[front cover]
MARCH 31, 1999
ANNUAL REPORT
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AMERICAN CENTURY
[graphic of eyeglasses, keyboard, fund listings]
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VALUE
EQUITY INCOME
SMALL CAP VALUE
[american century logo(reg.sm)]
American
Century
[inside front cover]
CLASSIFYING OUR FUNDS BY OBJECTIVE AND RISK
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In March, American Century introduced a new and simpler way to evaluate which
fund is right for you. The new system is based on a fund's objective and its
risks. Funds are classified under FOUR BROAD OBJECTIVES:
* Growth * Income
* Growth & Income * Capital Preservation
Funds are also divided according to RISK:
* Aggressive * Moderate * Conservative
The risk classification is based on a number of factors, including how much a
fund's share price has fluctuated in the past compared to two popular indices:
* Standard & Poor's 500 Stock Index
* Lehman Bros. Aggregate Bond Index
Aggressive funds tend to fluctuate more than the S&P 500 Index. Moderate funds
tend to fluctuate less than the S&P 500, but more than the Lehman Index.
Conservative funds tend to fluctuate less than the Lehman Index.
NEW, SIMPLER FUND NAMES
We also simplified the names of our funds. For example,
OLD FUND NAME NEW FUND NAME
- --------------------------------------------------------------------------------
American Century-Twentieth Century Ultra American Century Ultra
American Century-Benham GNMA Fund American Century GNMA Fund
These changes should make investing more convenient and understandable for you.
Turn to the inside back cover of this report to see a list of the funds
classified by objective and risk. For definitions of the fund categories, see
the Glossary.
WHAT'S NEW...
Our new fund guide, Investing with American Century, will help you
navigate through our selection of funds. This helpful booklet
includes information about risk levels, objectives, investment styles
and strategies.
American Century Catalog of Tools & Services lists all the free
educational materials available to investors.
FUND PROFILES are now available for many American Century funds when
you request information about a fund. Profiles are short pamphlets
that follow a standard SEC format and are intended to help you easily
compare our funds with other companies' funds. When you invest you
will receive a full prospectus, which contains more detailed
information about your new fund.
To order any of these materials, please call 1-800-345-2021.
[left margin]
VALUE
(TWVLX)
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EQUITY INCOME
(TWEIX)
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SMALL CAP VALUE
(N/A)
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Our Message to You
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[photo of James E. Stowers III and James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
These are unusual times in the equity markets. While the fortunes of a few
large growth stocks flourish, the vast majority of stocks languish--to the
frustration of portfolio managers and shareholders alike.
The fiscal year for American Century Value, Equity Income, and Small Cap
Value funds ended March 31, 1999, and it is safe to say this was a tough 12
months for all three funds. The difference between the performance of value and
growth stocks widened to historic proportions. As the year came to a close,
value stocks had never been cheaper relative to growth, and most small stocks
were in negative territory.
Under the circumstances, the funds did well, with Small Cap Value producing
strong relative results. The long-term records of Value and Equity Income remain
very competitive. Given the popular pessimism about value and small-stock
investing, and the bargains our portfolio teams are finding in these sectors,
this may be a good time to give these funds a closer look. We remain firm
believers that value and smaller stocks will return to favor.
On the corporate front, this was an exciting year at American Century. For
one, we consolidated all our funds under the American Century name. While we are
sorry to lose the venerable Twentieth Century and Benham names, we believe the
American Century nameplate makes it simpler for you to identify your funds.
We also reclassified our entire family of 71 funds, based on investment
goals and risk levels, so you can more easily choose the funds that are right
for you. A complete list of American Century funds sorted by their new
classifications is on the inside back cover of this report.
We also continued to expand the American Century investment team, which has
doubled over the last three years. Our portfolio teams have excellent depth,
with an array of experienced managers and analysts, and we remain committed to
building and maintaining a talented management group. Performance is too
hard-won, and our business too competitive, not to do so.
Speaking of performance, take a look at our enhanced Web site. Among the
new features are daily fund information, including performance and price data,
market and national news, and a Forms Center with access to the most-requested
investor forms and applications. You also can sign up to receive fund
prospectuses and shareholder reports electronically.
Finally, a quick update on Year 2000. Our critical systems have been
renovated, tested, and returned to production. We continue to test these
systems, as well as participate in industry-wide tests with our business
partners.
As always, we appreciate your continued confidence in American Century.
Sincerely,
[signature] [signature]
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Vice Chairman of the Board
and Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
VALUE
Performance ............................................................ 4
Management Q&A ......................................................... 5
Schedule of Investments ................................................ 8
Financial Highlights ................................................... 30
EQUITY INCOME
Performance ............................................................ 10
Management Q&A ......................................................... 11
Schedule of Investments ................................................ 14
Financial Highlights ................................................... 33
SMALL CAP VALUE
Performance ............................................................ 16
Management Q&A ......................................................... 17
Schedule of Investments ................................................ 20
Financial Highlights ................................................... 36
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities ......................................................... 22
Statements of Operations ............................................... 23
Statements of Changes
in Net Assets ....................................................... 24
Notes to Financial
Statements .......................................................... 25
Independent Auditors'
Report .............................................................. 38
OTHER INFORMATION
Share Class and Retirement
Account Information ................................................. 39
Background Information
Investment Philosophy
and Policies ..................................................... 40
Comparative Indices ................................................. 40
Portfolio Managers .................................................. 40
Glossary ............................................................... 41
www.americancentury.com 1
Report Highlights
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MARKET PERSPECTIVE
* The year ended March 31, 1999, was a volatile period for the U.S. stock
market. The domestic economy demonstrated strong growth throughout 1998 and
into 1999. However, deteriorating global economic and financial conditions
ignited investor anxiety and fueled a sharp correction in the third quarter
of 1998. The Federal Reserve Board lowered interest rates three times in
rapid succession in an effort to stabilize global markets that were reeling
from economic crises abroad.
* For most of the year, returns remained concentrated in a handful of large,
well-known companies. Although many large companies posted respectable
earnings, it was not necessarily a market in which earnings were the
attraction. The growth investment style also performed better than the
value style.
VALUE
* Value posted a total return of -9.88% for its fiscal year. The fund lagged
its benchmark, the S&P 500/BARRA Value Index, which gained 5.73%. The S&P
500 posted a 18.42% gain.
* The market's long-running bias toward large-capitalization stocks worked
against Value during the year, as did investors' preference for the more
visible earnings and liquidity found in growth stocks, despite their
elevated valuations.
* Merger and acquisition activity helped boost performance. More than a dozen
companies in Value's portfolio were acquisition targets this year.
* Energy and energy-related stocks were the weakest performers. Value's
portfolio was tilted toward exploration and production companies and oil
services companies, which suffered the most as oil and gas prices declined.
EQUITY INCOME
* For the year ended March 31, 1999, Equity Income declined 0.44%. It
underperformed its benchmark, the Lipper Equity Income Index, which gained
1.59% for the year.
* Investors continued their preference for the more visible growth and
liquidity of large-cap growth stocks, and small- and mid-cap shares
struggled. This preference worked against Equity Income during the year.
* As large-cap stocks have become more expensive, mid-cap firms have grown
increasingly attractive on a valuation basis. As a result, merger and
acquisition activity has increased in many industries. This trend benefited
Equity Income's performance.
* The fund's stake in gas utilities dampened performance, as did holdings in
the food and beverage industry.
SMALL CAP VALUE
* Small Cap Value opened on July 31, 1998. As of March 31, 1999, it posted a
life-of-fund return of -4.24%. Small Cap Value's benchmark, the S&P
SmallCap 600/BARRA Value, returned -11.71% in that timeframe.
* Small Cap Value's stronger relative performance was primarily the result of
its heavier concentrations in several top-performing industries, including
electrical equipment companies. Strong individual stock selection also was
helpful.
* Performance was constrained by Small Cap Value's significant stake in
energy exploration and natural gas companies, which struggled as oil and
gas prices declined. Food and beverage stocks also were disappointing.
[left margin]
VALUE(1)
(TWVLX)
TOTAL RETURNS: AS OF 3/31/99
6 Months 6.28%(2)
1 Year -9.88%
INCEPTION DATE: 9/1/93
NET ASSETS: $1.8 billion(3)
EQUITY INCOME(1)
(TWEIX)
TOTAL RETURNS: AS OF 3/31/99
6 Months 8.80%(2)
1 Year -0.44%
INCEPTION DATE: 8/1/94
NET ASSETS: $311.5 million(3)
30-DAY SEC YIELD: 3.59%(1)
SMALL CAP VALUE(1)
(ASVIX)
TOTAL RETURNS: AS OF 3/31/99
6 Months 6.16%(2)
Since Inception -4.24%(2)
INCEPTION DATE: 7/31/98
NET ASSETS: $12.4 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor, Advisor, and Institutional classes.
Investment terms are defined in the Glossary on pages 41-42.
2 1-800-345-2021
Market Perspective from Mark Mallon
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[photo of Mark Mallon}
Mark Mallon, head of growth and income equity, specialty, and asset allocation
funds at American Century
BEHIND THE NUMBERS
The fiscal year for American Century Value, Equity Income, and Small Cap
Value funds ended March 31, 1999, and if you look at the most popular stock
averages, it was a very good year. The Standard & Poor's 500 Index gained
18.42%, the NASDAQ Composite, powered by technology stocks, was up a whopping
34.10%, and the Dow Jones 30 Industrials rose 13.16%.
Hidden in the numbers, however, was the sharp correction at mid-year, which
ended only after the Federal Reserve Board lowered interest rates three times in
rapid succession and successfully stabilized global markets that were reeling
from economic crises abroad. Also hidden was the market's narrow leadership,
which for the most part was confined to large growth stocks.
FROTH...
The fact is, for most of the year, returns remained concentrated in a
handful of large, well-known companies. The first quarter of calendar 1999 is
representative: Just five stocks generated half of the S&P 500's performance,
and a mere 18 accounted for 100% of index returns, according to Morgan Stanley
Dean Witter. (Because the S&P 500 is weighted by market value, the higher the
total value of a company's stock, the more it influences index results.)
Morgan Stanley Dean Witter calculates that the other 482 stocks in the S&P
500 essentially canceled each other out in the first quarter. As the quarter
went, so went the year (ended March 31, 1999).
Although many large companies posted respectable earnings, it was not
necessarily a market in which earnings were the real attraction. It was not that
unusual for Internet stocks to appreciate several-fold this year, with, or more
often without, earnings. One virtual retailer of airline tickets, who lost $114
million last year and had less than a year as a public company, garnered a
market value greater than American Airlines.
...AND FUNDAMENTALS
Though stocks are expensive by a number of measures, their prices draw
support from an extraordinary economy. We are experiencing the longest economic
expansion in fifty years. Unemployment, inflation, and interest rates are as low
as they have been in a generation. U.S. consumers, who drive two-thirds of the
growth in domestic goods and services, remain confident.
VALUE: CONTRARIANS TAKE NOTE
Conservative investors have not been well paid over the last few years. At
the end of March, value stocks were as cheap as they have ever been relative to
growth stocks. Historically, however, the value investment style has held its
own against growth. We are seeing a lot of very compelling value opportunities
in the current market, especially among small and mid-size companies. We
continue to believe returns on these stocks will prove very competitive over
time.
[right margin]
"WE ARE SEEING A LOT OF VERY COMPELLING VALUE OPPORTUNITIES IN THE CURRENT
MARKET, ESPECIALLY AMONG SMALL AND MID-SIZE COMPANIES. WE CONTINUE TO BELIEVE
RETURNS ON THESE STOCKS WILL PROVE VERY COMPETITIVE OVER TIME."
MARKET RETURNS
FOR THE YEAR ENDED MARCH 31, 1999
S&P 500/BARRA VALUE 5.73%
S&P MIDCAP 400/BARRA VALUE -12.38%
S&P SMALLCAP 600/BARRA VALUE -22.91%
Source: Lipper Inc. and Frank Russell Co.
These indices represent the performance of large-, medium- and
small-capitalization value stocks.
[mountain chart - data below]
MARKET PERFORMANCE (PERFORMANCE OF $1.00)
FOR THE YEAR ENDED MARCH 31, 1999
Date S&P 500/ S&P MidCap 400/ S&P SmallCap 600/
BARRA Value BARRA Value BARRA Value
3/31/98 1.00 1.00 1.00
4/30/98 1.01 1.01 1.01
5/31/98 1.00 0.97 0.96
6/30/98 1.01 0.96 0.96
7/31/98 0.98 0.92 0.87
8/31/98 0.83 0.77 0.72
9/30/98 0.88 0.83 0.75
10/31/98 0.94 0.89 0.79
11/30/98 0.99 0.91 0.82
12/31/98 1.03 0.95 0.85
1/31/99 1.05 0.90 0.84
2/28/99 1.03 0.86 0.77
3/31/99 1.06 0.88 0.77
Value on 3/31/99
S&P 500/BARRA Value $1.06
S&P MidCap 400/BARRA Value $0.88
S&P SmallCap 600/BARRA Value $0.77
www.americancentury.com 3
Value--Performance
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TOTAL RETURNS AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
INVESTOR CLASS ADVISOR CLASS INSTITUTIONAL CLASS
(INCEPTION 9/1/93) (INCEPTION 10/2/96) (INCEPTION 7/31/97)
VALUE S&P 500/ VALUE S&P 500/ VALUE S&P 500/
BARRA VALUE BARRA VALUE BARRA VALUE
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) 6.28% 20.78% 6.15% 20.78% 6.42% 20.78%
1 YEAR -9.88% 5.73% -10.09% 5.73% -9.52% 5.73%
==========================================================================================
AVERAGE ANNUAL RETURNS
==========================================================================================
3 YEARS 13.50% 20.69% -- -- -- --
5 YEARS 17.29% 21.36% -- -- -- --
LIFE OF FUND 15.54% 18.30% 13.01% 23.02%(2) 3.55% 12.59%
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) Since 9/30/96, the date nearest the class's inception for which data are
available.
See pages 39-42 for information about share classes, the S&P 500/BARRA Value
Index and returns.
[mountain chart - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
$10,000 investment made 9/1/93
Date Value S&P 500/BARRA Value
9/1/93 10000 10000
9/30/93 10000 9996
12/31/93 10307 10038
3/31/94 10083 9710
6/30/94 10270 9800
9/30/94 10741 10051
12/31/94 10718 9976
3/31/95 11953 10937
6/30/95 12743 11890
9/30/95 13305 12836
12/31/95 14233 13667
3/31/96 15295 14540
6/30/96 16121 14838
9/30/96 16253 15230
12/31/96 17683 16672
3/31/97 17745 16967
6/30/97 20029 19422
9/30/97 22396 21201
12/31/97 22282 21672
3/31/98 24833 24175
6/30/98 23621 24301
9/30/98 21058 21164
12/31/98 23396 24853
3/31/99 22382 25561
Value on 3/31/99
S&P 500/ BARRA Value $25,561
Value $22,382
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the chart below shows the fund's year-by-year performance. The S&P
500/BARRA Value Index is provided for comparison in each graph. Value's total
returns include operating expenses (such as transaction costs and management
fees) that reduce returns, while the total returns of the S&P 500/BARRA Value
Index do not. The graphs are based on Investor Class shares only; performance
for other classes will vary due to differences in fee structures (see the Total
Returns table above). 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.
[bar chart - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDING MARCH 31)
Date Value S&P 500/ BARRA Value
3/31/94 0.83% -2.91%
3/31/95 18.56% 12.64%
3/31/96 28.06% 32.94%
3/31/97 15.92% 16.70%
3/31/98 39.94% 42.48%
3/31/99 -9.88% 5.73%
*From 9/1/93 to 3/31/94.
4 1-800-345-2021
Value--Q&A
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[photo of Scott Moore and Phil Davidson]
Scott Moore and Phil Davidson, portfolio managers on the Value fund
An interview with Phil Davidson and Scott Moore, portfolio managers on the
Value Fund investment team
HOW DID VALUE PERFORM FOR THE YEAR ENDED MARCH 31, 1999?*
Value declined 9.88% during its fiscal year. The fund's benchmark, the S&P
500/BARRA Value Index, gained 5.73%. The S&P 500 Index posted an 18.42% gain for
the year.
WHAT MARKET CONDITIONS OR FACTORS INFLUENCED VALUE'S PERFORMANCE?
The market's long-running bias toward large-capitalization stocks continued
during the fund's fiscal year and was a major factor in Value's underperformance
relative to its benchmark and the broader market. If anything, large stocks
lengthened their lead over mid-cap issues. Compared to the S&P 500's gain, the
S&P MidCap 400/BARRA Value Index declined 12.38%. Small-cap stocks fared even
worse; the S&P SmallCap 600/BARRA Value Index declined 22.91% for the year
ending March 31, 1999. Value is a blend of small-, mid-, and large-cap
companies, but it remains tilted toward the mid-cap sector because valuations in
that arena continue to be much more attractive than those in what has become a
very expensive large-cap sector.
The growth investment style also has continued to perform better than the
value style. Investors have maintained their preference for the more visible
growth and liquidity found in larger-cap names, despite their elevated
valuations. For the year, the S&P 500/BARRA Growth Index posted a 30.69% gain.
WHICH INDUSTRIES OR STOCKS CONTRIBUTED TO PERFORMANCE?
Merger and acquisition activity in several sectors helped boost performance
throughout the fiscal year, particularly during the second half. All told, at
March 31 more than 13 fund holdings were acquisition targets.
Morton International, which manufactures and distributes salt and various
specialty chemicals, serves as one example. Morton is a very sound, financially
stable company that had begun to have problems on several fronts. Its specialty
chemicals division, which generates about 60% of operating income, suffered due
to weakened demand in Asia and competitive pricing pressures in a number of its
product lines. The company's problems were exacerbated by a warmer-than-normal
winter, which resulted in softer sales of salt for ice-control purposes. We
built a significant position as the stock price weakened and then were rewarded
in February when Morton announced chemical giant Rohm and Haas would acquire it.
Proposed acquisition of AMP, one of Value's largest holdings during the
year, helped the fund as well. AMP is the world's leading designer and producer
of electronic connection devices. The company's share price had slumped due to
decreasing demand for products in
*All fund returns referenced in this interview are for Investor Class shares.
[right margin]
"VALUE IS A BLEND OF SMALL-, MID-, AND LARGE-CAP COMPANIES, BUT IT REMAINS
TILTED TOWARD THE MID-CAP SECTOR BECAUSE VALUATIONS IN THAT ARENA CONTINUE TO BE
MUCH MORE ATTRACTIVE THAN THOSE IN WHAT HAS BECOME A VERY EXPENSIVE LARGE-CAP
SECTOR."
PORTFOLIO AT A GLANCE
3/31/99 3/31/98
NO. OF COMPANIES 71 72
MEDIAN P/E RATIO 15.5 19.0
MEDIAN MARKET $1.87 $2.50
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 130% 130%
EXPENSE RATIO (FOR
INVESTOR CLASS) 1.00% 1.00%
Investment terms are defined in the Glossary on pages 41-42.
www.americancentury.com 5
Value--Q&A
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(Continued)
troubled Asian markets and increasing competitive pressures. We were attracted
to AMP because it had an excellent balance sheet, leading market share and
consistently good dividends, and we viewed its troubles as transitory. The stock
rose substantially when Allied Signal attempted a hostile takeover, and then
jumped again when Tyco, Inc. announced plans in November to acquire AMP at a
significant premium to its share price. We subsequently sold our position at a
nice gain.
Browning Ferris, the United States' second-largest waste disposal firm, was
another fund holding whose merger was helpful. Its stock price improved
dramatically in March, when another waste management firm, Allied Waste
Industries, tendered a $45 per-share cash bid.
BankAmerica, among Value's most concentrated positions, also enjoyed a
dramatic share-price appreciation. BankAmerica's stock price had been beaten
down due to the much-publicized failure of the D.E. Shaw hedge fund, to which
the bank had broad exposure. The hedge fund debacle was, in fact, insignificant
to the bank's health, but the ensuing investor scare cut the stock's value in
half. BankAmerica is fundamentally quite strong and has leading market share. We
were confident its problems were temporary, so we bought into that weakness and
built a substantial position. The stock ultimately turned around, and we sold it
at a significant gain when it approached what we believed to be fair value.
Although the recent wave of mergers has been helpful to performance, we
wish to stress that we do not invest in companies simply because we believe they
are likely to be acquired. However, companies that are likely to be acquired
demonstrate many of the investment characteristics we seek--a strong underlying
business at an attractive price. As the prices of larger companies have risen,
mid-cap stocks have become increasingly attractive on a valuation basis, and the
mid-cap arena has become a buyer's market for companies eager to expand.
WHICH SECTORS OR STOCKS DAMPENED PERFORMANCE?
Without exception, the weakest performers were energy and energy-related
stocks, which have basically been on a downward trend until very recently.
However, it wasn't the weighting in energy-related companies that hurt as much
as the mix of companies. Value's portfolio was tilted toward exploration and
production companies and oil services companies, both of which are more
sensitive to falling energy prices than integrated energy companies are, and
therefore suffered disproportionately as oil and gas prices declined.
Another solid holding that hurt performance was Florida Power and Light
(FPL), which supplies electricity to eastern and southern Florida. FPL is a
low-cost electric utility. The utility group as a whole has struggled as
interest rates have edged back up. Additionally, investors became concerned that
revenues would decline due to a company-specific rate case, and we were able to
acquire FPL at a nice discount. We think FPL is well positioned going forward
and are therefore holding onto our position.
There were several disappointments outside of the energy sector, among them
Archer-Daniels-Midland Co. (ADM), which has been a very solid performer in the
past. ADM has been struggling through a deflationary trend in soybean
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
3/31/99 9/30/98
MINNESOTA MINING &
MANUFACTURING CO. 5.0% 2.0%
MERCANTILE
BANCORPORATION INC. 4.9% 4.5%
FIRST VIRGINIA
BANKS, INC. 3.5% 1.8%
FPL GROUP, INC. 3.1% --
COLUMBIA/HCA
HEALTHCARE CORP. 3.1% --
SUPERIOR INDUSTRIES
INTERNATIONAL, INC. 2.9% 2.7%
AETNA INC. 2.9% 2.0%
GTECH HOLDINGS CORP. 2.7% 2.6%
BAKER HUGHES INC. 2.7% 2.0%
ARCHER-DANIELS-
MIDLAND CO. 2.5% 2.8%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
3/31/99 9/30/98
BANKING 11.1% 9.4%
UTILITIES 9.1% 6.7%
ENERGY (PRODUCTION
& MARKETING) 9.1% 8.5%
HEALTHCARE 9.0% 6.8%
FOOD & BEVERAGE 7.1% 7.8%
6 1-800-345-2021
Value--Q&A
- --------------------------------------------------------------------------------
(Continued)
commodity prices. Demand continues to be weak, due partly to problems in various
foreign markets, while capacity has increased. However, ADM is in a strong
competitive position, has a very healthy balance sheet, and continues to
represent an excellent value. We are holding the position.
Interstate Bakeries also was disappointing. Interstate is the largest
wholesale baker and distributor of fresh bread and snack cakes in the United
States. The company is well managed and financially sound, but has struggled
recently as pricing pressure has increased, due in part to low wheat costs that
have made it easier for smaller bakery companies to compete. However, we don't
believe that Interstate's current problems are serious and believe that the
company has never been fundamentally stronger, so we're sitting tight.
WHAT SIGNIFICANT CHANGES DID YOU MAKE TO THE PORTFOLIO SINCE THE SEMIANNUAL
REPORT?
We increased the fund's weighting in both utilities and energy companies as
prices became increasingly attractive. We beefed up the stake in banks by about
2% to take advantage of improving values, and also increased holdings in the
healthcare industry. This was not a tactical effort or response to any theme
within the healthcare industry. Rather, the increase was focused on a single
company, Columbia/HCA Healthcare Corp., which has struggled amid the controversy
surrounding an investigation of its billing practices. We believe the company
will emerge from the investigation relatively unscathed and its price will
subsequently rebound to fair value.
On the sell side, acquisition activity resulted in reduced weightings,
relative to a year ago, in chemicals and resins and electronics companies. The
fund's stake in the communications equipment industry and in metals and mining
companies decreased somewhat as well.
WERE THERE ANY CHANGES TO VALUE'S MANAGEMENT TEAM?
Yes. Scott Moore, who has been an analyst on Value's management team, was
promoted to portfolio manager. We also added to our team of investment analysts.
WHAT IS YOUR OUTLOOK FOR VALUE INVESTING?
Although this has not been a rewarding environment recently for value
investors, the extended preference for large-cap growth has caused value stocks
to become even more undervalued relative to growth stocks on a historical basis.
We are finding an abundance of sound, high-quality companies available at very
good values, many of which we consider to be "must own" opportunities. As a
result, we are maintaining significant positions in industries or sectors that
we think are especially attractive.
[right margin]
"WE ARE FINDING AN ABUNDANCE OF SOUND, HIGH-QUALITY COMPANIES AVAILABLE AT VERY
GOOD VALUES, MANY OF WHICH WE CONSIDER TO BE 'MUST OWN' OPPORTUNITIES."
[pie charts - data below]
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF MARCH 31, 1999
Temporary Investments 1.9%
Common Stocks 98.1%
AS OF SEPTEMBER 30, 1998
Temporary Investments 5.6%
Common Stocks 94.4%
www.americancentury.com 7
Value--Schedule of Investments
- --------------------------------------------------------------------------------
MARCH 31, 1999
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS--98.1%
AUTOMOBILES & AUTO PARTS--3.6%
600,000 Cooper Tire and Rubber Company $11,025,000
2,292,000 Superior Industries International, Inc.(1) 53,289,000
----------------
64,314,000
----------------
BANKING--11.1%
1,382,750 First Virginia Banks, Inc. 63,174,391
1,857,600 Mercantile Bancorporation Inc. 88,236,000
124,000 Regions Financial Corp. 4,301,250
1,140,400 Summit Bancorp. 44,475,600
----------------
200,187,241
----------------
BUILDING & HOME IMPROVEMENTS--1.1%
574,000 York International Corporation 20,269,375
----------------
CHEMICALS & RESINS--5.1%
1,180,000 IMC Global Inc. 24,116,250
524,200 International Specialty Products Inc.(2) 3,964,263
1,150,000 Lubrizol Corp. 25,875,000
1,478,800 Nalco Chemical Co. 39,280,625
----------------
93,236,138
----------------
COMMUNICATIONS EQUIPMENT--2.0%
2,175,000 Andrew Corp.(2) 26,847,656
326,000 Harris Corp. 9,331,750
----------------
36,179,406
----------------
COMPUTER SOFTWARE & SERVICES--2.7%
2,000,000 GTECH Holdings Corp.(1)(2) 48,750,000
----------------
CONSUMER PRODUCTS--2.1%
693,000 Whirlpool Corp. 37,681,875
----------------
DIVERSIFIED COMPANIES--5.0%
1,283,900 Minnesota Mining & Manufacturing Co. 90,835,918
----------------
ELECTRICAL & ELECTRONIC
COMPONENTS--3.4%
310,400 Arrow Electronics, Inc.(2) 4,656,000
424,900 Avnet, Inc. 15,561,963
836,500 Littelfuse, Inc.(2) 15,422,969
1,807,100 Vishay Intertechnology, Inc. 26,315,894
----------------
61,956,826
----------------
ENERGY (PRODUCTION & MARKETING)--9.1%
949,000 Apache Corp. 24,733,313
187,000 Atlantic Richfield Co. 13,651,000
1,061,000 Burlington Resources Inc. 42,373,688
695,200 Murphy Oil Corp. 28,850,800
931,000 Ocean Energy Inc.(2) 6,342,438
252,000 Royal Dutch Petroleum Co. 13,104,000
Shares Value
- --------------------------------------------------------------------------------
480,000 Swift Energy Co.(1)(2) $4,050,000
320,000 Ultramar Diamond Shamrock Corp. 6,920,000
650,000 Unocal Corp. 23,928,125
----------------
163,953,364
----------------
ENERGY (SERVICES)--2.7%
2,000,000 Baker Hughes Inc. 48,625,000
----------------
FINANCIAL SERVICES--1.1%
663,500 CIT Group, Inc. (The) Cl A 20,278,219
----------------
FOOD & BEVERAGE--7.1%
3,124,364 Archer-Daniels-Midland Co. 45,889,096
2,000,700 Interstate Bakeries Corp. 43,140,094
1,937,200 Tyson Foods, Inc. Cl A 40,075,825
----------------
129,105,015
----------------
HEALTHCARE--9.0%
629,200 Aetna Inc. 52,223,600
769,900 Beckman Coulter Inc. 33,875,600
2,921,000 Columbia/HCA Healthcare Corp. 55,316,438
650,000 Dentsply International Inc. 15,092,188
420,000 Lab Holdings Inc.(1) 7,035,000
----------------
163,542,826
----------------
INDUSTRIAL EQUIPMENT & MACHINERY--1.4%
483,600 Tecumseh Products Cl A 24,467,138
----------------
INSURANCE--4.1%
513,300 Argonaut Group, Inc. 12,976,866
680,100 Berkley (W.R.) Corp. 16,768,716
410,100 Chubb Corp. (The) 24,016,481
509,600 CNA Financial Corp.(2) 19,778,850
----------------
73,540,913
----------------
MACHINERY & EQUIPMENT--4.3%
1,050,000 Cooper Industries, Inc. 44,756,250
2,083,300 Flowserve Corp.(1) 32,421,356
----------------
77,177,606
----------------
METALS & MINING--0.3%
380,000 Arch Coal Inc. 5,035,000
----------------
PACKAGING & CONTAINERS--1.1%
279,700 Bemis Co., Inc. 8,688,181
431,000 Tenneco Inc. 12,041,063
----------------
20,729,244
----------------
PAPER & FOREST PRODUCTS--2.4%
400,000 Rayonier, Inc. 16,025,000
1,300,000 Westvaco Corp. 27,300,000
----------------
43,325,000
----------------
PRINTING & PUBLISHING--1.2%
1,133,000 Banta Corp. 21,527,000
----------------
RAILROAD--1.1%
500,000 CSX Corp. 19,468,750
----------------
See Notes to Financial Statements
8 1-800-345-2021
Value--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
MARCH 31, 1999
Shares Value
- --------------------------------------------------------------------------------
RESTAURANTS--1.3%
1,350,000 CBRL Group, Inc. $24,257,813
----------------
RETAIL (GENERAL MERCHANDISE)--3.3%
750,000 Dillard's Inc. Cl A 19,031,250
1,000,000 Penney (J.C.) Company, Inc. 40,500,000
----------------
59,531,250
----------------
RETAIL (SPECIALTY)--0.3%
335,000 Toys 'R' Us, Inc.(2) 6,302,188
----------------
TELEPHONE COMMUNICATIONS--0.3%
90,400 GTE Corp. 5,469,200
----------------
TEXTILES & APPAREL--0.4%
720,400 Fruit of the Loom, Inc.(2) 7,474,150
----------------
TOBACCO--1.3%
300,000 Schweitzer-Mauduit International, Inc. 3,450,000
760,800 UST Inc. 19,875,900
----------------
23,325,900
----------------
TRANSPORTATION--1.1%
521,600 XTRA Corp. 19,983,800
----------------
UTILITIES--9.1%
252,200 AGL Resources Inc. 4,429,263
881,500 Ameren Corp. 31,899,281
347,000 Florida Progress Corp. 13,099,250
1,041,800 FPL Group, Inc. 55,475,850
225,000 Nevada Power Co. 5,568,750
Shares Value
- --------------------------------------------------------------------------------
1,530,000 Niagara Mohawk Holdings Inc.(2) $20,559,375
229,100 People's Energy Corp. 7,402,794
574,900 Sierra Pacific Resources 20,229,294
281,000 Washington Gas Light Co. 6,357,625
----------------
165,021,482
----------------
TOTAL COMMON STOCKS 1,775,551,637
----------------
(Cost $1,905,498,721)
TEMPORARY CASH INVESTMENTS--1.9%
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 4.84%, dated 3/31/99,
due 4/1/99 (Delivery value $27,203,657) 27,200,000
Repurchase Agreement, Morgan Stanley Group,
Inc., (U.S. Treasury obligations), in a joint
trading account at 4.90%, dated 3/31/99,
due 4/1/99 (Delivery value $7,300,994) 7,300,000
----------------
TOTAL TEMPORARY CASH INVESTMENTS 34,500,000
----------------
(Cost $34,500,000)
TOTAL INVESTMENT SECURITIES--100.0% $1,810,051,637
================
(Cost $1,939,998,721)
NOTES TO SCHEDULE OF INVESTMENTS
(1) Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as defined in the
Investment Company Act of 1940. (See Note 5 in Notes to Financial
Statements for a summary of transactions for each issuer who is or was an
affiliate at or during the year ended March 31, 1999.)
(2) Non-income producing.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule shows you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the number of shares of each stock
* the market value of each investment
* the percentage of total investments in each industry
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
www.americancentury.com 9
Equity Income--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
INVESTOR CLASS ADVISOR CLASS INSTITUTIONAL CLASS
(INCEPTION 8/1/94) (INCEPTION 3/7/97) (INCEPTION 7/8/98)
EQUITY LIPPER EQUITY EQUITY LIPPER EQUITY EQUITY LIPPER EQUITY
INCOME INCOME INCOME INCOME INCOME INCOME
FUND INDEX FUND INDEX FUND INDEX
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) 8.80% 13.33% 8.66% 13.33% 8.91% 13.33%
1 YEAR -0.44% 1.59% -0.75% 1.59% -- --
==========================================================================================
AVERAGE ANNUAL RETURNS
==========================================================================================
3 YEARS 16.79% 17.17% -- -- -- --
LIFE OF
FUND 18.63% 17.87% 14.69% 18.28%(2) 1.60% 4.78%(3)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) Since 3/31/97, the date nearest the class's inception for which data are
available.
(3) Since 7/31/98, the date nearest the class's inception for which data are
available.
See pages 39-42 for information about share classes, the Lipper Equity Income
Fund Index and returns.
[mountain chart - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
$10,000 investment made 8/1/94
Equity Income Lipper Equity S&P 500
Income
Date Fund Index
8/1/94 10000 10000 10000
9/30/94 10248 10137 10155
12/31/94 10051 9887 10153
3/31/95 11067 10632 11141
6/30/95 11807 11369 12203
9/30/95 12345 12192 13171
12/31/95 13029 12834 13964
3/31/96 13910 13390 14714
6/30/96 14555 13733 15373
9/30/96 14925 14083 15849
12/31/96 16067 15142 17169
3/31/97 16168 15398 17631
6/30/97 18336 17403 20705
9/30/97 20050 18767 22256
12/31/97 20606 19255 22895
3/31/98 22277 21204 26086
6/30/98 21740 21102 26952
9/30/98 20386 19009 24279
12/31/98 23278 21524 29445
3/31/99 22182 21543 30887
Value on 3/31/99
S&P 500 $30,887
Equity Income $22,182
Lipper Equity Income Fund Index $21,543
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the chart below shows the fund's year-by-year performance. The S&P
500 Index and the Lipper Equity Income Fund Index are provided for comparison.
Equity Income's total returns include operating expenses (such as transaction
costs and management fees) that reduce returns, while the total returns of the
S&P 500 Index and the Lipper Equity Income Fund Index do not. The graphs are
based on Investor Class shares only; performance for other classes will vary due
to differences in fee structures (see the Total Returns table above). 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.
[bar chart - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDING MARCH 31)
Equity Income Lipper Equity
Income
Date Fund Index
3/31/95 10.69% 6.32%
3/31/96 25.67% 25.95%
3/31/97 16.24% 15.39%
3/31/98 37.78% 37.52%
3/31/99 -0.44% 1.59%
*From 8/1/94 to 3/31/95.
10 1-800-345-2021
Equity Income--Q&A
- --------------------------------------------------------------------------------
An interview with Phil Davidson and Scott Moore, portfolio managers on the
Equity Income investment team. A photo of Phil and Scott appears on page 5.
HOW DID THE FUND PERFORM DURING ITS FISCAL YEAR?*
For the year ended March 31, 1999, Equity Income declined 0.44%. The fund's
benchmark index, the Lipper Equity Income Fund Index, gained 1.59% during the
year, while the S&P 500 Index posted an 18.42% return.
WHAT MARKET FACTORS INFLUENCED EQUITY INCOME'S PERFORMANCE?
Investors have continued their preference for the more visible growth and
liquidity of large-cap growth stocks. As a result, small- and mid-cap shares
have struggled, and conservatively valued stocks have also had to swim against
the current. In fact, the spread between the fortunes of large- and mid-cap
stocks is almost unprecedented. During the 12 months, the S&P MidCap 400/BARRA
Value Index declined 12.38%. The reality was even harsher for small-cap issues.
The S&P SmallCap 600/BARRA Value Index was down 22.91%.
Although we would have liked Equity Income to post more robust returns, we
wish to stress that as our most conservative all-equity fund, one of Equity
Income's goals is to fare better than the broader market during periods of
volatility. In periods of turmoil, the fund has typically outperformed not only
the broad market, but also almost all funds in the Lipper Equity Income
universe. The fund was again successful in meeting this goal during the market
sell-off that occurred last August. From July 17 through August 31, the S&P 500
dropped 19.31%, while Equity Income declined 10.14%. We are pleased with this
strong relative performance and expect the fund's defensive nature to continue
to be an advantage should the market become volatile again.
WHICH SECTORS OR STOCKS CONTRIBUTED TO PERFORMANCE?
Merger and acquisition activity within several sectors was very helpful. We
don't specifically look for companies that are likely acquisition candidates,
but we are finding an abundance of such companies available, and these companies
often demonstrate the characteristics we look for. As large-cap stocks have
become pricier in recent years, mid-cap firms have become increasingly
attractive on a valuation basis. As a result, we are seeing unprecedented
consolidation in a number of industries. In fact, 15 of Equity Income's holdings
were acquisition targets during the year.
Elsag Bailey, which was Equity Income's greatest contributor, is a good
example of an acquisition that added to returns. Elsag manufactures industrial
control and measurement equipment. Electrical equipment stocks have struggled
recently as economic problems in Asia and Latin America have dampened demand for
products. We were drawn to Elsag because it was a leading company in its
industry with a stable balance sheet and good cash flow, and it was
significantly undervalued versus other firms in its industry. We owned not only
common stock but also the company's convertible bonds, which provided a good
stream of income. Swedish industrial machinery manufacturer ABB made a bid for
Elsag in August, and we subsequently sold the stock at a significant profit.
Another acquisition that helped performance was Union Camp. This company
makes craft paper, paperboard
*All fund returns referenced in this interview are for Investor Class shares.
[right margin]
"AS LARGE-CAP STOCKS HAVE BECOME PRICIER IN RECENT YEARS, MID-CAP FIRMS HAVE
BECOME INCREASINGLY ATTRACTIVE ON A VALUATION BASIS, AND AS A RESULT, WE ARE
SEEING UNPRECEDENTED CONSOLIDATION IN A NUMBER OF INDUSTRIES. IN FACT, 15 OF
EQUITY INCOME'S HOLDINGS WERE ACQUISITION TARGETS DURING THE YEAR."
PORTFOLIO AT A GLANCE
3/31/99 3/31/98
NO. OF COMPANIES 69 72
MEDIAN P/E RATIO 15.6 18.5
MEDIAN MARKET $1.41 $1.95
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 180% 158%
EXPENSE RATIO (FOR
INVESTOR CLASS) 1.00% 1.00%
Investment terms are defined in the Glossary on pages 41-42.
www.americancentury.com 11
Equity Income--Q&A
- --------------------------------------------------------------------------------
(Continued)
and boxes. Company profits were down due to excess inventories and falloff in
demand for products by customers in Asia and Latin America. Union Camp had all
the characteristics we look for: a solid underlying business, a healthy balance
sheet, good assets and a secure, high relative yield. We bought into the stock's
decline and sold it at a nice gain when competitor International Paper announced
it would acquire Union Camp at a price dramatically above where the stock was
trading.
We also saw consolidation within the restaurant industry this year. Sbarro,
a chain of family-oriented Italian restaurants, was one of Equity Income's
largest holdings at 3.3% of investments on March 31. More than a year ago,
members of the Sbarro family attempted to take the company private by buying out
the 65% of the company it did not currently own. That offer was rejected by
shareholders, and the Sbarros subsequently increased their offer price. Although
the deal has not been completed, the stock price has fared increasingly well
throughout the negotiations and contributed nicely to returns.
WHICH HOLDINGS DETRACTED FROM RESULTS?
Flowserve Corp. was the worst-performing holding for the year. Flowserve
manufactures fluid handling equipment used by many industries, including
utilities, chemical manufacturers, and energy production companies. Flowserve's
stock was suffering from the effects of downturns in two industries that
represent the largest portion of its sales. The drop in prices of petroleum
products and chemicals drove companies in both industries to pare back spending.
Flowserve also has been under pressure to cut prices. The stock was weak
throughout the year and we bought into that weakness, ultimately establishing a
significant weighting. Although Flowserve has continued to struggle, we believe
its problems are short-term ones and that this investment will eventually bear
fruit.
Gas utilities, including Northwest Natural Gas, Laclede Gas Company, and
Cascade Natural Gas, also hurt performance. Continued warm weather resulted in
difficult but transitory earnings pressure. We viewed these depressed prices as
a buying opportunity and not only held onto our positions but continued to add
to them as prices became increasingly attractive.
Food and beverage companies also struggled during the year. Two names that
disappointed were Interstate Bakeries and Lance Inc. Interstate is the nation's
largest wholesale baker and distributor of fresh bread and snack cakes. Pricing
pressure and increasing competition drove the company's stock down. However,
Interstate remains competitive and its balance sheet is strong, so we are
holding the position.
Lance also makes bakery products, along with snack food items that are sold
in convenience and grocery stores and through their proprietary vending machine
operation. The snack food business is generally considered a low-growth
industry, and Lance has had trouble advancing its sales and earnings due to
competitive pressures. We were attracted to the company because it has an
extensive distribution network and more than enough cash to cover its
liabilities. We believe Lance's problems are temporary and we are holding our
position.
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
3/31/99 9/30/98
MERCANTILE
BANCORPORATION INC. 4.8% 4.5%
MINNESOTA MINING &
MANUFACTURING CO. 4.4% 2.3%
FIRST VIRGINIA
BANKS, INC. 4.2% 0.9%
NATIONAL PRESTO
INDUSTRIES, INC. 4.2% 3.5%
SBARRO, INC. 3.3% 3.4%
UNOCAL CORP. 6.25%
(CON. PREF.) 3.3% 3.1%
NALCO CHEMICAL CO. 3.2% --
HOMESTAKE MINING
CO., 5.50%, 6/23/00
(CONV. BOND) 3.0% 3.2%
WD-40 CO. 2.7% 2.5%
FLOWSERVE CORP. 2.7% 2.5%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
3/31/99 9/30/98
UTILITIES 17.0% 10.2%
BANKING 12.6% 8.0%
CONSUMER PRODUCTS 10.0% 6.0%
ENERGY (PRODUCTION
& MARKETING) 6.2% 8.4%
FOOD & BEVERAGE 5.9% 6.5%
12 1-800-345-2021
Equity Income--Q&A
- --------------------------------------------------------------------------------
(Continued)
WHAT, IF ANY, MATERIAL CHANGES DID YOU MAKE TO EQUITY INCOME'S PORTFOLIO?
We made very few tactical changes in our sector or industry weightings.
Equity Income's stake in machinery and equipment manufacturers decreased due to
consolidation within that industry. We increased exposure to local gas
distribution companies as prices continued to soften in the face of warmer
weather and decreased demand for gas.
Equity Income maintains meaningful positions in gas utilities, where we see
very good risk/reward situations with high relative yields, and also in the
basic industry sector. A healthy stake in convertible securities enabled the
fund to produce a very high 3.59% 30-day SEC yield as of March 31.
HAS THE MANAGEMENT TEAM CHANGED THIS YEAR?
Yes. Scott Moore, who has served as an investment analyst on Equity
Income's investment team, was promoted to portfolio manager. We also added to
our team of investment analysts.
WHAT IS YOUR OUTLOOK FOR EQUITY INCOME GOING FORWARD?
Although market conditions in recent months have been frustrating for
Equity Income investors and managers alike, we remain disciplined in our effort
to seek mature, out-of-favor companies with good relative yields and
fundamentally sound underlying businesses. The good news is that we are seeing
an abundance of sound, high-quality companies that are available at attractive
prices and extremely high relative yields. We believe these types of companies
should provide good long-term prospects for appreciation and also help protect
the portfolio during periods of increased volatility.
[right margin]
"THE GOOD NEWS IS THAT WE ARE SEEING AN ABUNDANCE OF SOUND, HIGH-QUALITY
COMPANIES THAT ARE AVAILABLE AT ATTRACTIVE PRICES AND EXTREMELY HIGH RELATIVE
YIELDS."
[pie charts - data below]
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF MARCH 31, 1999
Temporary Investements 0.1%
Corporate Bonds 2.8%
Convertible Bonds 6.6%
Convertible Preferred Stocks 11.7%
Common Stocks 78.8%
AS OF SEPTEMBER 30, 1998
Temporary Investements 2.9%
Corporate Bonds 3.7%
Convertible Bonds 11.1%
Convertible Preferred Stocks 9.1%
Common Stocks 73.2%
www.americancentury.com 13
Equity Income--Schedule of Investments
- --------------------------------------------------------------------------------
MARCH 31, 1999
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS--78.8%
AUTOMOBILES & AUTO PARTS--0.7%
98,000 Superior Industries International, Inc. $2,278,500
----------------
BANKING--12.6%
285,600 First Virginia Banks, Inc. 13,048,350
317,992 Mercantile Bancorporation Inc. 15,104,615
175,900 Summit Bancorp. 6,860,100
108,810 UMB Financial Corp. 4,189,185
----------------
39,202,250
----------------
BUSINESS SERVICES & SUPPLIES--0.1%
20,700 LabOne, Inc. 222,525
----------------
CHEMICALS & RESINS--5.2%
140,000 Lubrizol Corp. 3,150,000
377,300 Nalco Chemical Co. 10,022,031
234,000 RPM, Inc. 3,115,125
----------------
16,287,156
----------------
COMMUNICATIONS EQUIPMENT--0.5%
56,000 Harris Corp. 1,603,000
----------------
CONSUMER PRODUCTS--7.9%
364,800 National Presto Industries, Inc. 12,927,600
291,600 WD-40 Co. 8,456,400
60,000 Whirlpool Corp. 3,262,500
----------------
24,646,500
----------------
DIVERSIFIED COMPANIES--4.4%
193,500 Minnesota Mining & Manufacturing Co. 13,690,125
----------------
ENERGY (PRODUCTION & MARKETING)--1.9%
32,000 Atlantic Richfield Co. 2,336,000
38,200 Murphy Oil Corp. 1,585,300
39,000 Royal Dutch Petroleum Co. 2,028,000
----------------
5,949,300
----------------
ENERGY (SERVICES)--0.5%
70,000 Baker Hughes Inc. 1,701,875
----------------
FOOD & BEVERAGE--4.9%
100,050 Archer-Daniels-Midland Co. 1,469,484
61,700 Interstate Bakeries Corp. 1,330,406
220,000 Lancaster Colony Corp. 5,850,625
408,600 Lance, Inc. 6,563,138
----------------
15,213,653
----------------
FURNITURE & FURNISHINGS--0.7%
96,000 HON INDUSTRIES Inc. 2,106,000
----------------
HEALTHCARE--0.9%
159,000 Lab Holdings Inc. 2,663,250
----------------
INSURANCE--2.9%
40,000 American Financial Group, Inc. 1,407,500
190,000 Argonaut Group, Inc. 4,803,438
Shares Value
- --------------------------------------------------------------------------------
27,000 Chubb Corp. (The) $1,581,188
12,000 Ohio Casualty Corp. 468,375
30,000 Unitrin, Inc. 930,938
----------------
9,191,439
----------------
MACHINERY & EQUIPMENT--3.5%
20,000 Cooper Industries, Inc. 852,500
540,000 Flowserve Corp. 8,403,750
60,000 Stanley Works (The) 1,537,500
----------------
10,793,750
----------------
PACKAGING & CONTAINERS--3.5%
195,000 Bemis Co., Inc. 6,057,188
170,000 Tenneco Inc. 4,749,375
----------------
10,806,563
----------------
PAPER & FOREST PRODUCTS--2.9%
290,000 Consolidated Papers, Inc. 6,815,000
100,000 Westvaco Corp. 2,100,000
----------------
8,915,000
----------------
PRINTING & PUBLISHING--0.5%
84,600 Banta Corp. 1,607,400
----------------
REAL ESTATE--1.0%
136,200 Manufactured Home Communities, Inc. 3,268,800
----------------
RESTAURANTS--4.1%
151,100 Luby's, Inc. 2,549,813
390,000 Sbarro, Inc.(1) 10,335,000
----------------
12,884,813
----------------
RETAIL (GENERAL MERCHANDISE)--2.0%
150,000 Penney (J.C.) Company, Inc. 6,075,000
----------------
STEEL--1.0%
117,500 Carpenter Technology Corp. 3,047,656
----------------
TOBACCO--1.0%
70,000 Schweitzer-Mauduit International, Inc. 805,000
89,000 UST Inc. 2,325,125
----------------
3,130,125
----------------
TRANSPORTATION--2.4%
195,000 XTRA Corp. 7,470,938
----------------
UTILITIES--13.7%
243,300 AGL Resources Inc. 4,272,956
180,700 CTG Resources, Inc. 4,359,388
149,100 Cascade Natural Gas Corp. 2,227,181
78,000 Florida Progress Corp. 2,944,500
85,000 FPL Group, Inc. 4,526,250
48,000 IDACORP, Inc. 1,410,000
169,000 Laclede Gas Company 3,538,438
268,500 Nevada Power Co. 6,645,375
258,900 Northwest Natural Gas Co. 5,695,800
75,000 People's Energy Corp. 2,423,438
201,000 Washington Gas Light Co. 4,547,625
----------------
42,590,951
----------------
See Notes to Financial Statements
14 1-800-345-2021
Equity Income--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
MARCH 31, 1999
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS $245,346,569
----------------
(Cost $260,669,595)
CONVERTIBLE PREFERRED STOCKS--11.7%
CONSUMER PRODUCTS--2.1%
147,200 Ralston Purina Co., 7.00% 6,624,000
----------------
ENERGY (PRODUCTION & MARKETING)--4.3%
200,000 Belco Oil & Gas Corp., 6.50% 3,150,000
190,000 Unocal Corp., 6.25% (Acquired
2/26/97-12/9/98, Cost
$10,235,250)(2) 10,260,000
----------------
13,410,000
----------------
FOOD & BEVERAGE--1.0%
70,000 Chiquita Brands International,
Inc. Series B, 7.50% 3,128,125
----------------
HEALTHCARE--0.5%
20,000 Aetna Inc., 6.25% 1,512,500
----------------
INSURANCE--1.5%
45,000 American Bankers Insurance Group,
Inc., Series B, 6.25% 4,747,500
----------------
UTILITIES--2.3%
410,000 Avista Corp., $1.24 7,021,250
----------------
TOTAL CONVERTIBLE PREFERRED STOCKS 36,443,375
----------------
(Cost $38,235,996)
CONVERTIBLE BONDS--6.6%
ENERGY (SERVICES)--1.3%
$3,875,000 Diamond Offshore Drilling, Inc.,
3.75%, 2/15/07 4,020,313
----------------
HEALTHCARE--2.3%
8,500,000 Medical Care Intl. Inc.,
6.75%, 10/1/06 7,278,125
----------------
METALS & MINING--3.0%
9,700,000 Homestake Mining Co., 5.50%, 6/23/00 (Acquired
10/31/97-
12/15/97, Cost $9,209,250)(2) 9,336,250
----------------
Principal Amount Value
- -------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS $20,634,688
----------------
(Cost $20,806,203)
CORPORATE BONDS--2.8%
HEALTHCARE--1.8%
$5,750,000 Beckman Coulter Inc., 7.45%,
3/4/08 (Acquired 2/25/98-
11/10/98, Cost $5,740,009)(2) 5,643,474
----------------
UTILITIES--1.0%
1,500,000 Niagara Mohawk Holdings Inc.,
Series E, 7.375%, 7/1/03 1,542,134
2,000,000 Niagara Mohawk Holdings Inc.,
Series H, 7.76%, 7/1/10(3) 1,587,500
----------------
3,129,634
----------------
TOTAL CORPORATE BONDS 8,773,108
----------------
(Cost $8,598,425)
TEMPORARY CASH INVESTMENTS--0.1%
Repurchase Agreement, Morgan Stanley Group,
Inc., (U.S. Treasury obligations), in a joint
trading account at 4.90%, dated 3/31/99,
due 4/1/99 (Delivery value $400,054) 400,000
----------------
(Cost $400,000)
TOTAL INVESTMENT SECURITIES--100.0% $311,597,740
================
(Cost $328,710,219)
NOTES TO SCHEDULE OF INVESTMENTS
(1) Non-income producing.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at March 31, 1999, was
$25,239,724, which represented 8.1% of net assets.
(3) Step-coupon security. Yield to maturity at purchase is indicated. These
securities become interest bearing at a predetermined rate and future date
and are purchased at a substantial discount from their value at maturity.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule shows you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the number of shares of each stock
* the market value of each investment
* the percentage of total investments in each industry
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
www.americancentury.com 15
Small Cap Value--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF MARCH 31, 1999(1)
INVESTOR CLASS INSTITUTIONAL CLASS
(INCEPTION 7/31/98) (INCEPTION 10/26/98)
SMALL CAP S&P SMALLCAP 600/ SMALL CAP S&P SMALLCAP 600/
VALUE BARRA VALUE INDEX VALUE BARRA VALUE INDEX
6 MONTHS 6.16% 2.30% -- --
SINCE INCEPTION -4.24% -11.71% -0.60% -1.99%(2)
(1) Returns for periods less than one year are not annualized.
(2) Since 10/31/98, the date nearest the class's inception for which data are
available.
See pages 39-42 for information about share classes, the S&P SmallCap 600/BARRA
Value Index and returns.
GROWTH OF $10,000 OVER LIFE OF FUND
[mountain chart - data below]
$10,000 investment made 7/31/98
Date Small Cap Value S&P SmallCap 600/BARRA Value
7/31/98 10000 10000
8/31/98 8620 8196
9/30/98 9020 8630
10/31/98 9820 9008
11/30/98 10240 9392
12/31/98 10331 9761
1/31/99 9928 9649
2/28/99 9443 8864
3/31/99 9576 8829
Value on 3/31/99
Small Cap Value $9,576
S&P SmallCap 600/BARRA Value $8,829
The graph at left shows the growth of a $10,000 investment over the life of the
fund. The S&P SmallCap 600/BARRA Value Index is provided for comparison. Small
Cap Value's total returns include operating expenses (such as transaction costs
and management fees) that reduce returns, while the total returns of the S&P
SmallCap 600/BARRA Value Index do not. The graph is based on Investor Class
shares only; performance for the other class will vary due to differences in fee
structures (see the Total Returns table above). 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.
16 1-800-345-2021
Small Cap Value--Q&A
- --------------------------------------------------------------------------------
[photo of Todd Vingers and Ben Giele]
Todd Vingers and Ben Giele, portfolio managers on the Small Cap Value fund
An interview with Todd Vingers and Ben Giele, portfolio managers on the
Small Cap Value Fund investment team
SMALL CAP VALUE OPENED ON JULY 31, 1998. HOW DID THE FUND PERFORM IN THE SECOND
HALF OF ITS FIRST FISCAL YEAR?*
Small Cap Value posted a 6.16% gain for the six months ended March 31,
1999, outperforming its benchmark, the S&P SmallCap 600/BARRA Value Index, which
gained 2.30%.*
Small Cap Value's relative performance since its inception has also been
impressive, despite the difficult environment in which value funds have operated
since the fund began. Small Cap Value's life-of-fund return as of March 31,
1999, was -4.24%, compared to the -11.71% return posted by the S&P SmallCap
600/BARRA Value Index.
WHAT MARKET CONDITIONS OR EVENTS INFLUENCED SMALL CAP VALUE'S PERFORMANCE IN
RECENT MONTHS?
The market environment has not been an easy one for value investors over
the last few years. Investors have continued their long-running preference for
the liquidity and more visible growth found in large-capitalization stocks, and
large-cap issues have continued to outperform mid- and small-sized companies. As
we mentioned previously, for the six months ended March 31, 1999, the S&P
SmallCap 600/BARRA Index gained 2.30%, while the S&P 500 posted a 27.28% return.
This affinity for larger companies has certainly hampered Small Cap Value's
performance.
In addition, the growth investment style has performed much better than the
value style. For the year ended March 31, 1999, the S&P SmallCap 600/BARRA
Growth Index declined 15.47%, compared to the 22.91% decline recorded by the S&P
SmallCap 600/BARRA Value Index.
Despite the challenging conditions in which Small Cap Value has had to
operate in its first eight months, we are pleased with the fund's relative
performance so far.
WHAT FACTORS HELPED SMALL CAP VALUE OUTPERFORM ITS BENCHMARK?
The fund's stronger performance was primarily the result of its heavier
concentrations relative to the index in several top-performing industries and
market sectors, as well as strong individual stock selection. Small Cap Value's
stake in electric and gas utilities, nearly 12% at March 31, has been relatively
consistent since the fund began. These stocks typically have also been among the
portfolio's largest individual holdings. We added to our positions somewhat as
prices continued to drop in early 1999.
Small Cap Value's stake in the electrical equipment industry was also
significantly greater than that of the index, and this added to returns. In
addition, Small Cap Value was slightly overweighted in retail grocers and in
restaurant stocks, two areas that performed very well during the past six
months.
*All fund returns referenced in this interview are for Investor Class shares.
[right margin]
"THE FUND'S STRONGER PERFORMANCE WAS PRIMARILY THE RESULT OF ITS HEAVIER
CONCENTRATIONS RELATIVE TO THE INDEX IN SEVERAL TOP-PERFORMING INDUSTRIES AND
MARKET SECTORS, AS WELL AS STRONG INDIVIDUAL STOCK SELECTION."
PORTFOLIO AT A GLANCE
3/31/99
NO. OF COMPANIES 72
MEDIAN P/E RATIO 12.9
MEDIAN MARKET $567
CAPITALIZATION MILLION
PORTFOLIO TURNOVER 153%
EXPENSE RATIO (FOR
INVESTOR CLASS) 1.25%*
*Annualized.
Investment terms are defined in the Glossary on pages 41-42.
www.americancentury.com 17
Small Cap Value--Q&A
- --------------------------------------------------------------------------------
(Continued)
WHICH STOCKS ADDED MOST TO RETURNS?
The fund's top contributor was Elsag Bailey, a manufacturer of control and
measurement equipment used by electric utilities. Elsag was Small Cap Value's
only holding in the electrical equipment industry for most of the period, but it
was a somewhat concentrated position, at one point representing 3% of
investments. Electrical equipment stocks generally underperformed the broader
market, as demand for product dwindled in the wake of the financial and economic
problems in Asia and Latin America. However, we were attracted to Elsag because
the company is financially sound, well-managed, and was very attractively valued
relative to its competitors, making it an appealing candidate for takeover. We
initially purchased Elsag in August at $27 per share, and continued buying as
the price declined. We sold our position at $36-$38 per share in October and
November, after Elsag announced it would be acquired by ABB, a Swedish
industrial machinery manufacturer.
International Multifoods Corp., which makes and distributes food products
to foodservice, industrial and retail customers in North America and Venezuela,
was another top contributor. The company's bottom line improved dramatically in
the first quarter of 1999 after it announced plans to eliminate its interest in
an unprofitable animal feeds business and also implemented several other
cost-cutting efforts.
Claire's Stores, Inc. also helped boost performance. We purchased this
stock in late October because it was, in our estimation, attractively valued and
its core business was sound. The company's profits were dragged down due to
troubles in its recently launched catalogue operation, which had failed to meet
expectations. We viewed this as a transitory problem and were rewarded when the
company eliminated the unprofitable operation in January and its stock price
rebounded. We subsequently sold this holding at a substantial gain.
WHICH STOCKS OR SECTORS PERFORMED POORLY?
Small Cap Value's relative overweighting in energy exploration and natural
gas companies dampened performance somewhat, when oil and gas prices continued
to flounder throughout the second half of 1998 and into early 1999. As we
mentioned earlier, however, prices began to rebound in February and this
overweight position is now proving to be a positive contributor.
Food and beverage stocks also were disappointing. This sector demonstrated
very strong relative performance in August and September, but then began to
slump as growth turned sluggish and investors directed their attention
elsewhere. However, we view these problems as temporary. Valuations remain
attractive and we are optimistic that prices will recover, so we are maintaining
our position in this sector.
Performance also was hampered by an underweighting in technology stocks,
which rallied late last year. Most of Small Cap Value's technology holdings are
the less-expensive "chicken techs" --smaller companies that manufacture or
distribute computer parts or other electronic equipment. Two such holdings are
Marshall Industries, which distributes computer microprocessors and memory and
logic devices, and Kent Electronics,
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
3/31/99 9/30/98
SBARRO, INC. 4.0% 2.9%
LAB HOLDINGS INC. 2.8% --
BECKMAN COULTER INC. 2.6% 1.6%
BELCO OIL & GAS CORP. 2.6% 2.4%
INTERSTATE
BAKERIES CORP. 2.5% --
LANCE, INC. 2.5% 0.9%
GTECH HOLDINGS CORP. 2.5% 2.9%
OMEGA PROTEIN CORP. 2.4% 1.1%
AMERIN CORP. 2.4% 2.9%
FLOWSERVE CORP. 2.3% 1.7%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
3/31/99 9/30/98
FOOD & BEVERAGE 14.3% 9.2%
UTILITIES 12.0% 8.5%
INSURANCE 10.6% 8.8%
ENERGY (PRODUCTION
& MARKETING) 9.7% 9.7%
HEALTHCARE 7.5% 5.0%
18 1-800-345-2021
Small Cap Value--Q&A
- --------------------------------------------------------------------------------
(Continued)
a contract manufacturer and distributor. These smaller electronics companies
typically participate in a broader tech rally, but to a lesser extent than their
larger counterparts. Although we didn't see the level of performance we had
anticipated, we are holding onto these stocks because we believe they still
represent good values.
WHAT SIGNIFICANT CHANGES DID YOU MAKE TO THE PORTFOLIO DURING THE SIX MONTHS?
We tend to adjust the portfolio following periods of notable performance.
If a sector or a particular stock sinks more than fundamentals would warrant, we
generally buy more of it, while a stock or industry that outperforms is likely
to be trimmed back. Performance this six months has been solid. Outperformance
was more stock-specific than sector-specific. As a result, we haven't made
significant changes to our sector weights. We believe the portfolio is well
positioned to benefit when market conditions shift.
HAVE THERE BEEN ANY CHANGES TO THE MANAGEMENT TEAM?
Yes. Ben Giele was promoted to portfolio manager during the period. Ben
previously served as a senior investment analyst and has contributed to Small
Cap Value's investment team since the fund's inception. Portfolio Manager Phil
Davidson, who helped launch Small Cap Value, has left the team to focus on
several other value-oriented American Century funds.
WHAT IS YOUR OUTLOOK FOR THE MARKET AND THE FUND GOING FORWARD?
It is difficult to anticipate when market leadership will change and
smaller, value-oriented stocks will again return to favor. However, we feel it
is unlikely that high-growth companies can sustain the current level of price
momentum indefinitely. When the market begins to broaden, the types of stocks in
Small Cap Value's portfolio should benefit. In the meantime, we will stick
closely to our discipline and continue to search for the most attractive
small-cap value opportunities.
[right margin]
"IT IS DIFFICULT TO ANTICIPATE WHEN MARKET LEADERSHIP WILL CHANGE AND SMALLER,
VALUE-ORIENTED STOCKS WILL AGAIN RETURN TO FAVOR. HOWEVER, WE FEEL IT IS
UNLIKELY THAT HIGH-GROWTH COMPANIES CAN SUSTAIN THE CURRENT LEVEL OF PRICE
MOMENTUM INDEFINITELY."
[pie charts - data below]
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF MARCH 31, 1999
Convertible Preferred Stocks 1.1%
Common Stocks 98.9%
AS OF SEPTEMBER 30, 1998
Convertible Preferred Stocks 9.9%
Common Stocks 90.1%
www.americancentury.com 19
Small Cap Value--Schedule of Investments
- --------------------------------------------------------------------------------
MARCH 31, 1999
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS--98.9%
AUTOMOBILES & AUTO PARTS--1.8%
9,400 Superior Industries International, Inc. $218,550
----------------
BANKING--5.1%
6,100 MetroCorp Bancshares Inc. 60,047
10,000 UST Corp. 218,438
7,500 Valley National Bancorp 188,906
7,300 Washington Federal, Inc. 154,213
----------------
621,604
----------------
BUSINESS SERVICES & SUPPLIES--1.5%
5,600 LabOne, Inc. 60,200
5,600 Primark Corp.(1) 119,000
----------------
179,200
----------------
CHEMICALS & RESINS--2.5%
9,400 International Specialty Products Inc.(1) 71,088
11,200 Lilly Industries, Inc. Cl A 172,900
2,300 Nalco Chemical Co. 61,094
----------------
305,082
----------------
COMMUNICATIONS EQUIPMENT--1.3%
12,500 Andrew Corp.(1) 154,297
----------------
COMPUTER SOFTWARE & SERVICES--2.5%
12,400 GTECH Holdings Corp.(1) 302,250
----------------
CONSUMER PRODUCTS--5.4%
6,900 National Presto Industries, Inc. 244,519
3,700 National Service Industries, Inc. 126,031
2,400 Russ Berrie and Co., Inc. 62,700
4,500 WD-40 Co. 130,500
10,000 Wolverine World Wide, Inc. 95,000
----------------
658,750
----------------
CONTROL & MEASUREMENT--1.4%
26,600 X-Rite, Incorporated 169,575
----------------
DIVERSIFIED COMPANIES--1.2%
21,100 Griffon Corp.(1) 145,063
----------------
ELECTRICAL & ELECTRONIC
COMPONENTS--3.4%
4,100 Arrow Electronics, Inc.(1) 61,500
14,100 Kent Electronics Corp.(1) 140,119
6,100 Marshall Industries(1) 82,350
11,900 Methode Electronics, Inc. 131,272
----------------
415,241
----------------
Shares Value
- -------------------------------------------------------------------------------
ENERGY (PRODUCTION & MARKETING)--9.7%
5,400 Apache Corp. $140,738
52,400 Belco Oil & Gas Corp.(1) 311,125
21,800 Crown Central Petroleum Corp. Cl B(1) 166,225
9,000 Devon Energy Corp. 248,063
1,500 Murphy Oil Corp. 62,250
11,700 Ocean Energy Inc.(1) 79,706
13,500 Swift Energy Co.(1) 113,906
3,000 Ultramar Diamond Shamrock Corp. 64,875
----------------
1,186,888
----------------
FOOD & BEVERAGE--14.3%
6,300 Chiquita Brands International, Inc. 64,181
8,800 Corn Products International, Inc. 210,650
5,700 International Multifoods Corp. 132,881
14,300 Interstate Bakeries Corp. 308,344
9,000 Lancaster Colony Corp. 239,344
19,000 Lance, Inc. 305,188
46,600 Omega Protein Corp.(1) 297,075
14,600 Vlasic Foods, Inc.(1) 188,888
----------------
1,746,551
----------------
HEALTHCARE--7.5%
7,300 Beckman Coulter Inc. 321,200
10,800 Dentsply International Inc. 250,763
20,300 Lab Holdings Inc. 340,019
----------------
911,982
----------------
INDUSTRIAL EQUIPMENT & MACHINERY--0.7%
1,800 Tecumseh Products Cl A 91,069
----------------
INSURANCE--10.6%
14,400 Amerin Corp.(1) 295,200
2,500 Argonaut Group, Inc. 63,203
14,500 ARM Financial Group, Inc. Cl A 216,594
7,300 Capital Re Corp. 125,925
10,900 Frontier Insurance Group, Inc. 129,438
13,300 HCC Insurance Holdings, Inc. 256,025
5,700 Horace Mann Educators Corp. 132,169
1,500 PMI Group, Inc. (The) 69,563
----------------
1,288,117
----------------
LEISURE--1.5%
5,900 Department 56, Inc.(1) 179,581
----------------
MACHINERY & EQUIPMENT--3.4%
18,100 Flowserve Corp. 281,681
5,200 Stanley Works (The) 133,250
----------------
414,931
----------------
See Notes to Financial Statements
20 1-800-345-2021
Small Cap Value--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
MARCH 31, 1999
Shares Value
- --------------------------------------------------------------------------------
MEDICAL EQUIPMENT & SUPPLIES--0.4%
5,800 Hologic, Inc.(1) $50,931
----------------
METALS & MINING--1.2%
11,200 Arch Coal Inc. 148,400
----------------
PAPER & FOREST PRODUCTS--1.4%
4,400 Rayonier, Inc. 176,275
----------------
PHARMACEUTICALS--0.9%
14,700 Perrigo Co.(1) 106,116
----------------
PRINTING & PUBLISHING--1.9%
11,900 Banta Corp. 226,100
----------------
RESTAURANTS--4.0%
18,600 Sbarro, Inc.(1) 492,900
----------------
RETAIL (GENERAL MERCHANDISE)--1.2%
15,500 Duckwall-ALCO Stores, Inc.(1) 150,156
----------------
TEXTILES & APPAREL--1.0%
11,600 Fruit of the Loom, Inc.(1) 120,350
----------------
TOBACCO--0.7%
7,300 Schweitzer-Mauduit International, Inc. 83,950
----------------
Shares Value
- -------------------------------------------------------------------------------
TRANSPORTATION--1.5%
4,900 XTRA Corp. $187,731
----------------
UTILITIES--10.9%
14,100 AGL Resources Inc. 247,631
9,700 CTG Resources, Inc. 234,013
12,300 Cascade Natural Gas Corp. 183,731
4,000 IDACORP, Inc. 117,500
17,600 Maine Public Service Co. 239,800
7,200 Northwest Natural Gas Co. 158,400
4,700 People's Energy Corp. 151,869
----------------
1,332,944
----------------
TOTAL COMMON STOCKS 12,064,584
----------------
(Cost $12,452,362)
CONVERTIBLE PREFERRED STOCKS--1.1%
UTILITIES
7,500 Avista Corp., $1.24 128,438
----------------
(Cost $140,672)
TOTAL INVESTMENT SECURITIES--100.0% $12,193,022
================
(Cost $12,593,034)
NOTES TO SCHEDULE OF INVESTMENTS
(1) Non-income producing.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule shows you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the number of shares of each stock
* the market value of each investment
* the percentage of total investments in each industry
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
www.americancentury.com 21
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
MARCH 31, 1999
VALUE EQUITY INCOME SMALL CAP VALUE
ASSETS
<S> <C> <C> <C>
Investment securities--
unaffiliated, at value
(identified cost of
$1,847,501,258, $328,710,219,
and $12,593,034, respectively)
(Note 3) .......................... $ 1,664,506,281 $ 311,597,740 $ 12,193,022
Investment securities--affiliated,
at value (identified cost of
$92,497,463) (Note 5) ............. 145,545,356 -- --
Cash ................................. -- 337,510 131,814
Receivable for investments sold ...... 25,411,281 4,057,191 323,714
Dividends and interest receivable .... 2,481,517 935,612 14,294
--------------- --------------- ---------------
1,837,944,435 316,928,053 12,662,844
--------------- --------------- ---------------
LIABILITIES
Disbursements in excess
of demand deposit cash ............ 1,176,262 -- --
Payable for investments
purchased ......................... 23,305,249 4,748,028 253,210
Payable for capital
shares redeemed ................... 1,926,430 420,292 --
Accrued management fees (Note 2) ..... 1,551,042 264,455 13,354
Distribution fees payable (Note 2) ... 11,195 2,402 --
Service fees payable (Note 2) ........ 11,195 2,402 --
Payable for directors' fees
and expenses ........................ 1,669 288 11
--------------- --------------- ---------------
27,983,042 5,437,867 266,575
--------------- --------------- ---------------
Net Assets ........................... $ 1,809,961,393 $ 311,490,186 $ 12,396,269
=============== =============== ===============
NET ASSETS CONSIST OF:
Capital (par value and
paid-in surplus) .................. $ 1,937,672,109 $ 322,128,753 $ 12,813,661
Undistributed net
investment income ................. 259,057 71,907 22,512
Accumulated undistributed
net realized gain (loss)
on investments .................... 1,977,311 6,402,005 (39,892)
Net unrealized depreciation
on investments (Note 3) ........... (129,947,084) (17,112,479) (400,012)
--------------- --------------- ---------------
$ 1,809,961,393 $ 311,490,186 $ 12,396,269
=============== =============== ===============
Investor Class
Net assets ........................... $ 1,719,366,894 $ 296,585,268 $ 11,410,316
Shares outstanding ................... 297,851,438 49,851,485 2,412,196
Net asset value per share ............ $ 5.77 $ 5.95 $ 4.73
Advisor Class
Net assets ........................... $ 54,276,538 $ 12,250,983 N/A
Shares outstanding ................... 9,404,576 2,059,576 N/A
Net asset value per share ............ $ 5.77 $ 5.95 N/A
Institutional Class
Net assets ........................... $ 36,317,961 $ 2,653,935 $ 985,953
Shares outstanding ................... 6,285,391 445,883 208,198
Net asset value per share ............ $ 5.78 $ 5.95 $ 4.74
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. For each class of shares, the net assets
divided by the total number of shares outstanding gives you the price of an
individual share, or the net asset value per share.
NET ASSETS are also broken down by capital (money invested by shareholders); net
investment income not yet paid to shareholders or net investment losses; net
gains earned on investments but not yet paid to shareholders or net losses on
investments (known as realized gains or losses); and finally, gains or losses on
securities still owned by the fund (known as unrealized appreciation or
depreciation). This breakdown tells you the value of net assets that are
performance-related, such as investment gains or losses, and the value of net
assets that are not related to performance, such as shareholder investments and
redemptions.
See Notes to Financial Statements
22 1-800-345-2021
<TABLE>
<CAPTION>
Statements of Operations
- --------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 1999 (EXCEPT AS NOTED)
VALUE EQUITY INCOME SMALL CAP VALUE(1)
INVESTMENT INCOME
<S> <C> <C> <C>
Income:
Dividends (including $2,355,645
from affiliates for Value) ....... $ 46,911,892 $ 10,817,840 $ 126,393
Interest ............................ 2,593,733 3,051,456 13,978
------------- ------------- -------------
49,505,625 13,869,296 140,371
------------- ------------- -------------
Expenses (Note 2):
Management fees ..................... 22,425,941 3,205,816 76,254
Distribution fees--Advisor Class .... 131,432 11,335 --
Service fees--Advisor Class ......... 131,432 11,335 --
Directors' fees and expenses ........ 21,018 2,824 64
------------- ------------- -------------
22,709,823 3,231,310 76,318
------------- ------------- -------------
Net investment income ............... 26,795,802 10,637,986 64,053
------------- ------------- -------------
REALIZED AND UNREALIZED GAIN(LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain on investments
(includes $25,649,912 from
affiliates for Value) ............ 195,098,537 31,755,781 65,026
Change in net unrealized
appreciation (depreciation)
on investments ................... (486,683,191) (45,429,913) (400,012)
------------- ------------- -------------
Net realized and unrealized
loss on investments .............. (291,584,654) (13,674,132) (334,986)
------------- ------------- -------------
Net Decrease in Net Assets
Resulting from Operations ........ $(264,788,852) $ (3,036,146) $ (270,933)
============= ============= =============
</TABLE>
(1) July 31, 1998 (inception) through March 31, 1999.
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks out how each
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* income earned from investments (dividend and interest)
* management fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
* gains or losses on current fund holdings (known as unrealized appreciation or
depreciation)
See Notes to Financial Statements
www.americancentury.com 23
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
YEARS ENDED MARCH 31, 1999 AND MARCH 31, 1998 (EXCEPT AS NOTED)
Increase (Decrease) in Net Assets:
VALUE EQUITY INCOME SMALL CAP VALUE(1)
1999 1998 1999 1998 1999
---- ---- ---- ---- ----
OPERATIONS
Net investment
<S> <C> <C> <C> <C> <C>
income ......................... $ 26,795,802 $ 31,216,696 $ 10,637,986 $ 9,506,265 $ 64,053
Net realized
gain on
investments .................... 195,098,537 419,764,609 31,755,781 49,744,589 65,026
Change in net
unrealized
appreciation
(depreciation)
on investments ................. (486,683,191) 310,602,812 (45,429,913) 25,833,808 (400,012)
--------------- --------------- ------------- ------------- ------------
Net increase
(decrease) in
net assets
resulting from
operations ..................... (264,788,852) 761,584,117 (3,036,146) 85,084,662 (270,933)
--------------- --------------- ------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class .................. (27,029,374) (29,498,922) (10,625,704) (9,206,671) (37,689)
Advisor Class ................... (556,573) (420,009) (199,229) (13,405) --
Institutional
Class ....................... (232,110) (18,264) (26,713) -- (3,852)
From net realized gains on
investment transactions:
Investor Class .................. (334,647,261) (352,185,079) (43,173,325) (43,456,913) (56,049)
Advisor Class ................... (8,157,990) (6,260,211) (824,603) (85,009) --
Institutional
Class ....................... (2,250,870) (100,640) (700) -- (8,977)
In excess of net
realized gains on
investment transactions:
Investor Class .................. -- -- -- -- (39,892)
--------------- --------------- ------------- ------------- ------------
Decrease in net
assets from
distributions .................. (372,874,178) (388,483,125) (54,850,274) (52,761,998) (146,459)
--------------- --------------- ------------- ------------- ------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase
(decrease) in
net assets from
capital share
transactions ................... (327,999,543) 629,690,858 12,684,149 124,963,100 12,813,661
--------------- --------------- ------------- ------------- ------------
Net increase
(decrease) in
net assets ..................... (965,662,573) 1,002,791,850 (45,202,271) 157,285,764 12,396,269
NET ASSETS
Beginning
of period ...................... 2,775,623,966 1,772,832,116 356,692,457 199,406,693 --
--------------- --------------- ------------- ------------- ------------
End of period ..................... $ 1,809,961,393 $ 2,775,623,966 $ 311,490,186 $ 356,692,457 $ 12,396,269
=============== =============== ============= ============= ============
Undistributed
net investment
income ......................... $ 259,057 $ 1,281,312 $ 71,907 $ 285,567 $ 22,512
=============== =============== ============= ============= ============
</TABLE>
(1) July 31, 1998 (inception) through March 31, 1999.
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
each fund's net assets changed over the past two reporting periods. It details
how much a fund grew or shrank as a result of:
* operations-a summary of the Statement of Operations from the previous page for
the most recent period
* distributions-income and gains distributed to shareholders
* share transactions-shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions result in net
assets at the end of the period.
See Notes to Financial Statements
24 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
MARCH 31, 1999
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. Value Fund (Value), Equity Income Fund (Equity Income), and
Small Cap Value Fund (Small Cap Value) (the funds) are three of the five 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
investment objective of Small Cap Value is long-term capital growth. Income is a
secondary objective. The fund seeks to achieve its investment objective by
investing primarily in equity securities of companies with smaller market
capitalizations that management believes to be undervalued at the time of
purchase. The funds are authorized to issue three classes of shares: the
Investor Class, the Advisor Class, and the Institutional Class. The three
classes of shares differ principally in their respective shareholder servicing
and distribution expenses and arrangements. All shares of each fund represent an
equal pro rata interest in the assets of the class to which such shares belong,
and have identical voting, dividend, liquidation and other rights and the same
terms and conditions, except for class specific expenses and exclusive rights to
vote on matters affecting only individual classes. Sale of the Institutional
Class for Equity Income commenced on July 8, 1998. Sale of the Investor Class
and Institutional Class for Small Cap Value commenced on July 31, 1998 and
October 26, 1998, respectively. The following significant accounting policies
are in accordance with generally accepted accounting principles; these
principles may require the use of estimates by fund management.
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 a commercial
pricing service or at the mean of the most recent bid and asked prices. When
valuations are not readily available, securities are valued at fair value as
determined in accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld (if any)
is recorded as of the ex-dividend date. Interest income is recorded on the
accrual basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS -- The funds may enter into stock index futures contracts
in order to manage each fund's exposure to changes in market conditions. One of
the risks of entering into futures contracts include the possibility that the
change in value of the contract may not correlate with the changes in value of
the underlying securities. Upon entering into a futures contract, each fund is
required to deposit either cash or securities in an amount equal to a certain
percentage of the contract value (initial margin). Subsequent payments
(variation margin) are made or received daily, in cash, by the funds. The
variation margin is equal to the daily change in the contract value and is
recorded as unrealized gains and losses. The fund recognizes a realized gain or
loss when the contract is closed or expires. Net realized and unrealized gains
or losses occurring during the holding period of futures contracts are a
component of realized gain (loss) on investments and unrealized appreciation
(depreciation) on investments, respectively. There were no open futures
contracts at March 31, 1999.
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.
www.americancentury.com 25
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
MARCH 31, 1999
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, each fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury or Agency obligations.
INCOME TAX STATUS -- It is the funds' policy to distribute all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under the provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- 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 generally declared
and paid annually.
For the five month period ended March 31, 1999, Value and Equity Income
incurred net capital losses of $26,479,648 and $2,296,664, respectively. The
funds have elected to treat such losses as having been incurred in the following
fiscal year.
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 realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the
corporation's distributor. Certain officers of FDI are also officers of the
corporation.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM that
provides the funds with investment advisory and management services in exchange
for a single, unified management fee per class. The Agreement provides that all
expenses of the funds, except brokerage commissions, taxes, interest, expenses
of those directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by ACIM. The fee is computed daily and paid monthly based
on each fund's class average daily closing net assets during the previous month.
For Value and Equity Income, the annual management fee for each class is 1.00%,
0.75% and 0.80% for the Investor, Advisor, and Institutional Classes,
respectively. For Small Cap Value the annual management fee for each class is
1.25%, 1.00% and 1.05% for the Investor, Advisor, and Institutional Classes,
respectively.
The Board of Directors has adopted a Master Distribution and Shareholder
Services Plan (the plan) for the Advisor Class, pursuant to Rule 12b-1 of the
Investment Company Act of 1940. The plan provides that the funds will pay ACIM
an annual distribution fee equal to 0.25% and service fee equal to 0.25%. The
fees are computed daily and paid monthly based on the Advisor Class's average
daily closing net assets during the previous month. The distribution fee
provides compensation for distribution expenses incurred in connection with
distributing shares of the Advisor Class including, but not limited to, payments
to brokers, dealers, and financial institutions that have entered into sales
agreements with respect to shares of the funds. The service fee provides
compensation for shareholder and administrative services rendered by ACIM, its
affiliates or independent third party providers. Fees incurred under the plan
during the period were $262,864 for Value and $22,670 for Equity Income.
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, and
the corporation's transfer agent, American Century Services Corporation.
26 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
MARCH 31, 1999
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions, exluding short-term investments, for the year ended
March 31, 1999 for Value and Equity Income and for the period July 31, 1998
(inception) through March 31, 1999 for Small Cap Value, were as follows:
VALUE EQUITY INCOME SMALL CAP VALUE
Purchases $2,836,891,803 $567,703,755 $26,067,435
Proceeds from sales $3,474,513,927 $593,700,635 $13,539,428
On March 31, 1999, the composition of unrealized appreciation and depreciaton
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
VALUE EQUITY INCOME SMALL CAP VALUE
Appreciation $52,528,224 $8,165,884 $160,326
Depreciation (206,271,989) (28,704,059) (1,108,750)
--------------- --------------- ---------------
Net $(153,743,765) $(20,538,175) $(948,424)
=============== =============== ===============
Federal Tax Cost $1,963,795,402 $332,135,915 $13,141,446
=============== =============== ===============
www.americancentury.com 27
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
MARCH 31, 1999
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
All shares are $0.01 par value. Transactions in shares of the funds were as
follows:
<TABLE>
<CAPTION>
VALUE EQUITY INCOME SMALL CAP VALUE
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
INVESTOR CLASS
<S> <C> <C> <C> <C> <C> <C>
Shares authorized 400,000,000 125,000,000 50,000,000
=============== =============== ===============
Year ended
March 31, 1999(1)
Sold 118,264,078 $794,918,831 28,666,383 $190,764,951 3,844,651 $18,830,986
Issued in
reinvestment
of distributions 59,242,080 356,864,255 8,142,886 50,735,119 27,162 131,361
Redeemed (230,575,028) (1,525,819,152) (36,724,976) (244,017,477) (1,459,617) (7,153,176)
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase
(decrease) (53,068,870) $(374,036,066) 84,293 $(2,517,407) 2,412,196 $11,809,171
=============== =============== =============== =============== =============== ===============
Year ended
March 31, 1998
Sold 162,037,493 $1,197,248,350 30,476,816 $213,669,697
Issued in
reinvestment
of distributions 54,825,636 376,881,079 7,535,443 49,977,058
Redeemed (131,065,528) (969,702,459) (19,830,504) (139,373,450)
--------------- --------------- --------------- ---------------
Net increase 85,797,601 $604,426,970 18,181,755 $124,273,305
=============== =============== =============== ===============
ADVISOR CLASS
Shares authorized 75,000,000 50,000,000
=============== ===============
Year ended
March 31, 1999
Sold 4,304,387 $28,157,965 2,102,548 $13,417,012
Issued in
reinvestment of
distributions 1,441,856 8,673,389 144,320 892,686
Redeemed (3,600,008) (23,899,178) (289,382) (1,821,300)
--------------- --------------- --------------- ---------------
Net increase 2,146,235 $12,932,176 1,957,486 $12,488,398
=============== =============== =============== ===============
Year ended
March 31, 1998
Sold 4,634,814 $33,569,674 101,186 $704,986
Issued in
reinvestment of
distributions 973,367 6,679,660 14,797 97,687
Redeemed (2,796,876) (20,393,769) (16,803) (112,878)
--------------- --------------- --------------- ---------------
Net increase 2,811,305 $19,855,565 99,180 $689,795
=============== =============== =============== ===============
INSTITUTIONAL CLASS
Shares authorized 50,000,000 25,000,000 25,000,000
=============== =============== ===============
Year ended
March 31, 1999(2)
Sold 6,519,460 $40,062,309 442,110 $2,690,641 211,202 $1,020,384
Issued in
reinvestment of
distributions 407,798 2,446,081 3,773 22,517 2,655 12,829
Redeemed (1,410,565) (9,404,043) -- -- (5,659) (28,723)
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase 5,516,693 $33,104,347 445,883 $2,713,158 208,198 $1,004,490
=============== =============== =============== =============== =============== ===============
Period ended
March 31, 1998(3)
Sold 751,577 $5,289,526
Issued in
reinvestment of
distributions 17,134 118,897
Redeemed (13) (100)
--------------- ---------------
Net increase 768,698 $5,408,323
=============== ===============
</TABLE>
(1) Sale of the Investor Class commenced on July 31, 1998 for Small Cap Value.
(2) Sale of the Institutional Class commenced on July 8, 1998 for Equity Income
and October 26, 1998 for Small Cap Value.
(3) Sale of the Institutional Class commenced on July 31, 1997 for Value.
28 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
MARCH 31, 1999
- --------------------------------------------------------------------------------
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, 1999, follows:
<TABLE>
<CAPTION>
SHARE BALANCE PURCHASE SALES REALIZED DIVIDEND MARCH 31, 1999
FUND/ISSUER 3/31/98 COST COST GAIN (LOSS) INCOME SHARE BALANCE MARKET VALUE
VALUE
<S> <C> <C> <C> <C> <C> <C>
Flowserve Corp. -- $41,036,203 $558,488 $(135,002) $519,666 2,083,300 $32,421,356
Giant Food Inc. Cl A 3,122,900 -- 98,397,805 35,562,060 624,580 -- --
GTECH Holdings Corp. 1,213,900 35,451,630 13,265,486 (1,838,798) -- 2,000,000 48,750,000
Lab Holdings Inc. 420,000 -- -- -- 504,000 420,000 7,035,000
Superior Industries
International, Inc. 2,024,200 13,002,140 6,219,150 (132,907) 707,399 2,292,000 53,289,000
Swift Energy Co. 1,103,700 3,007,490 16,488,605 (7,805,441) -- 480,000 4,050,000
----------- ----------- ----------- ----------- -----------
$92,497,463 $134,929,534 $25,649,912 $2,355,645 $145,545,356
=========== =========== =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
6. BANK LOANS
Effective December 18, 1998, the funds, along with certain other funds
managed by ACIM, entered into an unsecured $570,000,000 bank line of credit
agreement with Chase Manhattan Bank. Borrowings under the agreement bear
interest at the Federal Funds rate plus 0.40%. The funds may borrow money for
temporary or emergency purposes to fund shareholder redemptions. The funds did
not borrow from the line during the period December 18, 1998 through March 31,
1999.
- --------------------------------------------------------------------------------
7. FUND EVENTS
The following name changes became effective March 1, 1999.
NEW NAMES FORMER NAMES
FUND: Value Fund American Century Value Fund
FUND: Equity Income Fund American Century Equity Income Fund
FUND: Small Cap Value Fund American Century Small Cap Value Fund
www.americancentury.com 29
Value--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31
Investor Class
1999 1998 1997 1996 1995
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year ....... $ 7.73 $ 6.58 $ 6.32 $ 5.46 $ 4.98
------------- ------------- ------------- ------------- -------------
Income From Investment Operations
Net Investment Income(1) ............... 0.08 0.10 0.12 0.13 0.12
Net Realized and Unrealized Gain
(Loss)
on Investment Transactions ............. (0.80) 2.35 0.87 1.34 0.75
------------- ------------- ------------- ------------- -------------
Total From Investment Operations ....... (0.72) 2.45 0.99 1.47 0.87
------------- ------------- ------------- ------------- -------------
Distributions
From Net Investment Income ............. (0.09) (0.10) (0.12) (0.12) (0.12)
In Excess of Net Investment Income ..... -- -- --(2) (0.01) --
From Net Realized Gains on
Investment Transactions ............ (1.15) (1.20) (0.61) (0.48) (0.27)
------------- ------------- ------------- ------------- -------------
Total Distributions .................... (1.24) (1.30) (0.73) (0.61) (0.39)
------------- ------------- ------------- ------------- -------------
Net Asset Value, End of Year ............. $ 5.77 $ 7.73 $ 6.58 $ 6.32 $ 5.46
============= ============= ============= ============= =============
Total Return(3) ........................ (9.88)% 39.94% 15.92% 28.06% 18.56%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 1.00% 1.00% 1.00% 0.97% 1.00%
Ratio of Net Investment Income
to Average Net Assets ................. 1.19% 1.38% 1.86% 2.17% 2.65%
Portfolio Turnover Rate .................. 130% 130% 111% 145% 94%
Net Assets, End of Year (in thousands) ... $ 1,719,367 $ 2,713,562 $ 1,743,582 $ 881,885 $ 348,281
</TABLE>
(1) Computed using average shares outstanding throughout the period.
(2) Per share amount was less than $0.005.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
- ----------------------------------------------------------------------------
UNDERSTANDNG THE FINANCIAL HIGHLIGHTS--These pages itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
30 1-800-345-2021
Value--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Advisor Class
1999 1998 1997(1)
PER-SHARE DATA
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ....... $ 7.73 $ 6.58 $ 6.71
---------- ---------- ----------
Income From Investment Operations
Net Investment Income(2) ................. 0.06 0.08 0.05
Net Realized and Unrealized Gain (Loss) on
Investment Transactions .................. (0.80) 2.35 0.48
---------- ---------- ----------
Total From Investment Operations ......... (0.74) 2.43 0.53
---------- ---------- ----------
Distributions
From Net Investment Income ............... (0.07) (0.08) (0.05)
In Excess of Net Investment Income ....... -- -- --(3)
From Net Realized Gains on
Investment Transactions ................. (1.15) (1.20) (0.61)
---------- ---------- ----------
Total Distributions ...................... (1.22) (1.28) (0.66)
---------- ---------- ----------
Net Asset Value, End of Period ............. $ 5.77 $ 7.73 $ 6.58
========== ========== ==========
Total Return(4) .......................... (10.09)% 39.60% 8.07%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................... 1.25% 1.25% 1.25%(5)
Ratio of Net Investment Income
to Average Net Assets ................... 0.94% 1.13% 1.50%(5)
Portfolio Turnover Rate .................... 130% 130% 111%
Net Assets, End of Period (in thousands) ... $ 54,277 $ 56,118 $ 29,250
</TABLE>
(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 $0.005.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
See Notes to Financial Statements
www.americancentury.com 31
Value--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Institutional Class
1999 1998(1)
PER-SHARE DATA
<S> <C> <C>
Net Asset Value, Beginning of Period ...................$ 7.73 $ 7.84
---------- ----------
Income From Investment Operations
Net Investment Income(2) ............................. 0.10 0.15
Net Realized and Unrealized Gain (Loss) on
Investment Transactions ............................. (0.80) 1.02
---------- ----------
Total From Investment Operations ..................... (0.70) 1.17
---------- ----------
Distributions
From Net Investment Income ........................... (0.10) (0.08)
---------- ----------
From Net Realized Gains on Investment Transactions ... (1.15) (1.20)
---------- ----------
Total Distributions .................................. (1.25) (1.28)
---------- ----------
Net Asset Value, End of Period .........................$ 5.78 $ 7.73
========== ==========
Total Return(3) ...................................... (9.52)% 17.14%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ...... 0.80% 0.80%(4)
Ratio of Net Investment Income to Average Net Assets ... 1.39% 2.97%(4)
Portfolio Turnover Rate ................................ 130% 130%
Net Assets, End of Period (in thousands) ...............$ 36,318 $ 5,944
</TABLE>
(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
32 1-800-345-2021
Equity Income--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Investor Class
1999 1998 1997 1996 1995(1)
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $ 7.15 $ 6.31 $ 6.10 $ 5.42 $ 5.00
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income(2) ............................ 0.22 0.25 0.22 0.20 0.09
Net Realized and Unrealized Gain (Loss) on
Investment Transactions .......................... (0.23) 1.99 0.75 1.13 0.44
----------- ----------- ----------- ----------- -----------
Total From Investment Operations .................... (0.01) 2.24 0.97 1.33 0.53
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income .......................... (0.23) (0.24) (0.21) (0.19) (0.09)
In Excess of Net Investment Income .................. -- -- --(3) (0.01) --
From Net Realized Gains on Investment Transactions .. (0.96) (1.16) (0.55) (0.45) (0.02)
----------- ----------- ----------- ----------- -----------
Total Distributions ................................. (1.19) (1.40) (0.76) (0.65) (0.11)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ........................ $ 5.95 $ 7.15 $ 6.31 $ 6.10 $ 5.42
=========== =========== =========== =========== ===========
Total Return(4) ..................................... (0.44)% 37.78% 16.24% 25.67% 10.69%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ..... 1.00% 1.00% 1.00% 0.98% 1.00%(5)
Ratio of Net Investment Income to Average Net Assets .. 3.31% 3.52% 3.46% 3.51% 4.04%(5)
Portfolio Turnover Rate ............................... 180% 158% 159% 170% 45%
Net Assets, End of Period (in thousands) .............. $ 296,585 $ 355,962 $ 199,388 $ 116,692 $ 52,213
</TABLE>
(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 $0.005.
(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.
- --------------------------------------------------------------------------------
UNDERSTANDNG THE FINANCIAL HIGHLIGHTS--These pages itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
www.americancentury.com 33
Equity Income--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Advisor Class
1999 1998 1997(1)
PER-SHARE DATA
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ....... $ 7.16 $ 6.31 $ 6.57
---------- ---------- ----------
Income From Investment Operations
Net Investment Income(2) ................. 0.21 0.23 0.02
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ........... (0.24) 2.00 (0.21)
---------- ---------- ----------
Total From Investment Operations ......... (0.03) 2.23 (0.19)
---------- ---------- ----------
Distributions
From Net Investment Income ............... (0.22) (0.22) (0.07)
In Excess of Net Investment Income ....... -- -- --(3)
From Net Realized Gains on
Investment Transactions .............. (0.96) (1.16) --
---------- ---------- ----------
Total Distributions ...................... (1.18) (1.38) (0.07)
---------- ---------- ----------
Net Asset Value, End of Period ............. $ 5.95 $ 7.16 $ 6.31
========== ========== ==========
Total Return(4) .......................... (0.75)% 37.71% (2.89)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................... 1.25% 1.25% 1.25%(5)
Ratio of Net Investment Income
to Average Net Assets ................... 3.06% 3.27% 1.64%(5)
Portfolio Turnover Rate .................... 180% 158% 159%
Net Assets, End of Period (in thousands) ... $ 12,251 $ 731 $ 18
</TABLE>
(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 $0.005.
(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
34 1-800-345-2021
Equity Income--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
Institutional Class
1999(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ........................... $ 6.96
---------
Income From Investment Operations
Net Investment Income(2) ..................................... 0.07
Net Realized and Unrealized Gain on Investment Transactions .. 0.06
---------
Total From Investment Operations ............................. 0.13
---------
Distributions
From Net Investment Income ................................... (0.18)
From Net Realized Gains on Investment Transactions ........... (0.96)
---------
Total Distributions .......................................... (1.14)
---------
Net Asset Value, End of Period ................................. $ 5.95
=========
Total Return(3) .............................................. 1.60%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets .............. 0.80%(4)
Ratio of Net Investment Income to Average Net Assets ........... 1.61%(4)
Portfolio Turnover Rate ........................................ 180%
Net Assets, End of Period ...................................... $ 2,654
(1) July 8, 1998 (commencement of sale) through March 31, 1999.
(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
www.americancentury.com 35
Small Cap Value--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
Investor Class
1999(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ........................... $ 5.00
----------
Income From Investment Operations
Net Investment Income(2) ..................................... 0.03
Net Realized and Unrealized Loss on Investment Transactions .. (0.24)
----------
Total From Investment Operations ............................. (0.21)
----------
Distributions
From Net Investment Income ................................... (0.02)
From Net Realized Gains on Investment Transactions ........... (0.02)
In Excess of Net Realized Gains .............................. (0.02)
----------
Total Distributions .......................................... (0.06)
----------
Net Asset Value, End of Period ................................. $ 4.73
==========
Total Return(3) .............................................. (4.24)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets .............. 1.25%(4)
Ratio of Net Investment Income to Average Net Assets ........... 1.02%(4)
Portfolio Turnover Rate ........................................ 153%
Net Assets, End of Period (in thousands) ....................... $ 11,410
(1) July 31, 1998 (inception of fund and class) through March 31, 1999.
(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.
- ----------------------------------------------------------------------------
UNDERSTANDNG THE FINANCIAL HIGHLIGHTS--These pages itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
36 1-800-345-2021
Small Cap Value--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
Institutional Class
1999(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ............................. $ 4.83
-------
Income From Investment Operations
Net Investment Income(2) ....................................... 0.03
Net Realized and Unrealized Loss on Investment Transactions .... (0.06)
-------
Total From Investment Operations ............................... (0.03)
-------
Distributions
From Net Investment Income ..................................... (0.02)
From Net Realized Gains on Investment Transactions ............. (0.04)
-------
Total Distributions ............................................ (0.06)
-------
Net Asset Value, End of Period ................................... $ 4.74
=======
Total Return(3) ................................................ (0.60)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ................ 1.05%(4)
Ratio of Net Investment Income to Average Net Assets ............. 1.22%(4)
Portfolio Turnover Rate .......................................... 153%
Net Assets, End of Period (in thousands) ......................... $ 986
(1) October 26, 1998 (commencement of sale) through March 31, 1999.
(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
www.americancentury.com 37
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 Value Fund, Equity Income Fund
(formerly American Century Value Fund and American Century Equity Income Fund,
respectively) and Small Cap Value Fund (the "Funds"), three of the funds
comprising American Century Capital Portfolios, Inc., as of March 31, 1999, and
the related statements of operations for the year then ended (July 31, 1998
[inception] through March 31, 1999, for Small Cap Value Fund), the statements of
changes in net assets for each of the two periods in the period then ended, and
the financial highlights for the periods presented. 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.
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, 1999, 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 Value Fund, Equity
Income Fund and Small Cap Value Fund as of March 31, 1999, the results of their
operations for the year then ended (July 31, 1998 [inception] through March 31,
1999, for the Small Cap Value Fund), the changes in their net assets for each of
the two periods in the period then ended, and the financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 7, 1999
38 1-800-345-2021
Share Class and Retirement Account Information
- --------------------------------------------------------------------------------
SHARE CLASSES
Three classes of shares are authorized for sale by the funds: Investor
Class, Advisor Class and Institutional Class.
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.
ADVISOR CLASS shares are 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
shares is 0.25% higher than the total expense ratio of the Investor Class
shares.
INSTITUTIONAL CLASS shares are 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 shares is 0.20% less
than the total expense ratio of the Investor Class shares.
All classes of shares represent a pro rata interest in the funds and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid 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 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 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.
www.americancentury.com 39
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY & POLICIES
American Century offers 14 growth and income funds including domestic
equity, balanced, asset allocation, and specialty. Value, Equity Income, and
Small Cap Value are general equity funds managed to provide growth over time
with less volatility than more aggressive growth funds. Stock purchases are
based on a company-by-company analysis to determine whether a stock is trading
below what the fund management team considers fair value. Once the management
team understands why the stock's price is depressed, if the team believes the
undervaluation is temporary, the stock may be purchased and held until it
appreciates to fair value, when it is sold. Equity Income may buy stocks that
are trading at fair value if the stock pays a generous dividend. In all three
funds, broad diversification across many industries is stressed to prevent the
performance of one sector from dominating fund returns.
AMERICAN CENTURY VALUE invests in the equity securities of seasoned,
established businesses that the management team believes are temporarily
undervalued. This is determined by comparing a stock's share price with key
financial measures, including earnings, book value, cash flow and dividends. If
the stock's price relative to these measures is low and the company's balance
sheet is solid, its securities are candidates for purchase. The management team
may look secondarily for income when making portfolio selections.
AMERICAN CENTURY EQUITY INCOME purchases the securities of seasoned
companies that pay steady income, with the goal of providing shareholders a
higher yield than the aggregate yield of the stocks making up the S&P 500. The
team may secondarily search out stocks whose share prices are undervalued or
fairly valued. To help increase the fund's yield and help reduce the impact of
stock market value changes, currently the team maintains a relatively large
percentage of assets in CONVERTIBLE SECURITIES. These are income- paying issues
that may, at some later date, be converted into equity securities at favorable
prices. The prices of convertibles usually do not fluctuate as much as those of
common stocks, and they generally pay higher interest and dividends than common
stocks. Under normal circumstances, the fund can be expected to have less
share-price volatility than American Century Value.
AMERICAN CENTURY SMALL CAP VALUE focuses on the stocks of small companies
with market capitalizations of less than the largest company in the S&P SmallCap
600/BARRA Value Index. Historically, small-cap stocks have been more volatile
than the stocks of larger, more established companies. The fund seeks capital
appreciation over time by investing in common stocks that the management team
believes to be undervalued. Income is a secondary objective.
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 INDEX is a capitalization- weighted index of the stocks of 500
publicly traded U.S. companies that are considered to be leading firms in
leading industries. Created by Standard & Poor's Corporation, it is intended to
be a broad measure of U.S. stock market performance.
THE S&P 500/BARRA VALUE INDEX is a capitalization-weighted index consisting
of S&P 500 stocks that have lower price- to-book ratios and, in general, share
other characteristics associated with value-style stocks.
THE LIPPER EQUITY INCOME FUND INDEX is a non-weighted index of the 30
largest equity income mutual funds. Lipper, Inc., is an independent mutual fund
ranking service.
THE S&P SMALLCAP 600/BARRA VALUE INDEX is a capitalization-weighted index
consisting of S&P SmallCap 600 stocks that have lower price-to-book ratios. The
S&P SmallCap 600 Index consists of 600 domestic stocks chosen for market size,
liquidity, and industry group representation.
[left margin]
PORTFOLIO MANAGERS
VALUE AND EQUITY INCOME
PHIL DAVIDSON
SCOTT MOORE, CFA
SMALL CAP VALUE
TODD VINGERS, CFA
BEN GIELE, CFA
40 1-800-345-2021
Glossary
- --------------------------------------------------------------------------------
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in a 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 30-37.
INVESTMENT TERMS
* 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.)
* MEDIAN MARKET CAPITALIZATION-- Market Capitalization (market cap) is the total
value of a company's stock and is calculated by multiplying the number of
outstanding common shares by the current share price. The company whose market
cap is in the middle of the portfolio is the median market cap. Half the
companies in the portfolio have values greater than the median, and half have
values that are less. If there is an even number of companies, then the median
is the average of the two companies in the middle.
* NUMBER OF COMPANIES-- the number of different companies held by a fund on a
given date.
* PORTFOLIO TURNOVER-- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
* PRICE/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.)
* PRICE/EARNINGS (P/E) RATIO-- a stock value measurement calculated by dividing
a company's stock price by its earnings per share, with the result expressed as
a multiple instead of as a percentage. (Earnings per share is calculated by
dividing the after-tax earnings of a corporation by its outstanding shares.)
TYPES OF STOCKS
* BLUE-CHIP STOCKS-- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
* CYCLICAL STOCKS-- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers and textile
operators.
* GROWTH STOCKS-- stocks of companies that have experienced above-average
earnings growth and are expected to continue such growth.
www.americancentury.com 41
Glossary
- --------------------------------------------------------------------------------
(Continued)
These stocks often sell at high P/E ratios. Examples can include the stocks of
high-tech, healthcare and consumer staple companies.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS-- generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of more than $5 billion. These tend to be the stocks that
make up the Dow Jones Industrial Average and the S&P 500.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS--generally considered to be stocks of
companies with a market capitalization (the total value of a company's
outstanding stock) of between $1 billion and $5 billion. These tend to be the
stocks that make up the S&P MidCap 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.
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- Offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- Offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- Offers funds that emphasize both growth and income,
diversification, varying capitalization sizes, and different investment styles
and strategies.
* GROWTH -- Offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
42 1-800-345-2021
Notes
- --------------------------------------------------------------------------------
www.americancentury.com 43
Notes
- --------------------------------------------------------------------------------
44 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation: Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation: Income & Growth
Moderate Value
Strategic Allocation: Equity Income
Conservative
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call for a prospectus or profile on any American Century fund. These
documents contain important information including charges and expenses, and you
should read them carefully before you invest or send money.
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9905 Funds Distributor, Inc.
SH-BKT-16199 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
MARCH 31, 1999
ANNUAL REPORT
- -----------------
AMERICAN CENTURY
[graphic of glasses]
REAL ESTATE FUND
[american century logo(reg.sm)]
American
Century
[inside front cover]
CLASSIFYING OUR FUNDS BY OBJECTIVE AND RISK
- --------------------------------------------------------------------------------
In March, American Century introduced a new and simpler way to evaluate which
fund is right for you. The new system is based on a fund's objective and its
risks. Funds are classified under FOUR BROAD OBJECTIVES:
* Growth * Income
* Growth & Income * Capital Preservation
Funds are also divided according to RISK:
* Aggressive * Moderate * Conservative
The risk classification is based on a number of factors, including how much a
fund's share price has fluctuated in the past compared to two popular indices:
* Standard & Poor's 500 Stock Index
* Lehman Bros. Aggregate Bond Index
Aggressive funds tend to fluctuate more than the S&P 500 Index. Moderate funds
tend to fluctuate less than the S&P 500, but more than the Lehman Index.
Conservative funds tend to fluctuate less than the Lehman Index.
NEW, SIMPLER FUND NAMES
We also simplified the names of our funds. For example,
OLD FUND NAME NEW FUND NAME
American Century-Twentieth Century Ultra American Century Ultra
American Century-Benham GNMA Fund American Century GNMA Fund
These changes should make investing more convenient and understandable for you.
Turn to the inside back cover of this report to see a list of the funds
classified by objective and risk. For definitions of the fund categories, see
the Glossary.
- --------------------------------------------------------------------------------
WHAT'S NEW...
Our new fund guide, Investing with American Century, will help
you navigate through our selection of funds. This helpful booklet
includes information about risk levels, objectives, investment styles
and strategies.
American Century Catalog of Tools & Services lists all the free
educational materials available to investors.
FUND PROFILES are now available for many American Century funds
when you request information about a fund. Profiles are short
pamphlets that follow a standard SEC format and are intended to help
you easily compare our funds with other companies' funds. When you
invest you will receive a full prospectus, which contains more
detailed information about your new fund.
To order any of these materials, please call 1-800-345-2021.
[left margin]
REAL ESTATE
(REACX)
- -----------------------------------------------------------------------------
Our Message to You
- -----------------------------------------------------------------------------
[photo of James E. Stowers III and James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
These are unusual times in the equity markets. While the fortunes of a few
large growth stocks flourish, the vast majority of stocks languish -- to the
frustration of portfolio managers and shareholders alike.
The fiscal year for American Century Real Estate Fund ended March 31, 1999,
and it is safe to say this was a tough 12 months. Although the performance of
publicly traded real estate investment trusts (REITs) picked up just as the year
ended, these stocks were still selling at considerable discounts to the
appraised value of their underlying properties, and sporting substantial yields.
Given the popular pessimism about REIT investing, and the bargains our portfolio
team is finding, this may be a good time to give the fund a closer look. We
remain firm believers that REITs will return to favor.
On the corporate front, this was an exciting year at American Century. For
one, we consolidated all our funds under the American Century name. While we are
sorry to lose the venerable Twentieth Century and Benham names, we believe the
American Century nameplate makes it simpler for you to identify your funds.
We also reclassified our entire family of 71 funds, based on investment
goals and risk levels, so you can more easily choose the funds that are right
for you. A complete list of American Century funds arranged by their new
classifications is on the inside back cover.
We also continued to expand the American Century investment team, which has
doubled over the last three years. Our portfolio teams have excellent depth,
with an array of experienced managers and analysts, and we remain committed to
building and maintaining a talented management group. Performance is too
hard-won, and our business too competitive, not to do so.
Speaking of performance, take a look at our enhanced Web site. Among the
new features are daily fund information, including performance and price data,
market and national news, and a Forms Center with access to the most-requested
investor forms and applications. You also can sign up to receive fund
prospectuses and shareholder reports electronically.
Finally, a quick update on Year 2000. Our critical systems have been
renovated, tested, and returned to production. We continue to test these
systems, as well as participate in industry-wide tests with our business
partners.
As always, we appreciate your continued confidence in 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 Vice Chairman of the Board
and Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ........................................................ 2
Market Perspective ....................................................... 3
REAL ESTATE
Performance .............................................................. 4
Management Q&A ........................................................... 5
Fund Allocation .......................................................... 5
Top Ten Holdings ......................................................... 6
Portfolio at a Glance .................................................... 6
Types of Investments ..................................................... 7
Schedule of Investments .................................................. 8
Financial Highlights ..................................................... 16
FINANCIAL STATEMENTS
Statement of Assets and Liabilities ...................................... 9
Statement of Operations .................................................. 10
Statements of Changes in Net Assets ...................................... 11
Notes to Financial Statements ............................................ 12
Independent Auditor's Report ............................................. 19
OTHER INFORMATION
Share Class and Retirement Account Information ........................... 20
Background Information
Investment Philosophy and Policies .................................... 21
Fund Management Team .................................................. 21
Fund Background ....................................................... 21
Comparative Indices ................................................... 21
Portfolio Managers .................................................... 21
Glossary ................................................................. 22
www.americancentury.com 1
Report Highlights
- -----------------------------------------------------------------------------
MARKET PERSPECTIVE
* The year ended March 31, 1999, was a volatile period for the U.S. stock
market. The domestic economy demonstrated strong growth throughout 1998 and
the first quarter of 1999. However, deteriorating global economic and
financial conditions ignited investor anxiety and fueled a sharp correction
in the third quarter of 1998.
* For most of the year, returns remained concentrated in a handful of large,
well-known companies.
* The strength of these large growth stocks lifted most popular stock
averages. The Standard & Poor's 500 Index gained 18.42%, and the NASDAQ
Composite was up 34.10%. The Dow Jones Industrials crossed 10,000 for the
first time. However, small- and mid-cap stocks did not fare as well.
* Real estate stocks suffered along with value and smaller stocks, even
though the fundamentals of the commercial real estate market are favorable
-- demand for office space is strong and occupancy rates are high.
REAL ESTATE FUND
* American Century Real Estate (ACRE) was down 21.04% for the 12 months ended
March 31, 1999, compared to a loss of 19.66% for its benchmark, the
Wilshire REIT Index.
* The real estate climate remains positive with new supply approximating
demand in most markets. Occupancy rates remained high, generating solid
rent growth. REIT stocks are trading at a discount of more than 10% to the
underlying value of their properties.
* We continue to see opportunities in REITs that invest in office buildings,
especially properties located in the dynamic West Coast and Northeast
markets where occupancy rates are high. Hotel REITs that invest in upscale,
full-service hotels in urban areas also performed well.
* Retail REITs were negatively impacted by a perception on Wall Street that
Internet sales will eliminate the need for brick-and-mortar retail outlets.
However, the reality is that demand for retail space is still strong.
* Looking ahead, we believe the real estate sector offers strong internal
growth and high yield potential.
[left margin]
"WE CONTINUE TO SEE OPPORTUNITIES IN REITS THAT INVEST IN OFFICE BUILDINGS,
ESPECIALLY PROPERTIES LOCATED IN THE DYNAMIC WEST COAST AND NORTHEAST MARKETS
WHERE OCCUPANCY RATES ARE HIGH."
REAL ESTATE(1)
(REACX)
TOTAL RETURNS: AS OF 3/31/99
6 Months -4.42%(2)
1 Year -21.04%
INCEPTION DATE: 9/21/95
NET ASSETS: $137.0 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor, Advisor and Institutional classes.
Investment terms are defined in the Glossary on pages 22-23.
2 1-800-345-2021
Market Perspective from Mark Mallon
- -----------------------------------------------------------------------------
[photo of Mark Mallon]
Mark Mallon, head of specialty, asset allocation, and growth and income equity
funds at American Century
BEHIND THE NUMBERS
The fiscal year for American Century Real Estate Fund (ACRE) ended March
31, 1999. Although the real estate market, including real estate investment
trusts (REITs) struggled, it was a good year for the most popular stock
averages. The Standard & Poor's 500 Index gained 18.42%; the NASDAQ Composite,
powered by technology stocks, was up a whopping 34.10%; and the Dow Jones 30
Industrials rose 13.16%. All three scored record highs, and the Dow Jones
Industrials crossed 10,000 for the first time ever.
Hidden in the numbers, however, was the sharp correction at mid-year, which
ended only after the Federal Reserve Board lowered interest rates three times in
rapid succession and successfully stabilized global markets that were reeling
from economic crises in Asia, Latin America and Russia. Also hidden was the
market's narrow leadership, which for the most part was confined to large growth
stocks. For example, the S&P MidCap 400 Index, a benchmark for midsize
companies, gained just 0.45% on the year, and the S&P SmallCap 600, an index of
small stocks, actually lost 19.13%. The Wilshire REIT Index, ACRE's benchmark,
was down 19.66%.
WINNERS WERE FEW
For most of the year, the biggest market winners were a handful of
well-known companies. The first quarter of calendar 1999 is representative: Just
five stocks generated half of the S&P 500's performance, and a mere 18 accounted
for the full 100% of index returns, according to Morgan Stanley Dean Witter.
(Because the S&P 500 is weighted by market value, the higher the total value of
a company's stock the more it influences index results.)
BOOM TIMES AT HOME
The Dow Industrials and the S&P 500 are not setting records in a vacuum,
however. Their prices draw support from an extraordinary economy. We are
experiencing the longest economic expansion in 50 years. Unemployment,
inflation, and interest rates are as low as they have been in a generation. U.S.
consumers, who drive two-thirds of the growth in domestic goods and services,
remain confident.
REITS: ASSETS AT A DISCOUNT
Even though the fundamentals of the commercial real estate market are very
favorable, REITs -- along with most value and smaller stocks -- have had trouble
competing with growth stocks. Demand for office space and housing is strong and
occupancy rates are high, however. Many REITS are now trading at a discount of
10%-plus to the market value of their underlying properties. Dividend yields
often exceed 7%. From a historical perspective, REITs are selling at bargain
prices.
[right margin]
"MANY REITS ARE NOW TRADING AT A DISCOUNT OF 10%-PLUS TO THE MARKET VALUE OF
THEIR UNDERLYING PROPERTIES."
MARKET RETURNS
FOR THE YEAR ENDED MARCH 31, 1999
S&P 500 18.42%
WILSHIRE REIT -19.66%
Sources: Lipper Inc. and Frank Russell Co.
[chart data shown below]
MARKET PERFORMANCE (GROWTH OF $1.00)
FOR THE YEAR ENDED MARCH 31, 1999
S&P 500 Wilshire REIT Index
3/31/98 1.00 1.00
4/30/98 1.01 0.97
5/31/98 0.99 0.96
6/30/98 1.03 0.96
7/31/98 1.02 0.89
8/31/98 0.87 0.81
9/30/98 0.93 0.86
10/31/98 1.01 0.84
11/30/98 1.07 0.85
12/31/98 1.13 0.84
1/31/99 1.18 0.82
2/28/99 1.14 0.80
3/31/99 1.18 0.80
Value on 3/31/99
S&P 500 $1.18
Wilshire REIT $0.80
www.americancentury.com 3
ACRE--Performance
- -----------------------------------------------------------------------------
TOTAL RETURNS AS OF MARCH 31, 1999
<TABLE>
INVESTOR CLASS ADVISOR CLASS INSTITUTIONAL CLASS
(INCEPTION 9/21/95)(1) (INCEPTION 10/6/98) (INCEPTION 6/16/97)
ACRE WILSHIRE REIT ACRE WILSHIRE REIT ACRE WILSHIRE REIT
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(2) -4.42% -6.19% -- -- -4.29% -6.19%
1 YEAR -21.04% -19.66% -- -- -20.77% -19.66%
AVERAGE ANNUAL RETURNS
3 YEARS 10.06% 8.30% -- -- -- --
LIFE OF FUND 11.16% 9.12%(3) 2.25% -5.83%(4) -4.08% -5.83%(5)
</TABLE>
(1) The inception date for RREEF Real Estate Securities Fund, ACRE's
predecessor. That fund merged with ACRE on 6/13/97 and was first offered to
the public on 6/16/97.
(2) Returns for periods less than one year are not annualized.
(3) Since 9/30/95, the date nearest the class's inception for which data are
available.
(4) Since 10/31/98, the date nearest the class's inception for which data are
available.
(5) Since 6/30/97, the date nearest the class's inception for which data are
available.
See pages 20-23 for information about share classes, the Wilshire REIT Index,
and returns.
[graph data shown below]
GROWTH OF $10,000 OVER LIFE OF FUND
Real Estate Fund Wilshire REIT Index
Date Value Value
9/21/95 10,000 10,000
12/31/95 10,500 10,405
3/31/96 10,883 10,686
6/30/96 11,350 11,124
9/30/96 12,329 11,874
12/31/96 14,784 14,260
3/31/97 15,320 14,404
6/30/97 16,096 15,079
9/30/97 18,438 16,885
12/31/97 18,510 17,066
3/31/98 18,386 16,895
6/30/98 17,529 16,192
9/30/98 15,189 14,469
12/31/98 15,159 14,164
3/31/99 14,518 13,573
Value on 3/31/99
ACRE $14,518
Wilshire REIT Index $13,573
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the chart below shows the fund's year-by-year performance. The
Wilshire REIT Index is provided for comparison in each graph. ACRE's total
returns include operating expenses (such as transaction costs and management
fees) that reduce returns, while the total returns of the Wilshire REIT Index do
not. The graphs are based on Investor Class shares only; performance for other
classes will vary due to differences in fee structures (see the Total Returns
table above). 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.
[graph data shown below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED MARCH 31)
Real Estate Wilshire REIT Index
Date Return Return
3/31/96 8.83 6.85
3/31/97 40.77 34.79
3/31/98 20.03 17.28
3/31/99 -21.04 -22.91
*From September 21, 1995 to March 31, 1996.
4 1-800-345-2021
ACRE -- Q&A
- -----------------------------------------------------------------------------
[photo of Karen Knudson and Kim Redding]
Karen Knudson and Kim Redding, portfolio managers of ACRE
An interview with Kim Redding and Karen Knudson, portfolio managers on the
American Century Real Estate Fund investment team.
HOW DID THE FUND PERFORM DURING ITS FISCAL YEAR?*
For the 12 months ended March 31, 1999, ACRE was down 21.04%, compared to a
decline of 19.66% for the Wilshire REIT Index, ACRE's benchmark. For the same
period, the S&P 500 rose 18.42%. In the second half of the fiscal year, ACRE
declined 4.42%, compared to a 6.19% loss for the Wilshire REIT Index.
ACRE's average annual total return for the past three years was 10.06%,
ranking it 10th out of 50 real estate funds tracked by Lipper Inc. For one year,
the fund ranked 64th among 106 funds tracked by Lipper.
WHY HAVE PUBLICLY TRADED REAL ESTATE STOCKS AND TRUSTS CONTINUED TO UNDERPERFORM
THE BROADER STOCK MARKET?
We think the downturn in publicly traded real estate investment trusts
(REITs) continues to be capital driven -- the result of investors moving out of
the sector and into large growth stocks rather than a reflection of real estate
fundamentals. The real estate climate remains positive with new supply
approximating demand for space in most markets. There are a few pockets of
overbuilding, but not a general trend. Occupancy rates remain high, generating
solid rent growth. We are currently enjoying a good environment for sustained
attractive property returns.
The recent broader stock market gains have been driven mainly by a
relatively few large growth companies. Many other companies have languished.
Unfortunately, REITs have been part of the many-other-company group.
In a trend that has gone on since October 1997, REIT share prices have been
declining in value as investors have pulled money from REIT stocks.
However, funds from operations, or FFO (the most commonly used measure of
earnings performance), grew 9.57% on average for the REITs in the portfolio this
year.
IN OTHER WORDS, REIT FUNDAMENTALS LOOK GOOD, IN SPITE OF THE PRICE DECLINE?
Yes. We are seeing a divergence between the performance of REIT stocks and
the rising value of the underlying properties owned by the REITs. Currently, you
can buy real estate at a discount by purchasing REITs.
As evidence of the divergence, an index of $64 billion of property directly
owned by institutions tracked by the National Council of Real Estate Investment
Fiduciaries (NCREIF) rose 16% in 1998, while the Wilshire REIT Index declined
17%. NCREIF's index has not yet been updated through the first quarter of 1999
because of a lengthy appraisal process.
[right margin]
"CURRENTLY, YOU CAN BUY REAL ESTATE AT A DISCOUNT BY PURCHASING REITS."
[pie chart data shown below]
FUND ALLOCATION
AS OF MARCH 31, 1999
Office 32%
Mall & Shopping Center 21%
Multi-Family Residential 19%
Industrial 10%
Hotel 9%
Other 9%
[pie chart data shown below]
REIT MARKET ALLOCATION
AS OF MARCH 31, 1999
Office 26%
Mall 11%
Multi-Family Residential 21%
Industrial 10%
Shopping Center 9%
Hotel 8%
Self-Storage 5%
Other 10%
*All fund returns referenced in this interview are for Investor Class shares.
www.americancentury.com 5
ACRE--Q&A
- -----------------------------------------------------------------------------
(Continued)
We estimate that most property sectors of the REIT market trade at a
discount greater than 10% to the underlying value of their properties. In some
cases, the discount is as high as 50%. The REIT market is now trading on a
price-to-forward earnings multiple of 8.5, the lowest in more than 13 years.
Plus, the average REIT dividend yield of 7.5% is the highest it's been in more
than five years. In spite of these statistics, REIT stocks continued to perform
poorly.
WHAT CHANGES HAVE YOU MADE TO ACRE'S PORTFOLIO TO RESPOND TO THE REIT MARKET?
We continue to see opportunities in the office sector. As a matter of fact,
four of our top five holdings were office companies: Mack-Cali Realty Corp.,
Arden Realty, Inc., CarrAmerica Realty Corp. and Equity Office Properties Trust
We have used this opportunity to continue to add to REITs that have strong
internal growth because their properties are located in dynamic markets. The
best example is our overweighting in office REITs, especially those with
substantial exposure to the healthy West Coast and Northeast markets. Arden
Realty and Kilroy Realty Corp. provide West Coast office property exposure,
while Mack-Cali and SL Green Realty Corp. have large Northeast holdings.
Another REIT we added to was Simon DeBartolo Group, Inc., a regional mall
company, which was the number-one holding. DeBartolo Group is the largest
owner-operator of regional malls in the country and has completed portfolio
acquisitions that enhance its dominant position. Its portfolio gives the company
a strong bargaining position when negotiating terms with its national and
regional retail tenants.
WHICH COMPANIES CONTRIBUTED MOST TO ACRE'S PERFORMANCE?
Over the past six months, office REITs Mack-Cali, Arden and CarrAmerica all
turned in positive performance because these companies hold properties in strong
markets with high occupancy rates. That, in turn, generates revenue and growth
in funds from operations.
For example, Arden -- a Southern California-based office REIT with assets
mainly located in Los Angeles and San Diego -- experienced a good rebound since
the third quarter of 1998. Demand for office space in its markets is pushing
rents up at a healthy 8% annual rate.
ACRE's hotel holdings -- Meristar Hotels & Resorts, Host Marriott Corp. and
Starwood Hotels & Resorts Worldwide -- all were positive performers relative to
both the benchmark and the hotel sector. These companies mainly operate upscale,
full-service hotels in urban areas that do not face as much competition as
limited service hotel chains, and thus were able to perform better than the
sector as a whole.
WHICH STOCKS OR SECTORS HURT PERFORMANCE?
There has been quite a significant rotation in the sectors over the two
halves of the fiscal year. In the first half, office buildings and hotels were
at the bottom of the barrel, while regional malls and retail companies did well.
Except for hotels, the situation has flip-flopped over the last six months.
The regional mall and retail REIT sectors did not perform well during the
last six months for two reasons. First, some investors seem to have a bleak
outlook for the sector because of the threat from on-line commerce. Investors
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
3/31/99 9/30/98
SIMON DEBARTOLO GROUP, INC. 6.0% 4.9%
MACK-CALI REALTY CORP. 5.7% 5.6%
ARDEN REALTY, INC. 5.0% 4.3%
CARRAMERICA REALTY CORP. 4.8% 4.1%
EQUITY OFFICE PROPERTIES TRUST 4.6% 0.7%
PUBLIC STORAGE, INC. 4.4% 2.0%
GENERAL GROWTH PROPERTIES, INC. 4.4% 4.5%
MERISTAR HOSPITALITY CORP. 4.0% 3.6%
AVALON BAY COMMUNITIES, INC. 3.8% 4.7%
EQUITY RESIDENTIAL PROPERTIES TRUST 3.7% 1.9%
PORTFOLIO AT A GLANCE
3/31/99 3/31/98
NO. OF COMPANIES 41 40
MEDIAN REIT FFO(1) RATIO 12.76 12.4
MEDIAN MARKET CAPITALIZATION $1.0 $817
BILLION MILLION
PORTFOLIO TURNOVER 66% 28%(2)
EXPENSE RATIO (FOR INVESTOR CLASS) 1.20% 1.15%(3)
(1) Funds from operations.
(2) Five months ended 3/31/98.
(3) After expense waiver. Annualized.
Investment terms are defined in the Glossary on pages 22-23.
6 1-800-345-2021
ACRE--Q&A
- -----------------------------------------------------------------------------
(Continued)
fear that the Internet may snatch sales away from tenants in these properties,
and that ultimately will reduce demand for retail space. Second, many retail
REITs traditionally have a larger number of vacancies in the first quarter
because retailers usually do not want to move until after the Christmas shopping
season ends.
ACRE's retail holdings are relatively small, so the impact of the sector's
underperformance was minimized. One of the worst performers was retail REIT
Developers Diversified Realty Corp. Along with the negative overall retail REIT
climate, Developers Diversified was hurt by the high amount of debt on its
books.
WHAT IS YOUR OUTLOOK FOR BOTH THE GENERAL REAL ESTATE MARKET AND FOR PUBLICLY
HELD REITS?
We believe the outlook for real estate is healthy and that the asset value
of REIT holdings will continue to rise over the next year. Because of a very low
stock valuation, Irvine Apartment Communities Inc. (not an ACRE holding), will
be taken private near its full net asset value. Two other apartment REITs have
received bids from investors who want to take them private. As these companies
are being bought near full asset value, buying REIT stocks at a discount now
offers both strong dividend yields and, perhaps, additional benefits over time
if this consolidation continues.
Although investors have recently sold off retail REITs because of fears
that Internet sales will damage that sector, a recent Merrill Lynch study
demonstrates that the reality is quite different, and predicts on-line sales
will not surpass traditional retail sales for many years. The study projects
that sales over the Internet, excluding cars and airline tickets, will grow from
$8 billion in 1998 to $100 billion in the year 2003, or just 4% of the $2.3
trillion in total retail sales projected for that year (assuming the total pie
will grow about 4% annually). After surveying 36 retail REIT tenants, the study
found that these retailers plan to open more stores in 1999 than they did last
year. The reality is that leasing demand for retail space has been strong and
occupancy rates are high.
As a result, we believe that the positive real estate environment should
help public real estate companies grow earnings at 8-10% in 1999 -- a very
healthy rate.
[right margin]
"... WE BELIEVE THAT THE POSITIVE REAL ESTATE ENVIRONMENT SHOULD HELP PUBLIC
REAL ESTATE COMPANIES GROW EARNINGS AT 8-10% IN 1999 -- A VERY HEALTHY RATE."
[pie chart data shown below]
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF MARCH 31, 1999
Common Stocks 100%
AS OF SEPTEMBER 30, 1998
Common Stocks 96%
Temporary Investments 4%
www.americancentury.com 7
ACRE--Schedule of Investments
- -----------------------------------------------------------------------------
MARCH 31, 1999
Shares Value
- -----------------------------------------------------------------------------
COMMON STOCKS -- 100%
DIVERSIFIED COMPANIES -- 4.3%
173,700 Crescent Real Estate Equities Co. $ 3,734,550
142,600 Developers Diversified Realty Corp. 2,040,963
6,565 Vornado Operating Co.(1) 39,390
-------------
5,814,903
-------------
HOTELS -- 9.3%
14,710 Crestline Capital Corp.(1) 226,166
27,000 FelCor Lodging Trust Inc. 626,063
272,497 Host Marriott Corp. 3,031,529
299,755 Meristar Hospitality Corp. 5,451,794
98,100 Meristar Hotels & Resorts, Inc.(1) 269,775
128,270 Patriot American Hospitality, Inc. 657,384
79,420 Starwood Hotels & Resorts Worldwide, Inc. 2,268,434
-------------
12,531,145
-------------
INDUSTRIAL -- 10.4%
179,700 AMB Property Corp. 3,728,775
226,200 Liberty Property Trust 4,693,650
177,910 Prologis Trust 3,647,155
68,300 Weeks Corp. 1,950,819
-------------
14,020,399
-------------
MULTI-FAMILY RESIDENTIAL -- 18.9%
135,000 Apartment Investment and 4,893,750
Management Co.
175,600 Archstone Communities Trust 3,533,950
160,169 AvalonBay Communities Inc. 5,065,345
89 Camden Property Trust 2,203
120,702 Equity Residential Properties Trust 4,978,958
164,800 Essex Property Trust, Inc. 4,305,400
51,200 Smith (Charles E.) Residential
Realty, Inc. 1,577,600
57,500 Walden Residential Properties, Inc. 1,013,438
-------------
25,370,644
-------------
NEIGHBORHOOD & COMMUNITY SHOPPING CENTERS -- 7.0%
100,800 Bradley Real Estate, Inc. 1,827,000
84,750 JDN Realty Corp. 1,684,406
43,000 Kimco Realty Corporation 1,585,625
125,900 Vornado Realty Trust 4,343,550
-------------
9,440,581
-------------
OFFICE -- 32.2%
300,100 Arden Realty, Inc. 6,677,225
150,000 Beacon Properties Corp. (Acquired
3/17/98, Cost $3,000,000)(2) 2,268,750
296,000 CarrAmerica Realty Corp. 6,530,500
242,900 Equity Office Properties Trust 6,178,765
181,500 Kilroy Realty Corp. 3,720,750
259,000 Mack-Cali Realty Corp. 7,608,125
215,200 SL Green Realty Corp. 4,048,450
3,100 Spieker Properties, Inc. 109,275
105,300 Tower Realty Trust, Inc. 1,994,119
230,200 TrizecHahn Corporation 4,229,925
-------------
43,365,884
-------------
REGIONAL MALLS -- 13.5%
181,300 General Growth Properties, Inc. 5,880,919
126,600 Macerich Co. (The) 2,872,238
79,700 Mills Corp. 1,429,619
292,300 Simon DeBartolo Group Inc. 8,019,981
-------------
18,202,757
-------------
STORAGE -- 4.4%
236,288 Public Storage, Inc. 5,907,200
-------------
TOTAL INVESTMENT SECURITIES -- 100.0% $134,653,513
(Cost $152,794,818) =============
NOTES TO SCHEDULE OF INVESTMENTS
(1) Non-income producing.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at March 31, 1999 was $2,268,750,
which represented 1.7% of net assets.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the number of shares of each stock
* the market value of each investment
* the percentage of total investments in each industry
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
8 1-800-345-2021
Statement of Assets and Liabilities
- -----------------------------------------------------------------------------
MARCH 31, 1999
ASSETS
Investment securities, at value
(identified cost of $152,794,818) (Note 3) .................... $ 134,653,513
Cash .......................................................... 1,071,786
Receivable for investments sold ............................... 773,242
Dividend and interest receivable .............................. 1,044,138
-------------
137,542,679
-------------
LIABILITIES
Payable for investments purchased ............................. 302,767
Payable for capital shares redeemed ........................... 54,576
Payable for management fees (Note 2) .......................... 136,366
Distribution fees payable (Note 2) ............................ 81
Service fees payable (Note 2) ................................. 81
Payable for directors' fees and expenses ...................... 119
Other liabilities ............................................. 146
-------------
494,136
-------------
Net Assets .................................................... $ 137,048,543
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ....................... $ 170,979,506
Undistributed net investment income ........................... 746,412
Accumulated net realized loss on investment transactions ...... (16,536,070)
Net unrealized depreciation on investments (Note 3) ........... (18,141,305)
-------------
$ 137,048,543
=============
Investor Class
Net assets .................................................... $ 110,285,177
Shares outstanding ............................................ 9,110,962
Net asset value per share ..................................... $ 12.10
Advisor Class
Net assets .................................................... $ 448,579
Shares outstanding ............................................ 37,063
Net asset value per share ..................................... $ 12.10
Institutional Class
Net assets .................................................... $ 26,314,787
Shares outstanding ............................................ 2,173,167
Net asset value per share ..................................... $ 12.11
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. For each class of shares, the net assets
divided by the total number of shares outstanding gives you the price of an
individual share, or the net asset value per share.
NET ASSETS are also broken down by capital (money invested by shareholders); net
investment income not yet paid to shareholders or net investment losses; net
gains earned on investments but not yet paid to shareholders or net losses on
investments (known as realized gains or losses); and finally, gains or losses on
securities still owned by the fund (known as unrealized appreciation or
depreciation). This breakdown tells you the value of net assets that are
performance-related, such as investment gains or losses, and the value of net
assets that are not related to performance, such as shareholder investments and
redemptions.
See Notes to Financial Statements
www.americancentury.com 9
Statement of Operations
- -----------------------------------------------------------------------------
YEAR ENDED MARCH 31, 1999
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $10,156) $ 9,410,776
Interest 199,453
-------------
9,610,229
-------------
Expenses: (Note 2)
Management fees 1,700,461
Distribution fees -- Advisor Class 177
Service fees -- Advisor Class 177
Directors' fees and expenses 1,314
-------------
1,702,129
-------------
Net investment income 7,908,100
-------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 3)
Net realized loss on investments (18,562,395)
Change in net unrealized depreciation on investments (23,965,828)
-------------
Net realized and unrealized loss on investments (42,528,223)
-------------
Net Decrease in Net Assets Resulting from Operations $(34,620,123)
==============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks down how the
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* income earned from investments (dividend and interest)
* management fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
* gains or losses on current fund holdings (known as unrealized appreciation or
depreciation)
See Notes to Financial Statements
10 1-800-345-2021
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1999,
PERIOD ENDED MARCH 31, 1998 AND YEAR ENDED OCTOBER 31, 1997
Increase (Decrease) in Net Assets MARCH 31, 1999 MARCH 31, 1998(1) OCTOBER 31, 1997
OPERATIONS
<S> <C> <C> <C>
Net investment income ............................. $ 7,908,100 $ 1,967,271 $ 1,264,317
Net realized gain (loss)
on investment transactions ....................... (18,562,395) 1,192,469 2,097,147
Change in net unrealized appreciation
(depreciation) on investments ................... (23,965,828) 344,165 4,737,101
------------- ------------- ------------
Net increase (decrease) in net assets
resulting from operations ........................ (34,620,123) 3,503,905 8,098,565
------------- ------------- ------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment
income:
Investor Class .................................. (4,933,750) (1,148,389) (748,247)
Advisor Class ................................... (4,632)
Institutional Class ............................. (1,054,610) (157,612) (75,141)
From net realized gains on investment transactions:
Investor Class .................................. (1,111,296) (1,639,725) (643,767)
Advisor Class ................................... (325) -- --
Institutional Class ............................. (266,386) (222,854) --
------------- ------------- ------------
Decrease in net assets from distributions ......... (7,370,999) (3,168,580) (1,467,155)
------------- ------------- ------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase in net assets from
capital share transactions ....................... 28,322,183 60,085,338 76,456,053
------------- ------------- ------------
Net increase (decrease) in net assets ............. (13,668,939) 60,420,663 83,087,463
NET
ASSETS
Beginning of period ............................... 150,717,482 90,296,819 7,209,356
------------- ------------- ------------
End of period ..................................... $ 137,048,543 $ 150,717,482 $ 90,296,819
============= ============= ============
Undistributed net investment income ............... $ 746,412 $ 409,964 $ 239,230
============= ============= ============
</TABLE>
(1) The fund's fiscal year end was changed from October 31 to March 31
resulting in a five month reporting period.
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
the fund's net assets changed over the past three reporting periods. It details
how much a fund grew or shrank as a result of:
* operations -- a summary of the Statement of Operations from the previous page
for the most recent period
* distributions -- income and gains distributed to shareholders
* share transactions -- shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions result in net
assets at the end of the period.
See Notes to Financial Statements
www.americancentury.com 11
Notes to Financial Statements
- -----------------------------------------------------------------------------
MARCH 31, 1999
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. Real Estate Fund (the fund) is one of the five 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 commenced on October 6, 1998. The
following significant accounting policies are in accordance with generally
accepted accounting principles; these principles may require the use of
estimates by fund management.
SECURITY VALUATIONS -- Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or the mean of
the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or at the last reported sales price. Debt securities not traded on
a principal securities exchange are valued through a commercial pricing service
or at the mean of the most recent bid and asked prices. When valuations are not
readily available, securities are valued at fair value as determined in
accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal and state income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld (if any)
is recorded as of the ex-dividend date. Interest income is recorded on the
accrual basis and includes accretion of discounts and amortization of premiums.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that the fund's investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The fund requires that the collateral, represented by securities, received
in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable the fund to obtain those securities in the event of a
default under the repurchase agreement. ACIM monitors, on a daily basis, the
securities transferred to ensure that the value, including accrued interest, of
the securities under each repurchase agreement is equal to or greater than
amounts owed to the fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury or Agency obligations.
INCOME TAX STATUS -- It is the policy of the fund to distribute all taxable
income and capital gains to shareholders and to otherwise qualify as a regulated
investment company under provisions of the Internal Revenue Code. Accordingly,
no provision has been made for federal or state income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded
on the ex-dividend date. Distributions from net investment income are declared
and paid quarterly. Distributions from net realized gains are declared and paid
annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
12 1-800-345-2021
Notes to Financial Statements
- -----------------------------------------------------------------------------
(Continued)
MARCH 31, 1999
At March 31, 1999, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $7,775,689 (expiring in 2007)
which may be used to offset future taxable gains.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the
corporation's distributor. Certain officers of FDI are also officers of the
corporation.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM that
provides the fund with investment advisory and management services in exchange
for a single, unified management fee per class. The Agreement provides that all
expenses of the fund, except brokerage commissions, taxes, interest, expenses of
those directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by ACIM. The fee is computed daily and paid monthly based
on the fund's class average daily closing net assets during the previous month.
The annual management fee is 1.20%, 0.95% and 1.00% for the Investor Class,
Advisor Class and Institutional Class, respectively.
On January 27, 1998, substantially all of the assets of RREEF Real Estate
Securities Advisors L.P. (RESA), the subadvisor of the fund since June 13, 1997,
were acquired by RoProperty Services, B.V. The new entity adopted the name RREEF
America, L.L.C. (RREEF). As a result of the acquisition, the subadvisory
agreement between RESA and ACIM was terminated on that date and replaced by a
substantially identical subadvisory agreement with RREEF, which was subsequently
approved by the fund's Board of Directors and shareholders. The terms of the new
subadvisory agreement between RREEF and ACIM are identical in all substantive
respects to the old subadvisory agreement. The subadvisor will continue to make
investment decisions for the fund in accordance with the fund's investment
objectives, policies, and restrictions under the supervision of ACIM and the
Board of Directors. ACIM will continue to pay all costs associated with
retaining RREEF as the subadvisor of the fund.
The Board of Directors has adopted a Master Distribution and Shareholder
Services Plan (the plan) for the Advisor Class, pursuant to Rule 12b-1 of the
Investment Company Act of 1940. The plan provides that the fund will pay ACIM an
annual distribution fee equal to 0.25% and service fee equal to 0.25%. The fees
are computed daily and paid monthly based on the Advisor Class's average daily
closing net assets during the previous month. The distribution fee provides
compensation for distribution expenses incurred by financial intermediaries in
connection with distributing shares of the Advisor Class including, but not
limited to, payments to brokers, dealers, and financial institutions that have
entered into sales agreements with respect to shares of the fund. The service
fee provides compensation for shareholder and administrative services rendered
by ACIM, its affiliates or independent third party providers. Fees incurred
under the plan for the period October 6, 1998 through March 31, 1999 were $354.
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, and
the corporation's transfer agent, American Century Services Corporation.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Securities purchased, excluding short-term investments, totaled
$127,199,372. Securities sold, excluding short-term investments, totaled
$93,382,870.
As of March 31, 1999, accumulated net unrealized depreciation was
$21,488,163, based on the aggregate cost of investments for federal income tax
purposes of $156,141,676, which consisted of unrealized appreciation of $564,933
and unrealized depreciation of $22,053,096.
www.americancentury.com 13
Notes to Financial Statements
- -----------------------------------------------------------------------------
(Continued)
MARCH 31, 1999
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
All shares are $0.01 par value. Transactions in shares of the fund were as
follows:
SHARES AMOUNT
INVESTOR CLASS
Shares Authorized ............................. 50,000,000
=============
Year ended March 31, 1999
Sold .......................................... 8,944,040 $124,299,797
Issued in reinvestment of distributions ....... 425,283 5,522,971
Redeemed ...................................... (8,692,855) (118,594,866)
------------- -------------
Net increase .................................. 676,468 $ 11,227,902
============= =============
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
============= =============
ADVISOR CLASS
Shares Authorized ............................. 25,000,000
=============
October 6, 1998 through March 31, 1999(2)
Sold .......................................... 38,324 $475,941
Issued in reinvestment of distributions ....... 418 4,957
Redeemed ...................................... (1,678) (21,062)
------------- -------------
Net increase .................................. 37,064 $ 459,836
============= =============
(1) The fund's fiscal year end was changed from October 31 to March 31
resulting in a five month reporting period.
(2) Sale of the Advisor Class commenced on October 6, 1998.
14 1-800-345-2021
Notes to Financial Statements
- -----------------------------------------------------------------------------
(Continued)
MARCH 31, 1999
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
SHARES AMOUNT
INSTITUTIONAL CLASS
Shares Authorized ............................. 25,000,000
=============
Year ended March 31, 1999
Sold .......................................... 2,180,812 $28,623,703
Issued in reinvestment of distributions ....... 82,762 1,052,355
Redeemed ...................................... (1,008,425) (13,041,613)
------------- -------------
Net increase .................................. 1,255,149 $16,634,445
============= =============
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 through October 31, 1997(2)
Sold .......................................... 848,207 $12,080,751
Issued in reinvestment of distributions ....... 2,083 33,813
Redeemed ...................................... (18,233) (307,281)
------------- -------------
Net increase .................................. 832,057 $11,807,283
============= =============
(1) The fund's fiscal year end was changed from October 31 to March 31 resulting
in a five month reporting period.
(2) Sale of the Institutional Class commenced on June 16, 1997.
- --------------------------------------------------------------------------------
5. BANK LOANS
Effective December 18, 1998, the fund, along with certain other funds
managed by ACIM, entered into an unsecured $570,000,000 bank line of credit
agreement with Chase Manhattan Bank. Borrowings under the agreement bear
interest at the Federal Funds rate plus 0.40%. The fund may borrow money for
temporary or emergency purposes to fund shareholder redemptions. The fund did
not borrow from the line during the period December 18, 1998 through March 31,
1999.
- --------------------------------------------------------------------------------
6. FUND EVENTS
The following name change became effective March 1, 1999:
NEW NAME FORMER NAME
FUND: Real Estate Fund American Century Real Estate Fund
www.americancentury.com 15
ACRE--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
<TABLE>
<CAPTION>
Investor Class
1999 1998(1) 1997(1) 1996(1) 1995(1)(2)
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $ 16.12 $ 16.06 $ 12.29 $ 9.82 $ 10.00
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............................... 0.73(3) 0.25(3) 0.67(3) 0.55 0.07
Net Realized and Unrealized Gain (Loss)
on Investment Transactions .......................... (4.09) 0.26 4.13 2.27 (0.25)
----------- ----------- ----------- ----------- -----------
Total From Investment Operations .................... (3.36) 0.51 4.80 2.82 (0.18)
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income .......................... (0.54) (0.18) (0.48) (0.35) --
From Net Realized Gains on Investment Transactions .. (0.12) (0.27) (0.55) -- --
----------- ----------- ----------- ----------- -----------
Total Distributions ................................. (0.66) (0.45) (1.03) (0.35) --
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ........................ $ 12.10 $ 16.12 $ 16.06 $ 12.29 $ 9.82
=========== =========== =========== =========== ===========
Total Return(4) ..................................... (21.04)% 3.26% 40.69% 29.28% (1.80)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ..... 1.20% 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% 1.20%(5) 1.82% 6.83% 14.83%(5)
Ratio of Net Investment Income to Average Net Assets .. 5.41% 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) ........ 5.41% 3.70%(5) 3.84% 0.01% (6.67)%(5)
Portfolio Turnover Rate ............................... 66% 28% 69% 86% --
Net Assets, End of Period (in thousands) .............. $ 110,285 $ 135,922 $ 76,932 $ 7,209 $ 2,983
</TABLE>
(1) The period ended March 31, 1998 represents a five month reporting period.
The fund's fiscal year end was changed from October 31 to March 31 during
the period. Periods prior to 1998 are based on a fiscal year ended October
31.
(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. Also, prior to the unified management fee structure, effective
June 13, 1997, the custodian offset part of its fees for balance credits
given to the fund. During the period ended March 31, 1998, a portion of the
subadvisory fee, which is paid for subadvisory services, was waived.
See Notes to Financial Statements
16 1-800-345-2021
ACRE--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
Advisor Class
1999(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ............................. $ 12.22
-------
Income From Investment Operations
Net Investment Income(2) ....................................... 0.43
Net Realized and Unrealized Loss on Investment Transactions .... (0.15)
-------
Total From Investment Operations ............................... 0.28
-------
Distributions
From Net Investment Income ..................................... (0.28)
From Net Realized Gains on Investment Transactions ............. (0.12)
-------
Total Distributions ............................................ (0.40)
-------
Net Asset Value, End of Period ................................... $ 12.10
=======
Total Return(3) ................................................ 2.25%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ................ 1.45%(4)
Ratio of Net Investment Income to Average Net Assets ............. 5.16%(4)
Portfolio Turnover Rate .......................................... 66%
Net Assets, End of Period (in thousands) ......................... $ 449
(1) October 6, 1998 (commencement of sale) through March 31, 1999.
(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
www.americancentury.com 17
ACRE--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
<TABLE>
<CAPTION>
Institutional Class
1999 1998(1) 1997(1)(2)
PER-SHARE DATA
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $ 16.12 $ 16.06 $ 14.24
---------- ---------- ----------
Income From Investment Operations
Net Investment Income(3) ............................ 0.78 0.26 0.28
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ........................ (4.09) 0.26 1.63
---------- ---------- ----------
Total From Investment Operations .................... (3.31) 0.52 1.91
---------- ---------- ----------
Distributions
From Net Investment Income .......................... (0.58) (0.19) (0.09)
From Net Realized Gains on
Investment Transactions ........................... (0.12) (0.27) --
---------- ---------- ----------
Total Distributions ................................. (0.70) (0.46) (0.09)
---------- ---------- ----------
Net Asset Value, End of Period ........................ $ 12.11 $ 16.12 $ 16.06
========== ========== ==========
Total Return(4) ..................................... (20.77)% 3.32% 13.40%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ..... 1.00% 0.95%(5) 1.00%(5)
Ratio of Operating Expenses to Average Net Assets
(before expense waivers and reimbursements)(6) ........ 1.00% 1.00%(5) 1.00%(5)
Ratio of Net Investment Income to Average Net Assets .. 5.61% 4.00%(5) 4.85%(5)
Ratio of Net Investment Income to Average Net Assets
(before expense waivers and reimbursements)(6) ........ 5.61% 3.95%(5) 4.85%(5)
Portfolio Turnover Rate ............................... 66% 28% 69%
Net Assets, End of Period (in thousands) .............. $ 26,315 $ 14,795 $ 13,365
</TABLE>
(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 reporting
period. Periods prior to 1998 are based on a fiscal year ended October 31.
(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 for periods less than one year are 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.
- --------------------------------------------------------------------------------
UNDERSTANDNG THE FINANCIAL HIGHLIGHTS--These statements itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming
reinvestment of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
18 1-800-345-2021
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 Real Estate Fund (the "Fund")
(formerly American Century Real Estate Fund), one of the funds comprising
American Century Capital Portfolios, Inc., as of March 31, 1999, and the related
statement of operations for the year then ended, the statements of changes in
net assets for the year then ended, for the period November 1, 1997 through
March 31, 1998 and for the year ended October 31, 1997, and the financial
highlights for the periods presented. 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, 1999, 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 Real Estate Fund as
of March 31, 1999, the results of its operations for the year then ended, the
changes in its net assets for each of the three periods in the period then
ended, and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 7, 1999
www.americancentury.com 19
Share Class and Retirement Account Information
- -----------------------------------------------------------------------------
SHARE CLASSES
Three classes of shares are authorized for sale by the fund: Investor
Class, Advisor Class and Institutional Class.
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
AND INSTITUTIONAL CLASS SHARES ARE LISTED IN NEWSPAPERS.
ADVISOR CLASS shares are 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
shares is 0.25% higher than the total expense ratio of the Investor Class
shares.
INSTITUTIONAL CLASS shares are 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 shares is 0.20% less
than the total expense ratio of the Investor Class shares.
All classes of shares represent a pro rata interest in the funds and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid for six
months from the date of receipt at American Century. Even if you plan to roll
over the amount you withdraw to another tax-deferred account, the withholding
rate still applies to the withdrawn amount unless we have received a written
notice not to withhold federal income tax within six months prior to the
withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid for only six months from the date of
receipt at American Century. You may revoke your election at any time by sending
a written notice to us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
20 1-800-345-2021
Background Information
- -----------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 14 growth and income funds including domestic
equity, balanced, asset allocation, and specialty. Specialty equity funds
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.
Real estate investing involves inherent risks, including interest rate
fluctuations, credit risk, and the impact of changing economic conditions. In
addition, by focusing on a specific market sector, the fund may experience
greater volatility than funds with a broader investment strategy. The fund is
not intended to serve as a complete investment program by itself.
FUND MANAGEMENT TEAM
American Century has entered into a subadvisory contract with an
experienced real estate investment company, RREEF America L.L.C., to manage the
fund. Founded in 1975, RREEF is a Chicago-based real estate investment advisor
to large corporate clients, with assets under management of more than $9.5
billion. The fund's management team consists of two experienced managers who
select investments within a framework established by a real estate investment
policy committee. (See Note 2 in Notes to Financial Statements.)
FUND BACKGROUND
To better serve investors, RREEF and American Century merged an existing
fund managed by RREEF, RREEF Real Estate Securities Fund, into ACRE on June 13,
1997.
The RREEF fund commenced operations on September 21, 1995, and had $25
million in assets at the time of the merger. ACRE was offered to the public by
American Century on June 16, 1997.
COMPARATIVE INDICES
The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.
The S&P SMALL CAP 600 INDEX consists of 600 domestic stocks chosen for
market size, liquidity, and industry group representation.
The S&P MIDCAP 400 INDEX is a capitalization-weighted index of the stocks
of the 400 largest leading U.S. companies not included in the S&P 500. Created
by Standard & Poor's Corporation, it is considered to represent the performance
of mid-cap stocks in general.
The S&P 500 INDEX is a capitalization- weighted index of 500 widely traded
stocks. Created by Standard & Poor's Corporation, it is considered to represent
the performance of the stock market in general.
The WILSHIRE REIT INDEX (full name: Wilshire Real Estate Securities Index -
REIT component) is a market capitalization-weighted index composed of 98 equity
REITs. It does not include special purpose or healthcare REITs.
[right margin]
PORTFOLIO MANAGERS
ACRE
KIM REDDING
KAREN KNUDSON
www.americancentury.com 21
Glossary
- -----------------------------------------------------------------------------
INVESTMENT TERMS
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on pages 16-18.
* EXPENSE RATIO-- the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
* FUNDS FROM OPERATIONS (FFO)-- FFO is the most commonly used measure of a
REIT's earnings performance. It is similar to the net income of non-real estate
companies. FFO is the company's net income with real estate depreciation and
amortization (excluding deferred financing costs) added back in. The FFO ratio
is the price of the stock divided by the company's FFO. It is comparable to a
P/E ratio. The median FFO is in the middle of the REIT's portfolio. Half the
companies in the portfolio have FFOs greater than the median, and half have FFOs
that are less. If the portfolio contains an even number of companies, then the
median is the average of the two company FFOs in the middle.
* MEDIAN MARKET CAPITALIZATION-- market capitalization (market cap) is the total
value of a company's stock and is calculated by multiplying the number of
outstanding common shares by the current share price. The company whose market
cap is in the middle of the portfolio is the median market cap. Half the
companies in the portfolio have values greater than the median, and half have
values that are less. If there is an even number of companies, then the median
is the average of the two companies in the middle.
* NUMBER OF COMPANIES-- the number of different companies held by a fund on a
given date.
* PORTFOLIO TURNOVER-- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
* PRICE/EARNINGS (P/E) RATIO-- a stock value measurement calculated by dividing
a company's stock price by its earnings per share, with the result expressed as
a multiple instead of as a percentage. (Earnings per share is calculated by
dividing the after-tax earnings of a corporation by its outstanding shares.)
* 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.
TYPES OF STOCKS
* BLUE-CHIP STOCKS-- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
* CYCLICAL STOCKS-- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers and textile
operators.
* GROWTH STOCKS-- stocks of companies that have experienced above-average
earnings growth and are expected to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech,
healthcare and consumer staple companies.
* 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.
22 1-800-345-2021
Glossary
- -----------------------------------------------------------------------------
(Continued)
* 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.
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
* CAPITAL PRESERVATION-- offers taxable and tax-free money market funds for
relative stability of principal and liquidity, allowing maximum portfolio
diversification.
* INCOME-- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatilitylevels
than stock funds.
* GROWTH & INCOME-- offers funds that emphasize both growth and income,
diversification, varying capitalization sizes, and different investment styles
and strategies.
* GROWTH-- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historicalmeasures as well as qualitative prospective measures. It is not
intended to be aprecise indicator of future risk or return levels. The degree of
risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
www.americancentury.com 23
Notes
- -----------------------------------------------------------------------------
24 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Equity Income
Conservative
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call for a prospectus or profile on any American Century fund. These
documents contain important information including charges and expenses, and you
should read them carefully before you invest or send money.
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9904 Funds Distributor, Inc.
SH-BKT-16198 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
MARCH 31, 1999
ANNUAL REPORT
- -----------------
AMERICAN CENTURY
[graphic of glasses]
AMERICAN CENTURY
- -----------------
Equity Index
[american century logo(reg.sm)]
American
Century
[inside front cover]
EQUITY INDEX
(ACQIX)
CLASSIFYING OUR FUNDS BY OBJECTIVE AND RISK
- --------------------------------------------------------------------------------
In March, American Century introduced a new and simpler way to evaluate which
fund is right for you. The new system is based on a fund's objective and its
risks. Funds are classified under FOUR BROAD OBJECTIVES:
* Growth * Income
* Growth & Income * Capital Preservation
Funds are also divided according to RISK:
* Aggressive * Moderate * Conservative
The risk classification is based on a number of factors, including how much a
fund's share price has fluctuated in the past compared to two popular indices:
* Standard & Poor's 500 Stock Index
* Lehman Bros. Aggregate Bond Index
Aggressive funds tend to fluctuate MORE than the S&P 500 Index. Moderate funds
tend to fluctuate LESS than the S&P 500, but MORE than the Lehman Index.
Conservative funds tend to fluctuate LESS than the Lehman Index.
NEW, SIMPLER FUND NAMES
We also simplified the names of our funds. For example,
OLD FUND NAME NEW FUND NAME
- --------------------------------------------------------------------------------
American Century-Twentieth Century Ultra American Century Ultra
American Century-Benham GNMA Fund American Century GNMA Fund
These changes should make investing more convenient and understandable for you.
Turn to the inside back cover of this report to see a list of the funds
classified by objective and risk. For definitions of the fund categories, see
the Glossary.
- --------------------------------------------------------------------------------
WHAT'S NEW...
Our new fund guide, INVESTING WITH AMERICAN CENTURY, will help you navigate
through our selection of funds. This helpful booklet includes information about
risk levels, objectives, investment styles and strategies.
AMERICAN CENTURY CATALOG OF TOOLS & SERVICES lists all the free educational
materials available to investors.
FUND PROFILES are now available for many American Century funds when you request
information about a fund. Profiles are short pamphlets that follow a standard
SEC format and are intended to help you easily compare our funds with other
companies' funds. When you invest you will receive a full prospectus, which
contains more detailed information about your new fund. To order any of these
materials, please call 1-800-345-2021.
Our Message to You
- --------------------------------------------------------------------------------
[photo of James E. Stower III and James E Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
The Equity Index Fund is a new offering--the first of its kind here at
American Century--that was open only a month when its fiscal year ended on March
31, 1999. The fund's objective is to track the progress of the Standard & Poor's
500 Index, the most common benchmark for the performance of the U.S. stock
market. The S&P 500 has performed well in recent years, a trend that continued
during the past twelve months. Just the same, a relatively few large growth
stocks in the index have been responsible for its performance. While the
fortunes of these stocks flourished, the vast majority of stocks in the index
languished.
On the corporate front, this was an exciting year at American Century. For
one, we consolidated all our funds under the American Century name. While we are
sorry to lose the venerable Twentieth Century and Benham names, we believe the
American Century nameplate makes it simpler for you to identify your funds.
We also reclassified our entire family of 71 funds, based on investment
goals and risk levels, so you can more easily choose the funds that are right
for you. A complete list of American Century funds arranged by their new
classifications is on the inside back cover of this report.
We also continued to expand the American Century investment team, which has
doubled over the last three years. Our portfolio teams have excellent depth,
with an array of experienced managers and analysts, and we remain committed to
building and maintaining a talented management group. Performance is too
hard-won, and our business too competitive, not to do so.
In addition, we made some enhancements to our Web site. Among the new
features are daily fund information, including performance and price data,
market and national news, and a Forms Center with access to the most-requested
investor forms and applications. You can also sign up to receive fund
prospectuses and shareholder reports electronically.
Finally, a quick update on Year 2000. Our critical systems have been
renovated, tested, and returned to production. We continue to test these
systems, as well as participate in industry-wide tests with our business
partners.
Welcome to the American Century Equity Index Fund. We appreciate your
confidence in our company.
Sincerely,
[signature of James E. Stowers, Jr] [Signature of James E. Stowers III]
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Vice Chairman of the Board
and Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ........................................................ 2
Market Perspective ....................................................... 3
EQUITY INDEX
Performance .............................................................. 4
Management Q&A ........................................................... 5
Portfolio at a Glance .................................................... 5
Top Ten Holdings ......................................................... 6
Top Five Industries ...................................................... 6
Schedule of Investments .................................................. 7
Financial Highlights ..................................................... 20
FINANCIAL STATEMENTS
Statement of Assets
and Liabilities .......................................................... 14
Statement of Operations .................................................. 15
Statement of Changes
in Net Assets ............................................................ 16
Notes to Financial
Statements ............................................................... 17
Independent Auditors'
Report ................................................................... 22
OTHER INFORMATION
Share Class and Retirement
Account Information ...................................................... 23
Background Information
Investment Policies ...................................................... 24
Fund Management ....................................................... 24
Comparative Indices ................................................... 24
Glossary ................................................................. 25
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
MARKET PERSPECTIVE
* The year ended March 31, 1999, was a volatile period for the U.S. stock
market. The domestic economy demonstrated strong growth throughout 1998 and
into 1999. However, deteriorating global economic and financial conditions
ignited investor anxiety and fueled a sharp correction in the third quarter of
1998. The Federal Reserve Board lowered interest rates three times in rapid
succession in an effort to stabilize global markets that were reeling from
economic crises abroad.
* For most of the year, returns remained concentrated in a handful of large,
well-known companies. Although many large companies posted respectable
earnings, it was not necessarily a market in which earnings were the
attraction. The growth investment style also performed better than the value
style.
EQUITY INDEX
* The Equity Index Fund's inception date was February 26, 1999. At quarter-end
of 1999, Equity Index posted a life-of-fund return of 4.00%, matching its
benchmark, the S&P 500 Index.
* The market's long-running bias toward large-capitalization stocks continued in
the weeks following the fund's launch, and large-cap stocks continued to
outperform mid- and small-cap issues.
* Equity Index's best-performing industries included computer software and
services, integrated energy, financial services, communications equipment and
electrical products. Equity Index held significant weightings in each of these
top-performing industries, which together comprised nearly 25% of fund
investments at the end of March.
* Industries that detracted from performance included telecommunications
companies, food and beverage companies, tobacco companies and retail grocery
stores. Together, stocks in these industries accounted for about 12% of
investments.
[left margin]
EQUITY INDEX(1)
(ACQIX)
TOTAL RETURNS: AS OF 3/31/99
Since Inception 4.00%(2)
INCEPTION DATE: 2/26/99
NET ASSETS: $281.6 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Institutional classes. Investment terms are defined in
the Glossary on pages 25-26.
2 1-800-345-2021
Market Perspective from Mark Mallon
- --------------------------------------------------------------------------------
[photo of Mark Mallon]
Mark Mallon, head of specialty, asset allocation, and growth and income equity
funds at American Century
BEHIND THE NUMBERS
The fiscal year for American Century Equity Index Fund ended March 31,
1999. We would like to take this opportunity to welcome investors to the fund,
which had been open just one month when the year ended.
It has been a good year for the S&P 500, which gained 18.42% for the 12
months, and was up 4.00% in March, finishing in a dead heat with the Equity
Index Fund. Hidden in the yearly numbers, however, is the sharp correction at
mid-year, which ended only after the Federal Reserve Board lowered interest
rates three times in rapid succession, and successfully stabilized global
markets that were reeling from economic crises in Asia, Latin America, and
Russia. Also hidden was the market's narrow leadership, which continued to
reside with large growth stocks. The S&P MidCap 400, an index of midsize
equities, gained just 0.45% for the year, and the Russell 2000 Index of small
stocks was actually down 16.26%.
FROTH . . .
The fact is, for much of the year, index returns remained concentrated in a
handful of large, well-known companies, many of which were technology- or
Internet-related. Indeed, just five stocks--Microsoft, America Online,
Citigroup, MCI Worldcom, and American International Group--generated half of the
S&P 500's performance in the first calendar quarter of 1999, and a mere 18
stocks accounted for the full 100% of index returns, according to Morgan Stanley
Dean Witter. (Because the S&P 500 is weighted by market value, the higher the
total value of a company's stock the more it influences index results.) Morgan
calculates that the other 482 stocks in the S&P 500 essentially canceled each
other out in the first quarter.
As the quarter went, so went the year. The recovery after the severe
decline in 1998's September quarter was limited to an even narrower group of
stocks than the rise earlier in the year.
. . . AND FUNDAMENTALS
Although stocks are expensive by a number of measures, their prices draw
support from an extraordinary economy. We are experiencing the longest economic
expansion in 50 years. Unemployment, inflation, and interest rates are as low as
they have been in a generation. U.S. consumers, who drive two-thirds of the
growth in domestic goods and services, remain confident. Our gross domestic
product grew at an average annual rate of 6.1% in the fourth calendar quarter of
1998, a pace that would have been considered much too fast before technology
revolutionized the workplace, and expanded global production capacity and
greater competition reined in prices. We are also seeing a revolution in global
business, with companies jockeying for position in world markets via
restructurings and mergers. These are heady times, and they go a long way toward
explaining our robust markets.
[right hand margin]
"THE FACT IS, FOR MUCH OF THE YEAR, INDEX RETURNS REMAINED CONCENTRATED IN A
HANDFUL OF LARGE, WELL-KNOWN COMPANIES, MANY OF WHICH WERE TECHNOLOGY- OR
INTERNET-RELATED."
MARKET RETURNS
FOR THE YEAR ENDED MARCH 31, 1999
S&P 500 18.42%
S&P MIDCAP 400 0.45%
RUSSELL 2000 -16.26%
Source: Lipper Inc.
These indices represent the performance of large-, medium- and
small-capitalization stocks.
[mountain chart data below]
MARKET PERFORMANCE (GROWTH OF $1.00)
FOR THE YEAR ENDED MARCH 31, 1999
S&P 500 S&P Mid-Cap 400 Russell 2000
3/31/98 $1.00 $1.00 $1.00
4/30/98 $1.01 $1.02 $1.01
5/31/98 $0.99 $0.97 $0.95
6/30/98 $1.03 $0.98 $0.95
7/31/98 $1.02 $0.94 $0.88
8/31/98 $0.87 $0.77 $0.71
9/30/98 $0.93 $0.84 $0.76
10/31/98 $1.01 $0.91 $0.79
11/30/98 $1.07 $0.96 $0.83
12/31/98 $1.13 $1.07 $0.89
1/31/99 $1.18 $1.03 $0.90
2/28/99 $1.14 $0.98 $0.82
3/31/99 $1.18 $1.00 $0.84
Value on S&P 500 S&P MidCap 400 Russell 2000
3/31/99 $1.18 $1.00 $0.84
www.americancentury.com 3
Equity Index--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF MARCH 31, 1999
INVESTOR CLASS INSTITUTIONAL CLASS
(INCEPTION 2/26/99) (INCEPTION 2/26/99)
EQUITY INDEX S&P 500 EQUITY INDEX S&P 500
AVERAGE ANNUAL RETURNS
LIFE OF FUND(*) ........... 4.00% 4.00% 4.00% 4.00%
* Returns for periods less than one year are not annualized. See pages 23-26 for
information about share classes, the S&P 500 Index, and returns.
[mountain chart data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value as of 3/31/99
$10,400 Equity Index
$10,423 S&P 500 Ix
Equity Index S&P 500 Index
Date Value Return Value Return
2/26/99 $10,000 $10,000
3/31/99 $10,400 4.00 $10,423 4.00
The graph at left shows the growth of a $10,000 investment over the life of the
fund. The S&P 500 Index is provided for comparison. Equity Index's total returns
include operating expenses (such as transaction costs and management fees) that
reduce returns, while the total returns of the S&P 500 Index do not. The graphs
are based on Investor Class shares only; performance for other classes will vary
due to differences in fee structures (see the Total Returns table above). 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.
4 1-800-345-2021
Equity Index--Q&A
- --------------------------------------------------------------------------------
An interview with Barclays Global Investors, the subadvisor on American
Century Equity Index Fund.
BARCLAYS GLOBAL INVESTORS HELPS WITH THE MANAGEMENT OF AMERICAN CENTURY EQUITY
INDEX FUND. BECAUSE THIS IS THE FIRST REPORT TO INVESTORS, WILL YOU TELL US
ABOUT BARCLAYS AND EXPLAIN THE MANAGEMENT ARRANGEMENT BETWEEN BARCLAYS AND
AMERICAN CENTURY?
Yes, but first, we'd like to take this opportunity, along with American
Century, to welcome investors to Equity Index.*
As for some background on Barclays Global Investors, we are one of the
world's largest investment managers. American Century is the manager of the
Equity Index Fund, while Barclays Global Fund Advisors (BGFA), a Barclays
subsidiary, serves as the subadvisor of the fund. As subadvisor, BGFA makes the
day-to-day investment decisions for Equity Index in line with the fund's
investment objectives, policies and restrictions.
The subadvisory arrangement gives investors the benefit of Barclays'
considerable expertise and resources. Barclays pioneered the concept of indexing
in 1971, and currently manages more than $200 billion in assets indexed to the
S&P 500.
HOW IS EQUITY INDEX MANAGED?
The goal of the Equity Index Fund is to hold all of the stocks in--and
match as closely as possible the performance of--the Standard & Poor's 500
Index. Equity Index buys and sells stocks included in the Index in an effort to
create a portfolio that closely matches, the Index. Therefore the portfolio
attempts not only to hold all the names included in the Index, but also to hold
them in the same weightings as the Index. Equity Index also purchases S&P 500
futures contracts. Owning futures contracts allows the fund to accommodate
normal daily cash flows by shareholders and helps minimize tracking errors
versus the index.
The S&P 500 and the Equity Index Fund are market-capitalization weighted,
which means that the weighting of stocks as a percentage of the Index and the
portfolio's assets is based on each stock's total market capitalization (or
value) relative to other stocks in the Index and the portfolio. The bigger the
company, the greater the percentage of the index and the Equity Index Fund it
represents.
THE EQUITY INDEX FUND OPENED TO INVESTORS ON FEBRUARY 26, 1999. HOW HAS IT
PERFORMED SINCE ITS INCEPTION?
Equity Index's life-of-fund return as of March 31, 1999, was 4.00%. The S&P
500 returned 4.00% as well. Equity Index's performance during the few weeks it
has been in operation reflects a market environment that has favored large-cap
stocks.
We are pleased that Equity Index's performance has so closely matched the
index during its brief lifetime. However, we wish to stress that the fund will
most likely trail the index slightly going forward. That's because costs
associated with the fund's operation, such as administrative and management
fees, are deducted from assets. Also, a portion of Equity Index's assets is
invested in low-risk, low-return money market securities used to fund
redemptions.
[right margin]
"EQUITY INDEX'S PERFORMANCE DURING THE FEW WEEKS IT HAS BEEN IN OPERATION
REFLECTS A MARKET ENVIRONMENT THAT HAS FAVORED LARGE-CAP STOCKS."
PORTFOLIO AT A GLANCE
3/31/99
NO. OF COMPANIES 500
MEDIAN P/E RATIO 22.3
MEDIAN MARKET CAPITALIZATION 7.78 BILLION
PORTFOLIO TURNOVER 0%(1)
EXPENSE RATIO 0.49%(2)
(1) For the period from 2/26/99 to 3/31/99
(2) Annualized.
Investment terms are defined in the Glossary on pages 25-26.
*All fund returns referenced in this report are for Investor Class shares.
www.americancentury.com 5
Equity Index--Q&A
- --------------------------------------------------------------------------------
(Continued)
WHAT MARKET FACTORS INFLUENCED PERFORMANCE?
As we mentioned, the S&P 500 is generally made up of large-capitalization
stocks, and the market maintained its long-running bias toward such stocks
during the month of March.
The industries that contributed the most to Equity Index's performance in
March included computer software and services firms, integrated energy
companies, and financial services companies.
Increasing interest in the Internet and strong computer sales translated
into healthy gains for online information companies, software firms, and
companies that make computers and computer-related gear. Microsoft was Equity
Index's top contributor in March and its largest holding. Other technology
holdings that added to results included General Electric, Equity Index's
second-largest holding, and Internet giant America Online. Cisco Systems, a
supplier of networking equipment for linking local- and wide-area computer
networking systems, was among Equity Index's largest and best-performing
positions as well.
Energy production companies also fared well, thanks to both a strong
rebound in oil and gas prices that began in February and a wave of mergers
within the energy industry. Exxon and Royal Dutch Petroleum, a slightly smaller
holding, were two energy names that were helpful. Equity Index's stake in energy
production represented nearly 5% of holdings at March 31.
Financial services companies, another substantial portfolio stake, also
proved beneficial.
WERE THERE ANY INDUSTRIES THAT DETRACTED FROM PERFORMANCE?
Yes. Top-line growth in the telecommunications area slowed a bit in March,
as the industry's major players addressed various regulatory and economic
concerns facing this competitive group. Names that detracted from results
include BellSouth Corp., Bell Atlantic and AT&T.
Equity Index's 3.6% stake in food and beverage companies also dampened
performance, as increasing competition and pricing pressure drove down profits
in this characteristically low-growth industry.
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF
3/31/99
MICROSOFT CORP. 3.8%
GENERAL ELECTRIC CO. (U.S.) 3.0%
WAL-MART STORES, INC. 1.7%
INTEL CORP. 1.7%
MERCK & CO., INC. 1.6%
PFIZER, INC. 1.5%
CISCO SYSTEMS INC. 1.5%
EXXON CORP. 1.4%
AT&T CORP. 1.4%
INTERNATIONAL BUSINESS MACHINES CORP. 1.4%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF
3/31/99
PHARMACEUTICALS 9.0%
BANKING 7.3%
COMPUTER SOFTWARE & SERVICES 6.7%
TELEPHONE COMMUNICATIONS 6.6%
ENERGY (PRODUCTION & MARKETING) 4.9%
6 1-800-345-2021
Equity Index--Schedule of Investments
- ---------------------------------------------------------------------
Shares Value
- ---------------------------------------------------------------------
COMMON STOCKS-88.3%
AEROSPACE & DEFENSE--1.3%
13,200 AlliedSignal Inc. $ 649,275
22,400 Boeing Co. 764,400
1,100 EG&G, Inc. 29,013
3,000 General Dynamics Corp. 192,750
1,800 Goodrich (B.F.) Company (The) 61,763
1,600 Northrop Grumman Corp. 95,800
8,000 Raytheon Co. Cl B 469,000
3,700 Textron Inc. 286,288
5,300 United Technologies Corp. 717,819
-----------------
3,616,602
-----------------
AGRICULTURE--0.1%
5,700 Pioneer Hi-Bred International, Inc. 214,463
-----------------
AIRLINES--0.3%
4,300 AMR Corp.(1) 251,819
3,400 Delta Air Lines Inc. 236,300
8,000 Southwest Airlines Co. 242,000
2,100 US Airways Group Inc.(1) 102,506
-----------------
832,625
-----------------
AUTOMOBILES & AUTO PARTS--1.3%
3,600 AutoZone, Inc.(1) 109,350
1,800 Cooper Tire and Rubber Company 33,075
3,900 Dana Corp. 148,200
800 Fleetwood Enterprises, Inc. 22,900
28,600 Ford Motor Co. 1,622,988
15,500 General Motors Corp. 1,346,563
4,300 Genuine Parts Company 123,894
1,600 Navistar International Corp.(1 64,300
1,800 PACCAR Inc. 74,194
1,200 Pep Boys-Manny, Moe & Jack (The) 18,300
2,800 TRW Inc. 127,400
-----------------
3,691,164
-----------------
BANKING--7.3%
2,700 AmSouth Bancorporation 122,850
27,700 Banc One Corp. 1,525,231
7,000 BankBoston Corp. 303,188
18,000 Bank of New York Co., Inc. (The) 646,875
40,900 BankAmerica Corp. 2,888,563
2,300 Bankers Trust New York Corp. 202,975
7,200 BB & T Corp. 260,550
20,000 Chase Manhattan Corp. 1,626,250
53,500 Citigroup Inc. 3,417,313
3,700 Comerica, Inc. 231,019
6,300 Fifth Third Bancorp 415,603
23,400 First Union Corp. 1,250,438
5,400 Firstar Corp. 483,300
Shares Value
- ---------------------------------------------------------------------
13,400 Fleet Financial Group, Inc. $ 504,175
1,300 Golden West Financial Corp. (Del.) 124,150
5,000 Huntington Bancshares Inc. 154,844
10,800 KeyCorp 327,375
6,200 Mellon Bank Corp. 436,325
3,700 Mercantile Bancorporation Inc. 175,750
4,100 Morgan (J.P.) & Co. 505,838
7,800 National City Corp. 517,725
2,600 Northern Trust Corp. 230,994
7,100 PNC Bank Corp. 394,494
3,300 Providian Financial Corp. 363,000
5,200 Regions Financial Corp. 180,375
2,500 Republic New York Corp. 115,313
3,900 SouthTrust Corp. 145,397
4,100 Summit Bancorp. 159,900
7,500 SunTrust Banks, Inc. 466,875
6,300 Synovus Financial Corp. 128,756
17,200 U.S. Bancorp 585,875
4,800 Wachovia Corp. 389,700
38,700 Wells Fargo & Co. 1,356,919
-------------------
20,637,935
-------------------
BIOTECHNOLOGY--0.3%
12,000 Amgen Inc.(1) 899,250
-------------------
BROADCASTING & MEDIA--1.6%
16,700 CBS Corporation (1) 683,656
6,200 Clear Channel Communications, Inc.(1) 415,788
8,700 Comcast Corp. Cl A 547,828
1,700 King World Productions, Inc.(1) 51,956
29,000 Time Warner Inc. 2,060,813
8,200 Viacom, Inc. Cl B(1) 688,288
-------------------
4,448,329
-------------------
BUILDING & HOME IMPROVEMENTS--0.1%
8,000 Masco Corp. 226,000
-------------------
BUSINESS SERVICES & SUPPLIES--0.5%
20,200 Cendant Corp.(1) 318,150
3,400 Ceridian Corp.(1) 124,313
4,000 Dun & Bradstreet Corp. (The) 142,500
3,500 Equifax Inc. 120,313
3,300 Interpublic Group of Companies, Inc. 256,988
4,000 Omnicom Group Inc. 319,750
3,900 Paychex, Inc. 185,128
------------------
1,467,142
------------------
CHEMICALS & RESINS--1.5%
5,500 Air Products and Chemicals, Inc. 188,375
5,200 Dow Chemical Co. 484,575
26,600 du Pont (E.I.) de Nemours & Co. 1,544,463
1,900 Eastman Chemical Co. 79,919
3,100 Ecolab Inc. 110,050
3,400 Engelhard Corp. 57,588
800 FMC Corp.(1) 39,500
See Notes to Financial Statements
www.americancentury.com 7
Equity Index--Schedule of Investments
- ----------------------------------------------------------------------
(Continued)
Shares Value
- ---------------------------------------------------------------------
1,700 Grace (W.R.) & Co. (Del.)(1) $ 20,613
1,400 Great Lakes Chemical Corp. 51,450
2,400 Hercules Inc. 60,600
2,500 International Flavors & Fragrances Inc. 93,906
14,800 Monsanto Co. 679,875
2,900 Morton International, Inc. 106,575
1,500 Nalco Chemical Co. 39,844
4,200 PPG Industries, Inc. 215,250
3,700 Praxair, Inc. 133,431
3,900 Rohm and Haas Co. 130,894
4,100 Sherwin-Williams Co. 115,313
2,400 Sigma-Aldrich Corp. 70,275
3,100 Union Carbide Corp. 140,081
------------------
4,362,577
------------------
COMMUNICATIONS EQUIPMENT--2.7%
2,000 Andrew Corp.(1) 24,688
5,100 Ascend Communications, Inc.(1) 426,966
5,500 Corning Inc. 330,000
4,000 General Instrument Corp.(1) 121,250
1,900 Harris Corp. 54,388
31,200 Lucent Technologies Inc. 3,361,800
14,300 MediaOne Group Inc.(1) 908,050
14,200 Motorola, Inc. 1,040,150
15,600 Northern Telecom Ltd. 969,150
1,800 Scientific-Atlanta, Inc. 49,050
4,600 Tellabs, Inc.(1) 449,650
------------------
7,735,142
------------------
COMPUTER PERIPHERALS--2.1%
8,500 3Com Corp.(1) 198,422
37,300 Cisco Systems Inc.(1) 4,087,847
11,900 EMC Corp. (Mass.)(1) 1,520,225
5,800 Seagate Technology, Inc.(1) 171,463
------------------
5,977,957
------------------
COMPUTER SOFTWARE & SERVICES--6.7%
1,600 Adobe Systems Inc. 90,850
24,300 America Online Inc. 3,547,800
1,300 Autodesk, Inc. 52,609
14,400 Automatic Data Processing, Inc. 595,800
5,100 BMC Software, Inc.(1) 189,178
3,900 Cabletron Systems, Inc.(1) 31,931
12,700 Computer Associates International, Inc. 451,644
3,700 Computer Sciences Corp.(1) 204,194
8,600 Compuware Corp.(1) 205,594
11,600 Electronic Data Systems Corp. 564,775
10,500 First Data Corp. 448,875
7,600 IMS Health Inc. 251,750
119,200 Microsoft Corp.(1) 10,679,575
8,300 Novell, Inc.(1) 209,316
34,400 Oracle Systems Corp.(1) 908,375
6,400 Parametric Technology Corp.(1) 126,600
5,500 PeopleSoft, Inc. 80,609
600 Shared Medical Systems Corp. 33,413
Shares Value
- ---------------------------------------------------------------------
6,000 Unisys Corp. $ 166,125
------------------
18,839,013
------------------
COMPUTER SYSTEMS--3.8%
3,200 Apple Computer, Inc.(1) 115,100
40,200 Compaq Computer Corp. 1,273,838
1,200 Data General Corp.(1) 12,150
60,200 Dell Computer Corp.(1) 2,462,556
3,700 Gateway 2000, Inc.(1) 253,681
24,100 Hewlett-Packard Co. 1,634,281
21,900 International Business Machines Corp. 3,881,775
4,400 Silicon Graphics, Inc.(1) 73,425
9,000 Sun Microsystems, Inc.(1) 1,125,281
------------------
10,832,087
------------------
CONSTRUCTION & PROPERTY
DEVELOPMENT--0.1%
1,400 Centex Corp. 46,725
1,800 Fluor Corp. 48,600
1,000 Foster Wheeler Corp. 12,125
1,100 Kaufman & Broad Home Corp. 24,819
1,300 Owens Corning 41,356
1,000 Pulte Corp. 20,813
------------------
194,438
------------------
CONSUMER PRODUCTS--2.3%
1,300 Alberto-Culver Company Cl B 30,388
1,700 American Greetings Corp. Cl A 43,138
6,200 Avon Products, Inc. 291,788
2,800 Clorox Co. (The) 328,125
6,900 Colgate-Palmolive Co. 634,800
26,200 Gillette Company 1,557,263
6,800 Mattel, Inc. 169,150
2,100 Maytag Corp. 126,788
1,000 National Service Industries, Inc. 34,063
31,400 Procter & Gamble Co. (The) 3,075,238
7,600 Ralston Purina Co. 202,825
1,800 Whirlpool Corp. 97,875
------------------
6,591,441
------------------
CONTROL & MEASUREMENT--0.1%
1,000 Millipore Corp. 24,125
1,200 Perkin-Elmer Corp. 116,475
1,100 Tektronix, Inc. 27,775
------------------
168,375
------------------
DIVERSIFIED COMPANIES--4.2%
77,500 General Electric Co. (U.S.) 8,573,438
3,000 Honeywell Inc. 227,438
2,500 ITT Industries, Inc. 88,438
2,000 Johnson Controls, Inc. 124,750
9,500 Minnesota Mining & Manufacturing Co. 672,125
15,400 Tyco International Ltd. 1,104,950
15,100 Unilever N.V. New York Shares 1,003,206
-------------------
11,794,345
-------------------
See Notes to Financial Statements
8 1-800-345-2021
Equity Index--Schedule of Investments
- -----------------------------------------------------------------------
(Continued)
Shares Value
- ------------------------------------------------------------ ---------
ELECTRICAL & ELECTRONIC COMPONENTS--2.8%
3,400 Advanced Micro Devices, Inc.(1) $ 52,700
5,200 AMP, Inc. 279,175
1,700 Eaton Corp. 121,550
10,400 Emerson Electric Co. 550,550
2,200 Grainger (W.W.), Inc. 94,738
39,400 Intel Corp. 4,683,675
2,100 KLA-Tencor Corporation(1) 102,047
3,300 LSI Logic Corp.(1) 102,919
5,900 Micron Technology, Inc.(1) 284,675
3,900 National Semiconductor Corp.(1) 36,319
1,900 Raychem Corp. 42,869
4,500 Rockwell International Corp. 190,969
5,800 Solectron Corp.(1) 281,663
9,200 Texas Instruments Inc. 913,100
1,300 Thomas & Betts Corp. 48,831
------------------
7,785,780
------------------
ENERGY (PRODUCTION & MARKETING)--4.9%
2,100 Amerada Hess Corp. 105,656
2,800 Anadarko Petroleum Corp. 105,700
2,300 Apache Corp. 59,944
1,800 Ashland Inc. 73,688
7,600 Atlantic Richfield Co. 554,800
4,200 Burlington Resources Inc. 167,738
15,400 Chevron Corp. 1,361,938
5,000 Coastal Corp. (The) 165,000
7,800 Enron Corp. 501,150
57,500 Exxon Corp. 4,057,344
1,200 Helmerich & Payne, Inc. 27,225
2,000 Kerr-McGee Corp. 65,625
18,400 Mobil Corp. 1,619,200
1,100 NICOR Inc. 39,531
8,200 Occidental Petroleum Corp. 147,600
700 ONEOK, Inc. 17,325
6,000 Phillips Petroleum Co. 283,500
50,700 Royal Dutch Petroleum Co. 2,636,400
2,600 Sonat Inc. 78,000
2,200 Sunoco, Inc. 79,338
12,600 Texaco Inc. 715,050
5,900 Union Pacific Resources 70,063
5,700 Unocal Corp. 209,831
7,300 USX-Marathon Group 200,750
10,100 Williams Companies, Inc. (The) 398,950
------------------
13,741,346
------------------
ENERGY (SERVICES)--0.6%
7,700 Baker Hughes Inc. 187,206
10,400 Halliburton Co. 400,400
6,700 Reliant Energy, Inc. 174,619
2,000 Rowan Companies, Inc.(1) 25,375
12,900 Schlumberger Ltd. 776,419
------------------
1,564,019
------------------
Shares Value
- ----------------------------------------------------------------------
ENTERTAINMENT(2)
3,000 Harrah's Entertainment, Inc.(1) $ 57,188
------------------
ENVIRONMENTAL SERVICES-0.3%
3,900 Browning-Ferris Industries, Inc. 150,394
14,000 Waste Management, Inc. 621,250
------------------
771,644
------------------
FINANCIAL SERVICES--3.8%
10,700 American Express Co. 1,257,250
17,100 Associates First Capital Corp. 769,500
2,800 Bear Stearns Companies Inc. 125,125
1,600 Capital One Financial Corp. 241,600
2,600 Countrywide Credit Industries, Inc. 97,500
24,500 Fannie Mae 1,696,625
16,000 Federal Home Loan Mortgage Corporation 914,000
6,000 Franklin Resources, Inc. 168,750
11,400 Household International, Inc. 520,125
2,700 Lehman Brothers Holdings, Inc. 161,325
19,000 MBNA Corp. 453,625
8,400 Merrill Lynch & Co., Inc. 742,875
13,700 Morgan Stanley Dean Witter,
Discover & Co. 1,369,144
9,500 Schwab (Charles) Corp. 913,188
3,900 SLM Holding Corp. 162,825
3,800 State Street Corp. 312,313
3,200 Union Planters Corp. 140,600
14,000 Washington Mutual, Inc. 572,250
-----------------
10,618,620
-----------------
FOOD & BEVERAGE--3.6%
11,300 Anheuser-Busch Companies, Inc. 860,919
14,000 Archer-Daniels-Midland Co. 205,625
6,800 Bestfoods 319,600
1,600 Brown-Forman Corp. Cl B 92,200
10,600 Campbell Soup Co. 431,288
58,300 Coca-Cola Company (The) 3,578,163
9,300 Coca-Cola Enterprises, Inc. 281,325
11,600 ConAgra, Inc. 296,525
900 Coors (Adolph) Co. Cl B 48,600
3,600 General Mills, Inc. 272,025
8,600 Heinz (H.J.) Co. 407,425
3,400 Hershey Foods Corp. 190,400
9,600 Kellogg Co. 324,600
34,700 PepsiCo, Inc. 1,359,806
3,200 Quaker Oats Co. (The) 200,200
21,600 Sara Lee Corp. 534,600
9,300 Seagram Co. Ltd. (The) 465,000
2,700 Wrigley (Wm.) Jr. Company 244,181
-----------------
10,112,482
-----------------
FURNITURE & FURNISHINGS--0.1%
6,559 Newell Co. 311,553
See Notes to Financial Statements
www.americancentury.com 9
Equity Index--Schedule of Investments
- -----------------------------------------------------------------------
(Continued)
Shares Value
- -----------------------------------------------------------------------
400 Springs Industries, Inc. Cl A $ 10,825
-----------------
322,378
-----------------
HEALTHCARE--0.8%
3,400 Aetna Inc. 282,200
1,300 Bausch & Lomb Inc. Cl A 84,500
6,800 Baxter International, Inc. 448,800
6,400 Cardinal Health, Inc. 422,400
15,300 Columbia/HCA Healthcare Corp. 289,744
2,600 HCR Manor Care, Inc.(1) 59,313
10,000 Healthsouth Rehabilitation Corp.(1) 103,750
4,000 Humana Inc.(1) 69,000
1,700 Mallinckrodt Inc. 45,263
7,300 Tenet Healthcare Corp.(1) 138,244
4,400 United HealthCare Corp. 231,550
-----------------
2,174,764
-----------------
INDUSTRIAL(2)
1,600 Crane Co. 38,700
900 Milacron Inc. 14,175
-----------------
52,875
-----------------
INDUSTRIAL EQUIPMENT & MACHINERY--0.3%
8,500 Caterpillar Inc. 390,469
5,300 Dover Corp. 174,238
1,100 Harnischfeger Industries, Inc. 6,256
3,900 Ingersoll-Rand Co. 193,538
1,400 McDermott International, Inc. 35,438
-----------------
799,939
-----------------
INSURANCE--3.1%
19,400 Allstate Corp. 719,013
6,000 American General Corp. 423,000
29,100 American International Group, Inc. 3,510,188
4,000 Aon Corp. 253,000
3,900 Chubb Corp. (The) 228,394
4,900 CIGNA Corp. 410,681
3,900 Cincinnati Financial Corp. 142,228
7,400 Conseco Inc. 228,475
5,500 Hartford Financial Services
Group Inc. (The) 312,469
2,500 Jefferson-Pilot Corp. 169,375
2,400 Lincoln National Corp. 237,300
2,700 Loews Corp. 201,488
6,100 Marsh & McLennan Companies, Inc. 452,544
2,300 MBIA Inc. 133,400
2,600 MGIC Investment Corp. 91,163
1,700 Progressive Corp. (Ohio) 243,950
3,200 Provident Companies, Inc.(1) 110,600
3,200 SAFECO Corp. 129,400
5,600 St. Paul Companies, Inc. 173,950
3,300 Torchmark Corp. 104,363
2,900 Transamerica Corp. 205,900
3,300 UNUM Corp. 156,956
-----------------
8,637,837
-----------------
Shares Value
- ----------------------------------------------------------------------
LEISURE--1.1%
2,300 Brunswick Corp. $ 43,844
14,400 Carnival Corp. Cl A 699,300
48,500 Disney (Walt) Co. 1,509,563
7,700 Eastman Kodak Co. 491,838
6,200 Hilton Hotels Corporation 87,188
5,900 Marriott International, Inc. 198,388
4,300 Mirage Resorts, Inc.(1) 91,375
1,000 Polaroid Corp. 20,063
-----------------
3,141,559
-----------------
MACHINERY & EQUIPMENT--0.5%
8,700 Applied Materials, Inc.(1) 536,953
2,100 Black & Decker Corp. (The) 116,419
600 Briggs & Stratton Corp. 29,588
1,700 Case Corp. 43,138
2,400 Cooper Industries, Inc. 102,300
1,000 Cummins Engine Company, Inc. 35,563
3,200 Danaher Corp. 167,200
5,600 Deere & Co. 216,300
200 NACCO Industries, Inc. Cl A 14,813
2,900 Pall Corp. 48,031
1,400 Snap-on Inc. 40,600
2,100 Stanley Works (The) 53,813
1,500 Timken Co. 24,375
-----------------
1,429,093
-----------------
MEDICAL EQUIPMENT & SUPPLIES--0.8%
1,300 Bard (C.R.), Inc. 65,569
5,800 Becton, Dickinson and Co. 222,213
2,700 Biomet, Inc. 113,316
9,300 Boston Scientific Corp.(1) 377,231
7,100 Guidant Corp. 429,550
13,800 Medtronic, Inc. 990,150
2,000 St. Jude Medical, Inc.(1) 48,750
3,800 Thermo Electron Corp.(1) 51,538
-----------------
2,298,317
-----------------
METALS & MINING--0.4%
700 Aeroquip-Vickers, Inc. 40,119
5,400 Alcan Aluminium Ltd. 139,388
8,700 Alcoa Inc. 358,331
900 ASARCO Inc. 12,375
8,800 Barrick Gold Corp. 150,150
5,400 Battle Mountain Gold Co. 14,850
2,100 Cyprus Amax Minerals Co. 25,463
3,900 Freeport-McMoran Copper &
Gold, Inc. Cl B 42,413
5,600 Homestake Mining Co. 48,300
3,900 Inco Ltd. 51,919
4,000 Newmont Mining Corp. 70,000
2,600 Parker-Hannifin Corp. 89,050
1,400 Phelps Dodge Corp. 68,950
5,900 Placer Dome Inc. 66,006
See Notes to Financial Statements
10 1-800-345-2021
Equity Index--Schedule of Investments
- -----------------------------------------------------------------------
(Continued)
Shares Value
- -----------------------------------------------------------------------
1,500 Reynolds Metals Co. $ 72,469
2,200 Worthington Industries, Inc. 25,919
-----------------
1,275,702
-----------------
OFFICE EQUIPMENT & SUPPLIES--0.5%
2,700 Avery Dennison Corp. 155,250
3,500 IKON Office Solutions Inc. 44,844
6,400 Pitney Bowes Inc. 408,000
15,500 Xerox Corp. 827,313
-----------------
1,435,407
-----------------
PACKAGING & CONTAINERS--0.2%
700 Ball Corporation 32,856
1,200 Bemis Co., Inc. 37,275
2,900 Crown Cork & Seal Co., Inc. 82,831
3,700 Owens-Illinois, Inc.(1) 92,500
2,000 Sealed Air Corp.(1) 98,375
4,000 Tenneco Inc. 111,750
-----------------
455,587
-----------------
PAPER & FOREST PRODUCTS--0.8%
1,300 Boise Cascade Corp. 41,925
2,300 Champion International Corp. 94,444
5,200 Fort James Corporation 164,775
2,100 Georgia-Pacific Corp. 155,925
7,300 International Paper Co. 307,969
12,800 Kimberly-Clark Corp. 613,600
2,600 Louisiana-Pacific Corp. 48,425
2,400 Mead Corp. (The) 73,800
700 Potlatch Corp. 23,756
1,300 Temple-Inland Inc. 81,575
1,600 Union Camp Corp. 107,400
2,400 Westvaco Corp. 50,400
4,700 Weyerhaeuser Co. 260,850
2,600 Willamette Industries, Inc. 98,150
-----------------
2,122,994
-----------------
PERSONAL SERVICES--0.1%
2,400 Block (H & R), Inc. 113,700
6,500 Service Corp. International 92,625
-----------------
206,325
-----------------
PHARMACEUTICALS--9.0%
35,900 Abbott Laboratories 1,680,569
1,600 Allergan, Inc. 140,600
2,300 ALZA Corp.(1) 87,975
31,200 American Home Products Corp. 2,035,800
47,000 Bristol-Myers Squibb Co. 3,022,688
31,800 Johnson & Johnson 2,979,263
26,000 Lilly (Eli) & Co. 2,206,750
6,400 McKesson HBOC, Inc. 422,400
56,300 Merck & Co., Inc. 4,514,556
30,700 Pfizer, Inc. 4,259,625
12,000 Pharmacia & Upjohn Inc. 748,500
34,700 Schering-Plough Corp. 1,919,344
Shares Value
- ----------------------------------------------------------------------
19,400 Warner-Lambert Co. $ 1,284,038
-----------------
25,302,108
-----------------
PRINTING & PUBLISHING--0.5%
1,900 Deluxe Corp. 55,338
3,200 Donnelley (R.R.) & Sons Co. 103,000
2,200 Dow Jones & Co., Inc. 103,813
6,700 Gannett Co., Inc. 422,100
1,900 Knight-Ridder, Inc. 95,000
4,600 McGraw-Hill Companies, Inc. (The) 250,700
1,200 Meredith Corp. 37,725
2,100 Moore Corporation Ltd. 20,738
4,300 New York Times Co. (The) Cl A 122,550
1,900 Times Mirror Co. (New) Cl A 102,719
2,800 Tribune Co. 183,225
-----------------
1,496,908
-----------------
RAILROAD--0.4%
11,100 Burlington Northern Santa Fe Corp. 364,913
5,200 CSX Corp. 202,475
9,000 Norfolk Southern Corp. 237,375
5,800 Union Pacific Corp. 309,938
-----------------
1,114,701
-----------------
RESTAURANTS--0.7%
3,300 Darden Restaurants, Inc. 68,063
32,000 McDonald's Corp. 1,450,000
3,600 Tricon Global Restaurants Inc.(1) 252,900
2,900 Wendy's International, Inc. 82,469
-----------------
1,853,432
-----------------
RETAIL (APPAREL)--0.5%
13,600 Gap, Inc. (The) 915,450
5,400 Limited, Inc. (The) 213,975
1,500 Liz Claiborne, Inc. 48,938
7,600 TJX Companies, Inc. (The) 258,400
-----------------
1,436,763
-----------------
RETAIL (FOOD & DRUG)--1.1%
5,800 Albertson's, Inc. 315,013
6,500 American Stores Co. 214,500
9,200 CVS Corp. 437,000
900 Great Atlantic & Pacific
Tea Co., Inc. (The) 27,000
6,100 Kroger Co. (The)(1) 365,238
900 Longs Drug Stores Corp. 27,394
6,100 Rite Aid Corp. 152,500
11,500 Safeway Inc.(1) 590,094
2,800 Supervalu Inc. 57,750
7,900 SYSCO Corp. 207,869
23,600 Walgreen Co. 666,700
3,500 Winn-Dixie Stores, Inc. 130,813
-----------------
3,191,871
-----------------
See Notes to Financial Statements
www.americancentury.com 11
Equity Index--Schedule of Investments
- ------------------------------------------------------------------------
(Continued)
Shares Value
- ------------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)--3.0%
2,600 Consolidated Stores Corp.(1) $ 78,813
5,100 Costco Companies, Inc.(1) 467,128
10,400 Dayton Hudson Corp. 692,900
2,500 Dillard's Inc. Cl A 63,438
4,400 Dollar General Corp. 149,600
4,800 Federated Department Stores, Inc.(1) 192,600
1,700 Harcourt General Inc. 75,331
11,600 Kmart Corp.(1) 195,025
3,700 Kohl's Corp.(1) 262,238
8,250 May Department Stores Co. (The) 322,781
3,700 Meyer (Fred), Inc.(1) 217,838
3,500 Nordstrom, Inc. 143,172
6,100 Penney (J.C.) Company, Inc. 247,050
9,100 Sears, Roebuck & Co. 411,206
52,600 Wal-Mart Stores, Inc. 4,849,063
-----------------
8,368,183
-----------------
RETAIL (SPECIALTY)--1.3%
2,400 Circuit City Stores-Circui City Group 183,900
4,650 Hasbro, Inc. 134,559
34,800 Home Depot, Inc. 2,166,300
800 Jostens, Inc. 17,000
8,300 Lowe's Companies, Inc. 502,150
11,100 Staples, Inc.(1) 364,913
2,300 Tandy Corp. 146,769
6,200 Toys 'R' Us, Inc.(1) 116,638
-----------------
3,632,229
-----------------
RUBBER & PLASTICS--0.2%
900 Armstrong World Industries, Inc. 40,669
3,700 Goodyear Tire & Rubber Co. (The) 184,306
5,900 Illinois Tool Works Inc. 365,063
1,400 Tupperware Corp. 25,200
-----------------
615,238
-----------------
STEEL--0.1%
4,600 Allegheny Teledyne Inc. 87,113
3,000 Bethlehem Steel Corporation(1) 24,750
2,100 Nucor Corp. 92,531
2,100 USX-U.S. Steel Group 49,350
-----------------
253,744
-----------------
TELEPHONE COMMUNICATIONS--6.6%
26,100 Ameritech Corp. 1,510,538
49,651 AT&T Corp. 3,962,770
36,700 Bell Atlantic Corp. 1,896,931
46,200 BellSouth Corp. 1,850,888
1,619 Century Telephone Enterprises, Inc. 113,735
4,100 Frontier Corp. 212,688
22,800 GTE Corp. 1,379,400
43,300 MCI WorldCom, Inc.(1) 3,833,403
46,200 SBC Communications Inc. 2,177,175
10,500 Sprint Corp. 1,030,313
Shares Value
- ----------------------------------------------------------------------
11,900 U S WEST, Inc. $ 655,244
-----------------
18,623,085
-----------------
TEXTILES & APPAREL--0.2%
1,700 Fruit of the Loom, Inc.(1) 17,638
6,800 NIKE, Inc. 392,275
1,300 Reebok International Ltd.(1) 20,638
900 Russell Corp. 18,113
2,800 VF Corp. 132,125
-----------------
580,789
-----------------
TOBACCO--0.9%
4,000 Fortune Brands, Inc. 154,750
57,600 Philip Morris Companies Inc. 2,026,800
7,700 RJR Nabisco Holdings Corp. 192,500
4,400 UST Inc. 114,950
----------------
2,489,000
----------------
TRANSPORTATION--0.1%
3,500 FDX Corporation(1) 324,844
7,800 Laidlaw Inc. 45,338
1,700 Ryder System, Inc. 46,963
----------------
417,145
----------------
UTILITIES--1.8%
4,300 AES Corp. (The)(1) 160,175
3,200 Ameren Corp. 115,800
4,500 American Electric Power Co., Inc. 178,594
3,500 Baltimore Gas & Electric Co. 88,813
3,600 Carolina Power & Light Co. 136,125
5,000 Central & South West Corp. 117,188
3,700 CINergy Corp. 101,750
2,000 Columbia Energy Group 104,500
5,500 Consolidated Edison, Inc. 249,219
2,300 Consolidated Natural Gas Co. 111,981
4,600 Dominion Resources, Inc. (Va.) 169,913
3,400 DTE Energy Company 130,688
8,600 Duke Energy Corp. 469,775
500 Eastern Enterprises 18,188
8,300 Edison International 184,675
5,800 Entergy Corp. 159,500
5,600 FIRSTENERGY CORP. 156,450
4,300 FPL Group, Inc. 228,975
3,000 GPU Inc. 111,938
2,700 New Century Energies, Inc. 91,969
4,400 Niagara Mohawk Holdings Inc.(1) 59,125
3,600 Northern States Power Co. (Minn.) 83,475
7,000 PacifiCorp 120,750
5,300 PECO Energy Co. 245,125
800 People's Energy Corp. 25,850
9,000 PG&E Corp. 279,563
3,600 PP&L Resources, Inc. 89,100
5,400 Public Service Enterprise Group Inc. 206,213
See Notes to Financial Statements
12 1-800-345-2021
Equity Index--Schedule of Investments
- -------------------------------------------------------------------------
(Continued)
Shares/Principal Amount Value
- -------------------------------------------------------------------------
5,700 Sempra Energy $ 109,369
16,500 Southern Co. 384,656
6,700 Texas Utilities Co. 279,306
5,100 Unicom Corp. 186,469
------------------
5,155,217
------------------
WIRELESS COMMUNICATIONS--0.9%
13,500 AirTouch Communications, Inc.(1) 1,304,438
6,500 ALLTEL Corp. 405,438
6,800 Nextel Communications, Inc.(1) 249,475
10,400 Sprint PCS(1) 460,850
------------------
2,420,201
------------------
TOTAL COMMON STOCKS 248,483,355
------------------
(Cost $239,244,882)
================================================================================
TEMPORARY CASH INVESTMENTS-11.7%
$1,750,000 U.S. Treasury Bills, 4.35%,
6/24/99(3)(4) 1,732,278
Repurchase Agreement, Goldman Sachs
& Co., Inc., (U.S. Treasury obligations), in a
joint trading account at 4.84%, dated
3/31/99, due 4/1/99
(Delivery value $3,000,403) 3,000,000
Principal Amount Value
- -------------------------------------------------------------------------------
Repurchase Agreement, Morgan Stanley Group,
Inc., (U.S. Treasury obligations), in a joint trading
account at 4.90%, dated 3/31/99, due 4/1/99
(Delivery value $14,101,919) $ 14,100,000
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint trading
account at 4.84%, dated 3/31/99, due 4/1/99
(Delivery value $14,101,896) 14,100,000
-------------------------
TOTAL TEMPORARY CASH INVESTMENTS 32,932,278
-------------------------
(Cost $32,931,712)
TOTAL INVESTMENT SECURITIES --100.0% $281,415,633
=========================
(Cost $272,176,594)
===============================================================================
FUTURES CONTRACTS
Expiration Underlying Face Unrealized
Purchased Date Amount at Value Loss
- --------------------------------------------------------------------------------
100 S&P 500 Futures June1999 $32,33 $(71,950)
=========================================
NOTES TO SCHEDULE OF INVESTMENTS
(1) Non-income producing.
(2) Industry is less than 0.05% of total investment securities.
(3) The rates for U.S. Treasury Bills are the yield to maturity at purchase.
(4) Security has been segregated at the broker as initial margin on futures
contracts.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule shows you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the number of shares of each stock
* the market value of each investment
* the percentage of total investments in each industry
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
www.americancentury.com 13
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
MARCH 31, 1999
ASSETS
Investment securities, at value
(identified cost of $272,176,594) (Note 3) ................... $281,415,633
Cash ............................................................ 744,455
Dividend and interest receivable ................................ 236,294
------------
282,396,382
------------
LIABILITIES
Payable for variation margin on futures contracts ............... 559,600
Payable for capital shares redeemed ............................. 177,852
Payable for management fees (Note 2) ............................ 69,332
Payable for directors' fees and expenses ........................ 234
------------
807,018
------------
Net Assets ...................................................... $281,589,364
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ......................... $271,447,201
Undistributed net investment income ............................. 323,966
Accumulated net realized gain on investment transactions ........ 651,108
Net unrealized appreciation on investments (Note 3) ............. 9,167,089
------------
$281,589,364
============
Investor Class
Net assets ...................................................... $ 17,009,568
Shares outstanding .............................................. 3,273,692
Net asset value per share ....................................... $ 5.20
Institutional Class
Net assets ...................................................... $264,579,796
Shares outstanding .............................................. 50,914,827
Net asset value per share ....................................... $ 5.20
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. For each class of shares, the net assets
divided by the total number of shares outstanding gives you the price of an
individual share, or the net asset value per share.
NET ASSETS are also broken down by capital (money invested by shareholders); net
investment income not yet paid to shareholders or net investment losses; net
gains earned on investments but not yet paid to shareholders or net losses on
investments (known as realized gains or losses); and finally, gains or losses on
securities still owned by the fund (known as unrealized appreciation or
depreciation). This breakdown tells you the value of net assets that are
performance-related, such as investment gains or losses, and the value of net
assets that are not related to performance, such as shareholder investments and
redemptions.
14 1-800-345-2021
Statement of Operations
- --------------------------------------------------------------------------------
FEBRUARY 26, 1999 (INCEPTION) THROUGH MARCH 31, 1999
INVESTMENT INCOME
Income:
Dividends ...................................................... $ 287,184
Interest ....................................................... 110,400
-----------
397,584
-----------
Expenses (Note 2):
Management fees ................................................ 73,281
Directors' fees and expenses ................................... 337
-----------
73,618
-----------
Net investment income .......................................... 323,966
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3)
Net realized gain on investments ............................... 651,108
Change in net unrealized appreciation on investments ........... 9,167,089
-----------
Net realized and unrealized gain on investments ................ 9,818,197
-----------
Net Increase in Net Assets Resulting from Operations ........... $10,142,163
===========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks down how the
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* income earned from investments (dividend and interest)
* management fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
* gains or losses on current fund holdings (known as unrealized appreciation or
depreciation)
See Notes to Financial Statements
www.americancentury.com 15
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
FEBRUARY 26, 1999 (INCEPTION) THROUGH MARCH 31, 1999
OPERATIONS
Net investment income .......................................... $ 323,966
Net realized gain on investment transactions ................... 651,108
Change in net unrealized appreciation on investments ........... 9,167,089
------------
Net increase in net assets resulting from operations ........... 10,142,163
------------
CAPITAL SHARE TRANSACTIONS (Note 4)
Net increase in net assets
from capital share transactions .............................. 271,447,201
------------
Net increase in net assets ..................................... 281,589,364
NET ASSETS
Beginning of period ............................................ --
------------
End of period .................................................. $281,589,364
============
Undistributed net investment income ............................ $ 323,966
============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
the fund's net assets changed over the current period. It details how much a
fund grew or shrank as a result of:
* operations - a summary of the Statement of Operations from the previous page
for the most recent period
* distributions - income and gains distributed to shareholders
* share transactions - shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions result in net
assets at the end of the period.
See Notes to Financial Statements
16 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
MARCH 31, 1999
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 Equity Index Fund (the fund) is one of the
five funds issued by the corporation. The fund is non-diversified under the 1940
Act. The investment objective of the fund is long-term capital growth. The fund
seeks to achieve this objective by matching, as closely as possible, the
investment results of the Standard & Poor's 500 Composite Stock Price Index. The
fund is authorized to issue two classes of shares: the Investor Class and the
Institutional Class. The two 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 Investor Class and Institutional Class for the
fund commenced on February 26, 1999. The following significant accounting
policies are in accordance with generally accepted accounting principles; these
principles may require the use of estimates by fund management.
SECURITY VALUATIONS--Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or the mean of
the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. Debt securities not
traded on a principal securities exchange are valued through valuations obtained
from a commercial pricing service or at the mean of the most recent bid and
asked prices. When valuations are not readily available, securities are valued
at fair value as determined in accordance with procedures adopted by the Board
of Directors.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS--The fund may enter into stock index futures contracts in
order to manage the 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, the fund is
required to deposit either cash or securities in an amount equal to a certain
percentage of the contract value (initial margin). Subsequent payments
(variation margin) are made or received daily, in cash, by the fund. 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 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 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 fund's 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 income taxes.
www.americancentury.com 17
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
MARCH 31, 1999
DISTRIBUTIONS TO SHAREHOLDERS--Distribu-tions 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 realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
ADDITIONAL INFORMATION--Funds Distributor, Inc. (FDI) is the corporation's
distributor. Certain officers of FDI are also officers of the corporation.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM that
provides the fund with investment advisory and management services in exchange
for a single, unified management fee per class. The Agreement provides that all
expenses of the fund, except brokerage commissions, taxes, interest, expenses of
those directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by ACIM. The fee is computed daily and paid monthly based
on the fund's class average daily closing net assets during the previous month.
The annual management fee for each class is 0.49% and 0.29% for the Investor and
Institutional Class, respectively.
ACIM has entered into a Subadvisory Agreement with Barclays Global Fund
Advisors (BGFA) on behalf of the fund. The subadvisor makes investment decisions
for the fund in accordance with the fund's investment objectives, policies, and
restrictions under the supervision of ACIM and the Board of Directors. ACIM pays
all costs associated with retaining BGFA as the subadvisor of the fund.
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, and
the corporation's transfer agent, American Century Services Corporation.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments totalled $239,686,395 and $437,452, respectively. On March 31, 1999,
accumulated net unrealized appreciation on investments was $9,219,274, based on
the aggregate cost of investments for federal income tax purposes of
$272,196,359, which consisted of unrealized appreciation of $15,061,235 and
unrealized depreciation of $5,841,961.
18 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
MARCH 31, 1999
4. CAPITAL SHARE TRANSACTIONS
All shares are $0.01 par value. Transactions in shares of the fund were as
follows:
SHARES AMOUNT
INVESTOR CLASS
Shares Authorized ............................. 50,000,000
============
February 26, 1999 (inception)
through March 31, 1999
Sold .......................................... 3,412,730 $ 17,545,517
Issued in reinvestment of distributions ....... -- --
Redeemed ...................................... (139,038) (719,730)
------------ -------------
Net increase .................................. 3,273,692 $ 16,825,787
============ =============
INSTITUTIONAL CLASS
Shares Authorized ............................. 125,000,000
============
February 26, 1999 (inception)
through March 31, 1999
Sold .......................................... 52,351,049 $ 262,087,610
Issued in reinvestment of distributions ....... -- --
Redeemed ...................................... (1,436,222) (7,466,196)
------------ -------------
Net increase .................................. 50,914,827 $ 254,621,414
============ =============
- --------------------------------------------------------------------------------
5. BANK LOAN
The fund, along with certain other funds managed by ACIM, has entered into
an unsecured $570,000,000 bank line of credit agreement with Chase Manhattan
Bank. Borrowings under this agreement bear interest at the Fed Funds rate plus
0.40%. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. The fund did not borrow from the line during the period
February 26, 1999 through March 31, 1999.
www.americancentury.com 19
Equity Index--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
Investor
1999(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ........................... $ 5.00
----------
Income From Investment Operations
Net Investment Income(2) ..................................... 0.01
Net Realized and Unrealized Gain on Investment Transactions .. 0.19
----------
Total From Investment Operations ............................. 0.20
----------
Net Asset Value, End of Period ................................. $ 5.20
==========
Total Return(3) .............................................. 4.00%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets .............. 0.49%(4)
Ratio of Net Investment Income to Average Net Assets ........... 1.13%(4)
Portfolio Turnover Rate ........................................ 0%
Net Assets, End of Period (in thousands) ....................... $ 17,010
(1) February 26, 1999 (inception) through March 31, 1999.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total return for periods less than one year are not
annualized.
(4) Annualized.
- --------------------------------------------------------------------------------
UNDERSTANDNG THE FINANCIAL HIGHLIGHTS--These statements itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
20 1-800-345-2021
Equity Index--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
Institutional
1999(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ........................... $ 5.00
-----------
Income From Investment Operations
Net Investment Income(2) ..................................... 0.01
Net Realized and Unrealized Gain on Investment Transactions .. 0.19
-----------
Total From Investment Operations ............................. 0.20
-----------
Net Asset Value, End of Period ................................. $ 5.20
===========
Total Return(3) .............................................. 4.00%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets .............. 0.29%(4)
Ratio of Net Investment Income to Average Net Assets ........... 1.33%(4)
Portfolio Turnover Rate ........................................ 0%
Net Assets, End of Period (in thousands) ....................... $ 264,580
(1) February 26, 1999 (inception) through March 31, 1999.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total return for periods less than one year are not
annualized.
(4) Annualized.
See Notes to Financial Statements
www.americancentury.com 21
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 Equity Index Fund (the "Fund"), one of
the funds comprising American Century Capital Portfolios, Inc., as of March 31,
1999, and the related statement of operations for the period February 26, 1999
(inception) through March 31, 1999, the statement of changes in net assets for
the period February 26, 1999 through March 31, 1999, and the financial
highlights for the period February 26, 1999 through March 31, 1999. 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 audit.
We conducted our audit 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, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Equity Index Fund as
of March 31, 1999, the results of its operations for the period then ended, the
changes in its net assets in the period then ended, and the financial highlights
for the period then ended in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 7, 1999
22 1-800-345-2021
Share Class and Retirement Account Information
- --------------------------------------------------------------------------------
SHARE CLASS
Two classes of shares are authorized for sale by the fund: Investor Class
and Institutional Class.
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 INSTITUTIONAL
CLASS AND INVESTOR CLASS SHARES ARE LISTED IN NEWSPAPERS.
INSTITUTIONAL CLASS shares are 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 shares is 0.20% less
than the total expense ratio of the Investor Class shares.
Both 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 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 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 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.
www.americancentury.com 23
Background Information
- --------------------------------------------------------------------------------
INVESTMENT POLICIES
American Century offers 14 growth and income funds including domestic
equity, balanced, asset allocation, and specialty.
The Equity Index fund seeks to match, as closely as possible, the
investment characteristics and results of the S&P 500 Index. The S&P 500 Index
is composed of 500 selected common stocks, most of which are listed on the New
York Stock Exchange. The fund is managed by buying and selling stocks and other
securities in order to build an investment portfolio that will match, as closely
as possible, the investment characteristics of the S&P 500 Index.
Standard & Poor's, a division of The McGraw-Hill Companies, Inc., chooses
the stocks included in the S&P 500 Index on a market capitalization weighted
basis. The weightings of stocks in the S&P 500 Index are further based on each
stock's total market capitalization relative to the other stocks contained in
the index. Because of this weighting, the fund expects that the 50 largest
companies will comprise a large proportion of the S&P 500 Index.
The advisor generally will select stocks for the fund's portfolio in order
of their weightings in the S&P 500 Index, beginning with the heaviest weighted
stocks. The fund attempts to be fully invested at all times in the stocks that
comprise the S&P 500 Index and, in any event, at least 80% of the fund's total
assets will be so invested.
FUND MANAGEMENT
Barclays Global Fund Advisors (BGFA), a subsidiary of Barclays Global
Investors (BGI), serves as subadvisor of the American Century Equity Index Fund,
with oversight by American Century's quantitative equity group.
In 1971, BGI introduced the concept of indexing. With assets under
management of more than $600 billion, BGI is the world's largest institutional
investment firm. BGI's clients include corporate and government retirement
plans, universities, foundations, financial planning advisors, mutual fund
distributors and central banks. A subsidiary of London, UK-based Barclays PLC,
BGI is headquartered in San Francisco, CA, and has offices wordwide.
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
dominant industries. Created by Standard & Poor's, it is considered to be a
broad measure of U.S. stock market performance.
The S&P MIDCAP 400 is a capitalization-weighted index of the stocks of 400
domestic stocks chosen for their market size, liquidity and industry group
representations. The market capitalization of stocks in the index ranges from
approximately $1 billion to $5 billion. Created by Standard & Poor's, it is
considered to represent the performance of mid-cap stocks generally.
The RUSSELL 2000 INDEX was created by the Frank Russell Company. It
measures the performance of the 2,000 smallest of the 3,000 largest
publicly-traded U.S. companies based on total market capitalization. The
Russell2000 represents approximately 10% of the total market capitalization of
the top 3,000 companies. The average market capitalization of the index is
approximately $780 million.
"Standard & Poor's,(reg.tm)" "S&P 500,(reg.tm)" and "S&P(reg.tm)" are
trademarksof The McGraw-Hill Companies, Inc., and have been licensed for use by
American Century Investment Management, Inc. The fund is not sponsored,
endorsed, sold orpromoted by Standard & Poor's, and Standard & Poor's makes no
representation regarding the advisability of investing in the fund.
24 1-800-345-2021
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 page 20-21.
INVESTMENT TERMS
* 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.)
* MEDIAN MARKET CAPITALIZATION -- Market capitalization (market cap) is the
total value of a company's stock and is calculated by multiplying the number of
outstanding common shares by the current share price. The company whose market
cap is in the middle of the portfolio is the median market cap. Half the
companies in the portfolio have values greater than the median, and half have
values that are less. If there is an even number of companies, then the median
is the average of the two companies in the middle.
* NUMBER OF COMPANIES -- the number of different companies held by a fund on a
given date.
* PORTFOLIO TURNOVER -- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
* PRICE/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.)
* PRICE/EARNINGS (P/E) RATIO -- a stock value measurement calculated by dividing
a company's stock price by its earnings per share, with the result expressed as
a multiple instead of as a percentage. (Earnings per share is calculated by
dividing the after-tax earnings of a corporation by its outstanding shares.)
TYPES OF STOCKS
* BLUE-CHIP STOCKS -- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
* CYCLICAL STOCKS -- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers and textile
operators.
* GROWTH STOCKS -- stocks of companies that have experienced above-average
earnings growth and are expected to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech,
healthcare and consumer staples companies.
www.americancentury.com 25
Glossary
- --------------------------------------------------------------------------------
(Continued)
* 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.
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
* CAPITAL PRESERVATION -- Offers taxable and tax-free money market funds for
relative stability of principal and liquidity, allowing maximum portfolio
diversification.
* INCOME -- Offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- Offers funds that emphasize both growth and income,
diversification, varying capitalization sizes, and different investment styles
and strategies.
* GROWTH -- Offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that the fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
26 1-800-345-2021
Notes
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www.americancentury.com 27
Notes
- --------------------------------------------------------------------------------
28 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Equity Income
Conservative
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call for a prospectus or profile on any American Century fund. These
documents contain important information including charges and expenses, and you
should read them carefully before you invest or send money.
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
AMERICAN CENTURY CAPITAL PORTFOLIOS. INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9904 Funds Distributor, Inc.
SH-BKT-15981 (c)1999 American Century Services Corporation
