ANNUAL
REPORT
[american century logo(reg.sm)]
American
Century(reg.tm)
MARCH 31, 1998
AMERICAN
CENTURY
GROUP
Value
Equity Income
TABLE OF CONTENTS
Report Highlights ......................................................... 1
Our Message to You ........................................................ 2
Market Perspective ........................................................ 3
Value
Performance & Portfolio Information ............................ 4
Management Q & A ............................................... 5
Schedule of Investments ........................................ 8
Financial Highlights ........................................... 26
Equity Income
Performance & Portfolio Information ............................ 11
Management Q & A ............................................... 12
Schedule of Investments ........................................ 15
Financial Highlights ........................................... 29
Statements of Assets and Liabilities ...................................... 18
Statements of Operations .................................................. 19
Statements of Changes in Net Assets ....................................... 20
Notes to Financial Statements ............................................. 21
Independent Auditors' Report .............................................. 31
Share Class and Retirement Account
Information ............................................................... 32
Background Information
Investment Philosophy & Policies ............................... 36
Comparative Indices ............................................ 36
Investment Team Leaders ........................................ 36
Glossary .................................................................. 37
American Century Investments offers you nearly 70 fund choices covering
stocks, bonds, money markets, specialty investments and blended portfolios.
We've organized our funds into three distinct groups based on investment style
and objectives, to help simplify your fund decisions. These groups appear below
AMERICAN CENTURY INVESTMENTS--FAMILY OF FUNDS
- -------------------------------------------------------------------------------
Benham American Century Twentieth Century
Group Group Group
- -------------------------------------------------------------------------------
MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS
GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
- -------------------------------------------------------------------------------
Value
Equity Income
We welcome your comments or questions about this report.
See the back cover for ways to contact us by mail, phone or e-mail.
American Century and The Benham Group are registered marks of American Century
Services Corporation.
AMERICAN CENTURY INVESTMENTS
REPORT HIGHLIGHTS
VALUE
INVESTOR CLASS(1)
TOTAL RETURNS: AS OF 3/31/98
6 Months 10.88%(2)
1 Year 39.94%
NET ASSETS: $2.7 billion
(AS OF 3/31/98)
INCEPTION DATE: 9/1/93
TICKER SYMBOL: TWVLX
EQUITY INCOME
INVESTOR CLASS(1)
TOTAL RETURNS: AS OF 3/31/98
6 Months 11.10%(2)
1 Year 37.78%
NET ASSETS: $356 million
(AS OF 3/31/98)
INCEPTION DATE: 8/1/94
TICKER SYMBOL: TWEIX
(1) See Share Classes, page 32.
(2) Not annualized.
MARKET PERSPECTIVE
* The U.S. stock market continued its powerful advance during the fiscal
year ended March 31, 1998. The S&P 500 gained 47.85% and the S&P 500/
BARRA Value Index was up 42.48%.
* A robust economy has fueled the stock market's performance. Low inflation
and interest rates and continued corporate earnings growth have
contributed to a strong economy.
* Earnings growth and profitability are top corporate priorities. The U.S.
is one of the most technologically proficient of the industrial nations,
and U.S. companies are enjoying high internal returns.
* Investors continue to pour money into the market. Stock prices and
investor expectations remain very high. On a historical basis, corporate
assets are expensive, and the average stock dividend is at a record low.
VALUE
* Investor Class shares posted a total return of 39.94% for the year ended
March 31, 1998. It slightly trailed its benchmark, the S&P 500/BARRA Value
Index, which returned 42.48%. (See Total Returns on page 4.)
* Two industries performed especially well during the period -- banking and
financial services. Value was somewhat underweighted in those sectors
relative to its benchmark when the period began. However, a timely
purchase of NationsBank Corp. helped bring the weighting more in line with
the index.
* Food and beverage company stocks produced mixed returns. Universal Foods
and Archer Daniels Midland contributed significantly to performance. IBP,
a large beef and pork processor, turned in a disappointing fourth quarter.
* We reduced holdings in the electric utility sector when these stocks moved
higher in late 1997. We increased the fund's weighting in oil and natural
gas as valuations became more attractive.
EQUITY INCOME
* Investor Class shares posted excellent results, gaining 37.78% for the
year ended March 31, 1998, compared to 37.52% for its benchmark, the
Lipper Equity Income Fund Index. (See Total Returns on page 11.)
* Equity Income benefited from consolidation and merger activity in several
sectors, including banking and financial services, telephone utilities and
industrial equipment.
* Giant Food, Inc., the fund's largest holding, was also one of its top
performing stocks.
* Returns were also enhanced by increased holdings in the healthcare and
energy industries. However, we did reduce the fund's stake in utilities as
these stocks moved higher in late 1997.
Many of the investment terms in this report are
defined in the Glossary on page 37.
ANNUAL REPORT REPORT HIGHLIGHTS 1
OUR MESSAGE TO YOU
[photo of James E. Stowers, Jr. and James E. Stowers III]
Stocks have posted historic returns over the last three calendar years
(1995-1997), and the last six months of our fiscal year, which ended March 31,
did not interrupt the momentum. U.S. financial indices continued to soar. The
generous market values accorded many large marquee companies grew even more
generous, and small to midsize stocks performed very respectably.
Is this the best we can expect? Or, are prices headed higher?
We've been optimistic about the stock market for many years, and today is no
exception. We believe stocks should produce good returns. But there is one key
provision: Inflation and interest rates must remain low. Low inflation and
interest rates fuel economic growth and provide a good environment for stocks
and other financial assets. Our capital markets should thrive until that
environment changes.
Corporate America is also in excellent health. Companies are highly
productive and generating historically strong returns on their investments,
including investments in their own stock. A slowdown in earnings could cause the
equity markets to stumble, but such a correction should prove temporary as long
as inflation remains low.
Finally, it pays to keep in mind that this is a market of individual stocks.
Not every company and industry is selling at record prices. Many are undervalued
even by the standards of a less enthusiastic market. These are the stocks that
interest American Century Value and American Century Equity Income, and both
funds are finding ample opportunities.
The past six months have also been eventful for American Century. As many of
you may know, we gained a powerful business partner this past January, when J.P.
Morgan became a substantial minority shareholder. The new business partnership
will allow both companies to offer investors a highly diverse menu of investment
options and services.
We're also working hard to get our computer systems ready for year 2000.
Year 2000 has been widely publicized in the financial press. It refers to the
possible inability of computer systems to distinguish between the years 1900 and
2000. Like other financial companies, many of our computer operations involve
some type of date comparison or date calculation. Most of our systems are
already year 2000 compliant, and we anticipate that the rest will be in
compliance by the end of the year.
In closing, we're proud to note that 1998 marks the 40th year since American
Century launched its first mutual funds. Not many fund companies can claim a
40-year track record, or a fund family that includes nearly 70 stock, bond,
money market and blended (stock and bond) funds that provide investors with such
a wide range of choice and flexibility. Whatever your financial goals, we
believe we have an outstanding group of funds to help you reach them.
Thank you for 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
2 OUR MESSAGE TO YOU AMERICAN CENTURY INVESTMENTS
MARKET PERSPECTIVE
[line graph - data below]
U.S. STOCK MARKET PERFORMANCE (Growth of $1.00)
For the one-year period ended March 31, 1998
S&P 500 NASDAQ S&P BARRA VALUE
3/31/97 $1.00 $1.00 $1.00
4/30/97 $1.06 $1.03 $1.04
5/31/97 $1.12 $1.15 $1.10
6/30/97 $1.17 $1.18 $1.14
7/31/97 $1.27 $1.30 $1.24
8/31/97 $1.19 $1.30 $1.18
9/30/97 $1.26 $1.38 $1.25
10/31/97 $1.22 $1.30 $1.20
11/30/97 $1.27 $1.31 $1.25
12/31/97 $1.30 $1.29 $1.28
1/31/98 $1.31 $1.33 $1.26
2/28/98 $1.40 $1.45 $1.36
3/31/98 $1.48 $1.50 $1.42
Nasdaq Composite Index ............................... 50.25%
S&P 500 .............................................. 47.85%
S&P/BARRA Value Index ................................ 42.48%
PUSHING THE ENVELOPE
Just how quickly has the market appreciated over the past few years? It took
15 years, from 1972-1987, for the Dow Jones Industrial Average to double. It
then took only eight years to double again. Three and a half years later, in
mid-1997, it had doubled once more, to 8000.
So it is not surprising that calendar 1995-1997 marked one of the best
three-year performance runs on record. It was, in fact, the most consistent
performance period ever for large-stock indices like the Dow Industrials and S&P
500. All three years saw returns top 20%. The S&P 500 gained 47.85% for the
fiscal year ended March 31, and the S&P 500/Barra Value Index was up 42.48%.
As of mid-April, the averages were still climbing, undeterred by warnings of
lower corporate earnings, the collapse of the "Asian Miracle," and a tight U.S.
labor market.
How can we account for the market's success?
A PRODUCTIVE ECONOMY
Stocks owe much of their success to a robust economy. The U.S. is currently
enjoying an economic growth rate north of 3%, a number that many economists
thought unsustainable without igniting higher inflation. For the last several
years, we've had virtually full employment and minimal inflation --in 1997
prices rose at the slowest pace in 12 years. Interest rates are among the lowest
since the 1960s.
A successful market is also tied to the success of individual companies. In
the 1980s, the corporate mantra was "growth for growth's sake." Attention to the
bottom line was often secondary. Today, earnings growth and profitability are at
the top of the business agenda. We are also one of the most technologically
proficient of the industrial nations. As a result, U.S. companies are enjoying
strong internal returns. Return on equity, for example, which is one measure of
a company's value to its shareholders, is annualizing above 20%, a heady number
by historical standards. The new corporate agenda has also been reflected in
earnings, which have been on a double-digit growth spurt for five of the last
six years.
By some key measures, however, stock prices are very expensive. The average
stock in the S&P 500 now costs more than 25 times last year's earnings, an
historical high. Corporate assets are also richly valued. Investors are paying
roughly five times balance sheet assets, or twice the historical average.
Dividends on the average S&P stock are less than 1.5%, another record.
INFLATION, INTEREST RATES, AND EARNINGS
What could make the world less equity-friendly? Most probably, an upturn in
inflation or a substantial decline in earnings. One doesn't have to look much
farther than last summer, when oil prices spiked, and the economic crisis in
Southeast Asia deepened. Together, they raised the specter of higher inflation
and lower earnings, and temporarily set the market on its ear. If inflation
picks up, interest rates are likely to rise too as the bond market, along with
the Federal Reserve, lift rates to slow the economy. In 1997, however, oil
prices went into a tailspin when Asian demand fell, and in March, as stocks
soared, crude oil prices hit a nine-year low. Meanwhile, the fallout from Asia
continues to impact corporate earnings.
This remains a very powerful market, but expectations are high. While we are
optimistic about the market's long-term prospects, in the short run it may need
to digest its gains.
ANNUAL REPORT MARKET PERSPECTIVE 3
<TABLE>
<CAPTION>
VALUE
TOTAL RETURNS AS OF MARCH 31, 1998*
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS LIFE OF FUND
- ------------------------------------------------------------------------------------------------------------------------
INVESTOR CLASS (inception 9/1/93)
<S> <C> <C> <C> <C>
Value ................................. 10.88% 39.94% 27.60% 21.98%
S&P 500 ............................... 17.18% 47.85% 32.73% 23.77%
S&P 500/BARRA Value ................... 14.03% 42.48% 30.26% 21.24%
- ------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS (inception 10/2/96)
Value ................................. 10.73% 39.60% ..................... 31.70%
S&P 500 ............................... 17.18% 47.85% ..................... 38.67%
S&P 500/BARRA Value ................... 4.03% 42.48% ..................... 36.08%
- ------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS (inception 7/31/97)
Value ................................. 10.93% ..................................... 17.14%
S&P 500 ............................... 17.18% ..................................... 16.82%
S&P 500/BARRA Value ................... 14.03% ..................................... 15.25%
</TABLE>
*Returns for periods less than one year are not annualized.
See pages 32, 36 and 37 for more information about share classes, the
comparative indices and returns.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND (Investor Class)
$10,000 INVESTMENT MADE ON 9/1/93
Value on 3/31/98
S & P BARRA S & P 500
VALUE VALUE INDEX INDEX
$13,174 $12,635 $13,350
S & P BARRA S & P 500
VALUE VALUE INDEX INDEX
9/1/93 $10,000 $10,000 $10,000
9/30/93 $13,174 $12,635 $13,350
10/31/93 $13,174 $12,635 $13,350
11/30/93 $13,174 $12,635 $13,350
12/31/93 $13,174 $12,635 $13,350
1/31/94 $13,174 $12,635 $13,350
2/28/94 $13,174 $12,635 $13,350
3/31/94 $13,174 $12,635 $13,350
4/30/94 $13,174 $12,635 $13,350
5/30/94 $13,174 $12,635 $13,350
6/30/94 $13,174 $12,635 $13,350
7/31/94 $13,174 $12,635 $13,350
8/31/94 $13,174 $12,635 $13,350
9/30/94 $13,174 $12,635 $13,350
10/31/94 $13,174 $12,635 $13,350
11/30/94 $13,174 $12,635 $13,350
12/31/94 $13,174 $12,635 $13,350
1/31/95 $13,174 $12,635 $13,350
2/28/95 $13,174 $12,635 $13,350
3/31/95 $13,174 $12,635 $13,350
4/30/95 $13,174 $12,635 $13,350
5/31/95 $13,174 $12,635 $13,350
6/30/95 $13,174 $12,635 $13,350
7/31/95 $13,174 $12,635 $13,350
8/31/95 $13,174 $12,635 $13,350
9/30/95 $13,174 $12,635 $13,350
10/31/95 $13,174 $12,635 $13,350
11/30/96 $13,174 $12,635 $13,350
12/31/96 $13,174 $12,635 $13,350
1/31/96 $13,174 $12,635 $13,350
2/29/96 $13,174 $12,635 $13,350
4/1/00 $13,174 $12,635 $13,350
5/1/00 $13,174 $12,635 $13,350
6/1/00 $13,174 $12,635 $13,350
7/1/00 $13,174 $12,635 $13,350
8/1/00 $13,174 $12,635 $13,350
9/1/00 $13,174 $12,635 $13,350
10/1/00 $13,174 $12,635 $13,350
11/1/00 $13,174 $12,635 $13,350
12/1/00 $13,174 $12,635 $13,350
1/1/01 $13,174 $12,635 $13,350
2/1/01 $13,174 $12,635 $13,350
3/1/01 $13,174 $12,635 $13,350
4/1/01 $13,174 $12,635 $13,350
5/1/01 $13,174 $12,635 $13,350
6/1/01 $13,174 $12,635 $13,350
7/1/01 $13,174 $12,635 $13,350
8/1/01 $13,174 $12,635 $13,350
9/1/01 $13,174 $12,635 $13,350
10/1/01 $13,174 $12,635 $13,350
11/1/01 $13,174 $12,635 $13,350
12/1/01 $13,174 $12,635 $13,350
1/1/02 $13,174 $12,635 $13,350
2/1/02 $13,174 $12,635 $13,350
3/1/02 $13,174 $12,635 $13,350
4/1/02 $13,174 $12,635 $13,350
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. Data quoted is for Investor Class only; performance for other
classes will vary due to differences in fee structure (see the Total Returns
table above). The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total return lines of the indices do not.
PORTFOLIO CHARACTERISTICS AT A GLANCE
3/31/98 3/31/97
Number of Companies 72 72
Average Dividend
Yield of Holdings 1.8% 2.6%
Price/Earnings Ratio 19.0 14.8
Portfolio Turnover 130% 111%
Expense Ratio (for Investor Class) 1.00% 1.00%
4 VALUE AMERICAN CENTURY INVESTMENTS
VALUE
MANAGEMENT Q & A
An interview with Phil Davidson and Peter Zuger, portfolio managers on the
Value investment team.
How did the fund perform over the last 12 months?
For the year ended March 31, 1998, Value performed very respectably, posting
a total return of 39.94%.* It slightly trailed its benchmark, the S&P 500/BARRA
Value Index, which gained 42.48%. Neither the fund nor its benchmark matched the
47.85% gain recorded by the S&P 500 for the same period.
What caused Value to underperform the S&P 500?
There were several factors. Perhaps most significant is that Value is
managed with a risk-adjusted approach, which is designed to enable the fund to
participate in up markets and also protect assets in down markets. Given the
fund's less aggressive approach, we would not expect its performance to surpass
or even match that of the S&P 500 when the market is this strong. By the same
token, we expect the fund to drop less than the index should the market head
down.
Secondly, the market environment during the period was one in which
investors flocked to large, high-quality growth stocks. We found this segment of
the market overvalued, and few of these large-cap stocks fell within the fund's
investment parameters. As a result, we turned predominantly to
mid-capitalization value stocks.
Overall, we are pleased with Value's one-year return of nearly 40% and feel
that it compares quite favorably with the S&P 500's gain for the year.
What explains the fund's performance relative to its benchmark, the S&P
500/BARRA Value Index?
Value seeks long-term capital appreciation using a bottom-up approach. We
think defensively, analyzing one stock at a time, and buy and sell stocks using
very
*All funds returns referenced in this interview are for Investor Class shares.
[bar chart - data below]
VALUE'S FISCAL YEAR RETURNS (Periods ending March 31)
DATE VALUE S&P BARRA
1994 0.83% -2.91%
1995 18.56% 12.64%
1996 27.94% 32.94%
1997 16.03% 16.70%
1998 39.94% 42.48%
This chart illustrates the returns of the fund's Investor Class since its
inception and compares them with the index's returns. The fund's total returns
include operating expenses, while the index's returns do not. See page 36 for a
description of the index. Past performance is no guarantee of future results.
(1) Investor Class. (2) Returns from the fund's 9/1/93 inception date to
3/31/94.
ANNUAL REPORT VALUE 5
VALUE
disciplined criteria. As part of that more defensive posture, Value had taken
somewhat smaller positions than the index in two industries that performed well
throughout the year -- banking and financial services. These industries
continued an unusually long run of good performance. Although we were
underweighted throughout the period, we purchased shares of NationsBank Corp. at
very attractive prices in September and also bought into CIT Group, a commercial
finance company, in March. Telephone utilities also had an outstanding year,
fueled in part by continued good earnings, the acquisition of MCI by WorldCom
and speculation regarding other potential acquisitions in the industry. Value
was materially underweighted relative to the index and therefore missed some of
that appreciation.
What stocks added to returns?
Two of the fund's best performing stocks were Mercantile Bancorporation and
First Virginia Bank. Both benefited from the continued merger and acquisition
activity in the financial services industry. Mercantile's shares returned 21.8%
in the fourth quarter of 1997 alone, and both stocks closed out 1997 at their
highs.
A handful of food and beverage stocks also contributed significantly to
returns, among them Universal Foods and Archer Daniels Midland (ADM). Universal
Foods makes food additives, flavorings and colorings and dehydrated products for
the food processing and baking markets. The company enjoyed increasing profits
and growth as a result of ongoing expense controls and an expanded product line
made possible through the company's acquisition of several smaller food
manufacturers in 1997. ADM, one of the world's largest corn and soybean
processors, experienced weak earnings in early 1997. Its share price was
depressed due to concerns about high grain prices and price competition in the
high fructose corn syrup (HFCS) market. The worries about high grain prices
evaporated later in the year when grain harvests were respectable and
substantial share price appreciation followed. The fund significantly reduced
its investment in ADM on this development. Overcapacity had kept HFCS prices in
check, but increasing demand by the soft drink industry and greater demand from
Mexico is working to ease the excess capacity problem, which suggests better
pricing going forward.
Another solid contributor was Superior Industries. Superior is the dominant
maker of aluminum wheels, which have been steadily taking market share in the
U.S. from their steel counterparts. The company is
TOP TEN HOLDINGS % of fund investments
As of As of
3/31/98 9/30/97
Giant Food Inc. Cl A 4.3% 4.6%
Superior Industries
International, Inc. 2.4% 2.3%
Burlington Resources Inc. 2.4% 0.9%
IBP, Inc. 2.4% 2.6%
Dillard's, Inc. Cl A 2.3% 1.0%
Great Lakes Chemical Corp. 2.3% 2.5%
Mallinckrodt Inc. 2.3% 2.9%
Ameren Corporation 2.1% --
Browning-Ferris Industries, Inc. 2.0% --
Mercantile Stores Co., Inc. 2.0% 0.7%
TOP FIVE INDUSTRIES % of fund investments
As of As of
3/31/98 9/30/97
Energy (Production & Marketing) 11.4% 8.7%
Chemicals & Resins 10.4% 6.2%
Healthcare 8.3% 2.8%
Food & Beverage 7.4% 7.6%
Banking 5.6% 5.6%
6 VALUE AMERICAN CENTURY INVESTMENTS
VALUE
moving into new markets and is expanding its product line; however, its recent
earnings recovery has been fueled in large part by a turnaround at the company's
chrome-plating facility, which suffered through a costly start-up phase in 1996.
Steady volume gains have been important recently. Superior continues to post
good returns and has used its discretionary cash to implement a meaningful share
repurchase program.
Which stocks dampened performance?
Although food and beverage companies in general were good performers, one
holding was disappointing. IBP, the world's largest beef and pork processor,
suffered a surprise in late 1997 when fourth-quarter earnings were reported at
almost 50% below estimates. The Asian economic crisis had a negative impact on
the company's exports, while food safety concerns, plant start-up costs, and an
abundant supply of competing meats all combined to hurt operations.
Tecumseh Products also was a disappointment. Tecumseh is a sound,
well-managed company that manufactures compressors for refrigerators and air
conditioners. We bought the stock at an attractive price. However, a
cooler-than-expected summer resulted in soft demand for the company's products,
a problem that was compounded by increasing investor concern about an economic
slowdown and currency devaluation in Brazil, an important market for Tecumseh.
The two events ultimately caused the stock price to decline more than 18% in the
second half of the period. However, we are maintaining the position because we
believe Tecumseh will overcome these short-term difficulties and produce
attractive returns.
What changes did you make to the portfolio since the semiannual report?
Our greatest shift has been in the electric utilities sector, where we
reduced holdings from 8% of investments at mid-period to just 3% at March 31.
Stocks we eliminated include Wisconsin Energy, Texas Utilities and Florida
Progress. These stocks moved significantly higher in late 1997 as interest rates
fell and investors became defensive in the wake of the Asian currency crisis,
making the utilities sector the top-performing group in the fourth quarter. We
also eliminated several chemical stocks and some food retailers because their
prices approached what we consider fair valuation.
On the buy side, we increased the weighting in oil and natural gas producers
from 8.7% at mid-year to 11.4% on March 31 as prices weakened and valuations
became more attractive. We also increased holdings in healthcare as several
attractive opportunities arose.
What is your outlook for the fund going forward?
When stock prices are rising rapidly, value-oriented funds may trail the
broad market. We are pleased with Value's performance in the current robust
market environment, but we would like to emphasize that this fund's objective is
not only to participate in up markets, but to protect assets in down markets. We
may continue to see the market produce exceptional returns, but that would be
somewhat unusual. We expect that Value's risk-adjusted, bottom-up approach will
perform relatively better in more normal market environments during which stock
prices advance in line with long-term common stock returns. We continue to
search for and purchase securities of seasoned, established businesses that we
believe are temporarily undervalued.
ANNUAL REPORT VALUE 7
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
VALUE
MARCH 31, 1998
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS
<S> <C> <C>
AEROSPACE & DEFENSE--2.0%
359,200 Litton Industries, Inc.(1) $ 20,721,350
590,100 Raytheon Co. Cl A 33,561,938
------------------------
54,283,288
------------------------
AUTOMOBILES & AUTO PARTS--4.7%
2,065,200 Cooper Tire and Rubber Company 49,048,500
603,600 Pep Boys-Manny, Moe & Jack (The) 13,995,975
2,024,200 Superior Industries International, Inc.(2) 67,178,138
------------------------
130,222,613
------------------------
BANKING--5.6%
823,250 First Virginia Banks, Inc. 46,204,906
1,019,800 Mercantile Bancorporation Inc. 55,897,788
730,000 NationsBank Corp. 53,244,375
------------------------
155,347,069
------------------------
BUILDING & HOME IMPROVEMENTS--0.5%
302,300 York International Corporation 13,603,500
------------------------
BUSINESS SERVICES & SUPPLIES--0.9%
1,200,000 Reynolds & Reynolds Co. 26,250,000
------------------------
CHEMICALS & RESINS--10.4%
583,000 Air Products and Chemicals, Inc. 48,316,125
860,100 BetzDearborn Inc. 48,541,894
287,600 Engelhard Corp. 5,464,400
1,178,900 Great Lakes Chemical Corp. 63,660,600
921,900 Lubrizol Corp. 35,493,150
1,316,800 Nalco Chemical Co. 53,412,700
663,400 Praxair, Inc. 34,123,637
------------------------
289,012,506
------------------------
COMMUNICATIONS EQUIPMENT(3)
32,100 Andrew Corp.(1) 634,978
------------------------
COMPUTER SOFTWARE & SERVICES--2.2%
391,400 First Data Corp. 12,720,500
1,213,900 GTECH Holdings Corp.(1) 47,190,363
------------------------
59,910,863
------------------------
Shares Value
- --------------------------------------------------------------------------------
ELECTRICAL & ELECTRONIC
COMPONENTS--5.1%
986,100 AMP, Inc. $ 43,203,506
753,000 Cooper Industries, Inc. 44,756,437
1,177,800 General Signal Corp. 55,062,150
------------------------
143,022,093
------------------------
ENERGY (PRODUCTION & MARKETING)--11.4%
1,079,600 Apache Corp. 39,675,300
350,700 Atlantic Richfield Co. 27,573,789
1,389,600 Burlington Resources Inc. 66,613,950
748,200 Murphy Oil Corp. 37,503,525
1,951,200 Seagull Energy Corp.(1) 37,438,650
1,103,700 Swift Energy Co.(2) 18,831,881
1,158,600 Ultramar Diamond Shamrock Corp. 40,840,650
1,319,100 Unocal Corp. 51,032,681
------------------------
319,510,426
------------------------
ENVIRONMENTAL SERVICES--3.6%
1,733,800 Browning-Ferris Industries, Inc. 56,565,225
2,342,400 Waste Management
International plc ADR(1) 17,275,200
847,000 Waste Management, Inc. 26,098,188
------------------------
99,938,613
------------------------
FINANCIAL SERVICES--0.8%
679,000 CIT Group Holdings, Inc. (The) Cl A(1) 22,152,375
------------------------
FOOD & BEVERAGE--7.4%
1,890,957 Archer-Daniels-Midland Co. 41,482,869
572,200 Chiquita Brands International, Inc. 7,831,988
2,927,100 IBP, Inc. 65,676,806
2,513,000 Tyson Foods, Inc. Cl A 48,375,250
903,800 Universal Foods Corp. 44,286,200
------------------------
207,653,113
------------------------
HEALTHCARE--8.3%
595,000 Aetna Inc. 49,645,312
1,142,400 Allergan, Inc. 43,411,200
257,000 Bausch & Lomb Inc. 11,741,688
948,200 Beckman Coulter, Inc.(2) 54,343,713
420,000 Lab Holdings Inc.(2) 9,870,000
1,603,700 Mallinckrodt Inc. 63,346,150
------------------------
232,358,063
------------------------
See Notes to Financial Statements
8 VALUE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
VALUE
MARCH 31, 1998
Shares Value
- --------------------------------------------------------------------------------
INDUSTRIAL EQUIPMENT & MACHINERY--1.0%
535,400 Tecumseh Products Cl A $ 28,811,213
-------------------------
INSURANCE--2.0%
513,300 Argonaut Group, Inc. 18,526,922
247,000 CNA Financial Corp.(1) 37,050,000
-------------------------
55,576,922
-------------------------
LEISURE--2.0%
629,900 Eastman Kodak Co. 40,864,762
371,000 Polaroid Corp. 16,324,000
-------------------------
57,188,762
-------------------------
METALS & MINING--5.4%
808,500 Aluminum Co. of America 55,634,906
567,000 Arch Coal Inc. 15,309,000
1,287,500 Barrick Gold Corp. 27,842,187
827,000 Reynolds Metals Co. 50,808,812
-------------------------
149,594,905
-------------------------
PAPER & FOREST PRODUCTS--3.5%
465,000 Chesapeake Corp. 16,042,500
968,300 Rayonier, Inc. 44,239,206
99,300 Schweitzer-Mauduit International, Inc. 3,425,850
1,105,600 Westvaco Corp. 33,997,200
-------------------------
97,704,756
-------------------------
PRINTING & PUBLISHING--1.8%
1,176,500 Banta Corp. 36,434,734
460,200 McClatchy Newspapers, Inc. 13,719,713
-------------------------
50,154,447
-------------------------
RAILROAD--1.8%
853,000 CSX Corp. 50,753,500
-------------------------
RETAIL (FOOD & DRUG)--5.3%
3,122,900 Giant Food Inc. Cl A(2) 120,622,012
644,600 Hannaford Brothers Co. 28,644,412
-------------------------
149,266,424
-------------------------
RETAIL (GENERAL MERCHANDISE)--4.3%
1,754,600 Dillard's Inc. Cl A 64,810,537
841,200 Mercantile Stores Co., Inc. 56,518,125
-------------------------
121,328,662
-------------------------
Shares Value
- --------------------------------------------------------------------------------
RETAIL (SPECIALTY)--0.7%
680,000 Toys 'R' Us, Inc.(1) $ 20,442,500
-------------------------
RUBBER & PLASTICS--2.1%
955,000 Rubbermaid Inc. 27,217,500
1,134,500 Tupperware Corp. 30,206,062
-------------------------
57,423,562
-------------------------
TRANSPORTATION--1.0%
413,800 XTRA Corp.(2) 26,690,100
-------------------------
UTILITIES--3.1%
1,385,100 Ameren Corporation 58,347,338
875,800 Kansas City Power & Light Co. 27,587,700
-------------------------
85,935,038
-------------------------
TOTAL COMMON STOCKS--96.9% 2,704,770,291
-------------------------
(Cost $2,348,034,184)
- -----------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS--3.1%
Repurchase Agreement, Morgan Stanley Group, Inc.,
(U.S. Treasury obligations), in a joint trading
account at 5.90%, dated 3/31/98, due 4/1/98
(Delivery value $85,914,078) 85,900,000
-------------------------
(Cost $85,900,000)
TOTAL INVESTMENT SECURITIES--100.0% $2,790,670,291
=========================
(Cost $2,433,934,184)
See Notes to Financial Statements
</TABLE>
ANNUAL REPORT VALUE 9
SCHEDULE OF INVESTMENTS
VALUE
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
(1) Non-income producing.
(2) Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as defined in the
Investment Company Act of 1940. (See Note 5 in Notes to Financial
Statements for a summary of transactions for each issuer which is or was
an affiliate at or during the year ended March 31, 1998.)
(3) Investment in industry is less than 0.05% of total investment securities.
See Notes to Financial Statements
10 VALUE AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
EQUITY INCOME
TOTAL RETURNS AS OF MARCH 31, 1998(1)
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS LIFE OF FUND
- ------------------------------------------------------------------------------------------------------------------------
INVESTOR CLASS (inception 8/1/94)
<S> <C> <C> <C> <C>
Equity Income .............................. 11.10% 37.78% 26.26% 24.45%
S&P 500 .................................... 17.18% 47.85% 32.73% 29.70%
Lipper Equity Income Fund Index ............ 12.91% 37.52% 25.97% 22.82%
- ------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS (inception 3/7/97)
Equity Income .............................. 11.01% 37.71% .................... 31.35%
S&P 500 .................................... 17.18% 47.85% .................... 36.91%
Lipper Equity Income Fund Index ............ 12.91% 37.52% .................... 31.37%(2)
(1) Returns for periods less than one year are not annualized.
(2) Return from 3/13/97, the date nearest the class's inception for which data
are available.
</TABLE>
See pages 32, 36 and 37 for more information about share classes, comparative
indices and returns.
[bar graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND (Investor Class)
$10,000 INVESTMENT MADE ON 8/1/94
Value on 3/31/98
LIPPER
EQUITY EQUITY INCOME S & P 500
INCOME FUND INDEX INDEX
$22,280 $21,250 $25,927
LIPPER
EQUITY EQUITY INCOME S & P 500
INCOME FUND INDEX INDEX
8/1/94 $10,000 $10,000 $10,000
8/31/94 $10,360 $10,333 $10,314
9/30/94 $10,248 $10,137 $10,108
10/31/94 $10,349 $10,192 $10,319
11/30/94 $10,038 $9,810 $9,911
12/31/94 $10,053 $9,888 $10,106
1/31/95 $10,499 $10,064 $10,351
2/28/95 $10,884 $10,388 $10,725
3/31/95 $11,069 $10,632 $11,087
4/30/95 $11,417 $10,886 $11,397
5/31/95 $11,641 $11,220 $11,811
6/30/95 $11,809 $11,369 $12,142
7/31/95 $12,056 $11,680 $12,528
8/31/95 $12,097 $11,824 $12,524
9/30/95 $12,347 $12,191 $13,104
10/31/95 $12,285 $12,018 $13,039
11/30/95 $12,763 $12,520 $13,574
12/31/95 $13,031 $12,827 $13,890
1/31/96 $13,325 $13,120 $14,343
2/29/96 $13,506 $13,218 $14,443
3/31/96 $13,913 $13,385 $14,635
4/30/96 $14,026 $13,513 $14,831
5/31/96 $14,345 $13,713 $15,171
6/30/96 $14,558 $13,734 $15,289
7/31/96 $14,029 $13,285 $14,591
8/31/96 $14,466 $13,584 $14,865
9/30/96 $14,927 $14,075 $15,759
10/31/96 $15,043 $14,408 $16,171
11/30/96 $15,830 $15,232 $17,357
12/31/96 $16,069 $15,131 $17,075
1/31/97 $16,272 $15,686 $18,118
2/28/97 $16,576 $15,969 $18,225
3/31/97 $16,171 $15,452 $17,536
4/30/97 $16,683 $15,911 $18,554
5/31/97 $17,734 $16,827 $19,643
6/30/97 $18,339 $17,462 $20,593
7/31/97 $19,216 $18,514 $22,194
8/31/97 $19,293 $17,917 $20,919
9/30/97 $20,054 $18,820 $22,125
10/31/97 $19,454 $18,248 $21,363
11/30/97 $20,158 $18,853 $22,315
12/31/97 $20,610 $19,295 $22,758
1/31/98 $20,486 $19,287 $22,990
2/28/98 $21,476 $20,328 $24,608
3/31/98 $22,280 $21,250 $25,927
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. Data quoted is for Investor Class only; performance for other
classes will vary due to differences in fee structure (see the Total Returns
table above). The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total return lines of the indices do not.
PORTFOLIO CHARACTERISTICS AT A GLANCE
3/31/98 3/31/97
Number of Companies 72 65
Average Dividend
Yield of Holdings 3.9% 4.1%
Price/Earnings Ratio 18.5 14.9
Portfolio Turnover 158% 159%
Expense Ratio (for Investor Class) 1.00% 1.00%
ANNUAL REPORT EQUITY INCOME 11
EQUITY INCOME
MANAGEMENT Q & A
An interview with Phil Davidson and Peter Zuger, portfolio managers on the
Equity Income investment team.
How did the fund perform over the last 12 months?
For the year ended March 31, 1998, Equity Income posted good results,
providing a total return of 37.78%.(1) The fund slightly outperformed its
benchmark, the Lipper Equity Income Fund Index, which returned 37.52%. The S&P
500 returned 47.85% for the period.
We are pleased that the fund's risk-adjusted performance has continued to
attract favorable attention from industry analysts. Morningstar, the mutual fund
rating company, again awarded Equity Income its top five-star overall rating for
the period ending March 31, 1998 for its risk-adjusted performance.(2)
Morningstar measures risk by comparing a fund's returns to a "risk-free" 90-day
Treasury bill and to 2,143 other domestic equity funds. It awards its top rating
to just 10% of the funds it evaluates. Equity Income's five-star rating reflects
the fact that the fund's returns have been attractive compared with its level of
risk.
Can you address the fund's performance relative to that of its index and the
broader market?
Equity Income is managed using a conservative, risk-adjusted approach, and
has been less volatile than most funds in the Lipper Equity Income universe and
the market overall. The fund typically lags the broader market during rallies,
but also tends to fall less when
(1) All funds returns referenced in this interview are for Investor Class
shares.
(2) Morningstar proprietary ratings reflect risk-adjusted performance as of
3/31/98. Equity Income received a five-star rating out of 2,143 funds for the
three-year period ending 3/31/98. The overall rating, which may change monthly,
is calculated from the fund's 3-, 5- and 10-year (when available) average total
returns in excess of 90-day Treasury bill returns with appropriate fee
adjustments and a risk factor that reflects fund performance below 90-day
Treasury bill returns. Ten percent of the funds in an investment category
receive five stars. Past performance is no guarantee of future results.
[bar chart - data below]
EQUITY INCOME'S FISCAL YEAR RETURNS (Periods ending March 31)
EQUITY INC EQ INC FUND
INDEX
1995 10.69% 6.32%
1996 25.69% 25.95%
1997 16.23% 15.39%
1998 37.78% 7.52%
This chart illustrates the returns of the fund's Investor Class since its
inception and compares them with the index's returns. The fund's total returns
include operating expenses, while the index's returns do not. See page 36 for a
description of the index. Past performance is no guarantee of future results.
(1) Investor Class. (2) Returns from the fund's 8/1/94 inception date to
3/31/95.
12 EQUITY INCOME AMERICAN CENTURY INVESTMENTS
EQUITY INCOME
the market turns. True to form, Equity Income was a steady performer throughout
its fiscal year, despite the Asian currency crisis that sent shock waves through
U.S. markets in late 1997. The fund's defensive posture enabled it to not only
weather the Asian storm, but also to achieve gains when many stocks and funds
were stumbling. Equity Income's 2.90% gain during the fourth quarter was in line
with the S&P 500's 2.86% return, and slightly ahead of the 2.52% gain posted by
the Lipper Equity Income Fund Index. Although Equity Income does not attempt to
match the performance of the broad market (as indicated by the S& P 500), we are
pleased that shareholders were able to participate in nearly 80% of the index's
gain for the year ended March 31, 1998.
Which holdings contributed to performance?
Good stock selection and a wave of mergers and acquisitions in several
sectors combined to boost performance throughout the year. Continued
consolidation in the banking and financial services industry added to returns in
the first half, as did several mergers in the industrial equipment and telephone
sectors. This acquisition activity continued into the second half of the year
with equally good results. Equity Income's stake in J.C. Penney appreciated when
the retail giant acquired Eckerd Drug in February 1997, another step in the
company's ongoing effort to enlarge its drug store operation. Drugstores now
account for fully one-third of J.C. Penney's sales. Penney's earnings were also
helped by its efforts to reduce excess inventories and improve and expand its
product line.
An attempted merger between Office Depot and Staples, the nation's two
largest office supply chains, also contributed to results. Office Depot's
convertible security (an income-paying security whose performance is tied to the
company's common stock) became relatively inexpensive when the Justice
Department blocked the proposed merger in July 1997, and we were able to obtain
it at an attractive price. The company's stock rallied in the second half of
calendar year 1997 as Office Depot trimmed costs and improved operations in key
areas. This security was the fund's second-best performing holding for the year.
Another top-performing stock was Giant Food, Inc., which was also the
largest holding at 4.3% of the portfolio. Giant Food is a leading chain of
retail food stores and pharmacies and has recovered following last year's
workers' strike. Giant subsequently implemented an aggressive merchandising
program that resulted in solid sales gains in a somewhat
TOP TEN HOLDINGS % of fund investments
As of As of
3/31/98 9/30/97
Giant Food Inc. Cl A 4.3% 4.6%
Unocal Corp. (Con. Pref.) 3.5% 4.1%
Pep Boys-Manny, Moe & Jack (The),
4.04%, 9/20/11
(convertible bond) 3.2% 3.9%
Swift Energy Co., 6.25%,
11/15/06 (convertible bond) 3.1% 0.8%
Homestake Mining Co., 5.50%,
6/23/00 (convertible bond) 2.8% --
AGL Resources Inc. 2.6% 2.2%
Medical Care Intl. Inc., 6.75%,
10/1/06 (convertible bond) 2.4% --
Argonaut Group, Inc. 2.3% 2.4%
Minnesota Mining &
Manufacturing Co. 2.3% 1.3%
Mercantile Bancorporation Inc. 2.2% 2.3%
TOP FIVE INDUSTRIES % of fund investments
As of As of
3/31/98 9/30/97
Energy (Production and Marketing) 12.0% 8.7%
Utilities 7.9% 12.1%
Banking 7.5% 8.2%
Healthcare 7.4% 1.7%
Metals & Mining 6.0% 0.7%
ANNUAL REPORT EQUITY INCOME 13
EQUITY INCOME
sluggish market. We continue to be optimistic about Giant, and expect it will
become even more profitable in the wake of increased efforts to reduce costs.
Which stocks negatively affected performance?
One holding that was disappointing was Medical Care International, a
security convertible into Columbia/HCA Healthcare Corp. common stock. Columbia
was charged with fraudulent billing practices and is under investigation by the
government, an ordeal that has negatively impacted its stock price. Despite the
depressed value of its underlying stock, this convertible has continued to
provide a nice stream of income. We are holding it because we believe Columbia's
underlying business is sound and are confident the company will recover from the
controversy surrounding its billing practices.
Tupperware has also been somewhat negative for performance. This company,
which manufactures and markets plastic food storage containers, is prominent in
the United States and also has a large international presence, which accounts
for well over half its sales. Profits in the U.S. have suffered due to the
proliferation of high-quality, lower-priced products available to consumers, and
distribution problems caused by the declining popularity of "Tupperware parties"
- -- the primary means by which the company has traditionally marketed its
products. Tupperware's international operations are also struggling in the wake
of recent costly attempts to expand operations in Brazil. Despite its troubles,
Tupperware remains profitable and continues to generate good cash flow, and we
believe that its problems abroad are surmountable. We continue to hold the
position.
What significant changes did you make to the portfolio since the semiannual
report?
Our greatest shift was in healthcare, where we increased the weighting from
1.7% of the portfolio to 7.4%. However, this increase was not a tactical effort
or a response to any theme within the healthcare industry. In fact, one of our
largest healthcare holdings is Pall Corp, a manufacturer of fluid filters used
in both basic industry and healthcare. We also bought higher-yielding securities
issued by several healthcare companies. Two of these securities were convertible
into common stock and one is a high-yield bond of a company that we believe is
an improving credit. These securities were attractively priced and offer yields
consistent with the fund's objectives.
Another significant shift occurred in the energy sector, where we increased
holdings from 8.7% to 12.0% as prices weakened and energy stocks became more
attractive.
On the sell side, we reduced the fund's stake in utilities by about 4%.
These stocks moved higher in late 1997 as interest rates fell and investors
became defensive in the wake of the Asian currency crisis. The fund maintains
meaningful positions in banking, metals and mining stocks.
What is your outlook for the market?
We continue to be optimistic about the stock market and the health of the
American economy. If interest rates and inflation remain in check, the market
should continue to flourish. However, we would like to stress that Equity
Income's charter is to both participate in up markets and protect assets in
times of market volatility. We continue to seek mature, out-of-favor companies
with good relative yields and fundamentally sound underlying businesses. These
types of securities should provide good long-term prospects for appreciation and
help protect the fund during periods of increased volatility.
14 EQUITY INCOME AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
EQUITY INCOME
MARCH 31, 1998
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS
<S> <C> <C>
AUTOMOBILES & AUTO PARTS--1.2%
53,000 Genuine Parts Company $ 2,020,625
62,600 Superior Industries International, Inc. 2,077,538
-------------------------
4,098,163
-------------------------
BANKING--7.4%
92,500 Century Bancorp, Inc. Cl A 1,982,969
101,200 First Virginia Banks, Inc. 5,679,850
140,892 Mercantile Bancorporation Inc. 7,722,642
89,700 NationsBank Corp. 6,542,494
73,710 UMB Financial Corp. 4,510,130
-------------------------
26,438,085
-------------------------
BUILDING & HOME IMPROVEMENTS--0.8%
139,000 Juno Lighting, Inc. 2,927,688
-------------------------
CHEMICALS & RESINS--4.8%
62,000 BetzDearborn Inc. 3,499,124
18,000 Dow Chemical Co. 1,750,500
38,100 Engelhard Corp. 723,900
32,100 Great Lakes Chemical Corp. 1,733,400
117,900 Lubrizol Corp. 4,539,150
122,000 Nalco Chemical Co. 4,948,625
-------------------------
17,194,699
-------------------------
CONSUMER PRODUCTS--3.7%
156,200 National Presto Industries, Inc. 6,726,362
216,600 WD-40 Co. 6,511,537
-------------------------
13,237,899
-------------------------
DIVERSIFIED COMPANIES--2.3%
88,000 Minnesota Mining &
Manufacturing Co. 8,024,500
-------------------------
ELECTRICAL & ELECTRONIC
COMPONENTS--4.1%
114,200 AMP, Inc. 5,003,388
69,400 Cooper Industries, Inc. 4,124,963
116,700 General Signal Corp. 5,455,724
-------------------------
14,584,075
-------------------------
Shares Value
- --------------------------------------------------------------------------------
ENERGY (PRODUCTION & MARKETING)--4.3%
89,000 Amoco Corp. $ 7,687,375
33,700 Atlantic Richfield Co. 2,649,662
95,800 Murphy Oil Corp. 4,801,975
-------------------------
15,139,012
-------------------------
ENVIRONMENTAL SERVICES--1.6%
167,900 Browning-Ferris Industries, Inc. 5,477,738
-------------------------
FINANCIAL SERVICES--0.6%
62,000 CIT Group Holdings, Inc. (The) Cl A(1) 2,022,750
-------------------------
FOOD & BEVERAGE--0.7%
49,300 Universal Foods Corp. 2,415,700
-------------------------
HEALTHCARE--3.4%
185,000 Lab Holdings Inc. 4,347,500
40,000 Mallinckrodt Inc. 1,580,000
286,000 Pall Corp. 6,149,000
-------------------------
12,076,500
-------------------------
INDUSTRIAL EQUIPMENT & MACHINERY--1.8%
115,600 Tecumseh Products Cl A 6,220,725
-------------------------
INSURANCE--4.0%
49,500 American Financial Group, Inc. 2,147,063
230,000 Argonaut Group, Inc. 8,301,562
80,000 Ohio Casualty Corp. 3,850,000
-------------------------
14,298,625
-------------------------
LEISURE--1.5%
82,600 Eastman Kodak Co. 5,358,675
-------------------------
MACHINERY & EQUIPMENT--1.5%
106,100 Nordson Corp. 5,288,422
-------------------------
METALS & MINING--2.3%
63,700 Arch Coal Inc. 1,719,900
104,000 Reynolds Metals Co. 6,389,500
-------------------------
8,109,400
-------------------------
PAPER & FOREST PRODUCTS--4.5%
158,800 Rayonier, Inc. 7,255,175
131,600 Schweitzer-Mauduit International, Inc. 4,540,200
142,000 Westvaco Corp. 4,366,500
-------------------------
16,161,875
-------------------------
PRINTING & PUBLISHING--0.5%
60,000 Banta Corp. 1,858,125
-------------------------
See Notes to Financial Statements
ANNUAL REPORT EQUITY INCOME 15
SCHEDULE OF INVESTMENTS
EQUITY INCOME
MARCH 31, 1998
Shares Value
- --------------------------------------------------------------------------------
REAL ESTATE--0.8%
255,000 Annaly Mortgage Management, Inc. $ 2,852,813
-------------------------
RESTAURANTS--2.3%
261,000 Luby's Cafeterias, Inc. 4,959,000
109,300 Sbarro, Inc. 3,224,350
------------------------
8,183,350
------------------------
RETAIL (FOOD & DRUG)--4.9%
397,500 Giant Food Inc. Cl A 15,353,438
61,100 Weis Markets, Inc. 2,180,506
------------------------
17,533,944
------------------------
RETAIL (GENERAL MERCHANDISE)--1.9%
100,900 Mercantile Stores Co., Inc. 6,779,219
------------------------
RUBBER & PLASTICS--2.1%
129,800 Rubbermaid Inc. 3,699,300
139,000 Tupperware Corp. 3,700,875
------------------------
7,400,175
------------------------
STEEL--0.4%
26,600 Carpenter Technology Corp. 1,436,400
------------------------
TOBACCO--1.1%
240,000 DIMON Inc. 4,005,000
------------------------
UTILITIES--7.9%
423,000 AGL Resources Inc. 9,094,500
176,970 Ameren Corporation 7,454,861
226,000 Kansas City Power & Light Co. 7,119,000
78,800 Laclede Gas Company 1,974,925
72,000 People's Energy Corp. 2,619,000
------------------------
28,262,286
------------------------
TOTAL COMMON STOCKS--72.4% 257,385,843
------------------------
(Cost $230,680,786)
CONVERTIBLE PREFERRED STOCKS
COMMUNICATIONS EQUIPMENT--0.5%
28,000 Corning Inc. 1,918,000
------------------------
CONTROL & MEASUREMENT--0.5%
45,000 Elsag Bailey Process Automation N.V. 1,875,937
------------------------
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
ENERGY (PRODUCTION & MARKETING)--4.6%
152,000 Belco Oil & Gas Corp. $ 3,876,000
225,000 Unocal Corp. (Acquired 1/22/97
through 1/12/98, Cost
$12,499,300)(2) 12,529,688
-------------------------
16,405,688
-------------------------
FOOD & BEVERAGE--1.0%
64,000 Chiquita Brands International,
Inc. Series B 3,584,000
-------------------------
HEALTHCARE--1.6%
70,000 Aetna Inc. 5,604,375
-------------------------
METALS & MINING--0.9%
142,000 Freeport-McMoRan Copper
& Gold Inc. 3,239,375
-------------------------
PRINTING & PUBLISHING--0.6%
75,000 Reader's Digest Association, Inc.
(The) (TRACES) 1,992,188
-------------------------
RESTAURANTS--0.5%
34,000 Wendy's International Inc. 1,787,125
-------------------------
TOTAL CONVERTIBLE
PREFERRED STOCKS--10.2% 36,406,688
-------------------------
(Cost $35,013,906)
CONVERTIBLE BONDS
AUTOMOBILES & AUTO PARTS--3.2%
$21,250,000 Pep Boys-Manny, Moe & Jack
(The), 4.04%, 9/20/11(3) 11,528,125
-------------------------
ENERGY (PRODUCTION & MARKETING)--3.1%
11,500,000 Swift Energy Co., 6.25%, 11/15/06 11,040,000
-------------------------
ENVIRONMENTAL SERVICES--1.5%
5,597,000 Waste Management Inc.,
2.00%, 1/24/05 5,194,716
-------------------------
HEALTHCARE--2.4%
9,350,000 Medical Care Intl. Inc.,
6.75%, 10/1/06 8,461,750
-------------------------
METALS & MINING--2.8%
10,500,000 Homestake Mining Co., 5.50%, 6/23/00
(Acquired10/31/97 through 12/15/97,
Cost $9,991,250)(2) 10,027,500
-------------------------
See Notes to Financial Statements
16 EQUITY INCOME AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
EQUITY INCOME
NOTES TO SCHEDULE OF INVESTMENTS
Principal Amount Value
- --------------------------------------------------------------------------------
PRINTING & PUBLISHING--1.1%
$ 9,000,000 Hollinger, Inc., 6.00%, 10/5/13(3) $ 3,870,000
-------------------------
TOTAL CONVERTIBLE BONDS--14.1% 50,122,091
-------------------------
(Cost $49,939,806)
CORPORATE INDUSTRIAL BONDS--1.8%
CONTROL & MEASUREMENT
6,500,000 Beckman Coulter Inc.,
7.45%, 3/4/08 6,535,490
-------------------------
(Cost $6,498,180)
TEMPORARY CASH INVESTMENTS--1.5%
Repurchase Agreement, Goldman Sachs & Co., Inc.,
(U.S. Treasury obligations), in a joint trading
account at 5.65%, dated 3/31/98, due 4/1/98
(Delivery value $5,300,832) 5,300,000
-------------------------
(Cost $5,300,000)
TOTAL INVESTMENT SECURITIES--100.0% $355,750,112
=========================
(Cost $327,432,678)
</TABLE>
TRACES = Trust Automatic Common Exchange Securities
(1) Non-income producing.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 and,
unless registered under the Act or exempted from registration, may only be
sold to qualified institutional investors. The aggregate value of
restricted securities at March 31, 1998, was $22,557,188, which
represented 6.3% 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.
See Notes to Financial Statements
ANNUAL REPORT EQUITY INCOME 17
STATEMENTS OF ASSETS AND LIABILITIES
VALUE EQUITY
INCOME
MARCH 31, 1998
ASSETS
Investment securities --
unaffiliated, at value
(identified cost of
$2,196,953,526 and $327,432,678,
respectively)(Note 3) .................... $2,493,134,447 $ 355,750,112
Investment securities --
affiliated, at value
(identified cost of $236,980,658) ........ 297,535,844 --
Cash ..................................... 4,378,179 248,485
Receivable for investments sold .......... 42,073,771 3,754,499
Dividends and interest receivable ........ 3,269,679 1,245,320
-------------- --------------
2,840,391,920 360,998,416
-------------- --------------
LIABILITIES
Disbursements in excess of
demand deposit cash ...................... 1,983,052 396,834
Payable for investments purchased ........ 58,121,436 2,795,333
Payable for capital shares redeemed ...... 2,341,552 818,319
Accrued management fees (Note 2) ......... 2,294,516 294,536
Distribution fees payable (Note 2) ....... 11,512 151
Service fees payable (Note 2) ............ 11,512 151
Payable for directors' fees and
expenses (Note 2) ........................ 3,032 374
Other liabilities ........................ 1,342 261
-------------- --------------
64,767,954 4,305,959
-------------- --------------
Net Assets ............................... $2,775,623,966 $ 356,692,457
============== ==============
NET ASSETS CONSIST OF:
Capital (par value and
paid-in surplus) ......................... $2,265,671,652 $ 309,444,604
Undistributed net
investment income ........................ 1,281,312 285,567
Accumulated undistributed
net realized gain on
investment and foreign
currency transactions .................. 151,934,895 18,644,852
Net unrealized appreciation
on investments and translation
of assets and liabilities
in foreign currencies (Note 3) ......... 356,736,107 28,317,434
-------------- --------------
$2,775,623,966 $ 356,692,457
============== ==============
Investor Class
Net assets ............................... $2,713,561,557 $ 355,961,775
Shares outstanding ....................... 350,920,308 49,767,192
Net asset value per share ................ $ 7.73 $ 7.15
Advisor Class
Net assets ............................... $ 56,118,070 $ 730,682
Shares outstanding ....................... 7,258,341 102,090
Net asset value per share ................ $ 7.73 $ 7.16
Institutional Class
Net assets ............................... $ 5,944,339 N/A
Shares outstanding ....................... 768,698 N/A
Net asset value per share ................ $ 7.73 N/A
See Notes to Financial Statements
18 STATEMENTS OF ASSETS AND LIABILITIES AMERICAN CENTURY INVESTMENTS
STATEMENTS OF OPERATIONS
VALUE EQUITY
INCOME
YEAR ENDED MARCH 31, 1998
INVESTMENT INCOME
Income:
Dividends (including $4,524,546
from affiliates for Value; net
of foreign taxes withheld of
$78,725 and $3,308, respectively) ......... $ 49,930,594 $ 9,404,215
Interest .................................. 4,288,461 2,828,800
------------- -------------
54,219,055 12,233,015
------------- -------------
Expenses (Note 2):
Management fees ........................... 22,778,506 2,722,104
Distribution fees - Advisor Class ......... 101,036 1,028
Service fees - Advisor Class .............. 101,036 1,028
Directors' fees and expenses .............. 21,781 2,590
------------- -------------
23,002,359 2,726,750
------------- -------------
Net investment income ..................... 31,216,696 9,506,265
------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain (loss) on:
Investments (includes $32,210,806
from affiliates) .......................... 419,939,558 49,663,916
Foreign currency transactions ............. (174,949) 80,673
------------- -------------
419,764,609 49,744,589
------------- -------------
Change in net unrealized appreciation on:
Investments ............................... 310,604,822 25,833,808
Translation of assets and
liabilities in foreign currencies ......... (2,010) --
------------- -------------
310,602,812 25,833,808
------------- -------------
Net realized and
unrealized
gain on investments ....................... 730,367,421 75,578,397
------------- -------------
Net Increase in Net
Assets
Resulting from Operations ................. $ 761,584,117 $ 85,084,662
============= =============
See Notes to Financial Statements
ANNUAL REPORT STATEMENTS OF OPERATIONS 19
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
VALUE EQUITY
INCOME
YEARS ENDED MARCH 31, 1998
AND MARCH 31, 1997
Increase in Net Assets 1998 1997 1998 1997
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income ............................... $ 31,216,696 $ 24,322,905 $ 9,506,265 $ 5,472,315
Net realized gain on investments
and foreign currency transactions ................... 419,764,609 168,588,907 49,744,589 22,013,078
Change in net unrealized appreciation
on investments and translation of
assets and liabilities in foreign currencies ...... 310,602,812 (11,017,267) 25,833,808 (4,196,802)
--------------- --------------- --------------- ---------------
Net increase in net assets
resulting from operations ........................... 761,584,117 181,894,545 85,084,662 23,288,591
--------------- --------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class .................................... (29,498,922) (24,153,903) (9,206,671) (5,494,780)
Advisor Class ..................................... (420,009) (213,484) (13,405) (20)
Institutional Class ............................... (18,264) -- -- --
In excess of net investment income:
Investor Class .................................... -- (120,914) -- (5,884)
Advisor Class ..................................... -- (397) -- (184)
From net realized gains from investment transactions:
Investor Class .................................... (352,185,079) (123,357,187) (43,456,913) (14,539,539)
Advisor Class ..................................... (6,260,211) (2,470,879) (85,009) --
Institutional Class ............................... (100,640) -- -- --
--------------- --------------- --------------- ---------------
Decrease in net assets from distributions ........... (388,483,125) (150,316,764) (52,761,998) (20,040,407)
--------------- --------------- --------------- ---------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase in net assets
from capital share transactions ..................... 629,690,858 859,369,095 124,963,100 79,466,151
--------------- --------------- --------------- ---------------
Net increase in net assets .......................... 1,002,791,850 890,946,876 157,285,764 82,714,335
NET ASSETS
Beginning of year ................................... 1,772,832,116 881,885,240 199,406,693 116,692,358
--------------- --------------- --------------- ---------------
End of year ......................................... $ 2,775,623,966 $ 1,772,832,116 $ 356,692,457 $ 199,406,693
=============== =============== =============== ===============
Undistributed (distributions in excess of)
net investment income ............................... $ 1,281,312 $ (356,054) $ 285,567 $ (68,274)
=============== =============== =============== ===============
</TABLE>
See Notes to Financial Statements
20 STATEMENTS OF CHANGES IN NET ASSETS AMERICAN CENTURY INVESTMENTS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
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) and American Century
Equity Income Fund (Equity Income) (the Funds) are two of the three funds issued
by the Corporation. Each fund is 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
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
Value commenced on July 31, 1997. Sale of the Institutional Class for Equity
Income had not commenced as of March 31, 1998. The following significant
accounting policies, related to all classes of the Funds, are in accordance with
accounting policies generally accepted in the investment company industry.
SECURITY VALUATIONS--Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or the mean of
the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. Debt securities not
traded on a principal securities exchange are valued through valuations obtained
from a commercial pricing service or at the mean of the most recent bid and
asked prices. When valuations are not readily available, securities are valued
at fair value as determined in accordance with procedures adopted by the Board
of Directors.
SECURITY TRANSACTIONS--Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
FOREIGN CURRENCY TRANSACTIONS--The accounting records of the Funds are
maintained in U.S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at prevailing exchange rates.
Purchases and sales of investment securities, dividend and interest income, and
certain expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.
Net realized foreign currency exchange gains or losses arise from sales of
foreign currencies and the difference between asset and liability amounts
initially stated in foreign currencies and the U.S. dollar value of the amounts
actually received or paid. Net unrealized foreign currency exchange gains or
losses arise from changes in the value of assets and liabilities, other than
portfolio securities, resulting from changes in the exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of portfolio securities are a component of
realized gain (loss) on investments and unrealized appreciation (depreciation)
on investments, respectively.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--The Funds may enter into
forward foreign currency exchange contracts for the purpose of settling specific
purchases or sales of securities denominated in a foreign currency or to hedge
the Fund's exposure to foreign currency exchange rate fluctuations. When
required, the Funds will segregate assets in an amount sufficient to cover its
obligations under the hedge contracts. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the Funds and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. Forward contracts involve elements of 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 March 31, 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
ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 21
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
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 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. 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 capital gains to shareholders and to otherwise qualify
as a regulated investment company under the provisions of the Internal Revenue
Code. Accordingly, no provision has been made for federal or state income taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions 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 that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
ADDITIONAL INFORMATION-- Effective January 15, 1998, Funds Distributor, Inc.
(FDI) became 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. Additional fees apply to the
Advisor Class shares. 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. The annual
management fee for each class is 1.00%, 0.75% and 0.80% for the Investor,
Advisor, and Institutional Classes, respectively.
Certain officers and directors of the Corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the Corporation's investment manager, ACIM, the
Corporation's transfer agent, American Century Services Corporation, and the
registered broker-dealer, American Century Investment Services, Inc.
22 NOTES TO FINANCIAL STATEMENTS AMERICAN CENTURY INVESTMENTS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
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 ACIS and/or ACIM. The service fee provides compensation for
shareholder and administrative services rendered by ACIM, its affiliates or
independent third party providers. Fees incurred under the Plan during the
period were $202,072 for Value and $2,056 for Equity Income.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for
Value and Equity Income totaled $3,110,505,754 and $504,358,433, respectively.
Sales of investment securities, excluding short-term investments, totaled
$2,868,298,194 and $418,330,080, respectively.
As of March 31, 1998, accumulated net unrealized appreciation for Value and
Equity Income was $348,467,855 and $27,883,239, respectively, based on the
aggregate cost of investments for federal income tax purposes of $2,442,202,436
and $327,866,873, respectively. Accumulated net unrealized appreciation
consisted of unrealized appreciation of $366,704,572 and $31,566,842 for Value
and Equity Income, respectively, and unrealized depreciation of $18,236,717 and
$3,683,603, respectively.
ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 23
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
4. CAPITAL SHARE TRANSACTIONS
There are 350,000,000 and 150,000,000 shares of the Investor Class
authorized for issuance for Value and Equity Income, respectively, and
145,000,000 and 62,500,000 shares of the Advisor Class authorized for issuance,
respectively, and 60,000,000 shares of the Institutional Class authorized for
issuance for Value. All shares are $0.01 par value.
Transactions in shares of the Funds were as follows:
<TABLE>
VALUE EQUITY
INCOME
Shares Amount Shares Amount
INVESTOR CLASS
Year ended March 31, 1998
<S> <C> <C> <C> <C>
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
============= ============= ============= =============
Year ended March 31, 1997
Sold ......................................... 196,286,153 $1,303,453,155 24,431,148 $156,236,587
Issued in reinvestment of distributions ...... 22,400,228 144,836,133 3,056,977 19,088,856
Redeemed ..................................... (93,171,882) (618,750,013) (15,045,815) (95,878,404)
------------- ------------- ------------- -------------
Net increase ................................. 125,514,499 $829,539,275 12,442,310 $79,447,039
============= ============= ============= =============
ADVISOR CLASS
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
============= ============= ============= =============
Period(1) ended March 31, 1997
Sold ......................................... 4,417,250 $29,766,624 2,878 $18,908
Issued in reinvestment of distributions ...... 416,263 2,684,756 32 204
Redeemed ..................................... (386,477) (2,621,560) -- --
------------- ------------- ------------- -------------
Net increase ................................. 4,447,036 $29,829,820 2,910 $19,112
============= ============= ============= =============
INSTITUTIONAL CLASS
Period(2) ended March 31, 1998
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
============= =============
(1) Sale of the Advisor Class commenced on October 2, 1996 for Value and March
7, 1997 for Equity Income.
(2) Sale of the Institutional Class commenced on July 31, 1997 for Value.
</TABLE>
24 NOTES TO FINANCIAL STATEMENT AMERICAN CENTURY INVESTMENTS
NOTES TO FINANCIAL STATEMENTS
5. AFFILIATED COMPANY TRANSACTIONS
A summary of transactions for each issuer which is or was an affiliate at or
during the year ended March 31, 1998, follows:
<TABLE>
March 31, 1998
Share
Balance Purchase Sales Realized Dividend Share Market
Fund/Issuer 3/31/97 Cost Cost Gain Income Balance Value
VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
Beckman Coulter, Inc. -- $ 39,070,192 $ 24,270,836 $ 5,834,501 $ 422,385 948,200 $ 54,343,713
Gerber Scientific, Inc. 1,497,100 -- 21,044,977 4,919,959 44,448 -- --
Giant Food Inc. Cl A 2,526,600 38,273,884 19,747,391 77,512 2,396,004 3,122,900 120,622,012
Hudson Foods, Inc. -- 36,697,764 36,697,764 12,621,891 -- -- --
Lab Holdings Inc.
(formerly Seafield
Capital Corp.) 320,000 2,512,500 -- -- 474,000 420,000 9,870,000
Superior Industries
International, Inc. 1,954,400 2,298,318 545,100 3,882 539,851 2,024,200 67,178,138
Swift Energy Co. -- 20,230,830 -- -- -- 1,103,700 18,831,881
XTRA Corp. 773,400 8,490,886 24,101,298 8,753,061 647,858 413,800 26,690,100
------------ ------------ ------------ ------------ ------------
$147,574,374 $126,407,366 $32,210,806 $4,524,546 $297,535,844
============ ============ ============ ============ ============
</TABLE>
ANNUAL REPORT NOTES TO FINANCIAL STATEMENT 25
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
VALUE
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
Investor Class
1998 1997 1996 1995 1994(1)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period .............. $ 6.58 $ 6.32 $ 5.46 $ 4.98 $ 5.01
------------ ------------ ------------ ------------ ------------
Income From
Investment Operations
Net Investment Income(2) ....... 0.10 0.12 0.13 0.12 0.08
Net Realized and Unrealized
Gain (Loss) on
Investment Transactions ........ 2.35 0.87 1.34 0.75 (0.04)
------------ ------------ ------------ ------------ ------------
Total From Investment Operations 2.45 0.99 1.47 0.87 0.04
------------ ------------ ------------ ------------ ------------
Distributions
From Net Investment Income ..... (0.10) (0.12) (0.12) (0.12) (0.07)
In Excess of Net
Investment Income ............. -- --(3) -- -- --
From Net Realized Gains
on Investment Transactions ..... (1.20) (0.61) (0.48) (0.27) --
In Excess of Net
Realized Gains ................. -- -- (0.01) -- --
------------ ------------ ------------ ------------ ------------
Total Distributions ............ (1.30) (0.73) (0.61) (0.39) (0.07)
------------ ------------ ------------ ------------ ------------
Net Asset Value,
End of Period .................... $ 7.73 $ 6.58 $ 6.32 $ 5.46 $ 4.98
============ ============ ============ ============ ============
Total Return(4) ................ 39.94% 15.92% 28.06% 18.56% 0.83%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............ 1.00% 1.00% 0.97% 1.00% 1.00%(5)
Ratio of Net Investment
Income to Average Net Assets ..... 1.38% 1.86% 2.17% 2.65% 3.37%(5)
Portfolio Turnover Rate .......... 130% 111% 145% 94% 79%
Average Commission Paid per
Share of Equity Security Traded .. $ 0.0462 $ 0.0459 $ 0.0409 --(6) --(6)
Net Assets,
End of Period (in thousands) ..... $ 2,713,562 $ 1,743,582 $ 881,885 $ 348,281 $ 87,798
(1) September 1, 1993 (inception) through March 31, 1994.
(2) Computed using average shares outstanding throughout the period.
(3) Per share amount was less than $0.01.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are
not annualized.
(5) Annualized.
(6) Disclosure of average commission paid per share of equity security traded
was not required prior to the year ended March 31, 1996.
</TABLE>
See Notes to Financial Statements
26 FINANCIAL HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
FINANCIAL HIGHLIGHTS
VALUE
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
Advisor Class
1998 1997(1)
PER-SHARE DATA
Net Asset Value,
Beginning of Period ................... $ 6.58 $ 6.71
------------ ------------
Income From Investment Operations
Net Investment Income(2) ............ 0.08 0.05
Net Realized and Unrealized
Gain on Investment Transactions ..... 2.35 0.48
------------ ------------
Total From Investment Operations .... 2.43 0.53
------------ ------------
Distributions
From Net Investment Income .......... (0.08) (0.05)
In Excess of Net
Investment Income ................... --(3) --
From Net Realized Gains
on Investment Transactions .......... (1.20) (0.61)
------------ ------------
Total Distributions ................. (1.28) (0.66)
------------ ------------
Net Asset Value,
End of Period ......................... $ 7.73 $ 6.58
....................................... ============ ============
Total Return(4) ..................... 39.60% 8.07%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 1.25% 1.25%(5)
Ratio of Net Investment
Income to Average Net Assets .......... 1.13% 1.50%(5)
Portfolio Turnover Rate ............... 130% 111%
Average Commission Paid per
Share of Equity Security Traded ....... $ 0.0462 $ 0.0459
Net Assets,
End of Period (in thousands) .......... $ 56,118 $ 29,250
(1) October 2, 1996 (commencement of sale) through March 31, 1997.
(2) Computed using average shares outstanding throughout the period.
(3) Per share amount was less than $0.01.
(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
ANNUAL REPORT FINANCIAL HIGHLIGHTS 27
FINANCIAL HIGHLIGHTS
VALUE
For a Share Outstanding Throughout the Period Ended March 31
Institutional
Class
1998(1)
PER-SHARE DATA
Net Asset Value,
Beginning of Period ................................................. $7.84
-------
Income From Investment Operations
Net Investment Income(2) .......................................... 0.15
Net Realized and Unrealized
Gain on Investment Transactions. .................................. 1.02
-------
Total From Investment Operations .................................. 1.17
-------
Distributions
From Net Investment Income ........................................ (0.08)
From Net Realized Gains
on Investment Transactions. ....................................... (1.20)
-------
Total Distributions ............................................... (1.28)
-------
Net Asset Value,
End of Period ....................................................... $7.73
=======
Total Return(3). .................................................. 17.14%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............................................... 0.80%(4)
Ratio of Net Investment
Income to Average Net Assets ........................................ 2.97%(4)
Portfolio Turnover Rate. ............................................ 130%
Average Commission Paid per
Share of Equity Security Traded ..................................... $0.0462
Net Assets,
End of Period (in thousands) ........................................ $5,944
(1) July 31, 1997 (commencement of sale) through March 31, 1998.
(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
28 FINANCIAL HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
EQUITY INCOME
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
Investor Class
1998 1997 1996 1995(1)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C>
Beginning of Period .................. $6.31 $6.10 $5.42 $5.00
------- ------- ------- -------
Income From Investment Operations
Net Investment Income(2) ........... 0.25 0.22 0.20 0.09
Net Realized and Unrealized
Gain on Investment Transactions .... 1.99 0.75 1.13 0.44
------- ------- ------- -------
Total From Investment Operations ... 2.24 0.97 1.33 0.53
------- ------- ------- -------
Distributions
From Net Investment Income ......... (0.24) (0.21) (0.19) (0.09)
In Excess of Net
Investment Income .................. -- --(3) (0.01) --
From Net Realized Gains
on Investment Transactions ......... (1.16) (0.55) (0.45) (0.02)
------- ------- ------- -------
Total Distributions ................ (1.40) (0.76) (0.65) (0.11)
------- ------- ------- -------
Net Asset Value,
End of Period ........................ $7.15 $6.31 $6.10 $5.42
======= ======= ======= =======
Total Return(4) .................... 37.78% 16.24% 25.67% 10.69%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................ 1.00% 1.00% 0.98% 1.00%(5)
Ratio of Net Investment
Income to Average Net Assets ......... 3.52% 3.46% 3.51% 4.04%(5)
Portfolio Turnover Rate .............. 158% 159% 170% 45%
Average Commission Paid per
Share of Equity Security Traded ...... $0.0453 $0.0440 $0.0378 --(6)
Net Assets,
End of Period (in thousands) ......... $355,962 $199,388 $116,692 $52,213
(1) August 1, 1994 (inception) through March 31, 1995.
(2) Computed using average shares outstanding throughout the period.
(3) Per share amount was less than $0.01.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
(6) Disclosure of average commission paid per share of equity security traded
was not required prior to the year ended March 31, 1996.
</TABLE>
See Notes to Financial Statements
ANNUAL REPORT FINANCIAL HIGHLIGHTS 29
FINANCIAL HIGHLIGHTS
EQUITY INCOME
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
Advisor Class
1998 1997(1)
PER-SHARE DATA
Net Asset Value,
Beginning of Period ....................... $6.31 $6.57
------- -------
Income From Investment Operations
Net Investment Income(2) ................ 0.23 0.02
Net Realized and Unrealized
Gain (Loss) on Investment Transactions .. 2.00 (0.21)
------- -------
Total From Investment Operations ........ 2.23 (0.19)
------- -------
Distributions
From Net Investment Income ..............(0.22) (0.07)
In Excess of Net
Investment Income ....................... -- --(3)
From Net Realized Gains
on Investment Transactions ..............(1.16) --
------- -------
Total Distributions .....................(1.38) (0.07)
------- -------
Net Asset Value,
End of Period ............................. $7.16 $6.31
======= =======
Total Return(4) .........................37.71% (2.89)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ..................... 1.25% 1.25%(5)
Ratio of Net Investment
Income to Average Net Assets .............. 3.27% 1.64%(5)
Portfolio Turnover Rate ................... 158% 159%
Average Commission Paid per
Share of Equity Security Traded ...........$0.0453 $0.0440
Net Assets,
End of Period (in thousands) .............. $731 $18
(1) March 7, 1997 (commencement of sale) through March 31, 1997.
(2) Computed using average shares outstanding throughout the period.
(3) Per share amount was less than $0.01.
(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
30 FINANCIAL HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
American Century Capital Portfolios, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of American Century Value Fund and
American Century Equity Income Fund (the "Funds"), two of the funds comprising
American Century Capital Portfolios, Inc., as of March 31, 1998, and the related
statements of operations and changes in net assets for the year then ended, and
the financial highlights for the year then ended. These financial statements and
the financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits. The financial statements and the
financial highlights of the American Century Value Fund for each of the periods
in the four-year period ended March 31, 1997 and the financial statements and
the financial highlights of the American Century Equity Income Fund for each of
the periods in the three-year period ended March 31, 1997 were audited by other
auditors whose report, dated April 25, 1997, expressed an unqualified opinion on
those statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at March
31, 1998 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of American Century
Value Fund and American Century Equity Income Fund as of March 31, 1998, the
results of their operations, the changes in their net assets, and the financial
highlights for the year then ended in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
April 30, 1998
ANNUAL REPORT INDEPENDENT AUDITORS' REPORT 31
SHARE CLASS AND RETIREMENT ACCOUNT INFORMATION
SHARE CLASSES
Until September 3, 1996, the Value and Equity Income funds issued one class
of fund shares, reflecting the fact that most investors bought their shares
directly from American Century. All investors paid the same annual unified
management fee and did not pay any commissions or other fees to purchase shares
from American Century.
Now more share purchases are made by investors through financial
intermediaries (who ordinarily are compensated for the additional services they
provide), or by very large institutional investors who expect lower costs
because of their size. In September 1996, American Century began to offer three
classes of shares for the Value and Equity Income funds. 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 Value and Equity Income shares is called the INVESTOR
CLASS. All shares issued and outstanding before September 3, 1996 have been
designated as Investor Class shares. Investor Class shares may also be purchased
after September 3, 1996. Investor Class shareholders do not pay any commissions
or other fees for purchase of fund shares directly from American Century.
Investors who buy Investor Class shares through a broker-dealer may be required
to pay the broker-dealer a transaction fee. THE PRICE AND PERFORMANCE OF THE
INVESTOR CLASS SHARES ARE LISTED IN NEWSPAPERS. NO OTHER CLASS IS CURRENTLY
LISTED.
In addition, there is an ADVISOR CLASS, which is sold through banks,
broker-dealers, insurance companies and financial advisors. Advisor Class 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.
There is also an INSTITUTIONAL CLASS, which is 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 Institutional Class had not commenced as of March 31, 1998 for Equity
Income.
All classes of shares represent a pro rata interest in the funds and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)]
are subject to federal income tax withholding at the rate of 10% of the total
amount withdrawn, unless you elect not to have withholding apply. If you don't
want us to withhold on this amount, you may send us a written notice not to have
the federal income tax withheld. Your written notice is valid for six months
from the date of receipt at American Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid for only six months from the date of
receipt at American Century. You may revoke your election at any time by sending
a written notice to us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
32 ANNUAL REPORT SHARE CLASS AND RETIREMENT INFORMATION
NOTES
ANNUAL REPORT NOTES 33
NOTES
34 NOTES AMERICAN CENTURY INVESTMENTS
NOTES
ANNUAL REPORT NOTES 35
BACKGROUND INFORMATION
INVESTMENT PHILOSOPHY & POLICIES
The American Century Group offers eight equity funds, including Value and
Equity Income. These two funds are general equity funds managed to provide
growth over time with less volatility than more aggressive growth funds. Stock
purchases are based on a company-by-company analysis to determine whether a
stock is trading below what the fund management team considers fair value. Once
the management team understands why the stock's price is depressed, 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
both funds, broad diversification across many industries is stressed to prevent
the performance of one sector from dominating fund returns.
AMERICAN CENTURY VALUE invests in the equity securities of seasoned,
established businesses that the fund's management team believes are temporarily
undervalued. This is determined by comparing a stock's share price with key
financial measures, including earnings, book value, cash flow and dividends. If
the stock's price relative to these measures is low and the company's balance
sheet is solid, its securities are candidates for purchase. The management team
may secondarily look for income when making portfolio selections.
AMERICAN CENTURY EQUITY INCOME purchases the securities of seasoned
companies that pay steady income, with the goal of providing shareholders a
higher yield than the aggregate yield of the stocks making up the S&P 500. The
team may secondarily search out stocks whose share prices are undervalued or
fairly valued. To help increase the fund's yield and help reduce the impact of
stock market value changes, 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.
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 considered to be a
broad measure of U.S. stock market performance.
The S&P 500/BARRA VALUE INDEX is a capitalization-weighted index consisting
of S&P 500 stocks that have lower price-to-book ratios and in general share
other characteristics 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 NASDAQ COMPOSITE is a market capitalization price-only index that
reflects the aggregate performance of domestic common stocks traded on the
regular NASDAQ market, as well as national market system traded foreign common
stocks and ADRs.
- --------------------------------------------------------------------------------
INVESTMENT TEAM LEADERS
- --------------------------------------------------------------------------------
Portfolio Managers Phil Davidson
Peter Zuger
- --------------------------------------------------------------------------------
36 BACKGROUND INFORMATION AMERICAN CENTURY INVESTMENTS
GLOSSARY
RETURNS
TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on pages 26-30.
PORTFOLIO STATISTICS
NUMBER OF COMPANIES-- the number of different companies held by a fund on a
given date.
AVERAGE DIVIDEND YIELD OF HOLDINGS-- a percentage return calculated by
dividing a company's annual cash dividend by the current market value of the
company's stock.
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.)
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.
EXPENSE RATIO-- the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
TYPES OF 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 appear likely to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech, computer
hardware and computer software companies.
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.
STATISTICAL TERMINOLOGY
PRICE/BOOK RATIO-- a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result expressed as
a multiple instead of as a percentage. (Book value per share is calculated by
subtracting a company's liabilities from its assets, then dividing that value by
the number of outstanding shares.)
ANNUAL REPORT GLOSSARY 37
[american century logo(reg.sm)]
American
Century(reg.tm)
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 FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE
GENERAL INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
(c) 1998 AMERICAN CENTURY SERVICES CORPORATION
FUNDS DISTRIBUTOR, INC.
9805 [recycled logo]
SH-BKT-12220 Recycled
<PAGE>
ANNUAL
REPORT
[american century logo(reg.sm)]
American
Century(reg.tm)
MARCH 31, 1998
AMERICAN
CENTURY
GROUP
Real Estate Fund
TABLE OF CONTENTS
Report Highlights ......................................................... 1
Our Message to You ........................................................ 2
Market Perspective ........................................................ 3
Performance & Portfolio Information ....................................... 4
Management Q & A .......................................................... 5
Schedule of Investments ................................................... 8
Statement of Assets and Liabilities ....................................... 10
Statements of Operations .................................................. 11
Statements of Changes in Net Assets ....................................... 12
Notes to Financial Statements ............................................. 13
Financial Highlights ...................................................... 16
Independent Auditors' Report .............................................. 18
Share Class and Retirement Account
Information ............................................................... 19
Background Information
Investment Philosophy and Policies ..................................... 20
Fund Management Team ................................................... 20
Fund Background ........................................................ 20
Comparative Indices .................................................... 20
Investment Team Leaders ................................................ 20
Glossary .................................................................. 21
American Century Investments offers you nearly 70 fund choices covering
stocks, bonds, money markets, specialty investments and blended portfolios.
We've organized our funds into three distinct groups, based on investment style
and objectives, to help simplify your fund decisions. These groups appear below.
AMERICAN CENTURY INVESTMENTS--FAMILY OF FUNDS
- --------------------------------------------------------------------------------
Benham American Century Twentieth Century
Group Group Group
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS
GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
- --------------------------------------------------------------------------------
Real Estate Fund
WE WELCOME YOUR COMMENTS OR QUESTIONS ABOUT THIS REPORT.
SEE THE BACK COVER FOR WAYS TO CONTACT US BY MAIL, PHONE OR E-MAIL.
American Century and The Benham Group are registered marks of American Century
Services Corporation.
AMERICAN CENTURY INVESTMENTS
REPORT HIGHLIGHTS
MARKET PERSPECTIVE
* The bull market continued with the S&P 500 returning 21.37% during the five
months ended March 31, 1998. The index posted returns of more than 20% for
each of the last three calendar years.
* Industrial and office sectors saw large gains, while owners of shopping
centers and apartment buildings experienced modest increases. We expect
office rents to continue to show the greatest appreciation. Gains at
apartment and industrial properties will probably be more modest.
* During the first calendar quarter, several factors caused Real Estate
Investment Trust (REIT) prices to soften. Momentum investors sold to lock in
gains after two years of excellent performance. In addition, many investors
reasserted a preference for the S&P 500, which bounced back after a
fourth-quarter pause
ACRE
* The fiscal year of the American Century Real Estate Fund (ACRE) recently
changed from October 31 to March 31. This annual report focuses on the five
months since October 31.
* The fund's return was 3.26% for the five-month period. The Wilshire REIT
Index, ACRE's benchmark, returned 3.34%. (See Total Returns on page 4.)
* American Century created ACRE by joining forces with RREEF America, L.L.C.
(RREEF), a Chicago-based real estate investment advisory firm. RREEF is the
fund's subadvisor and is responsible for managing its investment portfolio.
* The fund's returns were dampened by a government proposal that would
eliminate a tax advantage for four REITS, and by investor concerns over
large acquisitions by two of our prominent holdings. Both factors impacted
Starwood Lodging Trust, a large holding that ACRE's managers remain excited
about. Starwood created a $20 billion company when it acquired Westin Hotels
& Resorts and ITT. We estimate Starwood will grow internally (without
further acquisitions) 20% to 25% annually over the next three years.
* We see good potential growth for REIT investments because most of the excess
space from the 1990s has been absorbed, vacancy rates and inflation are low,
and there is solid demand for office space due to the strength of the
economy.
REAL ESTATE FUND
INVESTOR CLASS(1)
TOTAL RETURNS: AS OF 3/31/98
5 Months 3.26%(2)
1 Year 20.03%
NET ASSETS: $135.9 million
(AS OF 3/31/98)
INCEPTION DATE: 9/21/95
TICKER SYMBOL: REACX
(1) See Share Classes, page 19.
(2) Not annualized.
Many of the investment terms in this report are defined in the Glossary on page
21.
ANNUAL REPORT REPORT HIGHLIGHTS 1
OUR MESSAGE TO YOU
[photo of James E. Stowers Jr. and James E. Stowers III]
Stocks have posted historic returns over the last three calendar years
(1995-1997), and the five-month period covered by this report, which ended March
31, did not interrupt the momentum. U.S. financial indices continued to soar,
the generous market values accorded many large marquee companies grew even more
generous, and small to midsize stocks performed very respectably.
Is this the best we can expect? Or, are prices headed higher?
We've been optimistic about the stock market for many years, and today is no
exception. We believe stocks should continue to produce good returns. But there
is one key provision: Inflation and interest rates must remain low. Low
inflation and interest rates fuel economic growth and provide a good environment
for stocks and other financial assets. Our capital markets should thrive until
that environment changes.
Corporate America is also in excellent health. Companies are highly
productive and generating historically strong returns on their investments,
including investments in their own stock. A slowdown in earnings could cause the
equity markets to stumble, but such a correction should prove temporary as long
as inflation remains low.
Finally, it pays to keep in mind that this is a market of individual stocks.
Not every company and industry is selling at record prices. The real estate
sector, in particular, has been weak so far this year. As real estate stocks
declined, American Century Real Estate Fund's management team was able to add to
holdings at discounted prices. The sector began to rebound at the end of March,
and our management team remains bullish on real estate's potential.
The past five months have been eventful for American Century. As many of you
may know, we gained a powerful business partner this past January, when J.P.
Morgan became a substantial minority shareholder. The new business partnership
will allow both companies to offer investors a highly diverse menu of investment
options and services.
We're also working hard to get our computer systems ready for the year 2000.
Year 2000 has been widely publicized in the financial press. It refers to the
possible inability of computer systems to distinguish between the years 1900 and
2000. Like other financial companies, many of our computer operations involve
some type of date comparison or date calculation. Most of our systems are
already year 2000 compliant, and we anticipate the rest will be in compliance by
the end of the year.
In closing, we're proud to note that 1998 marks the 40th year since American
Century launched its first mutual funds. Not many fund companies can claim a
40-year track record, or a fund family that includes nearly 70 stock, bond,
money market and blended (stock and bond) funds that provide investors with such
a wide range of choice and flexibility. Whatever your financial goals, we
believe we have an outstanding group of funds to help you reach them.
Thank you for 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
2 OUR MESSAGE TO YOU AMERICAN CENTURY INVESTMENTS
MARKET PERSPECTIVE
[line graph - data below]
MARKET PERFORMANCE MEASUREMENTS
Comparative growth of $1.00 for the year ended March 31, 1998
Mar-97 $1.00 $1.00
Apr-97 $1.06 $0.96
May-97 $1.12 $0.99
Jun-97 $1.17 $1.05
Jul-97 $1.27 $1.07
Aug-97 $1.19 $1.07
Sep-97 $1.26 $1.17
Oct-97 $1.22 $1.13
Nov-97 $1.27 $1.16
Dec-97 $1.30 $1.18
Jan-98 $1.31 $1.17
Feb-98 $1.40 $1.14
Mar-98 $1.48 $1.17
Comparative one-year returns for the year ended March 31, 1998
S&P 500 ...................... 47.85%
Wilshire REIT Index .......... 17.01%
SOURCE: BLOOMBERG FINANCIAL MARKETS
A POWERHOUSE ECONOMY
The five months ended March 31, 1998, witnessed a continuation of the bull
market in stocks, with the S&P 500 returning 21.37%. The broad market index has
posted returns of more than 20% for each of the last three calendar years, the
best such span on record.
Stocks owe much of their success to a robust economy. Our economy is
currently enjoying a growth rate exceeding 3%, a number that many economists
thought unsustainable without higher inflation. We have virtually full
employment and minimal inflation.
New technologies and increased attention to profitability have U.S.
companies running like well-oiled engines. Return on equity, a measure of a
company's value to its shareholders, is averaging above 20% annually, a heady
number by historical standards.
PROPERTY MARKET
The economy's strength translated into growing demand for commercial real
estate and a healthy real estate market overall. Industrial and office sector
rents saw the largest increases, while owners of shopping centers and apartment
buildings commanded modest gains. Office rents should continue to increase the
most, overtaking the industrial sector, according to RREEF, the Chicago real
estate investment firm that manages the investment portfolio of the American
Century Real Estate Fund. Growth in apartment and industrial rents, which have
risen in many areas in recent years, will be much more moderate, RREEF projects.
REIT MARKET
Real estate investment trust (REIT) stock performance lagged in December of
1997 and during the first quarter of 1998, even as the broader stock market
surged. For the five months ended March 31, 1998, the Wilshire REIT Index
returned 3.34%.
It's instructive to take a few steps back in time to understand why real
estate stocks, which have produced market-beating performance for the last two
years, have cooled recently.
In the 1980s, new construction was driven by tax advantages, not market
demand, and many markets were overbuilt. These tax preferences were repealed in
1986, by which time a significant oversupply had depressed rents. As developers
tried to stay in business, they found that their traditional sources of capital
- -- pension funds, insurance companies, banks and savings and loans -- were no
longer interested in investing in real estate.
They turned to Wall Street in the early 1990s. Investment bankers raised
capital for these companies through REITs. Real estate operators were able to
convert their private partnerships to public companies, which improved their
access to capital. In the last few years, REITs appreciated rapidly as their
management acquired properties at depressed prices and improved occupancy rates.
As REIT stocks surged, they attracted price momentum investors on Wall
Street. REITs have recently fallen out of favor with these investors because
they have not maintained the blistering performance pace of recent years.
Industry fundamentals remain strong but performance is off due to several
temporary factors, such as a proposed tax law change that will have a limited
effect and investor preference for the surging stocks of the S&P 500.
ANNUAL REPORT MARKET PERSPECTIVE 3
PERFORMANCE & PORTFOLIO INFORMATION
TOTAL RETURNS AS OF MARCH 31, 1998(1)
5 MONTHS 1 YEAR LIFE OF FUND
INVESTOR CLASS (inception 9/21/95)(2)
ACRE ...................................... 3.26% 20.03% 27.30%
Wilshire REIT Index ....................... 3.34% 17.01% 22.44%
INSTITUTIONAL CLASS (inception 6/16/97)
ACRE ...................................... 3.32% 17.16%
Wilshire REIT Index ....................... 3.34% 13.39%
(1) RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
(2) THE INCEPTION DATE FOR RREEF REAL ESTATE SECURITIES FUND, ACRE'S
PREDECESSOR. THAT FUND MERGED WITH ACRE ON 6/13/97 AND WAS FIRST OFFERED
TO THE PUBLIC ON 6/16/97.
See pages 19, 20 and 21 for more information about share classes, the Wilshire
REIT Index and returns.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND (Investor Class)
Sept. 21, 1995 $10,000 $10,000
Sept. 30, 1995 $10,010 $ 9,974
Dec. 31, 1995 $10,511 $10,383
Mar. 31, 1996 $10,894 $10,642
June 30, 1996 $11,361 $11,084
Sept. 30, 1996 $12,340 $11,826
Dec. 31, 1996 $14,799 $14,127
Mar. 31, 1997 $15,335 $14,269
June 30, 1997 $16,113 $14,934
Sept. 30, 1997 $18,458 $16,656
Dec. 31, 1997 $18,531 $16,820
Mar. 31, 1998 $18,406 $16,669
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. Data quoted is for Investor Class only; performance for other
classes will vary due to differences in fee structure (see the Total Returns
table above).
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the index's
total return line does not.
[pie charts]
FUND ALLOCATION (as of March 31, 1998)
Office 34%
Multi-family Residential 21%
Hotel 13%
Mall & Shopping Center 14%
Industrial 6%
Other 12%
REIT MARKET ALLOCATION (as of march 31, 1998)
Office 27%
Multi-family Residential 20%
Hotel 11%
Mall & Shopping Center 18%
Industrial 11%
Other 13%
SOURCE: RREEF
4 PERFORMANCE & PORTFOLIO INFORMATION AMERICAN CENTURY INVESTMENTS
MANAGEMENT Q&A
An interview with Kim Redding, a portfolio manager on the American Century
Real Estate Fund (ACRE) investment team.
HOW DID THE FUND PERFORM DURING THE PERIOD?
For the five months ended March 31, 1998, ACRE returned 3.26%.(1) The fund's
benchmark, the Wilshire REIT Index, returned 3.34%. This report focuses on the
five months since the annual report dated October 31, 1997. The fund's fiscal
year-end has changed from October 31 to March 31. American Century implemented
this change to put ACRE on the same calendar with two of its conservative equity
funds, Value and Equity Income.
Since its September 21, 1995, inception, ACRE has averaged a 27.30% annual
return compared to 22.44% for its benchmark.(2)
WHAT EXPLAINS THE LOWER RETURNS OF REAL ESTATE INVESTMENTS DURING THE LAST FIVE
MONTHS?
The quick answer is that the market is taking a breather after producing
very good returns. For calendar years 1996 and 1997, the REIT Index produced
total returns of 37.04% and 19.67%, respectively. REITs raised nearly $50
billion of new capital during this period, mostly from initial and secondary
equity offerings. This level of new equity capital can often dampen share
prices, and we currently are experiencing some of that.
Another factor contributing to the recent low returns of the REIT market is
the good performance of the S&P 500. Some investors invested in REITs in 1997
for defensive reasons, but with the success of the S&P 500 in the early part of
1998, many of those investors withdrew their capital and re-invested in the
broader equity markets.
(1) ALL FUND RETURNS REFERENCED IN THIS INTERVIEW ARE FOR INVESTOR CLASS SHARES
(2) THE FUND INCEPTION DATE WAS 9/21/95 FOR RREEF REAL ESTATE SECURITIES FUND,
ACRE'S PREDECESSOR. THAT FUND MERGED WITH ACRE ON 6/13/97.
[bar graph - data below]
ACRE'S ONE-YEAR RETURNS SINCE INCEPTION (Periods ended March 31)
March 1996 March 1997 March 1998
ACRE(1) 8.83% 40.77% 20.03%
Wilshire REIT Index 6.52% 34.35% 17.01%
This graph illustrates the fund's returns since its inception and compares them
with the index's returns. The fund's total returns include operating expenses,
while the index's returns do not. See page 20 for a description of the index.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
(1) Investor Class.
(2) Returns from 9/21/95 to 3/31/96.
ANNUAL REPORT MANAGEMENT Q & A 5
MANAGEMENT Q&A
Lastly, the proposal by the Clinton administration to re-evaluate the tax
provisions for "paired-share" REITs, of which there are four, hurt the REIT
market as many uninformed investors perceived the announcement to be a threat to
all REITs. Paired-share REITs combine a company that owns real estate
properties, usually hotels, with one that provides services at those properties.
We anticipate the legislation will be approved and, even though it will limit
the advantage of paired-share REITs, we don't believe it will have a broad-based
impact.
Despite these short-term market events, overall industry fundamentals remain
strong. Many companies are expected to produce excellent earnings growth and,
therefore, excellent total returns.
HOW DID YOU RESPOND TO A SOFTER MARKET?
We were able to add to our most attractive holdings at depressed prices.
REIT stocks dropped to prices that were very inexpensive relative to 1998 and
1999 earnings projections. For many stocks, this drop was tied to negative media
attention rather than a fundamental shift in occupancy rates, inflation or other
factors of significance to real estate investors. Investors who purchased REIT
stocks as they fell were rewarded by the end of March as prices began to more
accurately reflect intrinsic value.
WHICH HOLDINGS HURT THE FUND DURING THE PERIOD?
Some of our largest holdings, such as Starwood Lodging Trust and Patriot
American Hospitality, Inc., both of which are paired-share REITs, were depressed
by the factors cited earlier. Two other large holdings, Crescent Real Estate
Equities, Inc. and Vornado Realty Trust, suffered an investor backlash as they
announced acquisitions with higher risk profiles. Crescent, an office REIT, is
paying $650 million for Station Casinos of Las Vegas. Vornado is continuing its
diversified strategy by adding the Merchandise Mart in Chicago for $580 million.
Vornado's portfolio includes shopping centers, Manhattan office buildings and
cold storage facilities. We continue to like these companies for a variety of
reasons: both Cresent and Vornado have good earnings potential and a history of
making excellent investments. Starwood has grown by acquiring Westin Hotels &
Resorts and ITT, creating a $20 billion company. It plans to renovate and
upgrade many of the hotels in its new portfolio to higher-quality brand names in
the coming years. We estimate Starwood's revenues will grow internally (as
opposed to growth by acquisition) 20% to 25% annually over the next three years.
TOP TEN HOLDINGS % of fund investments
As of As of
3/31/98 10/31/97
Starwood Lodging Trust 6.4% 4.0%
Crescent Real Estate Equities, Inc. 5.9% 4.5%
CarrAmerica Realty Corp. 5.4% 4.9%
Highwoods Properties, Inc. 4.7% 4.9%
Cali Realty Corp. 4.7% 5.0%
Arden Realty, Inc. 4.4% 1.9%
Boston Properties, Inc. 4.0% 2.4%
Essex Property Trust, Inc. 3.9% 3.2%
Equity Residential Properties Trust 3.4% 1.1%
Camden Property Trust 3.3% 4.3%
6 MANAGEMENT Q & A AMERICAN CENTURY INVESTMENTS
MANAGEMENT Q&A
THE FUND'S HIGHEST WEIGHTING WAS IN REITS THAT OWN OFFICE BUILDINGS. WHY?
Office REITs were the last to the party of initial public offerings by real
estate firms. Only 3% of America's office buildings are owned by public REITs,
providing a lot of room for growth. In addition, we are bullish on the American
economy. We expect job growth in every major metropolitan area over the next two
years, which should drive market rents higher. The rate of rent increases is
moderating, however, reflecting the advancing age of the real estate recovery
and greater balance between building supply and demand.
CAN YOU OFFER AN EXAMPLE OF AN ATTRACTIVE OFFICE REIT?
Highwoods Properties, Inc. was one of our largest holdings at March 31,
1998. This Raleigh-Durham, N.C.-based company develops and owns office and
industrial properties, and we have high expectations going forward. Highwoods
does two things exceptionally well. One, when it purchases a local real estate
operator, it successfully incorporates the existing management team in order to
maintain the local contacts the company has developed over 20 or 30 years. And
two, Highwoods has an experienced development team. Development is a risky
endeavor and Highwoods has shown that it can deliver projects on time, on budget
and pre-leased. At the moment, Highwoods has $400 million in projects under
construction that are 40% pre-leased, giving Highwoods a healthy pipeline for
future growth.
WHAT'S YOUR OUTLOOK FOR THE REAL ESTATE MARKET?
We have always said a somewhat lower but still very competitive return is
more realistic than the exceptional gains of 1996 and 1997. We continue to
promote that expectation as a fair one for long-term shareholders. Having said
that, we see a lot of potential growth remaining for REIT investments. Most of
the excess space from the 1990s has been absorbed, vacancy rates and inflation
are low, and there is solid demand due to the strength of the economy.
Also, real estate investing has evolved in ways that dampen the boom and
bust cycles of the past, in our opinion. The real estate industry's shift away
from lending institutions and toward Wall Street for funding changed how
projects get done. The free flow of information and capital that occurs in the
stock market means developers must make a stronger economic case for each
project than when a single loan officer was involved. Existing properties become
more valuable as Wall Street constraints lead to less overbuilding.
ANNUAL REPORT MANAGEMENT Q & A 7
SCHEDULE OF INVESTMENTS
MARCH 31, 1998
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS & WARRANTS
DIVERSIFIED COMPANIES-3.6%
35,700 Capital Automotive REIT(1) $ 677,184
160,200 Catellus Development Corp.(1) 2,973,713
44,600 Developers Diversified Realty Corp. 1,823,025
--------------
5,473,922
--------------
HOTELS-12.9%
113,500 American General Hospitality Corp. 3,142,532
84,900 FelCor Suite Hotels, Inc. 3,146,606
130,010 Patriot American Hospitality, Inc. 3,510,270
181,820 Starwood Lodging Trust 9,716,006
--------------
19,515,414
--------------
INDUSTRIAL-5.6%
20,300 Cabot Industrial Trust(1) 483,393
71,500 EastGroup Properties 1,474,688
135,500 Liberty Property Trust 3,641,563
86,900 Weeks Corp. 2,840,544
--------------
8,440,188
--------------
MULTI--FAMILY RESIDENTIAL-21.4%
44,600 Apartment Investment and
Management Co. 1,717,100
126,000 Avalon Properties, Inc. 3,654,000
77,516 Bay Apartment Communities, Inc. 2,877,782
170,548 Camden Property Trust 5,052,485
100,950 Equity Residential Properties Trust 5,072,737
173,500 Essex Property Trust, Inc. 5,953,218
55,100 Oasis Residential, Inc. 1,222,531
4,343 Security Capital Group B Warrants(1) 14,386
28,500 Smith (Charles E.) Residential
Realty, Inc. 947,625
201,300 United Dominion Realty Trust, Inc. 2,918,850
118,000 Walden Residential Properties, Inc. 2,979,500
--------------
32,410,214
--------------
NEIGHBORHOOD & COMMUNITY
SHOPPING CENTERS--4.4%
104,200 Bradley Real Estate, Inc. 2,175,175
1,000 Pan Pacific Retail Properties, Inc. 21,875
100,800 Vornado Realty Trust 4,391,100
--------------
6,588,150
--------------
Shares Value
- --------------------------------------------------------------------------------
OFFICE-34.2%
233,300 Arden Realty, Inc. $ 6,649,050
150,000 Beacon Properties Corp.,
(Acquired 3/17/98,
Cost $3,000,000)(2) 3,030,000
169,700 Boston Properties, Inc. 5,971,319
180,100 Cali Realty Corp. 7,035,156
270,800 CarrAmerica Realty Corp. 8,124,000
248,700 Crescent Real Estate Equities, Inc. 8,953,200
202,900 Highwoods Properties, Inc. 7,164,906
99,300 Parkway Properties, Inc. 3,239,663
60,800 Prentiss Properties Trust 1,588,400
----------------
51,755,694
----------------
REGIONAL MALLS-9.5%
93,700 General Growth Properties, Inc. 3,455,188
130,500 Macerich Co. (The) 3,882,375
81,400 Mills Corp. 2,131,662
144,700 Simon DeBartolo Group Inc. 4,955,975
----------------
14,425,200
----------------
STORAGE-3.2%
107,000 Public Storage, Inc. 3,303,625
59,200 Storage Trust Realty 1,461,500
----------------
4,765,125
----------------
TOTAL COMMON STOCKS & WARRANTS-94.8% 143,373,907
----------------
(Cost $137,549,384)
TEMPORARY CASH INVESTMENTS
$391,000 par value FNMA Discount Note,
5.90%, 4/1/98(3) 391,000
Repurchase Agreement, Goldman Sachs & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.65%, dated 3/31/98,
due 4/1/98 (Delivery value $7,401,161) 7,400,000
----------------
TOTAL TEMPORARY CASH INVESTMENTS-5.2% 7,791,000
----------------
(Cost $7,791,000)
TOTAL INVESTMENT SECURITIES-100.0% $151,164,907
================
(Cost $145,340,384)
SEE NOTES TO FINANCIAL STATEMENTS
8 SCHEDULE OF INVESTMENTS AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
NOTES TO SCHEDULE OF INVESTMENTS
FNMA = FEDERAL NATIONAL MORTGAGE ASSOCIATION
(1) NON-INCOME PRODUCING.
(2) SECURITY WAS PURCHASED UNDER RULE 144A OF THE SECURITIES ACT OF 1933 AND,
UNLESS REGISTERED UNDER THE ACT OR EXEMPTED FROM REGISTRATION, MAY ONLY BE
SOLD TO QUALIFIED INSTITUTIONAL INVESTORS THE AGGREGATE VALUE OF RESTRICTED
SECURITIES AT MARCH 31, 1998, WAS $3,030,000, WHICH REPRESENTED 2.0% OF NET
ASSETS.
(3) THE RATES FOR U.S. GOVERNMENT AGENCY DISCOUNT NOTES REPRESENT THE YIELD TO
MATURITY AT PURCHASE.
ANNUAL REPORT SCHEDULE OF INVESTMENTS 9
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998
ASSETS
Investment securities, at value
(identified cost of $145,340,384) (Note 3) ..................... $151,164,907
Cash ........................................................... 1,161,898
Receivable for investments sold ................................ 1,024,318
Dividend and interest receivable ............................... 469,962
Prepaid expenses and other assets .............................. 53,084
--------------
153,874,169
--------------
LIABILITIES
Disbursements in excess of demand deposit cash ................. 122,932
Payable for investments purchased .............................. 2,331,753
Payable for capital shares redeemed ............................ 533,784
Payable for management fees (Note 2) ........................... 168,064
Payable for directors' fees and expenses ....................... 154
--------------
3,156,687
--------------
Net Assets ..................................................... $150,717,48
==============
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) ........................ $142,657,32
Undistributed net investment income ............................ 409,964
Accumulated undistributed net realized
gain on investment transactions ................................ 1,825,672
Net unrealized appreciation on investments (Note 3) ............ 5,824,523
--------------
............................................................... $150,717,482
==============
Investor Class
Net assets ..................................................... $135,921,99
Shares outstanding ............................................. 8,434,494
Net asset value per share ...................................... $16.12
Institutional Class
Net assets ..................................................... $14,795,483
Shares outstanding ............................................. 918,018
Net asset value per share ...................................... $16.12
SEE NOTES TO FINANCIAL STATEMENTS
10 STATEMENT OF ASSETS AND LIABILITIES AMERICAN CENTURY INVESTMENTS
STATEMENTS OF OPERATIONS
PERIOD ENDED MARCH 31, 1998(1) AND YEAR ENDED OCTOBER 31,1997
INVESTMENT INCOME 1998 1997
Income:
Dividend ..............................................$2,427,932 $1,490,106
Interest .............................................. 125,733 92,427
----------- -----------
...................................................... 2,553,665 1,582,533
----------- -----------
Expenses (Note 2):
Management fees ....................................... 610,831 295,909
Custodian, transfer agent and administrative fees ..... -- 110,491
Auditing and legal fees ............................... -- 13,642
Organizational expenses ............................... -- 12,067
Directors' fees and expenses .......................... 4,112 11,146
Printing and postage .................................. -- 6,916
Registration and filing fees .......................... -- 3,368
Other operating expenses .............................. -- 11,874
----------- ------------
...................................................... 614,943 465,413
Amount waived/reimbursed .............................. (28,549) (147,197)
----------- ------------
Net expenses ........................................ 586,394 318,216
----------- ------------
Net investment income ................................. 1,967,271 1,264,317
----------- ------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3)
Net realized gain on investments ...................... 1,192,469 2,097,147
Change in net unrealized appreciation on investments .. 344,165 4,737,101
----------- ------------
Net realized and unrealized gain on investments ....... 1,536,634 6,834,248
----------- ------------
Net Increase in Net Assets Resulting from Operations ..$3,503,905 $8,098,565
========== ==========
(1) THE FUND'S FISCAL YEAR END WAS CHANGED FROM OCTOBER 31 TO MARCH 31 RESULTING
IN A FIVE MONTH ANNUAL REPORTING PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS
ANNUAL REPORT STATEMENT OF OPERATIONS 11
STATEMENTS OF CHANGES IN NET ASSETS
PERIOD ENDED MARCH 31, 1998 AND
YEARS ENDED OCTOBER 31, 1997 AND OCTOBER 31,1996
Increase in Net Assets 1998(1) 1997 1996
OPERATIONS
Net investment income .............$ 1,967,271 $ 1,264,317 $ 289,352
Net realized gain on
investment transactions ........... 1,192,469 2,097,147 198,658
Change in net unrealized
appreciation on investments ....... 344,165 4,737,101 825,847
------------ ----------- ------------
Net increase in net assets
resulting from operations ......... 3,503,905 8,098,565 1,313,857
------------ ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class .................. (1,148,389) (748,247) (155,292)
Institutional Class ............. (157,612) (75,141) --
From net realized gains from investment transactions:
Investor Class .................. (1,639,725) (643,767) --
Institutional Class ............. (222,854) -- --
------------ ----------- ------------
Decrease in net assets from
distributions ..................... (3,168,580) (1,467,155) (155,292)
------------ ----------- ------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase in net assets from
capital share transactions ........ 60,085,338 76,456,053 3,067,828
------------ ----------- ------------
Net increase in net assets ........ 60,420,663 83,087,463 4,226,393
NET ASSETS
Beginning of period ............... 90,296,819 7,209,356 2,982,963
------------ ----------- ------------
End of period ..................... $150,717,482 $90,296,819 $7,209,356
============== =========== ===========
Undistributed net investment
income ............................ $409,964 $239,230 $87,808
============== =========== ===========
(1)THE FUND'S FISCAL YEAR END WAS CHANGED FROM OCTOBER 31 TO MARCH 31 RESULTING
IN A FIVE MONTH ANNUAL REPORTING PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS
12 STATEMENTS OF CHANGES IN NET ASSETS AMERICAN CENTURY INVESTMENTS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Capital Portfolios, Inc. (the Corporation)
is registered under the Investment Company Act of 1940 as an open-end management
investment company. American Century Real Estate Fund (the Fund) is one of the
three funds issued by the Corporation. The Fund is non-diversified under the
1940 Act. The Fund's investment objective is long-term capital appreciation with
income as a secondary objective. The Fund seeks to achieve its objective by
investing primarily in securities issued by real estate investment trusts and in
the securities of companies which are principally engaged in the real estate
industry. There are certain additional risks involved in investing in the Fund
than a more diversified portfolio of investments. The Fund may be subject to
certain risks similar to those associated with direct ownership of real estate
including but not limited to: local or regional economic conditions, changes in
zoning laws, credit risk, and interest rate risk. The Fund is authorized to
issue three classes of shares: the Investor Class, the Advisor Class, and the
Institutional Class. The three classes of shares differ principally in their
respective shareholder servicing and distribution expenses and arrangements. All
shares of the Fund represent an equal pro rata interest in the assets of the
class to which such shares belong, and have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except for class
specific expenses and exclusive rights to vote on matters affecting only
individual classes. Sale of the Advisor Class had not commenced as of March 31,
1998. The following significant accounting policies, related to all classes of
the Fund, are in accordance with accounting policies generally accepted in the
investment company industry.
SECURITY VALUATIONS -- Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or the mean of
the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or at the last reported sales price. Debt securities not traded on
a principal securities exchange are valued through valuations obtained from a
commercial pricing service or at the mean of the most recent bid and asked
prices. When valuations are not readily available, securities are valued at fair
value as determined in accordance with procedures adopted by the Board of
Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal 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 Fund designates $463,044 of the total distributions as long-term
capital gains.
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 that affect the reported amounts of assets and
ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 13
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
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 -- Effective January 15, 1998, Funds Distributor,
Inc. (FDI) became 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. Prior to June 13, 1997, the
Fund had a management agreement with RREEF Real Estate Securities Advisers L.P.
(RESA).
On January 27, 1998, substantially all of the assets of 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 and
replaced by a substantially identical subadvisory agreement with RREEF, which
was approved by the Fund's Board of Directors in a special meeting on January
23, 1998. The subadvisory fee was waived during the period January 27, 1998
through February 18, 1998, when the SEC issued an exemptive order allowing RREEF
to continue as subadvisor, pending approval of the new subadvisory agreement by
the Fund shareholders. Pursuant to the terms of that order, from February 19,
1998 until shareholder approval is received, the subadvisory fee, paid by ACIM,
is being held in an escrow account. Shareholders are expected to vote on the new
agreement at a shareholder meeting scheduled to be held on May 20, 1998. 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 the 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, the
Corporation's transfer agent, American Century Services Corporation, and the
registered broker-dealer, American Century Investment Services, Inc.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Securities purchased, excluding short-term investments, totaled $89,364,662.
Securities sold, excluding short-term investments, totaled $34,272,889.
As of March 31, 1998, accumulated net unrealized appreciation was
$5,778,459, based on the aggregate cost of investments for federal income tax
purposes of $145,386,448, which consisted of unrealized appreciation of
$6,160,554 and unrealized depreciation of $382,095.
14 NOTES TO FINANCIAL STATEMENTS AMERICAN CENTURY INVESTMENTS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
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
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
============= =============
Year ended October 31, 1996
Sold ............................................. 272,098 $ 2,954,839
Issued in reinvestment of distributions .......... 10,855 116,612
Redeemed ......................................... (339) (3,623)
------------- -------------
Net increase ..................................... 282,614 $ 3,067,828
============= =============
INSTITUTIONAL CLASS
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 ANNUAL REPORTING PERIOD.
(2) SALE OF THE INSTITUTIONAL CLASS COMMENCED ON JUNE 16, 1997.
ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 15
FINANCIAL HIGHLIGHTS
INVESTOR CLASS
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
1998(1) 1997 1996 1995(2)
PER-SHARE DATA
Net Asset Value,
Beginning of Period ..................... $16.06 $12.29 $9.82 $10.00
-------- -------- -------- -------
Income From Investment Operations
Net Investment Income ................. 0.25(3) 0.67(3) 0.55 0.07
Net Realized and Unrealized Gain
(Loss) on Investment Transactions ..... 0.26 4.13 2.27 (0.25)
-------- -------- -------- -------
Total From Investment Operations ...... 0.51 4.80 2.82 (0.18)
-------- -------- -------- -------
Distributions
From Net Investment Income ............ (0.18) (0.48) (0.35) --
From Net Realized Gains on
Investment Transactions ............... (0.27) (0.55) -- --
-------- -------- -------- -------
Total Distributions ................... (0.45) (1.03) (0.35) --
-------- -------- -------- -------
Net Asset Value, End of Period ..........$16.12 $16.06 $12.29 $ 9.82
======== ======== ======== =======
Total Return(4) ....................... 3.26% 40.69% 29.28% (1.80)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ...................1.15%(5) 1.17% 1.00% 1.50%(5)
Ratio of Operating Expenses
to Average Net Assets
(before expense waivers and
reimbursements)(6) ......................1.20%(5) 1.82% 6.83% 14.83%(5)
Ratio of Net Investment Income
to Average Net Assets ...................3.75%(5) 4.48% 5.84% 6.66%(5)
Ratio of Net Investment Income
to Average Net Assets
(before expense waivers
and reimbursements)(6) ..................3.70%(5) 3.84% 0.01% (6.67)%(5)
Portfolio Turnover Rate ................. 28% 69% 86% --
Average Commission Paid per
Share of Equity Security Traded ......... $0.0534 $0.0528 $0.0545 --
Net Assets, End of Period
(in thousands) ..........................$135,922 $76,932 $7,209 $2,983
(1) 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 ANNUAL
REPORTING PERIOD.
(2) SEPTEMBER 21, 1995 (INCEPTION) THROUGH OCTOBER 31, 1995.
(3) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(4) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS, IF ANY. TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
(5) ANNUALIZED.
(6) 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 AND 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.
SEE NOTES TO FINANCIAL STATEMENTS
16 FINANCIAL HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
FINANCIAL HIGHLIGHTS
INSTITUTIONAL CLASS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED OCTOBER 31 (EXCEPT AS NOTED)
1998(1) 1997(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period .................... $16.06 $14.24
---------- ---------
Income From Investment Operations
Net Investment Income(3) .............................. 0.26 0.28
Net Realized and Unrealized Gain
on Investment Transactions ............................ 0.26 1.63
---------- ---------
Total From Investment Operations ...................... 0.52 1.91
---------- ---------
Distributions
From Net Investment Income ............................ (0.19) (0.09)
From Net Realized Gains on
Investment Transactions ............................... (0.27) --
---------- ---------
Total Distributions ................................... (0.46) (0.09)
---------- ---------
Net Asset Value, End of Period .......................... $16.12 $16.06
========== =========
Total Return(4) ....................................... 3.32% 13.40%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ....... 0.95%(5) 1.00%(5)
Ratio of Operating Expenses to Average Net Assets
(before expense waivers and reimbursements)(6) .......... 1.00%(5) --
Ratio of Net Investment Income to Average Net Assets .... 4.00%(5) 4.85%(5)
Ratio of Net Investment Income to Average Net Assets
(before expense waivers and reimbursements)(6) .......... 3.95%(5) --
Portfolio Turnover Rate ................................. 28% 69%
Average Commission Paid per Share of
Equity Security Traded .................................. $0.0534 $0.0528
Net Assets, End of Period (in thousands) ................ $14,795 $13,365
(1) FIVE MONTH PERIOD ENDING MARCH 31, 1998. THE FUND'S FISCAL YEAR END WAS
CHANGED FROM OCTOBER 31 TO MARCH 31 RESULTING IN A FIVE MONTH ANNUAL
REPORTING PERIOD.
(2) JUNE 16, 1997 (COMMENCEMENT OF SALE) THROUGH OCTOBER 31, 1997.
(3) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(4) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS, IF ANY. TOTAL RETURN IS NOT ANNUALIZED.
(5) ANNUALIZED.
(6) DURING THE PERIOD ENDED MARCH 31, 1998, A PORTION OF THE SUBADVISORY FEE,
WHICH IS PAID FOR SUBADVISORY SERVICES, WAS WAIVED.
ANNUAL REPORT FINANCIAL HIGHLIGHTS 17
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders, American Century Capital Portfolios,
Inc:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of American Century Real Estate Fund,
Inc. (the "Fund"), one of the funds comprising American Century Capital
Portfolios, Inc., as of March 31, 1998, and the related statements of operations
for the period November 1, 1997 through March 31, 1998 and for the year ended
October 31, 1997 and changes in net assets for the period November 1, 1997
through March 31, 1998 and each of the years in the two-year period ended
October 31, 1997, and the financial highlights for the period November 1, 1997
through March 31, 1998 and for each of the years in the two-year period ended
October 31, 1997 and the period September 21, 1995 (inception) through October
31, 1995. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at March
31, 1998 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of American Century
Real Estate Fund as of March 31, 1998, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
April 30, 1998
18 INDEPENDENT AUDITORS' REPORT AMERICAN CENTURY INVESTMENTS
SHARE CLASS AND RETIREMENT ACCOUNT INFORMATION
SHARE CLASSES
American Century offers three classes of shares for ACRE. One class is for
investors who buy directly from American Century, one is for investors who buy
through financial intermediaries, and the third is for large institutional
customers.
The original class of ACRE shares is called the INVESTOR CLASS. All shares
issued and outstanding before June 16, 1997, have been designated as Investor
Class shares. Investor Class shares may also be purchased after June 16, 1997.
Investor Class shareholders do not pay any commissions or other fees for
purchase of 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. The ADVISOR CLASS had not commenced as of March 31, 1998.
An INSTITUTIONAL CLASS is also available to endowments, foundations,
defined-benefit pension plans or financial intermediaries serving these
investors. This class recognizes the relatively lower cost of serving
institutional customers and others who invest at least $5 million in an American
Century fund or at least $10 million in multiple funds. In recognition of the
larger investments and account balances and comparatively lower transaction
costs, the total expense ratio of the Institutional Class is 0.20% less than the
total expense ratio of the Investor Class shares.
All classes of shares represent a pro rata interest in the funds and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)]
are subject to federal income tax withholding at the rate of 10% of the total
amount withdrawn, unless you elect not to have withholding apply. If you don't
want us to withhold on this amount, you may send us a written notice not to have
the federal income tax withheld. Your written notice is valid for six months
from the date of receipt at American Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid for only six months from the date of
receipt at American Century. You may revoke your election at any time by sending
a written notice to us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
ANNUAL REPORT SHARE CLASS AND RETIREMENT ACCOUNT INFORMATION 19
BACKGROUND INFORMATION
INVESTMENT PHILOSOPHY AND POLICIES
The American Century group offers eight equity funds, including four
"specialty" equity funds that concentrate their holdings in specific industries
or sectors of the stock market. These funds typically respond differently than
general equity funds to changing market or economic conditions. The funds are
managed to provide a broad representation of their respective industries.
AMERICAN CENTURY REAL ESTATE 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. It 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 $7 billion. The
fund management team consists of two experienced fund managers who select
investments within a framework established by a real estate investment policy
committee. (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 index is used in the report to serve as a fund performance
comparison. It is not an investment product available for purchase.
The WILSHIRE REIT INDEX (full name: Wilshire Real Estate Securities Index -
REIT component) is a market capitalization-weighted index comprised of 98 equity
REITs. It does not include special purpose or healthcare REITs.
- --------------------------------------------------------------------------------
INVESTMENT TEAM LEADERS
- --------------------------------------------------------------------------------
Portfolio Managers Kim Redding
Karen Knudson
- --------------------------------------------------------------------------------
20 BACKGROUND INFORMATION AMERICAN CENTURY INVESTMENTS
GLOSSARY
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on pages 16 and 17.
INVESTMENT TERMS
* 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.
ANNUAL REPORT GLOSSARY 21
[american century logo(reg.sm)]
American
Century(reg.tm)
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 INVESTMENT SERVICES, INC.
FUNDS DISTRIBUTOR, INC.
9804 [reycled logo]
SH-BKT-12221 Recycled
