Inc.(1) 63,538
----------
465,976
----------
HEALTHCARE--5.0%
1,600 Beckman Coulter Inc. 82,600
5,500 Dentsply International Inc. 122,707
2,300 Mallinckrodt Inc. 46,719
----------
252,026
----------
INDUSTRIAL EQUIPMENT & MACHINERY--0.9%
900 Tecumseh Products Cl A 44,578
----------
INSURANCE--8.8%
7,900 Amerin Corp.(1) 147,878
2,400 Argonaut Group, Inc. 61,500
4,100 ARM Financial Group, Inc. Cl A 72,775
5,300 Centris Group, Inc. 52,669
5,600 Frontier Insurance Group, Inc. 74,200
900 Liberty Corp. (The) 37,406
----------
446,428
----------
LEISURE--0.9%
4,800 Arctic Cat Inc. 43,050
----------
MACHINERY & EQUIPMENT--3.3%
4,200 Flowserve Corp. 85,050
1,700 Nordson Corp. 79,156
----------
164,206
----------
METALS & MINING--1.4%
4,900 Arch Coal Inc. 72,888
----------
PAPER & FOREST PRODUCTS--1.9%
2,400 Rayonier, Inc. 93,600
----------
PHARMACEUTICALS--1.5%
8,400 Perrigo Co.(1) 75,863
----------
PRINTING & PUBLISHING--0.7%
1,300 Banta Corp. 34,938
----------
See Notes to Financial Statements
www.americancentury.com 21
Small Cap Value--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998 (UNAUDITED)
Shares Value
- -----------------------------------------------------------------------------
RESTAURANTS--2.9%
6,600 Sbarro, Inc. $ 147,263
------------
RETAIL (GENERAL MERCHANDISE)--0.8%
3,300 Duckwall-ALCO Stores, Inc.(1) 41,250
------------
TEXTILES & APPAREL--1.4%
4,600 Fruit of the Loom, Inc.(1) 69,288
------------
TOBACCO--1.9%
4,400 Schweitzer-Mauduit International, Inc. 95,700
------------
UTILITIES--8.5%
3,400 AGL Resources Inc. 65,875
4,900 CTG Resources, Inc. 118,519
2,900 Idaho Power Co. 97,331
4,100 Maine Public Service Co. 59,194
900 Nevada Power Co. 24,188
1,800 People's Energy Corp. 64,800
------------
429,907
------------
TOTAL COMMON STOCKS--90.1% 4,552,375
------------
(Cost $4,742,295)
Value
TEMPORARY CASH INVESTMENTS
Repurchase Agreement, Merrill Lynch & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.30%, dated 9/30/98,
due 10/1/98 (Delivery value $100,015) $ 100,000
Repurchase Agreement, Morgan Stanley Group,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.30%, dated 9/30/98,
due 10/1/98 (Delivery value $200,029) 200,000
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 5.38%, dated 9/30/98,
due 10/1/98 (Delivery value $200,030) 200,000
-------------
TOTAL TEMPORARY CASH INVESTMENTS--9.9% 500,000
-------------
(Cost $500,000)
TOTAL INVESTMENT SECURITIES--100.0% $ 5,052,375
=============
(Cost $5,242,295 )
NOTES TO SCHEDULE OF INVESTMENTS
(1) Non-income producing.
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
O a list of each investment
O the number of shares of each stock
O the market value of each investment
O the percentage of total investments in each industry
O the percent and dollar breakdown of each investment category
See Notes to Financial Statements
22 1-800-345-2021
Statements of Assets and Liabilities
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 (UNAUDITED) VALUE EQUITY INCOME SMALL CAP VALUE
<S> <C> <C> <C>
ASSETS
Investment securities-
unaffiliated, at value
(identified cost of
$2,194,576,851, $306,
800,211, and $5,242,295,
respectively)(Note 3) ............... $ 1,980,271,208 $ 285,460,483 $ 5,052,375
Investment securities-
affiliated, at value
(identified cost of $112,163,751) ... 93,540,614 -- --
Cash ................................... 2,307,694 188,052 73,134
Receivable for investments sold ........ 13,555,716 5,702,326 54,059
Dividends and interest receivable ...... 2,869,128 1,114,688 5,145
------------- ----------- ---------
2,092,544,360 292,465,549 5,184,713
------------- ----------- ---------
LIABILITIES
Disbursements in excess
of demand deposit cash .............. 2,203,808 671,862 --
Payable for investments
purchased ........................... 62,121,213 8,022,454 377,339
Payable for capital shares
redeemed ............................ 4,589,201 963,632 600
Accrued management fees (Note 2) ....... 1,658,311 228,149 4,150
Distribution fees payable (Note 2) ..... 9,791 654 --
Service fees payable (Note 2) .......... 9,791 654 --
Payable for directors'
fees and expenses (Note 2) .......... 881 118 2
Other liabilities ...................... 108,591 28,299 80
------------- ----------- ---------
70,701,587 9,915,822 382,171
------------- ----------- ---------
Net Assets ............................. $ 2,021,842,773 $ 282,549,727 $ 4,802,542
=============== =============== ===============
NET ASSETS CONSIST OF:
Capital (par value and
paid-in surplus) .................... $ 1,922,626,758 $ 268,900,538 $ 5,077,342
Undistributed net
investment income ...................... 283,462 32,005 6,286
Accumulated undistributed
net realized gain (loss) on
investments ......................... 331,861,333 34,956,912 (91,166)
Net unrealized depreciation
on investments (Note 3) ............. (232,928,780) (21,339,728) (189,920)
------------- ----------- ---------
$ 2,021,842,773 $ 282,549,727 $ 4,802,542
=============== =============== ===============
Investor Class
Net assets ............................. $ 1,968,453,618 $ 279,087,973 $ 4,802,542
Shares outstanding ..................... 302,168,151 43,389,666 1,065,064
Net asset value per share .............. $ 6.51 $ 6.43 $ 4.51
Advisor Class
Net assets ............................. $ 47,702,872 $ 3,457,089 N/A
Shares outstanding ..................... 7,324,396 537,467 N/A
Net asset value per share .............. $ 6.51 $ 6.43 N/A
Institutional Class
Net assets ............................. $ 5,686,283 $ 4,665 N/A
Shares outstanding ..................... 872,770 725 N/A
Net asset value per share .............. $ 6.52 $ 6.43 N/A
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. For each class of shares, the net assets
divided by the total number of shares outstanding gives you the price of an
individual share, or the net asset value per share.
NET ASSETS are also broken out by capital (money invested by shareholders); net
investment income not yet paid to shareholders or net investment losses; net
gains earned on investments but not yet paid to shareholders or net losses on
investments (known as realized gains or losses); and finally, gains or losses on
securities still owned by the fund (known as unrealized appreciation or
depreciation). This breakout tells you the value of the net assets that are
performance-related, such as investment gains or losses, and the value of net
assets that are not related to performance, such as shareholder investments and
redemptions.
See Notes to Financial Statements
www.americancentury.com 23
Statements of Operations
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
VALUE EQUITY INCOME SMALL CAP VALUE(1)
INVESTMENT INCOME
Income:
<S> <C> <C> <C>
Dividends (including
$1,220,761 from
affiliates for Value ...... $ 25,865,067 $ 5,148,069 $ 9,643
Interest ..................... 1,248,072 1,592,463 3,173
------------- ------------- -------------
27,113,139 6,740,532 12,816
------------- ------------- -------------
Expenses (Note 2):
Management fees .............. 12,311,360 1,629,739 6,526
Distribution fees -
Advisor Class ............. 67,410 2,158 --
Service fees -
Advisor Class ............. 67,410 2,158 --
Directors' fees and
expenses .................. 10,070 1,283 4
------------- ------------- -------------
12,456,250 1,635,338 6,530
------------- ------------- -------------
Net investment income ........ 14,656,889 5,105,194 6,286
------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 3)
Net realized gain
(loss) on investments
(includes $33,881,831
from affiliates for
Value) ..................... 179,926,438 16,312,060 (91,166)
Change in net
unrealized appreciation
on investments ............. (589,664,887) (49,657,162) (189,920)
------------- ------------- -------------
Net realized and
unrealized loss on
investments ................ (409,738,449) (33,345,102) (281,086)
------------- ------------- -------------
Net Decrease in Net
Assets Resulting
from Operations ............ $(395,081,560) $ (28,239,908) $ (274,800)
============= ============= =============
</TABLE>
(1) July 31, 1998 (inception) through September 30, 1998.
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks out how each
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking
into account income, fees and expenses, and investment gains or losses.
It does not include shareholder transactions and distributions.
Fund OPERATIONS include:
o income earned by investments (dividends and interest)
o management fees and other expenses
o gains or losses from selling investments (known as realized gains or
losses)
o gains or losses on current fund holdings (known as unrealized gains or
losses
See Notes to Financial Statements
24 1-800-345-2021
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND YEAR ENDED MARCH 31, 1998
Increase (Decrease) in Net Assets:
VALUE EQUITY INCOME SMALL CAP VALUE
SEPT. 30, MARCH 31, SEPT. 30, MARCH 31, SEPT. 30,
1998 1998 1998 1998 1998(1)
OPERATIONS
<S> <C> <C> <C> <C> <C>
Net investment income ................... $ 14,656,889 $ 31,216,696 $ 5,105,194 $ 9,506,265 $ 6,286
Net realized gain (loss) on investments.. 179,926,438 419,764,609 16,312,060 49,744,589 (91,166)
Change in net unrealized
appreciation on investments .......... (589,664,887) 310,602,812 (49,657,162) 25,833,808 (189,920)
-------------- --------------- -------------- -------------- ------------
Net increase (decrease) in net
assets resulting from operations ..... (395,081,560) 761,584,117 (28,239,908) 85,084,662 (274,800)
-------------- --------------- -------------- -------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ......................... (15,307,976) (29,498,922) (5,315,636) (9,206,671) --
Advisor Class .......................... (298,427) (420,009) (43,075) (13,405) --
Institutional Class .................... (48,336) (18,264) (45) -- --
From net realized gains from
investment transactions:
Investor Class ......................... -- (352,185,079) -- (43,456,913) --
Advisor Class .......................... -- (6,260,211) -- (85,009) --
Institutional Class .................... -- (100,640) -- -- --
-------------- --------------- -------------- -------------- ------------
Decrease in net assets
from distributions ................... (15,654,739) (388,483,125) (5,358,756) (52,761,998) --
-------------- --------------- -------------- -------------- ------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase (decrease) in net assets
from capital share transactions ......... (343,044,894) 629,690,858 (40,544,066) 124,963,100 5,077,342
-------------- --------------- -------------- -------------- ------------
Net increase (decrease) in net assets ... (753,781,193) 1,002,791,850 (74,142,730) 157,285,764 4,802,542
NET ASSETS
Beginning of period ..................... 2,775,623,966 1,772,832,116 356,692,457 199,406,693 --
--------------- -------------- -------------- ------------- -----------
End of period ...........................$2,021,842,773 $2,775,623,966 $282,549,727 $356,692,457 $4,802,542
=============== ============== ============== ============= ===========
Undistributed net investment income ..... $283,462 $1,281,312 $32,005 $285,567 $6,286
=============== ============== ============== ============= ===========
</TABLE>
(1) July 31, 1998 (inception) through September 30, 1998.
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF CHANGES IN NET ASSETS--These statements show how
each fund's net assets changed over the past two reporting periods. It details
how much a fund grew or shrank as a result of:
* operations--a summary of the Statement of Operations from the previous page
for the most recent period
* distributions--income and gains distributed to shareholders
* share transactions--shareholders' purchases, reinvestments and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions result in net
assets at the end of the period.
See Notes to Financial Statements
www.americancentury.com 25
Notes to Financial Statements
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1998 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Capital Portfolios, Inc. (the Corporation)
is registered under the Investment Company Act of 1940 as an open-end management
investment company. American Century Value Fund (Value), American Century Equity
Income Fund (Equity Income), and American Century Small Cap Value Fund (Small
Cap Value) (the Funds) are three of the four funds issued by the Corporation.
The Funds are diversified under the 1940 Act. The investment objective of Value
is long-term capital growth. Income is a secondary objective. Value 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. Equity Income seeks to achieve its objectives by investing
primarily in income-producing equity securities. The investment objective of
Small Cap Value is long-term capital growth. Income is a secondary objective.
The fund seeks to achieve its investment objective by investing primarily in
equity securities of companies with smaller market capitalizations that
management believes to be undervalued at the time of purchase. The Funds are
authorized to issue three classes of shares: the Investor Class, the Advisor
Class, and the Institutional Class. The three classes of shares differ
principally in their respective shareholder servicing and distribution expenses
and arrangements. All shares of each Fund represent an equal pro rata interest
in the assets of the class to which such shares belong, and have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except for class specific expenses and exclusive rights to vote on
matters affecting only individual classes. Sale of the Institutional Class for
Equity Income commenced on July 8, 1998. Small Cap Value's inception date is
July 31, 1998 of which only investor class shares have been sold. The following
significant accounting policies are in accordance with generally accepted
accounting principles.
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 as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld (if any)
is recorded as of the ex-dividend date. Interest income is recorded on the
accrual basis and includes accretion of discounts and amortization of premiums.
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 risk in excess
of the amount reflected in the Statement 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
contracts at September 30, 1998.
FUTURES CONTRACTS -- The Funds may enter into stock index futures contracts
in order to manage each Fund's exposure to changes in market conditions. One of
the risks of entering into futures contracts include 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. The Fund recognizes a realized gain or
loss when the contract is closed or expires. Net realized and unrealized gains
or losses occurring during the holding period of futures contracts are a
component of realized gain (loss) on investments and unrealized appreciation
(depreciation) on investments, respectively.
REPURCHASE AGREEMENTS -- The Funds may enter into repurchase agreements
with institutions that the Funds' investment manager, American
26 1-800-345-2021
Notes to Financial Statements
- -----------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998 (UNAUDITED)
Century Investment Management, Inc. (ACIM), has determined are creditworthy
pursuant to criteria adopted by the Board of Directors. Each repurchase
agreement is recorded at cost. Each Fund requires that the collateral,
represented by securities, received in a repurchase transaction be transferred
to the custodian in a manner sufficient to enable each Fund to obtain those
securities in the event of a default under the repurchase agreement. ACIM
monitors, on a daily basis, the securities transferred to ensure the value,
including accrued interest, of the securities under each repurchase agreement is
equal to or greater than amounts owed to each Fund under each repurchase
agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, each Fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury or Agency obligations.
INCOME TAX STATUS -- It is the Funds' policy to distribute all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under the provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distri-butions to shareholders are
recorded on the ex-dividend date. Distributions from net investment income are
declared and paid quarterly. Distri-butions from net realized gains are declared
and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net capital gains and losses for financial statement
and tax purposes and may result in reclassification among certain capital
accounts.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions. These estimates and assumptions 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.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the
Corporation's distributor. Certain officers of FDI are also officers of the
Corporation.
2. TRANSACTIONS WITH RELATED PARTIES
The Corporation has entered into a Management Agreement with ACIM that
provides the Funds with investment advisory and management services in exchange
for a single, unified management fee per class. The Agreement provides that all
expenses of the Funds, except brokerage commissions, taxes, interest, expenses
of those directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by ACIM. The fee is computed daily and paid monthly based
on each Fund's class average daily closing net assets during the previous month.
For Value and Equity Income, the annual management fee is 1.00%, 0.75% and 0.80%
for the Investor, Advisor, and Institutional Classes, respectively. For Small
Cap Value, the annual management fee is 1.25%, 1.00% and 1.05% for the Investor,
Advisor, and Institutional Classes, respectively.
The Board of Directors has adopted a Master Distribution and Shareholder
Services Plan (the Plan) for the Advisor Class, pursuant to Rule 12b-1 of the
Investment Company Act of 1940. The Plan provides that the Funds will pay ACIM
an annual distribution fee equal to 0.25% and service fee equal to 0.25%. The
fees are computed daily and paid monthly based on the Advisor Class's average
daily closing net assets during the previous month. The distribution fee
provides compensation for distribution expenses incurred in connection with
distributing shares of the Advisor Class including, but not limited to, payments
to brokers, dealers, and financial institutions that have entered into sales
agreements with respect to shares of the Funds. The service fee provides
compensation for shareholder and administrative services rendered by ACIM, its
affiliates or independent third party providers. Fees incurred under the Plan
during the period were $134,820 for Value and $4,316 for Equity Income.
Certain officers and directors of the Corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the Corporation's investment manager, ACIM, and
the Corporation's transfer agent, American Century Services Corporation.
www.americancentury.com 27
Notes to Financial Statements
- -----------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998 (UNAUDITED)
3. INVESTMENT TRANSACTIONS
Investment transactions, exluding short-term investments, for the six months
ended September 30, 1998 for Value and Equity Income and for the period July 31,
1998 (inception) through September 30, 1998 for Small Cap Value, were as
follows:
VALUE EQUITY INCOME SMALL CAP VALUE
Purchases ........... $1,437,455,890 $248,580,094 $5,942,838
Proceeds from sales.. $1,775,175,431 $288,666,730 $1,109,378
On September 30, 1998, the composition of unrealized appreciation and
depreciaton of investment securities based on the aggregate cost of investments
for federal income tax purposes was as follows:
VALUE EQUITY INCOME SMALL CAP VALUE
Appreciation ........ $ 55,225,029 $ 6,801,871 $ 102,174
Depreciation ........ (296,422,061) (28,575,794) (292,094)
--------------- --------------- ---------------
Net ................. $ (241,197,032) $(21,773,923) $ (189,920)
=============== =============== ===============
Federal Tax Cost .... $2,315,008,854 $307,234,406 $5,242,295
=============== =============== ===============
28 1-800-345-2021
Notes to Financial Statements
- -----------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
All shares are $0.01 par value. Transactions in shares of the Funds were as
follows:
VALUE EQUITY INCOME SMALL CAP VALUE
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
INVESTOR CLASS
<S> <C> <C> <C> <C> <C> <C>
Shares authorized ............ 350,000,000 150,000,000 50,000,000
============= ============= =============
Six months ended
September 30, 1998(1)
Sold ......................... 53,093,004 $ 385,000,623 12,381,661 $ 85,854,349 1,092,444 $5,202,271
Issued in reinvestment
of distributions ........... 2,158,035 15,050,155 762,322 5,089,479 -- --
Redeemed .....................(104,003,196) (744,629,355) (19,521,509) (134,417,350) (27,380) (124,929)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) ...... (48,752,157) $ (344,578,577) (6,377,526) $ (43,473,522) 1,065,064 $5,077,342
============= ============= ============= ============= ============= =============
Year ended March 31, 1998
Sold ......................... 162,037,493 $1,197,248,350 30,476,816 $213,669,697
Issued in reinvestment
of distributions ........... 54,825,636 376,881,079 7,535,443 49,977,058
Redeemed .....................(131,065,528) (969,702,459) (19,830,504) (139,373,450)
------------- ------------- ------------- -------------
Net increase ................. 85,797,601 $ 604,426,970 18,181,755 $124,273,305
============= ============= ============= =============
ADVISOR CLASS
Shares authorized ............ 145,000,000 62,500,000
============= =============
Six months ended
September 30, 1998
Sold ......................... 1,870,502 $13,398,652 497,205 $3,323,012
Issued in reinvestment
of distributions ........... 42,822 297,669 5,891 38,680
Redeemed ..................... (1,847,269) (12,985,295) (67,719) (437,281)
------------- ------------- ------------- -------------
Net increase ................. 66,055 $ 711,026 435,377 $2,924,411
============= ============= ============= =============
Year ended March 31, 1998
Sold ......................... 4,634,814 $33,569,674 101,186 $ 704,986
Issued in reinvestment
of distributions ........... 973,367 6,679,660 14,797 97,687
Redeemed ..................... (2,796,876) (20,393,769) (16,803) (112,878)
------------- ------------- ------------- -------------
Net increase ................. 2,811,305 $19,855,565 99,180 $ 689,795
============= ============= ============= =============
INSTITUTIONAL CLASS
Shares authorized ............ 60,000,000 25,000,000
============= =============
Six months ended
September 30, 1998(2)
Sold ......................... 494,645 $3,774,136 718 $5,000
Issued in reinvestment
of distributions ........... 6,944 48,336 7 45
Redeemed ..................... (397,517) (2,999,815) -- --
------------- ------------- ------------- -------------
Net increase ................. 104,072 $ 822,657 725 $5,045
============= ============= ============= =============
Period ended March 31, 1998(3)
Sold ......................... 751,577 $5,289,526
Issued in reinvestment
of distributions ........... 17,134 118,897
Redeemed ..................... (13) (100)
------------- -------------
Net increase ................. 768,698 $5,408,323
============= =============
</TABLE>
(1) July 31, 1998 (inception) through September 30, 1998 for Small Cap Value.
(2) Sale of the Institutional Class commenced on July 8, 1998 for Equity Income
(3) Sale of the Institutional Class commenced on July 31, 1997 for Value.
www.americancentury.com 29
Notes to Financial Statements
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1998 (UNAUDITED)
5. AFFILIATED COMPANY TRANSACTIONS
<TABLE>
<CAPTION>
A summary of transactions for each issuer which is or was an affiliate at or
during the six months ended September 30, 1998, follows:
SHARE BALANCE PURCHASE SALES REALIZED DIVIDEND SEPTEMBER 30, 1998
FUND/ISSUER 3/31/98 COST COST GAIN (LOSS) INCOME SHARE BALANCE MARKET VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
VALUE
Giant Food Inc. Cl A 3,122,900 -- $98,397,805 $35,562,060 $ 624,580 -- --
Lab Holdings Inc.
(formerly Seafield
Capital Corp.) 420,000 -- -- -- 252,000 420,000 $ 6,667,500
Superior Industries
International, Inc. 2,024,200 $12,553,478 1,564,652 350,924 319,863 2,425,300 55,478,739
Swift Energy Co. 1,103,700 2,597,310 6,638,026 (2,031,153) -- 974,800 9,443,375
Flowserve Corp. -- 22,831,992 -- -- 24,318 1,084,000 21,951,000
----------- ----------- ----------- ----------- -----------
$37,982,780 $106,600,483 $33,881,831 $1,220,761 $93,540,614
=========== =========== =========== =========== ===========
</TABLE>
30 1-800-345-2021
Value--Financial Highlights
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Investor Class
1998(1) 1998 1997 1996 1995 1994(2)
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........... $7.73 $6.58 $6.32 $5.46 $4.98 $5.01
---------- ---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income(3) ..................... 0.04 0.10 0.12 0.13 0.12 0.08
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ................... (1.21) 2.35 0.87 1.34 0.75 (0.04)
---------- ---------- ---------- ---------- ---------- ----------
Total From Investment Operations . ........... (1.17) 2.45 0.99 1.47 0.87 0.04
---------- ---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ................... (0.05) (0.10) (0.12) (0.12) (0.12) (0.07)
In Excess of Net Investment Income ........... -- -- --(4) (0.01) -- --
From Net Realized Gains
on Investment Transactions ................... -- (1.20) (0.61) (0.48) (0.27) --
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions .......................... (0.05) (1.30) (0.73) (0.61) (0.39) (0.07)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ................. $6.51 $7.73 $6.58 $6.32 $5.46 $4.98
========== ========== ========== ========== ========== ==========
Total Return(5) .............................. (15.21)% 39.94% 15.92% 28.06% 18.56% 0.83%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .......................... 1.00%(6) 1.00% 1.00% 0.97% 1.00% 1.00%(6)
Ratio of Net Investment Income
to Average Net Assets .......................... 1.19%(6) 1.38% 1.86% 2.17% 2.65% 3.37%(6)
Portfolio Turnover Rate ........................ 60% 130% 111% 145% 94% 79%
Net Assets, End of Period (in thousands) ....... $1,968,454 $2,713,562 $1,743,582 $881,885 $348,281 $87,798
</TABLE>
(1) Six months ended September 30, 1998 (unaudited).
(2) September 1, 1993 (inception) through March 31, 1994.
(3) Computed using average shares outstanding throughout the period.
(4) Per share amount was less than $0.01.
(5) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(6) Annualized.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--These statements itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
o share price at the beginning of the period
o investment income and capital gains or losses
o income and capital gains distributions paid to shareholders
o share price at the end of the period
It also includes some key statistics for the period:
o total return--the overall percentage return of the fund, assuming
reinvestment of all distributions
o expense ratio--operating expenses as a percentage of average net assets
o net income ratio--net investment income as a percentage of average net
assets
o portfolio turnover--the percentage of the portfolio that was replaced
during the period
See Notes to Financial Statements
www.americancentury.com 31
Value--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Advisor Class
1998(1) 1998 1997(2)
PER-SHARE DATA
Net Asset Value,
Beginning of Period .................... $7.73 $6.58 $6.71
--------- --------- ---------
Income From Investment Operations
Net Investment Income(3) .............. 0.03 0.08 0.05
Net Realized and
Unrealized Gain (Loss)
on Investment Transactions ........... (1.21) 2.35 0.48
--------- --------- ---------
Total From Investment Operations ...... (1.18) 2.43 0.53
--------- --------- ---------
Distributions
From Net Investment Income ............ (0.04) (0.08) (0.05)
In Excess of Net Investment Income .... -- -- --(4)
From Net Realized Gains on
Investment Transactions ............. -- (1.20) (0.61)
--------- --------- ---------
Total Distributions ................... (0.04) (1.28) (0.66)
--------- --------- ---------
Net Asset Value, End of Period ........... $6.51 $7.73 $6.58
========= ========= =========
Total Return(5) ....................... (15.30)% 39.60% 8.07%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .................. 1.25%(6) 1.25% 1.25%(6)
Ratio of Net Investment Income
to Average Net Assets .................. 0.94%(6) 1.13% 1.50%(6)
Portfolio Turnover Rate .................. 60% 130% 111%
Net Assets, End of Period
(in thousands) ......................... $47,703 $56,118 $29,250
(1) Six months ended September 30, 1998 (unaudited).
(2) October 2, 1996 (commencement of sale) through March 31, 1997.
(3) Computed using average shares outstanding throughout the period.
(4) Per share amount was less than $0.01.
(5) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(6) Annualized.
See Notes to Financial Statements
32 1-800-345-2021
Value--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED
Institutional Class
1998(1) 1998(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period ................. $7.73 $7.84
---------- ---------
Income From Investment Operations
Net Investment Income(3) .......................... 0.05 0.15
Net Realized and Unrealized Gain
(Loss) on Investment Transactions ................ (1.20) 1.02
---------- ---------
Total From Investment Operations .................. (1.15) 1.17
---------- ---------
Distributions
From Net Investment Income ........................ (0.06) (0.08)
From Net Realized Gains on
Investment Transactions ......................... -- (1.20)
---------- ---------
Total Distributions ............................... (0.06) (1.28)
---------- ---------
Net Asset Value, End of Period ....................... $6.52 $7.73
========== =========
Total Return(4) ................................... (14.98)% 17.14%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets .... 0.80%(5) 0.80%(5)
Ratio of Net Investment Income to Average Net Assets.. 1.39%(5) 2.97%(5)
Portfolio Turnover Rate .............................. 60% 130%
Net Assets, End of Period (in thousands) ............. $5,686 $5,944
(1) Six months ended September 30, 1998 (unaudited).
(2) July 31, 1997 (commencement of sale) through March 31, 1998.
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
See Notes to Financial Statements
www.americancentury.com 33
Equity Income--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Investor Class
1998(1) 1998 1997 1996 1995(2)
=====++========================================================================
PER-SHARE DATA
Net Asset Value, Beginning
of Period .................... $7.15 $6.31 $6.10 $5.42 $5.00
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income(3) .... 0.11 0.25 0.22 0.20 0.09
Net Realized and
Unrealized Gain
(Loss) on Investment
Transactions ............ (0.71) 1.99 0.75 1.13 0.44
------- ------- ------- ------- -------
Total From Investment
Operations ............... (0.60) 2.24 0.97 1.33 0.53
------- ------- ------- ------- -------
Distributions
From Net Investment Income .. (0.12) (0.24) (0.21) (0.19) (0.09)
In Excess of Net Investment
Income .................. -- -- --(4) (0.01) --
From Net Realized Gains on
Investment Transactions ... -- (1.16) (0.55) (0.45) (0.02)
------- ------- ------- ------- -------
Total Distributions ......... (0.12) (1.40) (0.76) (0.65) (0.11)
------- ------- ------- ------- -------
Net Asset Value, End of Period.. $6.43 $7.15 $6.31 $6.10 $5.42
======= ======= ======= ======= =======
Total Return(5) ............. (8.49)% 37.78% 16.24% 25.67% 10.69%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ........1.00%(6) 1.00% 1.00% 0.98% 1.00%(6)
Ratio of Net Investment
Income to Average Net Assets..3.13%(6) 3.52% 3.46% 3.51% 4.04%(6)
Portfolio Turnover Rate ........ 79% 158% 159% 170% 45%
Net Assets, End of Period
(in thousands) ..............$279,088 $355,962 $199,388 $116,692 $52,213
(1) Six months ended September 30, 1998 (unaudited).
(2) August 1, 1994 (inception) through March 31, 1995.
(3) Computed using average shares outstanding throughout the period.
(4) Per share amount was less than $0.01.
(5) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(6) Annualized.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--These statements itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
O share price at the beginning of the period
O investment income and capital gains or losses
O income and capital gains distributions paid to shareholders
O share price at the end of the period
It also includes some key statistics for the period:
O total return--the overall percentage return of the fund, assuming
reinvestment of all distributions
o expense ratio--operating expenses as a percentage of average net assets
o net income ratio--net investment income as a percentage of average net
assets
o portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
34 1-800-345-2021
Equity Income--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Advisor Class
1998(1) 1998 1997(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period .... $7.16 $6.31 $6.57
--------- --------- ---------
Income From Investment Operations
Net Investment Income(3) ............. 0.10 0.23 0.02
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .. (0.72) 2.00 (0.21)
--------- --------- ---------
Total From Investment Operations ..... (0.62) 2.23 (0.19)
--------- --------- ---------
Distributions
From Net Investment Income ........... (0.11) (0.22) (0.07)
In Excess of Net Investment Income ... -- -- --(4)
From Net Realized Gains on
Investment Transactions ............ -- (1.16) --
--------- --------- ---------
Total Distributions .................. (0.11) (1.38) (0.07)
--------- --------- ---------
Net Asset Value, End of Period .......... $6.43 $7.16 $6.31
========= ========= =========
Total Return(5) ...................... (8.66)% 37.71% (2.89)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 1.25%(6) 1.25% 1.25%(6)
Ratio of Net Investment Income
to Average Net Assets ................. 2.88%(6) 3.27% 1.64%(6)
Portfolio Turnover Rate ................. 79% 158% 159%
Net Assets, End of Period
(in thousands) ........................ $3,457 $731 $18
(1) Six months ended September 30, 1998 (unaudited).
(2) March 7, 1997 (commencement of sale) through March 31, 1997.
(3) Computed using average shares outstanding throughout the period.
(4) Per share amount was less than $0.01.
(5) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one
year are not annualized.
(6) Annualized.
See Notes to Financial Statements
www.americancentury.com 35
Equity Income--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
Institutional Class
1998(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period .............................. $6.96
------------
Income From Investment Operations
Net Investment Income(2) ........................................ 0.06
Net Realized and Unrealized Loss on Investment Transactions ..... (0.53)
------------
Total From Investment Operations ................................ (0.47)
------------
Distributions
From Net Investment Income ...................................... (0.06)
In Excess of Net Investment Income .............................. --
From Net Realized Gains on Investment Transactions .............. --
------------
Total Distributions ............................................. (0.06)
------------
Net Asset Value, End of Period .................................... $6.43
============
Total Return(3) ................................................. (6.72)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ................. 0.80%(4)
Ratio of Net Investment Income to Average Net Assets .............. 3.33%(4)
Portfolio Turnover Rate ........................................... 79%
Net Assets, End of Period ......................................... $4,665
(1) July 8, 1998 (inception of Fund and Class) through September 30, 1998
(unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
See Notes to Financial Statements
36 1-800-345-2021
Small Cap Value--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
Investor Class
1998(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period .............................. $5.00
------------
Income From Investment Operations
Net Investment Income ........................................... 0.01
Net Realized and Unrealized Loss on Investment Transactions ..... (0.50)
------------
Total From Investment Operations ................................ (0.49)
------------
Net Asset Value, End of Period .................................... $4.51
============
Total Return(2) ................................................. (9.80)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ................. 1.25%(3)
Ratio of Net Investment Income to Average Net Assets .............. 1.20%(3)
Portfolio Turnover Rate ........................................... 38%
Net Assets, End of Period (in thousands) .......................... $4,803
(1) July 31, 1998 (inception of Fund and Class) through September 30, 1998
(unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provides comparison data for the last five fiscal
years (or less, if the fund is not five years old).
On a per-share basis, it includes:
o share price at the beginning of the period
o investment income and capital gains or losses
o income and capital gains distributions paid to shareholders
o share price at the end of the period
It also includes some key statistics for the period:
o total return--the overall percentage return of the fund, assuming
Reinvestment of all distributions
o expense ratio--operating expenses as a percentage of average net assets
o net income ratio--net investment income as a percentage of average net
assets
o portfolio turnover--the percentage of the portfolio that was replaced
during the period
See Notes to Financial Statements
www.americancentury.com 37
Share Class and Retirement Account Information
- -----------------------------------------------------------------------------
SHARE CLASSES
American Century offers three classes of shares for Value, Equity Income,
and Small Cap Value. One class is for investors who buy directly from American
Century, one is for investors who buy through financial intermediaries, and the
third is for large institutional customers.
The original class of shares is called the INVESTOR CLASS. All shares
issued and outstanding before June 16, 1997, have been designated as Investor
Class shares. Investor Class shares may also be purchased after June 16, 1997.
Investor Class shareholders do not pay any commissions or other fees when
purchasing 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 shares
are subject to a 0.50% Rule 12b-1 service and distribution fee. Half of that fee
is available to pay for recordkeeping and administrative services, and half is
available to pay for distribution services provided by the financial
intermediary through which the Advisor Class shares are purchased. The total
expense ratio of the Advisor Class is 0.25% higher than the total expense ratio
of the Investor Class.
An INSTITUTIONAL CLASS is also available to endowments, foundations,
defined-benefit pension plans or financial intermediaries serving these
investors. This class recognizes the relatively lower cost of serving
institutional customers and others who invest at least $5 million in an American
Century fund or at least $10 million in multiple funds. In recognition of the
larger investments and account balances and comparatively lower transaction
costs, the total expense ratio of the Institutional Class is 0.20% less than the
total expense ratio of the Investor Class shares.
The Advisor and Institutional Classes of shares for Small Cap Value had not
commenced as of September 30, 1998.
All classes of shares represent a pro rata interest in the funds and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for account 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.
38 1-800-345-2021
Background Information
- -----------------------------------------------------------------------------
INVESTMENT PHILOSOPHY & POLICIES
The American Century Group offers 10 equity funds, including Value, Equity
Income and Small Cap Value. These three 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,
if the team believes 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 all three 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 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, currently 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.
AMERICAN CENTURY SMALL CAP VALUE focuses on the stocks of small companies
with market capitalizations of $2 billion or less. Historically, small-cap
stocks have been more volatile than the stocks of larger, more established
companies. The fund seeks capital appreciation over time by investing in common
stocks that the management team believes to be undervalued.
COMPARATIVE INDICES
The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.
THE S&P 500 is a capitalization-weighted index of the stocks of 500
publicly traded U.S. companies that are considered to be leading firms in
leading industries. Created by Standard & Poor's Corporation, it is intended to
be a broad measure of U.S. stock market performance.
THE S&P 500/BARRA VALUE INDEX is a capitalization-weighted index
consisting of S&P 500 stocks that have lower price-to-book ratios, and in
general, share other characteristics associated with value-style stocks.
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.
THE S&P SMALLCAP 600/BARRA VALUE INDEX is a capitalization-weighted index
consisting of S&P SmallCap 600 stocks that have lower price-to-book ratios. The
S&P SmallCap 600 Index consists of 600 domestic stocks chosen for market size,
liquidity, and industry group representation.
[right margin]
PORTFOLIO MANAGERS
VALUE AND EQUITY INCOME
- -----------------------
PHIL DAVIDSON
SMALL CAP VALUE
- ---------------
PHIL DAVIDSON
TODD VINGERS
www.americancentury.com 39
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 31-37.
INVESTMENT TERMS
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 account. (See
Note 2 in the Notes to Financial Statements.)
o MEDIAN MARKET CAPITALIZATION-- Market Capitalization (market cap) is the
total value of a company's stock and is calculated by multiplying the number of
outstanding common shares by the current share price. The company whose market
cap is in the middle of the portfolio is the median market cap. Half the
companies in the portfolio have values greater than the median, and half have
values that are less. If there is an even number of companies, then the median
is the average of the two companies in the middle.
o NUMBER OF COMPANIES-- the number
of different companies held by a fund on a given date.
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 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.)
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.)
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 are expected to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech,
healthcare and consumer staple companies.
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.
40 1-800-345-2021
[inside back cover]
AMERICAN CENTURY FUNDS
- ---------------------
Benham Group(reg. sm)
TAXABLE BOND FUNDS
U.S. Treasury & Government
Short-Term Treasury
Short-Term Government
GNMA
Intermediate-Term Treasury
Long-Term Treasury
Inflation-Adjusted Treasury
Target Maturities Trust: 2000
Target Maturities Trust: 2005
Target Maturities Trust: 2010
Target Maturities Trust: 2015
Target Maturities Trust: 2020
Target Maturities Trust: 2025
Corporate & Diversified
Limited-Term Bond
Intermediate-Term Bond
Bond
Premium Bond
High-Yield Bond
International
International Bond
TAX-FREE & MUNICIPAL BOND FUNDS
Multiple-State
Limited-Term Tax-Free
Intermediate-Term Tax-Free
Long-Term Tax-Free
High-Yield Municipal
Single-State
Arizona Intermediate-Term Municipal
California High-Yield Municipal
California Insured Tax-Free
California Intermediate-Term Tax-Free
California Limited-Term Tax-Free
California Long-Term Tax-Free
Florida Intermediate-Term Municipal
MONEY MARKET FUNDS
Taxable
Capital Preservation
Government Agency Money Market
Premium Capital Reserve
Premium Government Reserve
Prime Money Market
Tax-Free & Municipal
California Municipal Money Market
California Tax-Free Money Market
Florida Municipal Money Market
Tax-Free Money Market
AMERICAN CENTURY[reg.sm] GROUP
Asset Allocation Funds
Strategic Allocation: Conservative
Strategic Allocation: Moderate
Strategic Allocation: Aggressive
Balanced Fund
Balanced
Conservative Equity Funds
Income and Growth
Equity Income
Value
Equity Growth
Specialty Funds
Utilities
Real Estate
Global Natural Resources
Global Gold
Small Cap Funds
Small Cap Quantitative
Small Cap Value
TWENTIETH CENTURY GROUP
Growth Funds
Select
Heritage
Growth
Ultra
Aggressive Growth Funds
Vista
Giftrust
New Opportunities
International Growth Funds
International Growth
International Discovery
Emerging Markets
[right margin]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI
64141-6200
INVESTOR SERVICES:
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE:
1-800-345-8765
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 OR 816-444-3485
FAX: 816-340-7962
INTERNET: WWW.AMERICANCENTURY.COM
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
(c) 1998 AMERICAN CENTURY SERVICES CORPORATION
FUNDS DISTRIBUTOR, INC.
[recycled logo]
Recycled
[back cover]
[40 Years]
Four Decades of Serving Investors
40 Years
American Century
1958-1998
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9811 (c)1998 American Century Services Corporation
SH-BKT-13988 Funds Distributor, Inc.
<PAGE>
[front cover]
September 30, 1998
SEMIANNUAL REPORT
- -----------------
AMERICAN CENTURY
[graphic of eyeglasses, computer keyboard, stock listings]
AMERICAN CENTURY GROUP
- ---------------------
REAL ESTATE
[american century logo (reg. sm)
American
Century
[inside front cover]
A Note from the Founder
- --------------------------------------------------------------------------------
On our 40th anniversary, I would personally like to express my profound
appreciation for the confidence you have shown in American Century. We are
grateful for the opportunity to manage your money, and we will do our utmost
to continue to meet your expectations and justify your confidence in us.
I founded American Century on the belief that if we can make you
successful, you, in turn, will make us successful. That is the principle that
will guide us in the future.
Sincerely,
/s/James E. Stowers
About our New Report Design
- --------------------------------------------------------------------------------
WHY WE CHANGED
We're trying hard to be reader-friendly. Our reports contain a lot of very good
information, from fund statistics and financials to Q&A's with fund managers. We
hope the new design will make the reports more interesting and understandable
while helping you keep abreast of your fund's strategy and performance.
WHAT'S NEW
The reports are designed to be attractive and easy to use whether you're reading
them in depth or just skimming.
New features include:
* Larger type size in many sections.
* Brief explanations of the financial statements.
* More prominent graphs and charts.
* Quotes in the margins to highlight report content.
THE BOTTOM LINE
The new design actually costs slightly less than the old one. We reallocated
costs and eliminated a cover letter and the envelope that previously came with
your report enclosed. This not only saves money, but reduces the number of
mailing pieces you receive.
The new reports also use roughly the same amount of paper as the old ones.
Previously, paper was trimmed and thrown away to produce the smaller report
size.
We believe we've come up with a more interesting, informative and user-friendly
publication.
We hope you enjoy it.
[left margin]
AMERICAN CENTURY GROUP
REAL ESTATE FUND
(REACX)
[40 Years Logo]
Four Decades of Serving Investors
40 Years
American Century
1958-1998
Our Message to You
- --------------------------------------------------------------------------------
[photo of James E. Stowers, Jr. and James E. Stowers III]
James E. Stowers III, seated, with James E. Stowers, Jr.
The six months from March 31 through September 30 were a period of sharp
contrasts. Helped along by a healthy economy and widespread market optimism,
many market averages set records in the first three months then tumbled
dramatically, as the outlook for the U.S. economy and for corporate earnings
turned pessimistic. The mood swing in market psychology seemed especially
pronounced after the gains of the last several years--gains that were
accompanied by relatively few, and very shallow, downdrafts in stock prices.
Real Estate Investment Trusts (REITs) participated in the fine gains of the
last few years, but did not fare very well during the past six months. Our
investment team at RREEF believes there are now some good opportunities in the
REIT market, where many REITs sell at discounts to the value of their property
portfolios and sport attractive yields.
Still, given the gains of the last several years and the low market
volatility, it is understandable that many investors might find the declines of
the last six months, and the broad market price swings, fairly stressful. These
swings are an inevitable, even necessary, part of the investment process. They
often are a precursor for further advances. But whatever your tolerance for
risk, it does not pay to get caught up in market excesses, whether overly
optimistic or overly negative. If you have an investment plan, try to stick to
it. If you don't have a plan, this might be a good time to develop one.
Turning to the corporate front, we have a substantial effort underway to
prepare American Century's computer systems for the Year 2000 (Y2K). Our
technology team is working to address Y2K-related issues. Through the rest of
1998 and 1999, we will be extensively testing our systems, including those
involved with fund performance and distributions, to make sure these
calculations remain accurate and reliable.
Finally, we hope you like the new design of this report. It's intended to
make the important information you need about your fund easier to find and read
We appreciate your investment with American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Chief Executive Officer
[right margin]
TABLE OF CONTENTS
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
REAL ESTATE
Performance Information ................................................ 5
Management Q&A ......................................................... 6
Fund Allocation ........................................................ 6
Top Ten Holdings ....................................................... 7
Portfolio at a Glance .................................................. 7
Types of Investments ................................................... 8
Schedule of Investments ................................................ 9
Financial Highlights ................................................... 17
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 11
Statement of Operations ................................................ 12
Statements of Changes
in Net Assets ....................................................... 13
Notes to Financial
Statements .......................................................... 14
Proxy Voting Results ................................................... 19
OTHER INFORMATION
Share Class and Retirement
Account Information .................................................... 20
Background Information
Investment Philosophy
and Policies ..................................................... 21
Comparative Indices ................................................. 21
Portfolio Managers .................................................. 21
Glossary ............................................................... 22
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
MARKET PERSPECTIVE
* The U.S. stock market peaked on July 17, then stock prices dropped
dramatically. The S&P 500 had fallen nearly 14% on September 30 and the
Russell 2000 was down more than 21%.
* The Asian economic and currency crisis caused problems for large U.S.
multinational firms that derive a major portion of their profits from
foreign markets. Shrinking U.S. exports to Asia hurt earnings growth and
contributed to the decline in stock prices.
* Real estate stocks declined during the six months ended September 30, even
though demand for space is still growing. New development activity is
occurring for the first time since early 1990, which spurred concern about
a property glut.
* Analysts have begun to upgrade the real estate investment trust (REIT)
sector, where underlying property values are now generally higher than the
market value of REIT stocks.
REAL ESTATE FUND
* American Century Real Estate Fund (ACRE) was down 17.39% for the six months
ended September 30, compared to a loss of 14.36% for its benchmark, the
Wilshire REIT Index.
* Prospects for the REIT market are relatively good despite recent declines.
In 1996 and 1997, REITs traded at premiums of 5% to 30% over the value of
their underlying assets. Now they are trading at 5% to 20% under value.
* Undervalued stocks have created many attractive opportunities in several
sectors, including office and apartment properties, where high-quality
portfolios are available for less than the premiums they commanded in the
past.
* Starwood Lodging Trust was ACRE's worst-performing stock, but remained its
second-largest holding because of Starwood's strong internal growth rate.
The company has been trading at a steep discount compared to the value of
its properties.
* Looking ahead, we believe the real estate sector offers strong internal
growth, high yield potential, and negligible exposure to Asia. Investors
seeking more predictability than what the broader stock market offers may
be attracted to the sustainable cash flow and generous dividends offered by
REIT stocks.
[left margin]
REAL ESTATE (REACX)(1)
TOTAL RETURNS: AS OF 9/30/98
6 Months -17.39%(2)
1 Year -17.62%
NET ASSETS: $127 million
INCEPTION DATE: 9/21/95
(1) Investor Class.
(2) Not annualized.
Investment terms are defined in the Glossary on page 22.
2 1-800-345-2021
Market Perspective from Mark Mallon
- --------------------------------------------------------------------------------
[photo of Mark Mallon]
Mark Mallon, head of conservative equity, specialty, and asset allocation funds
at American Century
STOCKS TURN VOLATILE
The six months ended September 30, 1998, saw U.S. stocks reach an all-time
high, then enter one of the most volatile periods since the end of World War II.
As deteriorating global economic and financial conditions turned market
psychology negative, stock prices dropped sharply and wide intraday swings
became common.
Between July 17, when the best-known U.S. stock indices peaked, and
September 30, stock prices dropped dramatically. The S&P 500 Index (representing
the largest and most influential U.S. companies) fell nearly 14%, while the
Russell 2000 (a leading small company index) was down more than 21%.
The falling prices and increased volatility were not a complete surprise.
Major market declines are a normal part of the investment process, but they have
been notably absent in the 1990s. In prior decades, moderate corrections of 10%
happened about once a year and more severe corrections of up to 15% occurred
about once every two years. A market correction in the 20% range occurred about
every three to four years. On a historical basis, a correction was overdue.
A BANNER DECADE
Even with the recession in 1990-1991 and the recent decline, U.S. stock
returns since 1990 have been unusually robust, as the accompanying chart
illustrates. The gains, however, have not been spread evenly. Larger company
stocks were the better performers. The S&P 500's average annual return from
January 1, 1990, to September 30, 1998, was 15.82%, well above its historical
average of roughly 11%.
In 1998, the price deterioration of smaller stocks was masked by the strong
performance of a handful of blue-chip companies, which make up the bulk of the
large company indices, like the Dow Jones Industrial Average and S&P 500. Prices
of the vast majority of the other 9,000 stocks traded in the U.S., including
real estate stocks, were much weaker and were correcting well before the decline
in the major market indices began.
THE ASIAN CONTAGION
What dampened the market euphoria that was so prevalent earlier in the
year?
The catalyst was the much-publicized Asian economic and currency crisis,
which began in the summer of 1997. The "Asian contagion" spread quickly to Latin
America, Russia and Japan, raising concerns about the future of the global
economy.
Although the troubles in emerging markets took a while to reach our shores,
U.S. companies eventually proved susceptible to the turmoil. Stocks of large
U.S. multinational firms that derive
[right margin]
EVEN WITH THE RECESSION IN 1990-1991 AND THE RECENT DECLINE, U.S. STOCK
RETURNS SINCE 1990 HAVE BEEN UNUSUALLY ROBUST.
MARKET PERFORMANCE (GROWTH OF $1.00)
FROM JANUARY 1, 1990, TO SEPTEMBER 30, 1998
S&P 500 S&P MidCap 400 Russell 2000
12/31/89 $1.00 $1.00 $1.00
12/31/90 $0.97 $0.95 $0.81
12/31/91 $1.26 $1.42 $1.18
12/31/92 $1.36 $1.59 $1.39
12/31/93 $1.50 $1.82 $1.66
12/31/94 $1.52 $1.75 $1.63
12/31/95 $2.08 $2.29 $2.09
12/31/96 $2.56 $2.73 $2.43
12/31/97 $3.41 $3.61 $2.98
YTD 1998 $3.62 $3.37 $2.49
Value on 9/30/98
S&P 500 $3.62
S&P MidCap 400 $3.37
Russell 2000 $2.49
These indices represent the performance of large-, medium- and
small-capitalization stocks.
www.americancentury.com 3
Market Perspective from Mark Mallon
- --------------------------------------------------------------------------------
(Continued)
a major portion of their profits from foreign markets were hit hard.
Shrinking U.S. exports to Asia hurt earnings growth and contributed to the
decline in stock prices.
PROPERTY MARKET
Real estate stocks experienced declines similar to the broader stock market
(see the chart on this page) but for different reasons. The stocks' performance
was divorced from the underlying health of the real estate market itself. The
ratio of supply to demand was sound in all property sectors and geographic areas
of the country. Although the economy's growth has slowed, it is still growing
and fueling demand for space. Rents and property prices are trending upward.
As a result, new development activity is occurring in every major market
and among every major property type for the first time since the early 1990s.
However, the new growth cycle spurred concern about the recurrence of a property
glut like that in the early 1990s, particularly in the apartment and industrial
sectors.
REIT MARKET
The decline of real estate investment trust (REIT) stocks largely matched
moves by the broader stock market, although the drivers were different. As
mentioned above, investors were concerned that new projects coming on line would
depress rents. Markets were also dubious that REITs could maintain rent and
occupancy levels if the economy slipped into a recession.
Even more importantly, the tide in capital markets had shifted. The rapid
growth of REITs in 1996 and 1997 was partly fueled by an influx of money from
other market sectors as investors sought to benefit from the rising prices of
REIT securities. REITs used their high-flying stock to acquire properties at
depressed prices, making them look more like growth stocks than traditional
income investments. As growth tapered off this year, growth investors exited the
real estate market to pursue opportunities elsewhere. The outflow of funds
depressed REIT prices to a level below the value of their underlying assets.
These developments have served to heighten the attractiveness of the REIT
sector. Recently, analysts have begun to upgrade investment opinions on REIT
stocks, in the belief that concerns have been fully discounted by the market.
This view has been supported by recent positive cash flows into the fund.
[left margin]
MARKET RETURNS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
S&P 500
- -6.96%
WILSHIRE REIT -14.36%
Source: Lipper Analytical Services, Inc.
ALTHOUGH THE ECONOMY'S GROWTH HAS SLOWED, IT IS STILL GROWING AND FUELING
DEMAND FOR SPACE.
[line chart - data below]
MARKET PERFORMANCE (PERFORMANCE OF $1.00)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
S&P 500 Wilshire REIT Index
3/31/98 $1.00 $1.00
4/30/98 $1.01 $0.97
5/31/98 $0.99 $0.96
6/30/98 $1.03 $0.96
7/31/98 $1.02 $0.89
8/31/98 $0.87 $0.81
9/30/98 $0.93 $0.86
Value on 9/30/98
S&P 500 $0.93
Wishire REIT $0.86
4 1-800-345-2021
ACRE--Performance
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF SEPTEMBER 30, 1998
INVESTOR CLASS (INCEPTION 9/21/95)(1) INSTITUTIONAL CLASS (INCEPTION 6/16/97)
ACRE WILSHIRE REIT ACRE WILSHIRE REIT
<S> <C> <C> <C> <C>
6 MONTHS(2) -17.39% -14.36% -17.22% -14.36%
1 YEAR -17.62% -14.31% -17.41% -14.31%
===============================================================================
AVERAGE ANNUAL RETURNS
===============================================================================
3 YEARS 14.90% 13.10% -- --
LIFE OF FUND 14.82% 13.10%(3) -2.35% -3.25%(4)
</TABLE>
(1) The inception date for RREEF Real Estate Securities Fund, ACRE's
predecessor. That fund merged with ACRE on 6/13/97 and was first offered to
the public on 6/16/97.
(2) Returns for periods less than one year are not annualized.
(3) Return from 9/30/95, the date nearest the class's inception for which data
are available.
(4) Return from 6/30/97, the date nearest the class's inception for which data
are available.
See pages 20, 21 and 22 for information about share classes, the Wilshire REIT
and returns.
[mountain chart - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 9/30/98
ACRE $15,175
Wilshire REIT Index $14,466
ACRE Wilshire REIT Index
9/30/95 $10,000 $10,000
10/31/95 $9,781 $9,693
11/30/95 $9,910 $9,807
12/31/95 $10,489 $10,405
1/31/96 $10,630 $10,533
2/29/96 $10,781 $10,681
3/31/96 $10,872 $10,685
4/30/96 $10,882 $10,661
5/31/96 $11,083 $10,916
6/30/96 $11,337 $11,123
7/31/96 $11,420 $11,139
8/31/96 $11,882 $11,587
9/30/96 $12,315 $11,873
10/31/96 $12,643 $12,187
11/30/96 $13,312 $12,770
12/31/96 $14,767 $14,259
1/31/97 $15,057 $14,344
2/28/97 $15,067 $14,294
3/31/97 $15,302 $14,403
4/30/97 $14,767 $13,875
5/31/97 $15,067 $14,290
6/30/97 $16,079 $15,076
7/31/97 $16,751 $15,485
8/31/97 $16,652 $15,397
9/30/97 $18,419 $16,882
10/31/97 $17,787 $16,344
11/30/97 $18,075 $16,681
12/31/97 $18,491 $17,063
1/31/98 $18,206 $16,859
2/28/98 $17,911 $16,516
3/31/98 $18,368 $16,892
4/30/98 $17,753 $16,313
5/31/98 $17,616 $16,192
6/30/98 $17,512 $16,189
7/31/98 $16,384 $15,046
8/31/98 $14,566 $13,633
9/30/98 $15,175 $14,466
These charts are based on Investor Class shares only; performance for other
classes will vary due to differences in fee structures (see the Total Returns
table above). The chart at left shows the growth of a $10,000 investment since
inception, while the chart below shows the fund's year-by-year performance. The
Wilshire REIT Index is provided for comparison in each chart. 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. ACRE's
total returns include operating expenses (such as transaction costs and
management fees) that reduce returns, while the total returns of the Wilshire
REIT Index do not.
[bar chart - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED SEPTEMBER 30)
ACRE Wilshire REIT Index
9/96 23.16% 18.73%
9/97 49.58% 42.20%
9/98 -17.62% -14.31%
www.americancentury.com 5
ACRE--Q&A
- --------------------------------------------------------------------------------
[photo of Karen Knudson and Kim Redding]
Karen Knudson and Kim Redding, portfolio managers of ACRE
An interview with Kim Redding and Karen Knudson, portfolio managers on the
American Century Real Estate Fund investment team.
HOW DID THE FUND PERFORM DURING THE FIRST HALF OF ITS FISCAL YEAR?
For the six months ended September 30, 1998, ACRE was down 17.39%, compared
to a loss of 14.36% for the Wilshire REIT Index, which is ACRE's benchmark. For
the same period, the S&P 500 fell 6.96%.
ACRE's average annual total return for the past three years was 14.90%,
putting it in the top 14% of 42 real estate funds tracked by Lipper Analytical
Services. For one year, the fund ranked 53rd among 83 funds tracked by Lipper.
WHY DID THE REAL ESTATE MARKET UNDERPERFORM THE BROADER STOCK MARKET?
To understand performance this year, a bit of recent history is in order.
In 1996 and 1997, most real estate investment trusts (REITs) were fairly young
and experienced rapid growth from buying properties at depressed prices. Funds
from operations (the most commonly used measure of earnings performance), or
FFO, ballooned as a strong economy rewarded REITs' growth strategies. These
gains attracted a nontraditional source of capital--managers of growth mutual
funds who saw a new opportunity. What was a $30 billion market four and a half
years ago became a $120 billion market as abundant capital fueled REIT growth.
The REIT market began correcting in February, when an influential analyst
downgraded the stocks. The concern was that the growth of the past two years
could not continue at such a high level. As growth investors pulled money from
REIT stocks, others followed. Additionally, bullish views about the economy
began to change over the summer. Fearing the worst, investors began to avoid
economically sensitive REIT stocks. A slowing economy can adversely affect
property rental income and occupancy rates.
DO YOU FEEL THE CORRECTION IN REIT STOCKS WAS MERITED?
No. Certainly, some of the air needed to be let out of the market. Values
had become inflated, but REITs have, in our opinion, overcorrected. We believe
the market is now divorced from underlying fundamentals. In 1996 and 1997, REITs
traded at premiums of 5% to 30% over the value of their underlying assets. Now
they trade at 5% to 20% less than the value of their properties. Despite the
market's gloomy assessment, earnings prospects are also relatively good. REIT
FFO (earnings) for 1999 are projected to grow 10%, compared to 4% for the
companies in the S&P 500. In a more rational market, these growth expectations
would be rewarded, and we think they will be over time.
WHAT CHANGES HAVE YOU MADE TO ACRE'S PORTFOLIO TO RESPOND TO THE MARKET'S
DECLINE?
Our exposure to the various sectors of the real estate market hasn't
changed much. We continue to see attractive opportunities primarily in office
and
[left margin]
WE BELIEVE THE MARKET IS NOW DIVORCED FROM UNDERLYING FUNDAMENTALS.
[pie charts]
FUND ALLOCATION
AS OF SEPTEMBER 30, 1998
Industrial 10%
Hotel 13%
Multi-family Residential 20%
Mall & Shopping Center 18%
Office 27%
Other 12%
REIT MARKET ALLOCATION
AS OF SEPTEMBER 30, 1998
Office 24%
Hotel 11%
Industrial 11%
Other 12%
Multi-family Residential 20%
Mall & Shopping Center 22%
6 1-800-345-2021
ACRE--Q&A
- --------------------------------------------------------------------------------
(Continued)
apartment properties. But we have rearranged holdings in several sectors.
We took advantage of an opportunity to buy well-managed companies with high
quality portfolios without paying the premium they commanded in the past.
A prime example of our portfolio repositioning was the move from United
Dominion Realty Trust to Apartment Investment and Management Co. (AIMCO). United
Dominion was sold because it was active in a number of markets, including those
in the Southeast, where rent growth is below average. United Dominion has
expanded its portfolio greatly through mergers and acquisitions over the past
year. Much of this activity was funded through debt financing. This weakened the
balance sheet and inhibited access to new portfolio and capital growth. United
Dominion has also initiated a repositioning of its portfolio. The transition
could take about 18 months and is likely to prove painful because it will place
a further drag on earnings.
AIMCO, on the other hand, has expanded its property portfolio dramatically
and developed a meaningful pipeline of growth. AIMCO's management is
conscientious when it comes to adding value. Management has generated solid
growth from the existing portfolio by focusing on areas where rent growth is
strong and by paying close attention to cost savings. In addition, as AIMCO's
portfolio has expanded, management has captured economies of scale and been very
disciplined in raising capital and preserving the integrity of the balance
sheet. By limiting exposure to new developments, which may have trouble leasing
up if the economy slows, AIMCO's management has further positioned the portfolio
to produce solid returns going forward.
Another REIT we added to was Simon DeBartolo Group, a regional mall
developer. Simon DeBartolo is the largest owner-operator of regional malls in
the country and has completed portfolio acquisitions recently that enhance its
dominant position. Its portfolio gives the company a strong bargaining position
when negotiating terms with its tenants--national and regional retailers.
WERE THERE ANY OTHER CHANGES IN THE PORTFOLIO'S FOCUS?
Yes, we placed less emphasis on REITs that were growing by acquisition.
This strategy requires a large amount of capital, which has become increasingly
scarce as the market has declined. Furthermore, yields on purchases have
declined due to competitive pressure from numerous buyers.
We looked instead for property managers who could increase the
profitability of existing holdings. We are in a different stage of the real
estate cycle than a year ago, and we are putting a premium on managers who can
deliver earnings growth through rent and occupancy increases rather than
acquisitions. This is why we sold Highwoods Properties, which owns and develops
office and industrial properties. Acquiring properties remains the company's
primary focus. In addition, Highwoods is mostly active in second-tier markets
where it is more difficult to increase or maintain rents.
Names we have added include TrizecHahn Corp. and S.L. Green Realty, which
own and develop downtown office buildings. Downtown office property owners face
less new competition than their suburban counterparts and are better able to
improve internal growth rates by increasing occupancy rates and/or rent.
[right margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
9/30/98 3/31/98
MACK-CALI REALTY CORP. 5.6% 4.7%
STARWOOD LODGING
TRUST 4.9% 6.4%
SIMON DEBARTOLO
GROUP INC. 4.9% 3.3%
AVALON BAY
COMMUNITIES INC.(1) 4.7% 2.4%
GENERAL GROWTH
PROPERTIES, INC. 4.5% 2.3%
ARDEN REALTY, INC. 4.3% 4.4%
CARRAMERICA
REALTY CORP. 4.1% 5.4%
APARTMENT INVESTMENT
AND MANAGEMENT CO. 3.7% 1.1%
MERISTAR HOSPITALITY
CORP. 3.6% --
TRIZECHAHN CORPORATION 3.1% --
(1) Resulted from the merger of Bay Apartment Communities and Avalon
Properties, Inc.
PORTFOLIO AT A GLANCE
9/30/98 3/31/98
NO. OF COMPANIES 41 40
MEDIAN REIT FFO RATIO 10.0 12.4
MEDIAN MARKET $1.1 $817
CAPITALIZATION BILLION MILLION
PORTFOLIO TURNOVER 32%(1) 28%(2)
EXPENSE RATIO (FOR
INVESTOR CLASS) 1.20%(3) 1.15%(4)
(1) Six months ended 9/30/98.
(2) Five months ended 3/31/98.
(3) Annualized.
(4) After expense waiver.
www.americancentury.com 7
ACRE--Q&A
- --------------------------------------------------------------------------------
(Continued)
STARWOOD LODGING TRUST WAS ACRE'S WORST-PERFORMING STOCK FOR THE PERIOD AND
REMAINED ITS SECOND-LARGEST HOLDING. WHY?
The market's perception that a recession will hurt REITs overall is
exaggerated for hotel REITs, which largely depend on the traveling public for
revenue. Hotel REITs as a group declined more than REITs overall, but Starwood
fared particularly badly.
We continue to like Starwood, however, because of its strong internal
growth rate. Starwood is the largest hotel REIT and has the highest quality
hotel portfolio in the world. It also has terrific brand names, including
Westin, Sheraton and St. Regis. The company has been trading at a steep discount
to the value of its properties, and we have been adding to our holdings.
WHICH OTHER STOCKS HURT PERFORMANCE DURING THE SIX MONTHS?
Patriot American Hospitality, which owns the Wyndham hotel chain, was the
second-worst performer in the portfolio. Like Starwood, Patriot has suffered
from fears of recession. Both have seen 60% share price drops this year. Over
the long run, we think these REITs can replace external growth with internal
growth as they build on their brand identities and their premium locations.
LOOKING AHEAD, HOW DO YOU THINK THE REAL ESTATE MARKET WILL FARE?
Real estate market performance this year has largely been driven by the
outflow of growth investors. As this river slows to a trickle, we expect market
valuations to become better aligned with the underlying fundamentals of company
and property performance.
In our opinion, the real estate sector offers everything a battered
investor in the stock market could ask for: strong internal growth, high secure
yields, and negligible exposure to Asia. Earlier, we mentioned the higher
earnings growth estimates for real estate companies relative to S&P 500
companies. Also worth noting is that the yield on REIT stocks is nearly nine
times the yield on the S&P 500 and is at an all-time high relative to the yield
on 10-year bonds. We think the combination of visible, sustainable cash flow and
generous dividends will attract investors seeking more predictability and safety
than may be available in the broader stock market.
[left margin]
WE THINK THE COMBINATION OF VISIBLE, SUSTAINABLE CASH FLOW AND GENEROUS
DIVIDENDS WILL ATTRACT INVESTORS.
[pie charts]
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF SEPTEMBER 30, 1998
Temporary Investments 4%
Common Stocks 96%
AS OF MARCH 31, 1998
Temporary Investments 5%
Common Stocks 95%
8 1-800-345-2021
ACRE--Schedule of Investments
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS
DIVERSIFIED COMPANIES--5.9%
9,000 Capital Automotive REIT $ 104,906
183,700 Crescent Real Estate Equities, Inc. 4,638,425
131,300 Vornado Realty Trust 4,349,313
-------------
9,092,644
-------------
HOTELS--12.5%
11,200 Boykin Lodging Co. 168,700
57,200 FelCor Suite Hotels, Inc. 1,390,675
110,300 Host Marriott Corp.(1) 1,399,431
328,055 Meristar Hospitality Corp. 5,597,438
98,100 Meristar Hotels & Resorts, Inc.(1) 269,775
217,310 Patriot American Hospitality, Inc. 2,770,703
249,220 Starwood Lodging Trust 7,601,210
-------------
19,197,932
-------------
INDUSTRIAL--9.5%
236,200 Catellus Development Corp.(1) 3,070,600
44,000 First Industrial Realty Trust, Inc. 1,122,000
165,500 Liberty Property Trust 3,940,969
148,400 Prologis Trust 3,357,550
107,400 Weeks Corp. 3,208,575
-------------
14,699,694
-------------
MULTI-FAMILY RESIDENTIAL--20.3%
150,200 Apartment Investment and
Management Co. 5,670,050
97,800 Archstone Communities Trust 1,992,675
212,369 Avalon Bay Communities Inc. 7,233,819
78,068 Camden Property Trust 2,181,025
70,400 Equity Residential Properties Trust 2,970,000
145,000 Essex Property Trust, Inc. 4,495,000
183,400 Merry Land & Investment Co., Inc. 4,103,575
111,000 Walden Residential Properties, Inc. 2,553,000
--------------
31,199,144
--------------
NEIGHBORHOOD & COMMUNITY
SHOPPING CENTERS--4.3%
91,800 Bradley Real Estate, Inc. 1,927,800
173,400 Developers Diversified Realty Corp. 3,164,550
68,450 JDN Realty Corp. 1,574,350
--------------
6,666,700
--------------
OFFICE--26.5%
295,900 Arden Realty, Inc. 6,602,269
150,000 Beacon Properties Corp.
(Acquired 3/17/98, Cost
$3,000,000)(1)(2) 3,000,000
72,100 Boston Properties, Inc. 2,054,850
278,200 CarrAmerica Realty Corp. 6,346,438
44,700 Equity Office Properties Trust 1,095,150
157,900 Kilroy Realty Corp. 3,631,700
289,500 Mack-Cali Realty Corp. 8,685,000
Shares Value
- ----------------------------------------------------------------------------
215,200 SL Green Realty Corp. $ 4,519,200
256,500 TrizecHahn Corporation 4,809,375
------------
40,743,982
------------
REGIONAL MALLS--13.9%
196,000 General Growth Properties, Inc. 6,982,500
148,900 Macerich Co. (The) 4,001,688
123,300 Mills Corp. 2,866,725
254,200 Simon DeBartolo Group Inc. 7,562,448
------------
21,413,361
------------
STORAGE--2.9%
112,400 Public Storage, Inc. Cl A 3,013,725
65,800 Storage Trust Realty 1,546,300
------------
4,560,025
------------
TOTAL COMMON STOCKS--95.8% 147,573,482
------------
(Cost $169,598,403)
TEMPORARY CASH INVESTMENTS--4.2%
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 5.38%, dated 9/30/98,
due 10/1/98 (Delivery value $6,400,956) 6,400,000
------------
(Cost $6,400,000)
TOTAL INVESTMENT SECURITIES--100.0% $153,973,482
=============
(Cost $175,998,403)
See Notes to Financial Statements
www.americancentury.com 9
ACRE--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
NOTES TO SCHEDULE OF INVESTMENTS
(1) Non-income producing.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at September 30, 1998 was
$3,000,000, which represented 2.0% of net assets.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule shows you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* the percentage of total investments in each industry
* a list of each investment
* the number of shares of each stock
* the market value of each investment
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
10 1-800-345-2021
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998 (UNAUDITED)
ASSETS
Investment securities, at value
(identified cost of $175,998,403) (Note 3) ................ $ 153,973,482
Cash ......................................................... 309,906
Receivable for investments sold .............................. 321,478
Dividend and interest receivable ............................. 735,366
Prepaid expenses and other assets ............................ 38,779
-------------
155,379,011
-------------
LIABILITIES
Disbursements in excess of demand deposit cash ............... 114,914
Payable for investments purchased ............................ 2,391,022
Payable for capital shares redeemed .......................... 321,947
Payable for management fees (Note 2) ......................... 146,749
Payable for directors' fees and expenses ..................... 56
Other liabilities ............................................ 9,040
-------------
2,983,728
-------------
Net Assets ................................................... $152,395,28
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ...................... $174,583,34
Undistributed net investment income .......................... 1,165,092
Accumulated net realized loss on investment transactions ..... (1,328,236)
Net unrealized depreciation on investments (Note 3) .......... (22,024,921
-------------
$ 152,395,283
=============
Investor Class
Net assets ................................................... $126,791,44
Shares outstanding ........................................... 9,688,227
Net asset value per share .................................... $ 13.09
Institutional Class
Net assets ................................................... $ 25,603,838
Shares outstanding ........................................... 1,955,097
Net asset value per share .................................... $ 13.10
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF ASSETS AND LIABILITIES--This statement details
what the Fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. For each class of shares, the net assets
divided by the total number of shares outstanding gives you the price of an
individual share, or the net asset value per share.
NET ASSETS are also broken out by capital (money invested by shareholders); net
investment income not yet paid to shareholders or net investment losses; net
gains earned on investments but not yet paid to shareholders or net losses on
investments (known as realized gains or losses); and finally, gains or losses on
securities still owned by the fund (known as unrealized appreciation or
depreciation). This breakout tells you the value of net assets that are
performance-related, such as investment gains or losses, and the value of net
assets that are not related to performance, such as shareholder investments and
redemptions.
See Notes to Financial Statements
www.americancentury.com 11
Statement of Operations
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $4,113) ........ $ 4,033,635
Interest .................................................... 200,070
------------
4,233,705
------------
Expenses (Note 2):
Management fees ............................................. 861,249
Directors' fees and expenses ................................ 568
------------
861,817
------------
Net investment income ....................................... 3,371,888
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 3)
Net realized loss on investments ............................ (3,153,908)
Change in net unrealized depreciation on investments ........ (27,849,444)
------------
Net realized and unrealized loss on investments ............. 31,003,3520
------------
Net Decrease in Net Assets Resulting from Operations ........ $(27,631,46)
============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks out how the
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* income earned from investments (dividend and interest)
* management fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
* gains or losses on current fund holdings (known as unrealized appreciation or
depreciation)
See Notes to Financial Statements
12 1-800-345-2021
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED), PERIOD ENDED MARCH 31, 1998
AND YEAR ENDED OCTOBER 31, 1997
Increase in Net Assets SEPT. 30, 1998 MARCH 31, 1998(1) OCT. 31, 1997
OPERATIONS
<S> <C> <C> <C>
Net investment income ............. $ 3,371,888 $ 1,967,271 $ 1,264,317
Net realized gain (loss)
on investment transactions ..... (3,153,908) 1,192,469 2,097,147
Change in net unrealized
appreciation (depreciation)
on investments ................. (27,849,444) 344,165 4,737,101
------------- ------------- -------------
Net increase (decrease) in
net assets resulting
from operations ................ (27,631,464) 3,503,905 8,098,565
------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class .................. (2,243,865) (1,148,389) (748,247)
Institutional Class ............. (372,895) (157,612) (75,141)
From net realized gains on
investment transactions:
Investor Class .................. -- (1,639,725) (643,767)
Institutional Class ............. -- (222,854) --
------------- ------------- -------------
Decrease in net assets
from distributions ............. (2,616,760) (3,168,580) (1,467,155)
------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase in net assets
from capital share
transactions ................... 31,926,025 60,085,338 76,456,053
------------- ------------- -------------
Net increase in net assets ........ 1,677,801 60,420,663 83,087,463
NET ASSETS
Beginning of period ............... 150,717,482 90,296,819 7,209,356
------------- ------------- -------------
End of period ..................... $ 152,395,283 $ 150,717,482 $ 90,296,819
Undistributed net
investment income .............. $ 1,165,092 $ 409,964 $ 239,230
</TABLE>
(1) The Fund's fiscal year end was changed from October 31 to March 31
resulting in a five month reporting period.
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
the fund's net assets changed over the past two reporting periods. It details
how much a fund grew or shrank as a result of:
* operations-a summary of the Statement of Operations from the previous page for
the most recent period
* distributions-income and gains distributed to shareholders
* share transactions-shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions result in net
assets at the end of the period.
See Notes to Financial Statements
www.americancentury.com 13
Notes to Financial Statements
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--American Century Capital Portfolios, Inc. (the Corporation)
is registered under the Investment Company Act of 1940 as an open-end management
investment company. American Century Real Estate Fund (the Fund) is one of the
four funds issued by the Corporation. The Fund is non-diversified under the 1940
Act. The Fund's investment objective is long-term capital appreciation with
income as a secondary objective. The Fund seeks to achieve its objective by
investing primarily in securities issued by real estate investment trusts and in
the securities of companies which are principally engaged in the real estate
industry. There are certain additional risks involved in investing in the Fund
than a more diversified portfolio of investments. The Fund may be subject to
certain risks similar to those associated with direct ownership of real estate
including but not limited to: local or regional economic conditions, changes in
zoning laws, credit risk, and interest rate risk. The Fund is authorized to
issue three classes of shares: the Investor Class, the Advisor Class, and the
Institutional Class. The three classes of shares differ principally in their
respective shareholder servicing and distribution expenses and arrangements. All
shares of the Fund represent an equal pro rata interest in the assets of the
class to which such shares belong, and have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except for class
specific expenses and exclusive rights to vote on matters affecting only
individual classes. The following significant accounting policies are in
accordance with generally accepted accounting principles.
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 at the last reported sales price. Debt securities not traded on
a principal securities exchange are valued through a commercial pricing service
or at the mean of the most recent bid and asked prices. When valuations are not
readily available, securities are valued at fair value as determined in
accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal and state income tax purposes.
INVESTMENT INCOME--Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
REPURCHASE AGREEMENTS--The Fund may enter into repurchase agreements with
institutions that the Fund's investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The Fund requires that the collateral, represented by securities, received
in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable the Fund to obtain those securities in the event of a
default under the repurchase agreement. ACIM monitors, on a daily basis, the
securities transferred to ensure that the value, including accrued interest, of
the securities under each repurchase agreement is equal to or greater than
amounts owed to the Fund under each repurchase agreement.
JOINT TRADING ACCOUNT--Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury or Agency obligations.
INCOME TAX STATUS--It is the policy of the Fund 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 or state income taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded
on the ex-dividend date. Distributions from net investment income are declared
and paid quarterly. Distributions from net realized gains are declared and paid
annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net capital gains and losses for financial statement
and tax purposes and may result in reclassification among certain capital
accounts.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the
14 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998 (UNAUDITED)
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.
ADDITIONAL INFORMATION--Funds Distributor, Inc. (FDI) is the Corporation's
distributor. Certain officers of FDI are also officers of the Corporation.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The Corporation has entered into a Management Agreement with ACIM that
provides the Fund with investment advisory and management services in exchange
for a single, unified management fee per class. The Agreement provides that all
expenses of the Fund, except brokerage commissions, taxes, interest, expenses of
those directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by ACIM. The fee is computed daily and paid monthly based
on the Fund's class average daily closing net assets during the previous month.
The annual management fee is 1.20%, 0.95% and 1.00% for the Investor Class,
Advisor Class and Institutional Class, respectively.
On January 27, 1998, substantially all of the assets of RREEF Real Estate
Securities Advisors L.P. (RESA), the subadvisor of the Fund since June 13, 1997,
were acquired by RoProperty Services, B.V. The new entity adopted the name RREEF
America, L.L.C. (RREEF). As a result of the acquisition, the subadvisory
agreement between RESA and ACIM was terminated on that date and replaced by a
substantially identical subadvisory agreement with RREEF, which was subsequently
approved by the Fund's Board of Directors and shareholders. The terms of the new
subadvisory agreement between RREEF and ACIM are identical in all substantive
respects to the old subadvisory agreement. The subadvisor will continue to make
investment decisions for the Fund in accordance with the Fund's investment
objectives, policies, and restrictions under the supervision of ACIM and the
Board of Directors. ACIM will continue to pay all costs associated with
retaining RREEF as the subadvisor of the Fund.
The Board of Directors has adopted a Master Distribution and Shareholder
Services Plan (the Plan) for the Advisor Class, pursuant to Rule 12b-1 of the
Investment Company Act of 1940. The Plan provides that the Fund will pay ACIM an
annual distribution fee equal to 0.25% and service fee equal to 0.25%. The fees
are computed daily and paid monthly based on the Advisor Class's average daily
closing net assets during the previous month. The distribution fee provides
compensation for distribution expenses incurred by financial intermediaries in
connection with distributing shares of the Advisor Class including, but not
limited to, payments to brokers, dealers, and financial institutions that have
entered into sales agreements with respect to shares of the Fund. The service
fee provides compensation for shareholder and administrative services rendered
by ACIM, its affiliates or independent third party providers.
Certain officers and directors of the Corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the Corporation's investment manager, ACIM, and
the Corporation's transfer agent, American Century Services Corporation.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Securities purchased, excluding short-term investments, totaled
$80,499,357. Securities sold, excluding short-term investments, totaled
$45,296,422.
As of September 30, 1998, accumulated net unrealized depreciation was
$22,070,986, based on the aggregate cost of investments for federal income tax
purposes of $176,044,468, which consisted of unrealized appreciation of $930,630
and unrealized depreciation of $23,001,616.
www.americancentury.com 15
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
There are 50,000,000 shares and 25,000,000 shares authorized for issuance by
the Investor Class and Institutional Class, respectively.
All shares are $0.01 par value. Transactions in shares of the Fund were as
follows:
SHARES AMOUNT
INVESTOR CLASS
Six months ended September 30, 1998
Sold ....................................... 5,271,588 $ 77,832,829
Issued in reinvestment of distributions .... 144,701 2,053,803
Redeemed ................................... (4,162,556) (61,859,210)
------------ ------------
Net increase ............................... 1,253,733 $ 18,027,422
============ ============
November 1, 1997 through March 31, 1998(1)
Sold ....................................... 5,826,845 $ 93,379,453
Issued in reinvestment of distributions .... 157,495 2,477,404
Redeemed ................................... (2,340,053) (37,157,594)
------------ ------------
Net increase ............................... 3,644,287 $ 58,699,263
============ ============
Year ended October 31, 1997
Sold ....................................... 6,483,094 $ 99,753,311
Issued in reinvestment of distributions .... 84,010 1,191,452
Redeemed ................................... (2,363,280) (36,295,993)
------------ ------------
Net increase ............................... 4,203,824 $ 64,648,770
============ ============
INSTITUTIONAL CLASS
Six months ended September 30, 1998
Sold ....................................... 1,125,202 $ 15,281,722
Issued in reinvestment of distributions .... 18,110 252,388
Redeemed ................................... (106,233) (1,635,507)
------------ ------------
Net increase ............................... 1,037,079 $ 13,898,603
============ ============
November 1, 1997 through March 31, 1998(1)
Sold ....................................... 97,111 $ 1,570,964
Issued in reinvestment of distributions .... 16,658 261,865
Redeemed ................................... (27,808) (446,754)
------------ ------------
Net increase ............................... 85,961 $ 1,386,075
============ ============
June 16, 1997(2) through October 31, 1997
Sold ....................................... 848,207 $ 12,080,751
Issued in reinvestment of distributions .... 2,083 33,813
Redeemed ................................... (18,233) (307,281)
------------ ------------
Net increase ............................... 832,057 $ 11,807,283
============ ============
(1) The Fund's fiscal year end was changed from October 31 to March 31
resulting in a five month reporting period.
(2) Sale of the Institutional Class commenced on June 16, 1997.
16 1-800-345-2021
<TABLE>
<CAPTION>
ACRE--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Investor Class
1998(1) 1998(2) 1997 1996 1995(3)
===================================================================================================================================
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........$ 16.12 $ 16.06 $ 12.29 $ 9.82 $ 10.00
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ..................... 0.34(4) 0.25(4) 0.67(4) 0.55 0.07
Net Realized and Unrealized Gain (Loss)
on Investment Transactions .............. (3.12) 0.26 4.13 2.27 (0.25)
----------- ----------- ----------- ----------- -----------
Total From Investment Operations .......... (2.78) 0.51 4.80 2.82 (0.18)
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ................ (0.25) (0.18) (0.48) (0.35) --
From Net Realized Gains on
Investment Transactions ................ -- (0.27) (0.55) -- --
----------- ----------- ----------- ----------- -----------
Total Distributions ....................... (0.25) (0.45) (1.03) (0.35) --
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ..............$ 13.09 $ 16.12 $ 16.06 $ 12.29 $ 9.82
=========== =========== =========== =========== ===========
Total Return(5) ........................... (17.39)% 3.26% 40.69% 29.28% (1.80)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ..................... 1.20%(6) 1.15%(6) 1.17% 1.00% 1.50%(6)
Ratio of Operating Expenses
to Average Net Assets
(before expense waivers
and reimbursements)(7) .................... 1.20%(6) 1.20%(6) 1.82% 6.83% 14.83%(6)
Ratio of Net Investment
Income to Average Net Assets .............. 4.58%(6) 3.75%(6) 4.48% 5.84% 6.66%(6)
Ratio of Net Investment
Income to Average Net Assets
(before expense waivers
and reimbursements)(7) .................... 4.58%(6) 3.70%(6) 3.84% 0.01% (6.67)%(6)
Portfolio Turnover Rate ..................... 32% 28% 69% 86% --
Net Assets, End of Period (in thousands) ....$ 126,791 $ 135,922 $ 76,932 $ 7,209 $ 2,983
</TABLE>
(1) Six months ended September 30, 1998 (unaudited).
(2) Five month period ended March 31, 1998. The Fund's fiscal year end was
changed from October 31 to March 31 resulting in a five month reporting
period.
(3) September 21, 1995 (inception) through October 31, 1995.
(4) Computed using average shares outstanding throughout the period.
(5) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(6) Annualized.
(7) During the periods ended October 31, 1996 and October 31, 1995 and for a
portion of the period ended October 31, 1997, the manager voluntarily
agreed to waive its management fee and reimburse certain expenses incurred
by the Fund. Also, prior to the unified management fee structure, effective
June 13, 1997, the Custodian offset part of its fees for balance credits
given to the Fund. During the period ended March 31, 1998, a portion of the
subadvisory fee, which is paid for subadvisory services, was waived.
- --------------------------------------------------------------------------------
UNDERSTANDNG THE FINANCIAL HIGHLIGHTS--These pages itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
www.americancentury.com 17
ACRE--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED
Institutional Class
1998(1) 1998(2) 1997(3)
================================================================================================
PER-SHARE DATA
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 16.12 $ 16.06 $ 14.24
---------- ---------- ----------
Income From Investment Operations
Net Investment Income(4) ............. 0.36 0.26 0.28
Net Realized and Unrealized Gain (
Loss) on Investment Transactions ... (3.12) 0.26 1.63
---------- ---------- ----------
Total From Investment Operations ..... (2.76) 0.52 1.91
---------- ---------- ----------
Distributions
From Net Investment Income ........... (0.26) (0.19) (0.09)
From Net Realized Gains on
Investment Transactions ............ -- (0.27) --
---------- ---------- ----------
Total Distributions .................. (0.26) (0.46) (0.09)
---------- ---------- ----------
Net Asset Value, End of Period ......... $ 13.10 $ 16.12 $ 16.06
========== ========== ==========
Total Return(5) ...................... (17.22)% 3.32% 13.40%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................ 1.00%(6) 0.95%(6) 1.00%(6)
Ratio of Operating Expenses
to Average Net Assets
(before expense waivers
and reimbursements)(7) ............... 1.00%(6) 1.00%(6) 1.00%(6)
Ratio of Net Investment
Income to Average Net Assets ......... 4.78%(6) 4.00%(6) 4.85%(6)
Ratio of Net Investment
Income to Average Net Assets
(before expense waivers
and reimbursements)(7) ............... 4.78%(6) 3.95%(6) 4.85%(6)
Portfolio Turnover Rate ................ 32% 28% 69%
Net Assets, End of Period (in thousands) $ 25,604 $ 14,795 $ 13,365
</TABLE>
(1) Six months ended September 30, 1998 (unaudited).
(2) Five month period ended March 31, 1998. The Fund's fiscal year end was
changed from October 31 to March 31 resulting in a five month reporting
period.
(3) June 16, 1997 (commencement of sale) through October 31, 1997.
(4) Computed using average shares outstanding throughout the period.
(5) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total return is not annualized.
(6) Annualized.
(7) During the period ended March 31, 1998, a portion of the subadvisory fee,
which is paid for subadvisory services was waived.
See Notes to Financial Statements
18 1-800-345-2021
Proxy Voting Results
- --------------------------------------------------------------------------------
A meeting of shareholders was held on May 20, 1998, to vote on the
following proposals. All of the proposals received the required majority of
votes and were adopted.
A summary of voting results is listed below each proposal.
PROPOSAL 1:
To vote on approval of a SubAdvisory Agreement with RREEF America, L.L.C.
INVESTOR INSTITUTIONAL
For: 5,405,461 463,056
Against: 71,801 --
Abstain: 152,703 --
PROPOSAL 2:
To elect a Board of Directors of nine members to hold office for the
ensuing year or until their successors are elected and qualified.
James E. Stowers, Jr.
For: 5,897,136
Withheld: 195,885
James E. Stowers III
For: 5,887,963
Withheld: 205,058
Thomas E. Brown
For: 5,905,932
Withheld: 187,089
Robert W. Doering, M.D.
For: 5,897,616
Withheld: 195,405
Andrea C. Hall, Ph.D.
For: 5,899,545
Withheld: 193,476
D.D. (Del) Hock
For: 5,900,531
Withheld: 192,490
Donald H. Pratt
For: 5,906,689
Withheld: 186,332
Lloyd T. Silver, Jr.
For: 5,875,290
Withheld: 217,731
M. Jeannine Strandjord
For: 5,898,581
Withheld: 194,440
PROPOSAL 3:
To vote on the selection by the Board of Directors of Deloitte & Touche LLP
as independent auditors for the Corporation.
For: 5,953,722
Against: 45,034
Abstain: 94,265
www.americancentury.com 19
Share Class and Retirement Account Information
- --------------------------------------------------------------------------------
SHARE CLASSES
American Century offers three classes of shares for ACRE. One class is for
investors who buy directly from American Century, one is for investors who buy
through financial intermediaries, and the third is for large institutional
customers.
The original class of ACRE shares is called the INVESTOR CLASS. All shares
issued and outstanding before June 16, 1997, have been designated as Investor
Class shares. Investor Class shares may also be purchased after June 16, 1997.
Investor Class shareholders do not pay any commissions or other fees for
purchase of 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 shares
are subject to a 0.50% Rule 12b-1 service and distribution fee. Half of that fee
is available to pay for recordkeeping and administrative services, and half is
available to pay for distribution services provided by the financial
intermediary through which the Advisor Class shares are purchased. The total
expense ratio of the Advisor Class is 0.25% higher than the total expense ratio
of the Investor Class.
An INSTITUTIONAL CLASS is also available to endowments, foundations,
defined-benefit pension plans or financial intermediaries serving these
investors. This class recognizes the relatively lower cost of serving
institutional customers and others who invest at least $5 million in an American
Century fund or at least $10 million in multiple funds. In recognition of the
larger investments and account balances and comparatively lower transaction
costs, the total expense ratio of the Institutional Class is 0.20% less than the
total expense ratio of the Investor Class shares.
All classes of shares represent a pro rata interest in the funds and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid 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.
20 1-800-345-2021
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
The American Century group offers 10 equity funds, including four
"specialty" equity funds that concentrate their holdings in specific industries
or sectors of the stock market. These funds typically respond differently than
general equity funds to changing market or economic conditions. The funds are
managed to provide a broad representation of their respective industries.
AMERICAN CENTURY REAL ESTATE FUND'S primary investment objective is
long-term capital appreciation, with income as a secondary objective.
ACRE typically invests at least 80% of its assets in the equity securities
of real estate investment trusts (REITs) and other companies engaged in the real
estate industry. The fund's management team evaluates potential investments
based on cash flow, property types, and exposure to growing property markets.
It's important to understand that real estate investing involves inherent
risks, including interest rate fluctuations, credit risk, and the impact of
changing economic conditions. In addition, by focusing on a specific market
sector, the fund may experience greater volatility than funds with a broader
investment strategy. The fund is not intended to serve as a complete investment
program by itself.
FUND MANAGEMENT TEAM
American Century has entered into a subadvisory contract with an
experienced real estate investment company, RREEF America L.L.C., to manage the
fund. Founded in 1975, RREEF is a Chicago-based real estate investment advisor
to large corporate clients, with assets under management of over $9.5 billion.
The management team consists of two experienced fund managers who select
investments within a framework established by a real estate investment policy
committee. (See Note 2 in Notes to Financial Statements.)
FUND BACKGROUND
To better serve investors, RREEF and American Century merged an existing
fund managed by RREEF, RREEF Real Estate Securities Fund, into ACRE on June 13,
1997.
The RREEF fund commenced operations on September 21, 1995, and had $25
million in assets at the time of the merger. ACRE was offered to the public by
American Century on June 16, 1997.
COMPARATIVE INDICES
The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.
The RUSSELL 2000 INDEX measures the performance of the 2,000 smallest of
the 3,000 largest publicly traded U.S. companies based on total market
capitalization. Created by Frank Russell Company, the index is considered to
represent the performance of small-cap stocks in general.
The S&P MIDCAP 400 INDEX is a capitalization-weighted index of the stocks
of the 400 largest leading U.S. companies not included in the S&P 500. Created
by Standard & Poor's Corporation, it is considered to represent the performance
of mid-cap stocks in general.
The S&P 500 INDEX is a capitalization- weighted index of 500 widely traded
stocks. Created by Standard & Poor's Corporation, it is considered to represent
the performance of the stock market in general.
The WILSHIRE REIT INDEX (full name: Wilshire Real Estate Securities Index -
REIT component) is a market capitalization-weighted index comprised of 98 equity
REITs. It does not include special purpose or healthcare REITs.
[right margin]
PORTFOLIO MANAGERS
ACRE
KIM REDDING
KAREN KNUDSON
www.americancentury.com 21
Glossary
- --------------------------------------------------------------------------------
INVESTMENT TERMS
* 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 17 and 18.
* EXPENSE RATIO-- the operating expenses of the fund, expressed as a
percentage of average net assets. Shareholders pay an annual fee to the
investment manager for investment advisory and management services. The expenses
and fees are deducted from fund income, not from each shareholder account. (See
Note 2 in the Notes to Financial Statements.)
* FUNDS FROM OPERATIONS (FFO)--FFO is the most commonly used measure of a
REIT's earnings performance. It is similar to the net income of non-real estate
companies. FFO is the company's net income with real estate depreciation and
amortization (excluding deferred financing costs) added back in. The FFO ratio
is the price of the stock divided by the company's FFO. It is comparable to a
P/E ratio. The median FFO is in the middle of the REIT's portfolio. Half the
companies in the portfolio have FFOs greater than the median, and half have FFOs
that are less. If the portfolio contains an even number of companies, then the
median is the average of the two company FFOs in the middle.
* MEDIAN MARKET CAPITALIZATION-- market capitalization (market cap) is the
total value of a company's stock and is calculated by multiplying the number of
outstanding common shares by the current share price. The company whose market
cap is in the middle of the portfolio is the median market cap. Half the
companies in the portfolio have values greater than the median, and half have
values that are less. If there is an even number of companies, then the median
is the average of the two companies in the middle.
* NUMBER OF COMPANIES-- the number of different companies held by a fund on a
given date.
* PORTFOLIO TURNOVER-- the percentage of a fund's investment portfolio that
is replaced during a given time period, usually a year. Actively managed
portfolios tend to have higher turnover than passively managed portfolios such
as index funds.
* PRICE/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.)
* REAL ESTATE INVESTMENT TRUST (REIT)-- a private or public corporation (or
trust) that enjoys a special status under the U.S. tax code. REITs pay no
corporate income tax as long as their activities meet statutory tests that
restrict business to certain commercial real estate activities. Most states
honor this federal treatment and do not require REITs to pay state income tax.
By law, REITs must pay out 95% of their taxable income.
REITs, like mutual funds, issue shares and pool investors' assets. They invest
primarily in income-producing real estate, such as shopping centers, office
buildings, apartment complexes and industrial properties, either through direct
ownership or mortgages. Equity REITs take direct ownership positions rather than
debt positions. As a result, equity REIT shareholders can receive rental income
from the properties in the portfolio and capital gains when properties are sold
at a profit. In a fund that invests in equity REITs, such as ACRE, the income
and capital gains generated by the REITs are passed through to fund investors.
* 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.
22 1-800-345-2021
Glossary
- --------------------------------------------------------------------------------
(Continued)
TYPES OF STOCKS
* BLUE-CHIP STOCKS-- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
* CYCLICAL STOCKS-- generally considered to be stocks whose price and
earnings fluctuations tend to follow the ups and downs of the business cycle.
Examples include the stocks of automobile manufacturers, steel producers and
textile operators.
* GROWTH STOCKS-- stocks of companies that have experienced above-average
earnings growth and are expected to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech,
healthcare and consumer staple companies.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS-- 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.
* 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.
* 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.
* 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.
www.americancentury.com 23
Notes
- --------------------------------------------------------------------------------
24 1-800-345-2021
[inside back cover]
American Century Funds
- -------------------------------------------------------------------------------
BENHAM GROUP(reg.sm)
TAXABLE BOND FUNDS
U.S. TREASURY & GOVERNMENT
Short-Term Treasury
Short-Term Government
GNMA
Intermediate-Term Treasury
Long-Term Treasury
Inflation-Adjusted Treasury
Target Maturities Trust: 2000
Target Maturities Trust: 2005
Target Maturities Trust: 2010
Target Maturities Trust: 2015
Target Maturities Trust: 2020
Target Maturities Trust: 2025
CORPORATE & DIVERSIFIED
Limited-Term Bond
Intermediate-Term Bond
Bond
Premium Bond
High-Yield Bond
INTERNATIONAL
International Bond
TAX-FREE & MUNICIPAL BOND FUNDS
MULTIPLE-STATE
Limited-Term Tax-Free
Intermediate-Term Tax-Free
Long-Term Tax-Free
High-Yield Municipal
SINGLE-STATE
Arizona Intermediate-Term Municipal
California High-Yield Municipal
California Insured Tax-Free
California Intermediate-Term Tax-Free
California Limited-Term Tax-Free
California Long-Term Tax-Free
Florida Intermediate-Term Municipal
MONEY MARKET FUNDS
TAXABLE
Capital Preservation
Government Agency Money Market
Premium Capital Reserve
Premium Government Reserve
Prime Money Market
TAX-FREE & MUNICIPAL
California Municipal Money Market
California Tax-Free Money Market
Florida Municipal Money Market
Tax-Free Money Market
AMERICAN CENTURY(reg.sm) GROUP
ASSET ALLOCATION FUNDS
Strategic Allocation: Conservative
Strategic Allocation: Moderate
Strategic Allocation: Aggressive
BALANCED FUND
Balanced
CONSERVATIVE EQUITY FUNDS
Income and Growth
Equity Income
Value
Equity Growth
SPECIALTY FUNDS
Utilities
Real Estate
Global Natural Resources
Global Gold
SMALL CAP FUNDS
Small Cap Quantitative
Small Cap Value
TWENTIETH CENTURY GROUP
GROWTH FUNDS
Select
Heritage
Growth
Ultra
AGGRESSIVE GROWTH FUNDS
Vista
Giftrust
New Opportunities
INTERNATIONAL GROWTH FUNDS
International Growth
International Discovery
Emerging Markets
[right margin]
[american century logo (reg. sm)
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI
64141-6200
INVESTOR SERVICES:
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE:
1-800-345-8765
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 OR 816-444-3485
FAX: 816-340-7962
INTERNET: WWW.AMERICANCENTURY.COM
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
SUBADVISOR
RREEF AMERICA, L.L.C.
CHICAGO, ILLINOIS
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
(c) 1998 AMERICAN CENTURY SERVICES CORPORATION
FUNDS DISTRIBUTOR, INC.
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Recycled
[back cover]
[40 Years Logo]
Four Decades of Serving Investors
40 Years
American Century
1958-1998
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9811 (c)1998 American Century Services Corporation
SH-BKT-13989 Funds Distributor, Inc.
