[front cover]
SEPTEMBER 30, 1999
SEMIANNUAL REPORT
AMERICAN CENTURY
[graphic of stairs]
[american century logo (reg. sm)]
American
Century
VALUE
EQUITY INCOME
SMALL CAP VALUE
LARGE CAP VALUE
[inside front cover]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
- --------------------------------------------------------------------------------
Y2K, short for the Year 2000, refers more specifically to the date change from
December 31, 1999, to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years--99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000, a non-event for American Century investors
Currently, our systems have been modified, tested and returned to production,
and we have tested our systems with our vendors and business partners.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition, our Y2K team has developed contingency plans. These plans are
designed to minimize the impact on our investors and help us maintain operations
in the event of any Y2K-related incidents. We have conducted practice drills of
contingency scenarios and will continue to refine our plans during the rest of
1999 to respond quickly and effectively so that the date change is as seamless
as possible for investors. We expect the Year 2000 to be business as usual at
American Century.
Year 2000 Readiness Disclosure
[left margin]
VALUE
(TWVLX)
- ------------------------
EQUITY INCOME
(TWEIX)
- ------------------------
SMALL CAP VALUE
(ASVIX)
- ------------------------
LARGE CAP VALUE
(N/A)
- -----------------------
TURN TO THE INSIDE BACK COVER OF THIS REPORT TO SEE A LIST OF AMERICAN CENTURY
FUNDS CLASSIFIED BY OBJECTIVE AND RISK.
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Our Message to You
- ------------------------------------------------------------------------------
[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
Common stock investors, particularly those of us who invest in "value" stocks,
can be forgiven if we look back on the six months ended September 30, 1999, with
a little frustration. As we entered the period, investors in search of
predictable earnings in an unpredictable economy were still clutching tightly to
what the Street had anointed the "Nifty Twenty"--a trusted group of
household-name companies. For funds like Value, Equity Income, Small Cap Value
and Large Cap Value, which hunt for stocks with attractive prices, it appeared
that more water-treading was in store.
Or so we thought. In a move so fast some analysts labeled it "panic
buying," the market stampeded toward value stocks, which had been disdained for
almost three years. Value stocks took off-but it was a short flight. Two
interest rate increases over the summer by the Federal Reserve sent investors
retreating to the Nifty Twenty. As your portfolio managers indicate in their
discussion, though, the prices of value stocks in relation to their growth
counterparts have never been more attractive, especially at the small end of the
market. We believe the value style will return, and likely with a vengeance.
Turning to corporate matters, American Century has long pioneered the use
of technologies that improve the efficiency of capital markets, lower the costs
of trading securities, and ultimately offer better returns for you. Toward that
end, we've made investments in several companies that are creating such
technologies, including Archipelago, Optimark, Tradepoint Financial Networks,
W.R. Hambrecht and, most recently, WorldStreet Corporation. WorldStreet, located
in Boston, is developing a customized software application for portfolio
managers that marries portfolio holdings with real time market information.
We're also pleased to announce that American Century's investor account
statement is the first fund company statement to win the Communications Seal
from DALBAR, Inc., an independent financial services research firm. DALBAR
commends us for meeting investors' needs with an attractive document that's easy
to read and understand.
Finally, in the spirit of our ongoing Year 2000 readiness disclosures,
we've provided an update on our preparations for Y2K on the inside front cover
of this report. We understand that our diligence in this area is very important
to you.
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
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
VALUE
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Schedule of Investments ................................................ 8
EQUITY INCOME
Performance Information ................................................ 10
Management Q&A ......................................................... 11
Schedule of Investments ................................................ 14
SMALL CAP VALUE
Performance Information ................................................ 17
Management Q&A ......................................................... 18
Schedule of Investments ................................................ 21
LARGE CAP VALUE
Performance Information ................................................ 23
Management Q&A ......................................................... 24
Schedule of Investments ................................................ 27
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities ......................................................... 29
Statements of Operations ............................................... 30
Statements of Changes
in Net Assets ....................................................... 31
Notes to Financial
Statements .......................................................... 33
Financial Highlights ................................................... 39
OTHER INFORMATION
Share Class and Retirement
Account Information ................................................. 48
Background Information
Investment Philosophy
and Policies ..................................................... 49
Comparative Indices ................................................. 49
Portfolio Managers .................................................. 49
Glossary ............................................................... 50
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
MARKET PERSPECTIVE
* The six-month period was marked by heightened market volatility and a
sharp-but short-shift in investor sentiment. Investors entered the period
still interested only in the 20 or so large, household-name growth stocks that
had been leading the market for several quarters. A few weeks into the second
quarter, however, the market suddenly bolted to value stocks, particularly
smaller and medium-sized companies whose prices, beaten down over the previous
three years, were too attractive to pass up.
* The shift was over in a matter of weeks, however, as two interest rate
increases by the Federal Reserve sent investors back into "safety-first"
growth stocks. Earnings were once again the name of the game, and companies
whose earnings fell short of expectations, even a little, were swiftly
punished. That put a premium on high-growth technology stocks, which were the
big winners over the period.
VALUE
* Value gained 5.42% during the period, outperforming its benchmark, which
gained just 0.58%.
* The fund's best performing holdings were specialty chemical companies and
electrical equipment providers.
* Although Value was underweighted in banks relative to its benchmark,
holdings in this group generally dampened performance. Banks struggled due
to rising interest rates and increasing competitive pressures.
EQUITY INCOME
* Equity Income outperformed its benchmark index and peer group during the
period, posting a 6.60% gain.
* Strong stock selection within several industries helped drive the fund's
strong return. Holdings in specialty chemical and paper companies added to
performance, along with selected gas utilities.
SMALL CAP VALUE
* Small Cap Value's gain for the period, while strong, lagged that of its
benchmark.
* The fund's performance was enhanced by acquisitions involving several
holdings. Additionally, Small Cap Value's investments in energy companies
benefited from rising oil and gas prices.
* The fund's progress was dampened by a relatively light weighting in
technology firms, the part of the market that performed best over the second
and third quarters.
LARGE CAP VALUE
* Large Cap Value began in a difficult market environment for value-oriented
funds. The fund declined 8.56% during its first months in operation.
* The fund's best performing holdings were in telecommunications, computer
equipment and software companies. These groups have benefited from a healthy
U.S. economy, rising wages and a high rate of employment, all of which are
fueling demand for computers and software.
* Financial companies were the fund's greatest drain on performance. This
sector was punished by rising interest rates and overly optimistic market
expectations.
[left margin]
VALUE(1)
(TWVLX)
TOTAL RETURNS: AS OF 9/30/99
6 Months 5.42%(2)
1 Year 12.04%
INCEPTION DATE: 9/1/93
NET ASSETS: $1.9 billion(3)
EQUITY INCOME(1)
(TWEIX)
TOTAL RETURNS: AS OF 9/30/99
6 Months 6.60%(2)
1 Year 15.98%
INCEPTION DATE: 8/1/94
NET ASSETS: $371.0 million(3)
SMALL CAP VALUE(1)
(ASVIX)
TOTAL RETURNS: AS OF 9/30/99
6 Months 6.68%(2)
1 Year 13.25%
INCEPTION DATE: 7/31/98
NET ASSETS: $17.2 million(3)
LARGE CAP VALUE(1)
(N/A)
TOTAL RETURNS: AS OF 9/30/99
Since inception -8.56%(2)
INCEPTION DATE: 7/30/99
NET ASSETS: $12.8 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor, Advisor, and Institutional classes.
Investment terms are defined in the Glossary on pages 50-51.
2 1-800-345-2021
Market Perspective from Mark Mallon
- --------------------------------------------------------------------------------
[photo of Mark Mallon]
Mark Mallon, head of growth and income equity, specialty, and asset allocation
funds at American Century.
A TOUGH PERIOD
The six months ended September 30, 1999, tested the mettle of common stock
investors, who will remember the period as one of heightened volatility. When we
closed our half-year books for American Century Value, Equity Income and Small
Cap Value, the Standard & Poor's 500 Index had eked out a 0.36% gain. The NASDAQ
Composite was up 11.56%, while the Dow Jones Industrials ended up in the middle,
rising 6.50%.
Nestled in the six-month period was a sharp but short-lived shift in stock
market sentiment. Stocks entered the second quarter buoyed by a strong economy
in the 33rd quarter of its expansion. Actually, "stocks" might be overstating
the case. In reality, investors seemed content holding only a handful of large,
well-known growth stocks, their first line of defense in case this was the
quarter the economy began to slow.
A SUDDEN SHIFT
In April, though, investors suddenly moved to smaller and midsized
companies, whose valuations were (and remain) the most attractive they've been
in decades. In the second quarter alone, the Russell 2000 Index, which tracks
smaller firms, gained more than 15%. Undervalued larger-capitalization stocks
surged and improving foreign economies enabled cyclical stocks to also fare
well. Not even the first of two interest rate hikes by the Federal Reserve could
spoil the party as the major stock indices climbed to record highs in mid-July.
The music stopped when Fed Chairman Alan Greenspan warned that the Fed was
ready to act "promptly and forcefully" to raise interest rates at the first sign
of inflation. Wall Street waited nervously for the next Fed move, which came in
August after government reports showed lower productivity gains.
A VOLATILE THIRD QUARTER
In the third quarter alone, the Dow Jones Industrials moved 100 points or
more over 20 times, divided almost equally between advances and declines. The
volatility was evidence of an atmosphere in which investors, struggling to get a
clear read on the economy, quickly rewarded companies whose earnings exceeded
expectations, and swiftly punished those that fell short. Put simply, if you
didn't own high-growth technology companies, particularly those involved in what
has become an economy within an economy--the Internet--you were bruised in the
third quarter.
STAYING THE COURSE
In my last message to you, I indicated that we were finding terrific value
opportunities, particularly in the small- and mid-cap universe. You saw evidence
of that in April and May, when, with the value style in vogue, the three
value-style funds in this report all had double-digit advances. Frustrating as
they may be, volatile periods are a normal part of the investment experience.
Some are longer than others. The key is to remain patient and true to your
investment discipline.
[right margin]
"IN THE THIRD QUARTER ALONE, THE DOW JONES INDUSTRIALS MOVED 100 POINTS OR MORE
OVER 20 TIMES, DIVIDED ALMOST EQUALLY BETWEEN ADVANCES AND DECLINES."
MARKET RETURNS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 S&P 500/BARRA VALUE 0.58% S&P MIDCAP
400/BARRA VALUE 3.74% S&P SMALLCAP 600/BARRA VALUE 11.01%
Source: Lipper Inc. and Russell/Mellon Analytical
These indices represent the performance of large-, medium-, and
small-capitalization value stocks.
[mountain chart data below]
MARKET PERFORMANCE (GROWTH OF $1.00)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
S&P 500/ S&P 400/ S&P 600/
BARRA Value BARRA Value BARRA Value
3/31/99 $1.00 $1.00 $1.00
4/30/99 $1.09 $1.10 $1.09
5/31/99 $1.07 $1.11 $1.13
6/30/99 $1.11 $1.15 $1.20
7/31/99 $1.07 $1.13 $1.18
8/31/99 $1.05 $1.09 $1.13
9/30/99 $1.01 $1.04 $1.11
www.americancentury.com 3
Value--Performance
- --------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF SEPTEMBER 30, 1999
INVESTOR CLASS ADVISOR CLASS INSTITUTIONAL CLASS
(INCEPTION 9/1/93) (INCEPTION 10/2/96) (INCEPTION 7/31/97)
VALUE S&P 500 S&P 500/ VALUE S&P 500 S&P 500/ VALUE S&P 500 S&P 500/
BARRA VALUE BARRA VALUE BARRA VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) 5.42% 0.36% 0.58% 5.27% 0.36% 0.58% 5.36% 0.36% 0.58%
1 YEAR 12.04% 27.80% 21.48% 11.75% 27.80% 21.48% 12.12% 27.80% 21.48%
===============================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 13.23% 25.09% 19.07% -- -- -- -- -- --
5 YEARS 17.04% 25.03% 20.66% -- -- -- -- -- --
LIFE OF FUND 15.16% 20.73% 16.80% 12.63% 25.09%(2) 19.07%(2) 5.22% 16.30% 9.83%
</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 48-50 for information about share classes, the indices, and returns.
[mountain chart data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 9/30/99
S&P 500 $31,446
S&P 500/ BARRA Value $25,707
Value $23,594
Value S&P 500 S&P 500/BARRA Value
9/1/93 $10,000 $10,000 $10,000
9/30/93 $10,000 $9,923 $9,996
12/31/93 $10,307 $10,153 $10,038
3/31/94 $10,083 $9,768 $9,710
6/30/94 $10,270 $9,809 $9,800
9/30/94 $10,741 $10,289 $10,051
12/31/94 $10,718 $10,287 $9,976
3/31/95 $11,953 $11,289 $10,937
6/30/95 $12,743 $12,367 $11,890
9/30/95 $13,305 $13,350 $12,836
12/31/95 $14,233 $14,154 $13,667
3/31/96 $15,295 $14,914 $14,540
6/30/96 $16,121 $15,584 $14,838
9/30/96 $16,253 $16,065 $15,230
12/31/96 $17,683 $17,403 $16,672
3/31/97 $17,745 $17,870 $16,967
6/30/97 $20,029 $20,992 $19,422
9/30/97 $22,396 $22,562 $21,201
12/31/97 $22,282 $23,209 $21,672
3/31/98 $24,833 $26,447 $24,175
6/30/98 $23,621 $27,320 $24,301
9/30/98 $21,058 $24,602 $21,164
12/31/98 $23,396 $29,842 $24,853
3/31/99 $22,383 $31,331 $25,561
6/30/99 $26,512 $33,543 $28,321
9/30/99 $23,594 $31,446 $25,707
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. The
indices are 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 indices 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 SEPTEMBER 30)
Value S&P 500/ BARRA Value
9/30/1993 0.00% -0.04%
9/30/1994 7.41% 0.55%
9/30/1995 23.88% 27.70%
9/30/1996 22.15% 18.64%
9/30/1997 37.80% 39.22%
9/30/1998 -5.98% -0.18%
9/30/1999 12.04% 21.48%
* From 9/1 to 9/30
4 1-800-345-2021
Value--Q&A
- --------------------------------------------------------------------------------
[photo of Scott Moore and Phil Davidson]
An interview with Scott Moore and Phil Davidson, portfolio managers on the
Value investment team.
HOW DID VALUE PERFORM FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999?
Value gained 5.42% during the first half of its fiscal year, outperforming
its benchmark, the S&P 500/BARRA Value Index, which gained just 0.58% in the six
months.* The S&P 500 Index posted a 0.36% gain.
WHAT FACTORS CONTRIBUTED TO PERFORMANCE DURING THE SIX MONTHS?
The first half of the period was actually spectacular for value investors,
as we benefited from what appeared to be a long-awaited market rotation from the
growth investment style to value stocks. Value gained more than 18% during the
second calendar quarter alone. Unfortunately, this rotation stopped abruptly in
July when investor preference shifted back to a handful of large-cap growth
stocks. We were forced to give up some of our second-quarter gain.
To put the narrowness of the market's leadership in perspective, in 1998,
13 companies were responsible for the bulk of the S&P 500's returns. As of the
end of the third quarter, just three companies are responsible for half of the
index's return. These companies are large, fast growing, and high-priced. As
such, they don't fit the value criteria that govern our investment approach.
WHICH INDUSTRIES OR STOCKS ADDED THE MOST TO RETURNS?
Value's best-performing stocks were in the specialty chemicals and
electrical equipment industries. Specialty chemical companies performed well in
general, especially earlier in the period as the market's rotation into cyclical
stocks rekindled investor interest. The chemical sector has grown increasingly
competitive in recent years, partly due to economic slowdown overseas, and as a
result many producers have implemented restructuring programs to increase
efficiency and lower their costs. Those efforts have been successful and have
also led to a wave of mergers.
CAN YOU GIVE SOME EXAMPLES?
Nalco Chemical, Value's top- performing stock, is a good example. Nalco is
one of the largest U.S. manufacturers of water treatment chemicals. The company
announced in July that it would be acquired by Suez Lyonnaise, a similar firm in
France. We sold the stock at a significant gain upon news of the acquisition.
Minnesota Mining & Manufacturing (3M), one of Value's largest positions,
also did well. 3M manufactures a variety of products, including tapes and
various adhesives, chemicals, floor coverings, and medical and dental products.
As was the case with many specialty chemical companies, 3M's international
business has improved in line with the economic recovery underway in Asia and
Latin America. The company also is benefiting from an aggressive restructuring
begun in 1998 that has included reducing its workforce and eliminating several
unprofitable businesses.
* All fund returns referenced in this interview are for Investor Class shares.
[right margin]
"THE FIRST HALF OF THE PERIOD WAS ACTUALLY SPECTACULAR FOR VALUE INVESTORS, AS
WE BENEFITED FROM WHAT APPEARED TO BE A LONG-AWAITED MARKET ROTATION FROM THE
GROWTH INVESTMENT STYLE TO VALUE STOCKS."
PORTFOLIO AT A GLANCE
9/30/99 3/31/99
NUMBER OF COMPANIES 65 71
MEDIAN P/E RATIO 13.3 15.5
MEDIAN MARKET $2.43 $1.87
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 68%(1) 130%(2)
EXPENSE RATIO
(INVESTOR CLASS): 1.00%(3) 1.00%
(1) Six months ended 9/30/99.
(2) Year ended 3/31/99.
(3) Annualized.
Investment terms are defined in the Glossary on pages 50-51.
www.americancentury.com 5
Value--Q&A
- --------------------------------------------------------------------------------
(Continued)
WHAT DROVE GROWTH IN THE ELECTRIC EQUIPMENT INDUSTRY?
The Asian recession and weakened business activity in Europe had kept
top-line growth at bay, but nonetheless, we saw companies gain from cost-cutting
efforts, productivity improvements, new products and even acquisitions. Two
examples are Vishay Intertechnologies and Cooper Industries, which were also
among Value's larger holdings.
Vishay makes electronic components for the computer, military, aerospace
and automotive industries. Business in the company's Asian markets is improving
steadily, and its Siliconix subsidiary, which provides components for computers
and cell phones, is leading its recovery. We eliminated this stock from Value's
portfolio as it achieved what we believe is fair value.
Mercantile Bancorporation, Value's second-largest holding at the beginning
of the period, also added to returns. Mercantile was acquired by First Star at a
50% premium to its low a year ago. We sold the stock at a significant gain on
news of the acquisition.
WHAT INDUSTRIES OR STOCKS DETRACTED FROM PERFORMANCE?
With the exception of Mercantile, the financial services sector had a very
difficult time during the period. Although we were underweighted in this group
relative to our benchmark, our holdings were a significant drain on performance.
Several factors worked against banks. One was the two quarter-point interest
rate hikes by the Federal Reserve (our central bank) over the summer. Higher
rates are typically harmful for banks because they squeeze profit margins and
increase concern about asset quality.
A second factor was high investor expectations. Because banks had enjoyed
such an extended period of success, when some of the major banks announced
earnings disappointments in a rising rate environment, investors were quick to
abandon them in search of greener pastures. Names that detracted from
performance include KeyCorp, Summit Bancorp, First Union, and First Virginia,
which together comprised about 13.8% of fund holdings. We have begun to take
advantage of the price weakness in this sector and have continued to build
positions.
DID THESE FACTORS ALSO AFFECT INSURANCE COMPANIES?
Yes, to some extent. Value's worst performing stock was Aetna, one of the
largest health insurance and financial services organizations in the country.
Aetna acquired Prudential and is now the nation's largest provider of health
benefits. The acquisition has proven to be more of a drag on earnings than
originally anticipated. Legislation allowing HMOs to be sued has also hurt the
stock.
WHAT SIGNIFICANT CHANGES DID YOU MAKE TO THE PORTFOLIO DURING THE SIX MONTHS?
Our most significant move was in chemicals, where we reduced our weighting
by half by reducing our stake in 3M and eliminating Nalco. We also eliminated
positions in both consumer durables and department stores, and reduced our stake
in energy companies and electrical equipment providers consistent with the
performance of these groups.
On the buy side, we've added somewhat to Value's positions in gas and water
utilities, banks, and food and beverage companies.
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
9/30/99 3/31/99
FIRST VIRGINIA
BANKS, INC. 4.4% 3.5%
SUMMIT BANCORP. 4.3% 2.5%
ARCHER-DANIELS-
MIDLAND CO. 3.6% 2.5%
KEYCORP 3.5% -
FPL GROUP, INC. 3.5% 3.1%
MINNESOTA MINING &
MANUFACTURING CO. 3.4% 5.0%
INTERSTATE BAKERIES
CORP. 3.2% 2.4%
BURLINGTON
RESOURCES INC. 3.0% 2.3%
SUPERIOR INDUSTRIES
INTERNATIONAL, INC. 3.0% 2.9%
COLUMBIA/HCA
HEALTHCARE CORP. 2.5% 3.1%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
9/30/99 3/31/99
BANKS 14.6% 11.1%
FOOD & BEVERAGE 9.0% 7.1%
ELECTRICAL UTILITIES 8.5% 8.1%
ENERGY RESERVES
& PRODUCTION 7.0% 8.7%
CHEMICALS 5.1% 10.8%
6 1-800-345-2021
Value--Q&A
- --------------------------------------------------------------------------------
(Continued)
WHAT IS YOUR STRATEGY GOING FORWARD?
Although we're disappointed that the market's shift to value stocks in the
second quarter didn't continue, we believe it shows how quickly and dramatically
a change in sentiment can occur--and Value's ability to produce strong returns
when its style of investing is in favor. We continue to believe the growth style
of investing will run its course and the value style will return to favor--we
just can't predict precisely when. In the meantime, we will be true to our
discipline of investing in high-quality companies at attractive values. Such
companies should provide good long-term prospects for appreciation, and we
believe they will reward investors handsomely when the market rotates.
[right margin]
"WE CONTINUE TO BELIEVE THE GROWTH STYLE OF INVESTING WILL RUN ITS COURSE AND
THE VALUE STYLE WILL RETURN TO FAVOR--WE JUST CAN'T PREDICT PRECISELY WHEN."
TYPES OF INVESTMENTS IN THE PORTFOLIO
[pie chart data below]
AS OF SEPTEMBER 30, 1999
Temporary Investments 4.3%
Common Stocks 95.7%
AS OF MARCH 31, 1999
Temporary Investments 1.9%
Common Stocks 98.1%
www.americancentury.com 7
Value--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period. The
securities are grouped by asset class (such as common stocks, corporate bonds,
temporary cash investments, as applicable), and some asset classes are further
broken down by industry or country.
NOTE: For securities denominated in foreign currencies, the market value is
translated into U.S. dollars based on exchange rates as of the last day of
reporting period.
SEPTEMBER 30, 1999 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 95.7%
APPAREL & TEXTILES -- 0.7%
435,400 VF Corp. $ 13,497,400
----------------------
BANKS -- 14.6%
876,100 First Union Corp. 31,156,306
1,889,650 First Virginia Banks, Inc. 82,317,880
2,562,300 KeyCorp 66,139,369
479,200 Regions Financial Corp. 14,361,025
2,484,600 Summit Bancorp. 80,594,212
----------------------
274,568,792
----------------------
CHEMICALS -- 5.1%
1,007,600 IMC Global Inc. 14,673,175
679,500 Lubrizol Corp. 17,454,656
672,400 Minnesota Mining &
Manufacturing Co. 64,592,425
----------------------
96,720,256
----------------------
COMPUTER SOFTWARE -- 1.8%
919,500 Autodesk, Inc. 20,114,062
729,400 Sterling Commerce, Inc.(1) 13,539,488
----------------------
33,653,550
----------------------
DEFENSE/AEROSPACE -- 1.1%
644,100 Lockheed Martin Corp. 21,054,019
----------------------
ELECTRICAL EQUIPMENT -- 1.3%
1,085,400 Littelfuse, Inc.(1)(2) 24,184,069
----------------------
ELECTRICAL UTILITIES -- 8.5%
747,400 Ameren Corp. 28,261,062
477,400 Florida Progress Corp. 22,079,750
1,310,200 FPL Group, Inc. 66,001,325
2,102,000 Niagara Mohawk Holdings Inc.(1) 32,449,625
548,380 Sierra Pacific Resources 12,201,455
---------------------
160,993,217
---------------------
ENERGY RESERVES & PRODUCTION -- 7.0%
1,538,400 Burlington Resources Inc. 56,536,200
776,800 Murphy Oil Corp. 41,995,750
896,800 Unocal Corp. 33,237,650
---------------------
131,769,600
---------------------
ENVIRONMENTAL SERVICES -- 2.4%
2,381,100 Waste Management, Inc. 45,836,175
---------------------
FOOD & BEVERAGE -- 9.0%
5,615,667 Archer-Daniels-Midland Co. 68,440,942
2,588,300 Interstate Bakeries Corp. 59,530,900
Shares Value
- --------------------------------------------------------------------------------
158,800 Lance, Inc. $ 2,069,362
2,416,000 Tyson Foods, Inc. Cl A 39,713,000
---------------------
169,754,204
---------------------
FOREST PRODUCTS & PAPER -- 2.6%
575,100 Bemis Co., Inc. 19,481,512
286,400 Rayonier, Inc. 12,028,800
677,800 Westvaco Corp. 17,368,625
---------------------
48,878,937
---------------------
GAS & WATER UTILITIES -- 2.7%
2,366,900 AGL Resources Inc. 38,462,125
473,700 Washington Gas Light Co. 12,849,112
---------------------
51,311,237
---------------------
HEAVY ELECTRICAL EQUIPMENT -- 0.7%
268,300 Cooper Industries, Inc. 12,543,025
---------------------
HOME PRODUCTS -- 0.3%
154,100 Lancaster Colony Corp. 4,945,647
---------------------
INDUSTRIAL PARTS -- 3.5%
2,316,000 Flowserve Corp.(2) 38,503,500
194,800 Stanley Works (The) 4,906,525
280,600 Tecumseh Products Cl A 14,012,462
248,800 York International Corp. 8,941,250
---------------------
66,363,737
---------------------
INDUSTRIAL SERVICES -- 1.3%
629,200 XTRA Corp.(1)(2) 25,010,700
---------------------
LEISURE -- 3.0%
423,700 Department 56, Inc.(1) 10,142,319
138,500 Eastman Kodak Co. 10,448,094
1,686,300 GTECH Holdings Corp.(1)(2) 36,150,056
---------------------
56,740,469
---------------------
LIFE AND HEALTH INSURANCE -- 2.4%
927,700 Aetna Inc. 45,689,225
---------------------
MEDICAL PRODUCTS & SUPPLIES -- 2.7%
799,200 Beckman Coulter Inc. 36,063,900
649,500 Dentsply International Inc. 14,755,828
---------------------
50,819,728
---------------------
MEDICAL PROVIDERS & SERVICES -- 5.0%
2,195,700 Columbia/HCA Healthcare Corp. 46,521,394
2,695,000 Health Management Associates, Inc.(1) 19,875,625
2,568,200 HEALTHSOUTH Corp.(1) 15,569,712
630,000 LabOne, Inc.(2) 6,004,688
352,300 Tenet Healthcare Corp.(1) 6,187,269
---------------------
94,158,688
---------------------
8 1-800-345-2021 See Notes to Financial Statements
Value--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
MOTOR VEHICLES & PARTS -- 4.3%
1,519,600 Delphi Automotive Systems Corp. $ 24,408,575
2,018,000 Superior Industries
International, Inc.(2) 56,504,000
--------------------
80,912,575
--------------------
OIL SERVICES -- 1.3%
863,500 Baker Hughes Inc. 25,041,500
--------------------
PROPERTY AND CASUALTY INSURANCE -- 4.5%
513,300 Argonaut Group, Inc. 12,896,662
749,400 Berkley (W.R.) Corp. 17,142,525
691,200 Chubb Corp. (The) 34,430,400
416,200 CNA Financial Corp.(1) 14,567,000
236,900 Horace Mann Educators Corp. 6,114,981
--------------------
85,151,568
--------------------
PUBLISHING -- 1.3%
1,075,300 Banta Corp. 23,992,631
--------------------
RAILROADS -- 0.7%
317,300 CSX Corp. 13,445,588
--------------------
RESTAURANTS -- 2.1%
2,487,500 CBRL Group, Inc. 38,478,516
--------------------
SEMICONDUCTOR -- 1.4%
632,100 Avnet, Inc. 26,548,200
--------------------
SPECIALTY STORES -- 0.9%
1,100,000 Office Depot, Inc.(1) 11,206,250
335,000 Toys 'R' Us, Inc.(1) 5,025,000
--------------------
16,231,250
--------------------
Shares Value
- --------------------------------------------------------------------------------
TELEPHONE -- 1.7%
423,800 GTE Corp. $ 32,579,625
--------------------
TOBACCO -- 1.8%
1,097,700 UST Inc. 33,136,819
--------------------
TOTAL COMMON STOCKS 1,804,010,947
--------------------
(Cost $1,964,430,062)
TEMPORARY CASH INVESTMENTS -- 4.3%
Repurchase Agreement, BA Security Services,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.21%, dated 9/30/99,
due 10/1/99 (Delivery value $81,411,780) 81,400,000
--------------------
(Cost $81,400,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $1,885,410,947
====================
(Cost $2,045,830,062)
FUTURES CONTRACTS
Expiration Underlying Face Unrealized
Purchased Date Amount at Value Loss
- --------------------------------------------------------------------------------
116 S&P 500 December
Futures 1999 $37,656,500 $(1,543,395)
======================================
NOTES TO SCHEDULE OF INVESTMENTS
(1) Non-income producing.
(2) Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as defined in the
Investment Company Act of 1940. (See Note 5 in Notes to Financial Statements
for a summary of transactions for each issuer which is or was an affiliate
at or during the six months ended September 30, 1999.)
See Notes to Financial Statements www.americancentury.com 9
Equity Income--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1999
INVESTOR CLASS
(INCEPTION 8/1/94)
Equity S&P 500 LIPPER EQUITY
INCOME FUND INDEX
6 MONTHS(1) 6.60% 0.36% 0.03%
1 YEAR 15.98% 27.80% 13.36%
======================================================
AVERAGE ANNUAL RETURNS
3 YEARS 16.57% 25.09% 15.23%
5 YEARS 18.20% 25.03% 16.28%
LIFE OF FUND 18.13% 24.49% 16.01%
ADVISOR CLASS
(INCEPTION 3/7/97)
Equity S&P 500 LIPPER EQUITY
INCOME FUND INDEX
6 MONTHS(1) 6.47% 0.36% 0.03%
1 YEAR 15.69% 27.80% 13.36%
======================================================
AVERAGE ANNUAL RETURNS
3 YEARS -- -- --
5 YEARS -- -- --
LIFE OF FUND 14.42% 25.36%(2) 14.39%(2)
INSTITUTIONAL CLASS
(INCEPTION 7/8/98)
Equity S&P 500 LIPPER EQUITY
INCOME FUND INDEX
6 MONTHS(1) 6.72% 0.36% 0.03%
1 YEAR 16.23% 27.80% 13.36%
======================================================
AVERAGE ANNUAL RETURNS
3 YEARS -- -- --
5 YEARS -- -- --
LIFE OF FUND 6.80% 13.80%(3) 4.10%(3)
(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 48-50 for information about share classes, the indices, and returns.
[mountain chart data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Equity S&P 500 LIPPER EQUITY
INCOME FUND INDEX
8/1/1994 $10,000 $10,000 $10,000
9/30/1994 $10,248 $10,489 $10,423
12/31/1994 $10,051 $10,487 $10,166
3/31/1995 $11,067 $11,508 $10,932
6/30/1995 $11,807 $12,607 $11,690
9/30/1995 $12,345 $13,610 $12,536
12/31/1995 $13,029 $14,429 $13,197
3/31/1996 $13,910 $15,204 $13,768
6/30/1996 $14,555 $15,886 $14,120
9/30/1996 $14,925 $16,377 $14,481
12/31/1996 $16,067 $17,742 $15,569
3/31/1997 $16,168 $18,217 $15,833
6/30/1997 $18,336 $21,400 $17,894
9/30/1997 $20,050 $23,000 $19,297
12/31/1997 $20,606 $23,660 $19,799
3/31/1998 $22,277 $26,961 $21,802
6/30/1998 $21,740 $27,851 $21,698
9/30/1998 $20,386 $25,080 $19,545
12/31/1998 $23,278 $30,421 $22,131
3/31/1999 $22,180 $31,940 $22,151
6/30/1999 $25,149 $34,194 $24,129
9/30/1999 $23,646 $32,057 $22,158
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. The
indices are provided for comparison in each graph. Equity Income's total returns
include operating expenses (such as transaction costs and management fees) that
reduce returns, while the total returns of the indices 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 SEPTEMBER 30)
EQUITY LIPPER EQUITY
INCOME INCOME FUND
INDEX
9/30/94 2.48 1.37
9/30/95 20.48 20.28
9/30/96 20.89 15.44
9/30/97 34.35 33.71
9/30/98 1.67 1.29
9/30/99 15.98 13.36
* From 8/1 to 9/30
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.
SHOW DID EQUITY INCOME PERFORM FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999?
The period saw Equity Income continue to outperform its U.S. stock market
benchmark and its equity income fund peer group. The fund returned 6.60% in the
first half of its fiscal year, compared to the 0.03% gain posted by its
benchmark, the Lipper Equity Income Fund Index.* The S&P 500 returned just
0.36%.
Equity Income's consistently strong performance has enabled it to
outperform its peer group for the one-, three- and five-year periods ended
September 30, 1999. (See the Total Returns table on the previous page for other
fund performance comparisons.)
WHAT ACCOUNTS FOR THE FUND'S STRONGER SHOWING?
Strong individual stock selection played a key role in the fund's better
performance. Our valuation techniques identified some very solid companies,
including Nalco Chemical, Mercantile Bancorporation, CTG Resources and Sbarro,
which we acquired at low prices. We were attracted to these companies'
above-average dividend yields, strong financial positions, and solid longer-term
business prospects. These same attributes made these companies appealing
candidates for acquisition, and each was acquired during the period. All four
holdings added significantly to returns.
Equity Income's better relative performance was also the result of its
underweighting in financial services companies, which struggled during the
period. Several factors worked against this group, beginning with the Fed's two
quarter-point interest rate hikes in July and August. Higher rates hurt banks
because they raise concerns about loan quality. A second blow occurred when many
banks announced disappointing second-quarter earnings.
WHERE DID YOU FIND YOUR BEST OPPORTUNITIES?
Equity Income's top-performing industries were chemical companies, forest
products and paper manufacturers, and gas utilities.
Chemical companies have had a good run in general, thanks to the market
shift to cyclical stocks earlier this year. This industry has grown increasingly
competitive, which has resulted in mergers and acquisitions. Our top holding
during the period was Nalco Chemical Co., which makes products for water
treatment. Nalco was Equity Income's worst performing stock in the first quarter
but the best-performing one in the second quarter. We sold Nalco at a
substantial gain in June upon news it would be acquired by a French firm.
Minnesota Mining & Manufacturing (3M), which makes a variety of chemical
products, tapes and adhesives, also added to performance. 3M's improvement is
being fueled by an economic recovery in Asia and Latin America. 3M remains a top
holding.
Forest products and paper manufacturers struggled during recent years, as
weak foreign economies and strength in the dollar led to a supply/demand
imbalance and pricing pressures. However, industry restructuring and improved
global demand have resulted in firmer prices. One of our paper stocks,
Consolidated Paper, is North America's leading producer of coated paper. We
bought the stock during the earlier weakness and its price is benefiting from
these industry improvements and the cyclical rotation.
* All fund returns referenced in this interview are for Investor Class shares.
[right margin]
"EQUITY INCOME'S CONSISTENTLY STRONG PERFORMANCE HAS ENABLED IT TO OUTPERFORM
ITS PEER GROUP FOR THE ONE-, THREE- AND FIVE-YEAR PERIODS ENDED SEPTEMBER 30,
1999."
PORTFOLIO AT A GLANCE
9/30/99 3/31/99
NUMBER OF COMPANIES 65 69
MEDIAN P/E RATIO 15.5 15.6
MEDIAN MARKET $1.74 $1.41
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 70%(1) 180%(2)
EXPENSE RATIO
(INVESTOR CLASS) 1.00%(3) 1.00%
(1) Six months ended 9/30/99.
(2) Year ended 3/31/99.
(3) Annualized.
Investment terms are defined in the Glossary on pages 50-51.
www.americancentury.com 11
Equity Income--Q&A
- --------------------------------------------------------------------------------
(Continued)
WERE THERE ANY POSITIVE SURPRISES?
Natural gas distribution companies, which were among the fund's worst
performers in the previous six months, have turned and held their value this
past summer, despite the increase in interest rates. We built a substantial
position in CTG Resources, the parent company for Connecticut Natural Gas, in
late 1998 and early 1999, when prices were depressed and the stock was
attractively priced relative to its historical levels and peer group. We sold
the stock at a nice gain on news that CTG would be acquired by Energy East.
Northwest Natural Gas and Washington Gas Light were also bright spots. Northwest
benefited from cooler spring weather, an improving regulatory situation and
rapid expansion of manufacturing in the Pacific Northwest. Washington Gas Light
has benefited from more normal weather and consolidation within the industry.
A final holding we wish to highlight is Mercantile Bancorporation, which we
discussed briefly earlier. This stock was a star performer in an industry that
otherwise struggled. We have held this stock since Equity Income's inception,
and sold it at a substantial gain when Mercantile announced it would be acquired
by another bank, First Star.
WHICH STOCKS WERE DISAPPOINTING?
Three companies in Equity Income's portfolio stumbled even though their
industry groups performed well. One was AGL Resources, a natural gas distributor
serving Georgia and southern Tennessee. The company's earnings have come under
pressure as gas distribution has become increasingly competitive in the
southeast. AGL has taken steps to market itself more aggressively to customers,
who now have the ability to select their gas providers. Although AGL has
remained a significant player, its operating expenses are up while earnings have
slowed in recent quarters. Nonetheless, we think this is a good company with
healthy growth prospects, so we are maintaining this position.
While specialty chemical companies were Equity Income's top performing
group, one company, WD-40 Company, failed to deliver. This company makes
lubricants, including the household spray lubricant, WD-40. The company is
trying to incorporate the Lava soap brand into its product mix and distribute it
through the same channels. Domestic sales are going well, due to Lava's strong
name, but the product is less-known outside the United States, and international
sales are sluggish. We expect volumes to improve in line with the economies in
Asia and Latin America, and are holding onto our position.
WERE THERE ANY OTHER HOLDINGS THAT WERE DISAPPOINTING?
Another position that dampened performance was Lance. This company makes
bakery products and snack food items that are sold in convenience and grocery
stores and through vending machines. Competitive pressures in the snack food
business have intensified and Lance has had a tough time advancing its sales and
earnings. However, the company's distribution network is extensive and its cash
position is strong, so we are maintaining our position.
DID YOU MAKE ANY SIGNIFICANT CHANGES TO THE PORTFOLIO DURING THE SIX MONTHS?
Our greatest shift was in restaurants, where we eliminated our sole
holding, Sbarro, at a substantial gain following its buyout by the Sbarro
family. We also eliminated our Homestake Mining convertible security, given the
recent
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
9/30/99 3/31/99
AGL RESOURCES INC. 4.9% 1.4%
FIRST VIRGINIA
BANKS, INC. 4.8% 4.2%
SUMMIT BANCORP. 3.8% 2.2%
UNOCAL CORP., 6.25%
(CON. PREF.) 3.7% 3.3%
RALSTON PURINA CO.,
7.00% (CON. PREF.) 3.4% 2.1%
KEYCORP 3.4% -
NATIONAL PRESTO
INDUSTRIES, INC. 3.2% 4.1%
BUSH BOAKE ALLEN INC. 2.6% -
MEDICAL CARE INTL.
INC., 6.75%, 10/1/06
(CONV. BOND) 2.6% 2.3%
AVISTA CORP., SERIES L,
$1.24 (CON. PREF.) 2.5% 2.3%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
9/30/99 3/31/99
BANKS 14.9% 12.6%
GAS & WATER UTILITIES 11.5% 8.7%
CHEMICALS 7.7% 11.1%
ELECTRICAL UTILITIES 6.2% 8.2%
HOME PRODUCTS 6.2% 6.7%
12 1-800-345-2021
Equity Income--Q&A
- --------------------------------------------------------------------------------
(Continued)
out performance of the gold industry. Our weighting in chemical companies
dropped with our sale of Nalco, although Equity Income still maintains a healthy
stake in this industry. We decreased our weighting in electric utilities, but
increased our position in gas and water utilities. The fund maintains
significant positions in banks, food and beverage companies, and medical
providers.
WHAT IS YOUR OUTLOOK FOR THE MARKET AND THE FUND GOING FORWARD?
We shy away from making market calls, but one thing we know is that the
stock market moves back and forth between the value and growth styles, sometimes
slowly, but sometimes very quickly as we saw a few months ago. We believe Equity
Income's portfolio is well positioned to benefit when value is back in vogue. In
the meantime, we are pleased with Equity Income's risk-adjusted performance
since its inception, and believe it can benefit in most market environments.
[right margin]
"WE SHY AWAY FROM MAKING MARKET CALLS, BUT ONE THING WE KNOW IS THAT THE STOCK
MARKET MOVES BACK AND FORTH BETWEEN THE VALUE AND GROWTH STYLES, SOMETIMES
SLOWLY, BUT SOMETIMES VERY QUICKLY AS WE SAW A FEW MONTHS AGO."
TYPES OF INVESTMENTS IN THE PORTFOLIO
[pie chart data below]
AS OF SEPTEMBER 30, 1999
Common Stocks 75.6%
Convertible Preferred Stocks 12.2%
Convertible Bonds 8.5%
Corporate Bonds 2.3%
Temporary Cash Investments 1.4%
AS OF MARCH 31, 1999
Common Stocks 78.8%
Convertible Preferred Stocks 11.7%
Convertible Bonds 6.6%
Corporate Bonds 2.8%
Temporary Cash Investments 0.1%
www.americancentury.com 13
Equity Income--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period. The
securities are grouped by asset class (such as common stocks, corporate bonds,
temporary cash investments, as applicable), and some asset classes are further
broken down by industry or country.
NOTE: For securities denominated in foreign currencies, the market value is
translated into U.S. dollars based on exchange rates as of the last day of
reporting period.
SEPTEMBER 30, 1999 (UNAUDITED)
Shares Value
- -------------------------------------------------------------------------
COMMON STOCKS -- 75.6%
APPAREL & TEXTILES -- 0.7%
78,000 VF Corp. $ 2,418,000
---------------------
BANKS -- 14.9%
39,800 Century Bancorp, Inc. Cl A 713,912
13,700 Commerce Bancshares, Inc. 485,066
69,400 First Union Corp. 2,468,038
381,700 First Virginia Banks, Inc. 16,627,807
455,200 KeyCorp 11,749,850
69,100 Regions Financial Corp. 2,070,841
412,900 Summit Bancorp. 13,393,444
108,810 UMB Financial Corp. 4,546,218
---------------------
52,055,176
---------------------
CHEMICALS -- 7.2%
348,300 Bush Boake Allen Inc.(1) 9,186,412
145,500 Engelhard Corp. 2,646,281
85,600 Minnesota Mining & Manufacturing Co. 8,222,950
400,600 RPM, Inc. 4,882,312
---------------------
24,937,955
---------------------
COMPUTER SOFTWARE -- 0.6%
94,500 Autodesk, Inc. 2,067,188
---------------------
CONSTRUCTION & REAL PROPERTY -- 1.4%
206,700 Manufactured Home Communities, Inc. 4,831,612
---------------------
CONSUMER DURABLES -- 4.6%
253,500 HON INDUSTRIES Inc. 4,879,875
290,900 National Presto Industries, Inc.(2) 11,236,012
---------------------
16,115,887
---------------------
ELECTRICAL UTILITIES -- 3.0%
59,700 Florida Progress Corp. 2,761,125
73,400 FPL Group, Inc. 3,697,525
61,000 IDACORP, Inc. 1,837,625
89,741 Sierra Pacific Resources 1,996,737
---------------------
10,293,012
---------------------
ENERGY RESERVES & PRODUCTION -- 1.4%
50,300 Burlington Resources Inc. 1,848,525
57,300 Murphy Oil Corp. 3,097,781
---------------------
4,946,306
---------------------
FINANCIAL SERVICES -- 1.8%
156,300 Student Loan Corp. (The) 6,398,531
---------------------
Shares Value
- -------------------------------------------------------------------------------
FOOD & BEVERAGE -- 5.4%
458,772 Archer-Daniels-Midland Co. $5,591,284
85,600 Interstate Bakeries Corp. 1,968,800
578,000 Lance, Inc. 7,532,062
220,300 Tyson Foods, Inc. Cl A 3,621,181
--------------------
18,713,327
--------------------
FOREST PRODUCTS & PAPER -- 3.1%
188,900 Bemis Co., Inc. 6,398,988
157,100 Consolidated Papers, Inc. 4,222,062
--------------------
10,621,050
--------------------
GAS & WATER UTILITIES -- 11.5%
1,050,100 AGL Resources Inc. 17,064,125
105,000 Cascade Natural Gas Corp. 1,876,875
224,500 Laclede Gas Company 5,107,375
71,100 Northwest Natural Gas Co. 1,830,825
205,900 Washington Gas Light Co. 5,585,038
296,300 WICOR, Inc. 8,611,219
--------------------
40,075,457
--------------------
HOME PRODUCTS -- 2.8%
54,400 Lancaster Colony Corp. 1,745,900
340,000 WD-40 Co. 7,958,125
--------------------
9,704,025
--------------------
INDUSTRIAL PARTS -- 4.0%
441,900 Flowserve Corp. 7,346,588
123,700 Nordson Corp. 6,022,644
25,000 Stanley Works (The) 629,688
--------------------
13,998,920
--------------------
INDUSTRIAL SERVICES -- 3.0%
164,100 American National Can Group, Inc.(1) 2,594,831
200,100 XTRA Corp.(1) 7,953,975
--------------------
10,548,806
--------------------
LIFE AND HEALTH INSURANCE -- 0.9%
60,460 Aetna Inc. 2,977,655
--------------------
MEDICAL PROVIDERS & SERVICES -- 0.6%
211,500 LabOne, Inc. 2,015,859
--------------------
MINING & METALS -- 1.1%
155,700 Carpenter Technology Corp. 3,814,650
--------------------
MOTOR VEHICLES & PARTS -- 1.3%
46,500 Delphi Automotive Systems Corp. 746,906
140,400 Superior Industries International, Inc. 3,931,200
--------------------
4,678,106
--------------------
14 1-800-345-2021 See Notes to Financial Statements
Equity Income--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
PROPERTY AND CASUALTY INSURANCE -- 3.1%
25,000 American Financial Group, Inc. $ 701,562
201,400 Argonaut Group, Inc. 5,060,175
73,200 Chubb Corp. (The) 3,646,275
43,500 Unitrin, Inc. 1,512,984
------------------
10,920,996
------------------
PUBLISHING -- 0.5%
78,100 Banta Corp. 1,742,606
------------------
SECURITIES & ASSET MANAGEMENT -- 0.9%
167,800 United Asset Management Corp. 3,230,150
------------------
TOBACCO -- 1.8%
209,200 UST Inc. 6,315,225
------------------
TOTAL COMMON STOCKS 263,420,499
------------------
(Cost $285,898,700)
CONVERTIBLE PREFERRED STOCKS -- 12.2%
CHEMICALS -- 0.5%
2,120 Hercules Inc., 6.50%(1) 1,812,600
------------------
ELECTRICAL UTILITIES -- 2.5%
502,800 Avista Corp., Series L, $1.24 8,799,000
------------------
ENERGY RESERVES & PRODUCTION -- 4.5%
147,300 Belco Oil & Gas Corp., 6.50% 2,467,275
242,400 Unocal Corp., 6.25%
(Acquired 2/26/97-8/19/99,
Cost $13,223,975)(3) 12,983,550
------------------
15,450,825
------------------
HOME PRODUCTS -- 3.4%
253,600 Ralston Purina Co., 7.00% 11,919,200
------------------
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
SECURITIES & ASSET MANAGEMENT -- 1.3%
262,000 Merrill Lynch & Co., Inc.-
STRYPES, 6.25% $ 4,568,625
------------------
TOTAL CONVERTIBLE PREFERRED STOCKS 42,550,250
------------------
(Cost $45,303,198)
CONVERTIBLE BONDS -- 8.5%
ENVIRONMENTAL SERVICES -- 2.2%
$4,500,000 Waste Management Inc.,
4.00%, 2/1/02 4,027,500
4,500,000 Waste Management Inc.,
2.00%, 1/24/05 3,690,000
-----------------
7,717,500
-----------------
MEDICAL PROVIDERS & SERVICES -- 4.3%
7,750,000 HEALTHSOUTH Corp.,
3.25%, 4/1/03 6,025,625
10,770,000 Medical Care Intl. Inc.,
6.75%, 10/1/06
(Acquired 10/23/97-9/29/99,
Cost $9,806,475)(3) 9,087,188
-----------------
15,112,813
-----------------
OIL SERVICES -- 1.4%
4,479,000 Diamond Offshore Drilling, Inc.,
3.75%, 2/15/07 4,722,546
-----------------
SPECIALTY STORES -- 0.6%
3,000,000 Office Depot, Inc.,
5.00%, 12/11/07(4) 1,897,500
-----------------
TOTAL CONVERTIBLE BONDS 29,450,359
-----------------
(Cost $30,429,733)
See Notes to Financial Statements www.americancentury.com 15
Equity Income--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
CORPORATE BONDS -- 2.3%
ELECTRICAL UTILITIES -- 0.8%
$1,134,147 Niagara Mohawk Holdings Inc.,
Series E, 7.375%, 7/1/03 $ 1,136,334
2,000,000 Niagara Mohawk Holdings Inc.,
Series H, 7.76%, 7/1/10(5) 1,470,000
----------------
2,606,334
----------------
MEDICAL PRODUCTS & SUPPLIES -- 1.5%
5,750,000 Beckman Coulter Inc., 7.45%, 3/4/08 5,385,116
----------------
TOTAL CORPORATE BONDS 7,991,450
----------------
(Cost $8,234,017)
Principal Amount Value
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 1.4%
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 5.25%, dated 9/30/99,
due 10/1/99 (Delivery value $5,000,729) $ 5,000,000
------------------
(Cost $5,000,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $ 348,412,558
===================
(Cost $374,865,648)
NOTES TO SCHEDULE OF INVESTMENTS
STRYPES = Structured Yield Product Exchangeable for Stock
(1) Non-income producing.
(2) Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as defined in the
Investment Company Act of 1940. (See Note 5 in Notes to Financial Statements
for a summary of transactions for each issuer which is or was an affiliate
at or during the six months ended September 30, 1999.)
(3) Security was purchased under Rule 144A of the Securities Act of 1933 or is a
private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at September 30, 1999 was
$22,070,738, which represented 5.9% of net assets.
(4) Security is a zero-coupon bond. The yield to maturity at purchase is
indicated. Zero-coupon securities are purchased at a substantial discount
from their value at maturity.
(5) Step-coupon security. The 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.
16 1-800-345-2021 See Notes to Financial Statements
Small Cap Value--Performance
- --------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF SEPTEMBER 30, 1999
INVESTOR CLASS INSTITUTIONAL CLASS
(INCEPTION 7/31/98) (INCEPTION 10/26/98)
SMALL CAP S&P SMALLCAP SMALL CAP S&P SMALLCAP
VALUE 600/BARRA VALUE INDEX VALUE 600/BARRA VALUE INDEX
<S> <C> <C> <C> <C>
6 MONTHS(1) 6.68% 11.01% 6.56% 11.01%
1 YEAR 13.25% 13.56% -- --
LIFE OF FUND 1.84% -1.70% 5.92% 8.81%(2)
</TABLE>
(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 48-50 for information about share classes, the S&P Small Cap 600/BARRA
Value Index, and returns.
[mountain chart data below]
GROWTH OF $10,000 OVER LIFE OF FUND
SMALL CAP S&P SMALL CAP
VALUE 600/BARRA VALUE
7/31/98 $10,000 $10,000
8/31/98 $8,620 $8,196
9/30/98 $9,020 $8,630
10/31/98 $9,820 $9,008
11/30/98 $10,240 $9,392
12/31/98 $10,331 $9,761
1/31/99 $9,928 $9,649
2/28/99 $9,443 $8,864
3/31/99 $9,576 $8,829
4/30/99 $10,203 $9,598
5/31/99 $10,872 $9,981
6/30/99 $11,089 $10,587
7/31/99 $11,089 $10,422
8/31/99 $10,642 $9,985
9/30/99 $10,215 $9,801
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.
[bar chart data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDING SEPTEMBER 30)
SMALL CAP S&P 600/
VALUE BARRA VALUE
9/30/98 -9.80 -13.69
9/30/99 13.25 13.56
* From 7/31 to 9/30
www.americancentury.com 17
Small Cap Value--Q&A
- --------------------------------------------------------------------------------
[photo of Todd Vingers and Ben Giele]
An interview with Todd Vingers and Ben Giele, portfolio managers on the
Small Cap Value Fund Investment team.
HOW DID SMALL CAP VALUE PERFORM FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999?
Although Small Cap Value posted a 6.68% gain for the period, the fund
lagged its benchmark, the S&P SmallCap 600/BARRA Value Index, which advanced
11.01%.* Since its inception on July 31, 1998, the fund has gained 1.84% versus
a 1.70% decline for the index.
WHY DID THE FUND UNDERPERFORM ITS BENCHMARK?
To begin with, the difference in the treatment of value stocks between the
second and third calendar quarters was the equivalent of night and day. In the
second quarter, investors "rediscovered" attractively priced companies,
especially smaller firms, and Small Cap Value gained 15.80%. Unfortunately, the
change in sentiment was short-lived. Two interest rate increases by the Federal
Reserve in the third quarter sent investors back into the narrow group of large
stocks that have led the stock market for quite some time. As a result, Small
Cap Value gave back half its second quarter gain, declining 7.8%.
From an investment standpoint, our largest industry group, food and
beverage companies, representing 12% of investments, didn't live up to our
expectations. The relatively slow growth and "boring" but stable cash flows at
food companies have failed to capture investors' interest during this time of
growth in promising but unproven Internet concepts.
Small Cap Value's progress was also slowed by its relatively light
weighting in technology stocks-the area of the market that performed the best
over the period. We had about 7% of the fund invested in technology names,
versus the 14% weighting that fueled the benchmark. Because of our value-driven
approach, and our reluctance to invest in high expectation stocks, we are
currently avoiding most technology issues.
COULD YOU BRIEFLY REVIEW THE METHODOLOGY YOU USE TO FIND VALUE COMPANIES FOR THE
PORTFOLIO?
Sure. Our goal is to find fundamentally sound companies that are
temporarily out of favor in the market. These firms may be undervalued as a
result of a transitory problem at the company, temporary economic conditions in
their industry, or simply because the stock market has overlooked them.
To find good investments, we start by looking for stocks that are
statistically inexpensive as measured by a number of factors such as
price-to-earnings, price-to-cash flow, and price-to-book value. Next we
determine what we believe is the "fair value" warranted by the business in the
stock market. If the stock price's current discount to this intrinsic value is
enough to offset the risks, we normally initiate a position. The more favorable
this risk-to-reward relationship, the larger the position we might take.
If we do our analysis correctly, the companies we pick should return to
fair
[left margin]
"...THE DIFFERENCE IN THE TREATMENT OF VALUE STOCKS BETWEEN THE SECOND AND
THIRD CALENDAR QUARTERS WAS THE EQUIVALENT OF NIGHT AND DAY."
PORTFOLIO AT A GLANCE
9/30/99 3/31/99
NUMBER OF COMPANIES 71 72
MEDIAN P/E RATIO 12.4 12.9
MEDIAN MARKET $622 $567
CAPITALIZATION MILLION MILLION
PORTFOLIO TURNOVER 90%(1) 153%(2)
EXPENSE RATIO
(INVESTOR CLASS) 1.25%(3) 1.25%(3)
(1) Six months ended 9/30/99.
(2) For the period 7/31/98 to 3/31/99.
(3) Annualized.
Investment terms are defined in the Glossary on pages 50-51.
* All fund returns referenced in this interview are for Investor Class shares.
18 1-800-345-2021
Small Cap Value--Q&A
- --------------------------------------------------------------------------------
(Continued)
value over time. As a stock's price climbs to a level approaching what we think
is fair market value, we start to sell it and reallocate the proceeds toward
more undervalued candidates.
WHICH STOCKS CONTRIBUTED THE MOST TO THE FUND'S PERFORMANCE OVER THE PERIOD?
When stock prices of good companies are so cheap, we tend to see
significant merger and acquisition activity. Consistent with this, our
performance during the period was enhanced by several buyouts. The most
prominent example was Sbarro, the nationwide chain of cafeteria-style Italian
restaurants (many of them in shopping malls). In August, shareholders accepted
the Sbarro family's offer to purchase the remaining 65% of the company. From the
deal's announcement until it closed in late September, we increased our Sbarro
position to almost 5% of the fund as the stock continued to trade at a
significant discount to the buyout price. The gap occurred because investors
feared that higher interest rates might scuttle the stock purchase. Our research
convinced us that this wouldn't be a problem, so we bought additional shares on
this weakness. We sold our position at a substantial gain when the deal closed.
WHAT OTHER HOLDINGS ADDED TO PERFORMANCE?
AFC Cable Systems and Nalco Chemical Company were two other buyouts that
contributed significantly to our results. AFC Cable, which makes cable and
wiring systems for communications networks, was bought by the conglomerate Tyco
International. Nalco, a provider of water treatment services and chemicals, was
taken over by a French firm, Suez Lyonnaise.
Turning to other investments, our relative overweighting in the energy
sector began paying off in the first quarter when oil and gas prices began to
rebound. The turnaround was the result of oil-producing nations finally
complying with OPEC's output reductions, and an increase in global demand as
Asian economies began to get their feet back under them. One of our best
performing energy stocks was Devon Energy Corp., a small Oklahoma-based oil and
gas producer. We reduced our stake in Devon by half after it climbed sharply in
the spring and summer. Other strong performers in the sector included Swift
Energy and Apache Corp. We sold our position in Apache after strong
second-quarter earnings boosted its stock price.
WHAT POSITIONS DIDN'T PERFORM AS WELL AS YOU'D HOPED?
As mentioned earlier, some of our food and beverage investments didn't hold
up. These included Omega Protein, Vlasic Foods International, and Chiquita
Brands International. To a certain extent, slowing sales growth and low
commodity prices weighed on the industry as a whole. However, there were
company-specific problems as well. Omega's stock price has fallen in the midst
of record low prices for soybeans--a competing cattle food supplement--and lower
livestock prices in general. Chiquita has been hurt by the European Union's
stringent banana quota, and Vlasic has lost market share in certain product
lines to more aggressive competition. We have eliminated our positions in Vlasic
and Chiquita for the time being, but continue to await a cyclical rebound at
Omega.
[right margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
9/30/99 3/31/99
AGL RESOURCES INC. 3.9% 2.0%
DEPARTMENT 56, INC. 3.3% 1.5%
BELCO OIL & GAS CORP. 3.2% 2.6%
BECKMAN COULTER INC. 2.9% 2.6%
OMEGA PROTEIN CORP. 2.6% 2.4%
DENTSPLY
INTERNATIONAL INC. 2.6% 2.1%
RADIAN GROUP INC. 2.5% -
GTECH HOLDINGS CORP. 2.4% 2.5%
INTERSTATE
BAKERIES CORP. 2.4% 2.5%
LANCE, INC. 2.3% 2.5%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
9/30/99 3/31/99
FOOD & BEVERAGE 12.0% 12.4%
PROPERTY AND
CASUALTY INSURANCE 7.2% 8.1%
LEISURE 6.9% 4.5%
ENERGY RESERVES
& PRODUCTION 6.7% 7.8%
ELECTRICAL UTILITIES 6.2% 4.0%
www.americancentury.com 19
Small Cap Value--Q&A
- --------------------------------------------------------------------------------
(Continued)
WERE THERE ANY OTHER DISAPPOINTMENTS?
In the financial services area, higher interest rates typically hurt stock
prices due to the perception of vulnerability in lenders and insurers. We were
able to sidestep some of the damage from rising rates by investing in lenders
and insurers with conservative balance sheets and aggressive share repurchase
plans. However, one financial company in the portfolio, ARM Financial Group,
hurt performance disproportionately. ARM provides guaranteed investment
contracts to institutions, and annuities and other investment savings products
to individual investors. We eliminated the stock, but not before it reported a
large--and unexpected--second quarter loss. Several class-action lawsuits have
been filed alleging that ARM misrepresented its financial condition to boost its
stock price.
WHAT OTHER CHANGES DID YOU MAKE TO THE PORTFOLIO DURING THE SIX MONTHS?
We tend to scale out of stocks and industry sectors as they approach fair
value and add to holdings that have become more undervalued but appear
fundamentally sound. Accordingly, we have cut back our energy weighting since
the beginning of the year and are continuing to add selectively to names in
consumer staples and consumer cyclicals.
Certainly, when we've done our homework and believe we have identified a
good company at a great price, we'll buy additional shares, even if the stock
continues to decline. AGL Resources, our largest holding, is a good example. AGL
is a natural gas distributor serving Georgia and part of Tennessee. With the
deregulation of natural gas distribution in its area, AGL has had to shoulder
expenditures to create a separate marketing arm. These expenses have reduced
earnings in the short term, but we see this as a temporary problem given the
company's ability to cut costs going forward. Therefore, we have increased our
stake in the company even as its price has continued to slide.
WHAT IS YOUR OUTLOOK FOR SMALL-CAP VALUE STOCKS AND THE FUND GOING FORWARD?
The value and growth investment styles move in and out of favor, and it's
hard to predict when and for how long the pendulum will swing back to value
stocks. We believe we own fundamentally sound companies whose valuations are
particularly attractive relative to the broad market. When these types of
companies are trading below fair market value, it's usually just a matter of
time before a catalyst helps them regain investors' attention. We think that by
sticking closely to our investment discipline and filling Small Cap Value with
what we believe are the best value opportunities in the market, we will generate
attractive relative returns over time at a comfortable risk.
[left margin]
"THE VALUE AND GROWTH INVESTMENT STYLES MOVE IN AND OUT OF FAVOR, AND IT'S HARD
TO PREDICT WHEN AND FOR HOW LONG THE PENDULUM WILL SWING BACK TO VALUE
STOCKS."
[pie chart data below]
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF SEPTEMBER 30, 1999
Convertible Preferred Stocks 2.2%
Common Stocks 97.8%
AS OF MARCH 31, 1999
Convertible Preferred Stocks 1.1%
Common Stocks 98.9%
20 1-800-345-2021
Small Cap Value--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period. The
securities are grouped by asset class (such as common stocks, corporate bonds,
temporary cash investments, as applicable), and some asset classes are further
broken down by industry or country.
NOTE: For securities denominated in foreign currencies, the market value is
translated into U.S. dollars based on exchange rates as of the last day of
reporting period.
SEPTEMBER 30, 1999 (UNAUDITED)
Shares Value
- -------------------------------------------------------------------------------
COMMON STOCKS -- 97.8%
APPAREL & TEXTILES -- 0.8%
11,400 Wolverine World Wide, Inc. $ 129,675
----------------------
BANKS -- 2.7%
3,400 Keystone Financial, Inc. 81,069
12,600 MetroCorp Bancshares Inc. 112,612
10,075 Valley National Bancorp 250,616
----------------------
444,297
----------------------
CHEMICALS -- 2.7%
5,400 IMC Global Inc. 78,638
26,700 Lilly Industries, Inc. Cl A 363,788
----------------------
442,426
----------------------
CLOTHING STORES -- 2.2%
21,400 Claire's Stores, Inc. 354,438
----------------------
COMPUTER SOFTWARE -- 3.9%
12,000 Autodesk, Inc. 262,500
48,400 Caere Corp.(1) 370,562
----------------------
633,062
----------------------
CONSUMER DURABLES -- 1.9%
8,000 National Presto Industries, Inc. 309,000
----------------------
ELECTRICAL EQUIPMENT -- 4.0%
41,600 Griffon Corp.(1) 332,800
48,200 X-Rite, Incorporated 314,806
----------------------
647,606
----------------------
ELECTRICAL UTILITIES -- 4.0%
10,200 IDACORP, Inc. 307,275
18,600 Maine Public Service Co. 334,800
----------------------
642,075
----------------------
ENERGY RESERVES & PRODUCTION -- 6.7%
76,700 Belco Oil & Gas Corp.(1) 517,725
4,200 Devon Energy Corp. 174,038
1,800 Murphy Oil Corp. 97,312
16,700 Swift Energy Co.(1) 210,838
18,000 Titan Exploration, Inc.(1) 89,438
----------------------
1,089,351
----------------------
EQUITY REAL ESTATE INVESTMENT TRUST -- 0.8%
12,000 Burnham Pacific Properties, Inc. 126,750
----------------------
FOOD & BEVERAGE -- 12.0%
19,800 Chiquita Brands International, Inc. 117,562
2,800 Corn Products International, Inc. 85,225
Shares Value
- --------------------------------------------------------------------------------
9,800 International Multifoods Corp. $ 225,400
16,700 Interstate Bakeries Corp. 384,100
28,700 Lance, Inc. 373,997
5,400 Michael Foods, Inc. 141,919
137,900 Omega Protein Corp.(1) 422,319
8,400 Universal Foods Corp. 192,675
---------------------
1,943,197
---------------------
FOREST PRODUCTS & PAPER -- 2.3%
4,500 Rayonier, Inc. 189,000
14,400 Wausau-Mosinee Paper Corp. 174,600
---------------------
363,600
---------------------
GAS & WATER UTILITIES -- 5.3%
38,500 AGL Resources Inc. 625,624
2,800 People's Energy Corp. 98,525
4,400 Piedmont Natural Gas Co., Inc. 133,375
---------------------
857,524
---------------------
HOME PRODUCTS -- 2.9%
3,800 Lancaster Colony Corp. 121,956
5,100 National Service Industries, Inc. 160,650
8,100 WD-40 Co. 189,591
---------------------
472,197
---------------------
INDUSTRIAL PARTS -- 3.5%
8,600 Applied Power Inc. 261,225
18,100 Flowserve Corp. 300,912
---------------------
562,137
---------------------
INDUSTRIAL SERVICES -- 1.5%
6,200 XTRA Corp.(1) 246,450
---------------------
LEISURE -- 6.9%
22,400 Department 56, Inc.(1) 536,200
18,400 GTECH Holdings Corp.(1) 394,450
8,700 Russ Berrie and Co., Inc. 182,156
---------------------
1,112,806
---------------------
MEDICAL PRODUCTS & SUPPLIES -- 5.5%
10,400 Beckman Coulter Inc. 469,300
18,500 Dentsply International Inc. 420,297
---------------------
889,597
---------------------
MEDICAL PROVIDERS & SERVICES -- 0.5%
12,000 Health Management Associates, Inc.(1) 88,500
---------------------
MINING & METALS -- 0.7%
8,600 Arch Coal Inc. 105,888
---------------------
MOTOR VEHICLES & PARTS - 2.2%
12,700 Superior Industries International, Inc. 355,600
---------------------
See Notes to Financial Statements www.americancentury.com 21
Small Cap Value--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
OIL REFINING -- 2.1%
34,400 Crown Central Petroleum Corp. Cl B(1) 206,400
5,000 Ultramar Diamond Shamrock Corp. 127,500
-------------------
333,900
-------------------
PHARMACEUTICALS -- 0.7%
13,900 Perrigo Co.(1) 109,028
-------------------
PROPERTY AND CASUALTY INSURANCE -- 7.2%
10,300 Frontier Insurance Group, Inc. 90,125
10,400 HCC Insurance Holdings, Inc. 174,850
8,300 Horace Mann Educators Corp. 214,244
2,900 Medical Assurance, Inc. 72,681
5,500 PMI Group, Inc. (The) 224,812
9,246 Radian Group Inc. 397,000
-------------------
1,173,712
-------------------
PUBLISHING -- 3.8%
11,300 Banta Corp. 252,131
36,700 Schawk, Inc. 357,825
-------------------
609,956
-------------------
RESTAURANTS -- 1.6%
11,500 CBRL Group, Inc. 177,891
4,800 Morton's Restaurant Group, Inc.(1) 84,300
-------------------
262,191
--------------------
SECURITIES & ASSET MANAGEMENT -- 0.9%
3,900 John Nuveen Co. Cl A 146,006
--------------------
SEMICONDUCTOR -- 2.8%
4,700 Arrow Electronics, Inc.(1) 82,838
4,900 Avnet, Inc. 205,800
8,800 Kent Electronics Corp.(1) 162,800
--------------------
451,438
--------------------
Shares Value
- --------------------------------------------------------------------------------
SPECIALTY STORES -- 2.5%
13,900 Boyds Collection, Ltd. (The)(1) 170,275
18,000 Duckwall-ALCO Stores, Inc.(1) 150,750
9,200 Guitar Center, Inc.(1) 87,112
-------------------
408,137
-------------------
THRIFTS -- 1.1%
7,800 Washington Federal, Inc. 182,081
-------------------
TRUCKING, SHIPPING & AIR FREIGHT -- 2.1%
19,200 Heartland Express, Inc.(1) 272,400
10,000 Motor Cargo Industries, Inc.(1) 71,250
------------------
343,650
------------------
TOTAL COMMON STOCKS 15,836,275
------------------
(Cost $16,132,580)
CONVERTIBLE PREFERRED STOCKS -- 2.2%
ELECTRICAL UTILITIES
20,300 Avista Corp., Series L, $1.24 355,250
------------------
(Cost $349,078)
TOTAL INVESTMENT SECURITIES -- 100.0% $16,191,525
==================
(Cost $16,481,658)
NOTES TO SCHEDULE OF INVESTMENTS
(1) Non-income producing.
22 1-800-345-2021 See Notes to Financial Statements
Large Cap Value--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1999*
INVESTOR CLASS (INCEPTION 7/30/99)
LARGE CAP VALUE S&P 500/ BARRA VALUE
LIFE OF FUND -8.56% -6.35%
*Returns for periods less than one year are not annualized.
See pages 48-50 for information about share classes, the S&P 500/BARRA Index,
and returns.
[mountain chart data below]
PERFORMANCE OF $10,000 OVER LIFE OF FUND
S&P 500/ LARGE CAP
BARRA VALUE VALUE
7/30/1999 $10,000 $10,000
8/31/1999 $9,560 $9,747
9/30/1999 $9,144 $9,366
The graph at left shows the growth of a $10,000 investment over the life of the
fund. The S&P 500/BARRA Value Index is provided for comparison. Large 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
500/BARRA Value Index do not. 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.
www.americancentury.com 23
Large Cap Value--Q&A
- --------------------------------------------------------------------------------
[photo of Mark Mallon and Charles Ritter]
An interview with Mark Mallon and Charles Ritter, portfolio managers on the
Large Cap Value investment team.
LARGE CAP VALUE WAS INTRODUCED ON JULY 30, 1999. HOW HAS IT PERFORMED DURING ITS
FIRST TWO MONTHS IN OPERATION?
We'd first like to take this opportunity to welcome investors to the fund.
Unfortunately, Large Cap Value started out in a difficult market
environment for value-oriented funds. Since its inception, the fund has declined
8.56%.* Its benchmark, the S&P 500/BARRA Value Index, fell 6.35% during the
period. The S&P 500 Index fell 3.22%.
WHAT MARKET FACTORS INFLUENCED THIS PERFORMANCE?
The greatest factor affecting Large-Cap Value's performance was its
investment style. Just prior to our fund's launch, growth stocks regained the
spotlight. We've been in a period of narrow market leadership for some time now,
and frustratingly, that leadership has become even narrower in recent months.
Investors only seem comfortable holding a small handful of richly priced growth
and technology companies--firms that do not generally fit Large Cap Value's
emphasis on buying attractively priced stocks.
Additionally, Large Cap Value has more of a value bias than most other
value-oriented funds--and even more than its performance benchmark. That means
it has a greater-than-average exposure to stocks with low price-to-earnings or
price-to-book ratios. As a result, Large Cap Value will likely perform better
than many of its peers when the value style is in favor but will probably lag a
bit more when the market is rewarding growth stocks.
SINCE THIS IS YOUR FIRST REPORT TO INVESTORS, WILL YOU DESCRIBE HOW THE FUND IS
MANAGED?
Certainly. We use a disciplined, bottom-up investment approach, selecting
companies one at a time for Large Cap Value's portfolio. That means we buy and
sell stocks on the basis of their individual merits, rather than in response to
industry or sector themes. Good value stocks are those that are bought
relatively inexpensively and then increase in share price over time as positive
developments affect their specific businesses, industries or the economic
environment.
To find these stocks, we use a special database that identifies
attractively priced stocks. We begin by comparing current statistical values,
such as price-to-earnings ratios (market price divided by the company's earnings
per share over a 12-month period), or price-to-book ratios (market price
compared to the company's liquidation value) to the historical level of these
ratios for each stock. We also look for companies with high cash flow and
above-average dividend growth potential. Next, we rely on fundamental research
to capture companies that are financially strong and appear to have good
long-term prospects. We focus primarily on larger companies--those with a market
capitalization greater than $5 billion--and we also pay attention to sector and
industry allocations in order to maintain a well-diversified portfolio.
[left margin]
"THE GREATEST FACTOR AFFECTING LARGE-CAP VALUE'S PERFORMANCE WAS ITS INVESTMENT
STYLE. JUST PRIOR TO OUR FUND'S LAUNCH, GROWTH STOCKS REGAINED THE SPOTLIGHT."
PORTFOLIO AT A GLANCE
9/30/99
NUMBER OF COMPANIES 86
MEDIAN P/E RATIO 16.0
MEDIAN MARKET $18.4
CAPITALIZATION BILLION
PORTFOLIO TURNOVER 13%(1)
EXPENSE RATIO (INVESTOR CLASS) 0.90%(2)
(1) For the period from 7/30/99 to 9/30/99.
(2) Annualized.
Investment terms are defined in the Glossary on page 50-51.
* All fund returns referenced in this interview are for Investor Class shares.
24 1-800-345-2021
Large Cap Value--Q&A
- --------------------------------------------------------------------------------
(Continued)
GIVEN THE DIFFICULT MARKET FOR VALUE STOCKS, WHERE HAVE YOU FOUND GOOD
OPPORTUNITIES?
While it has only a modest technology position, Large Cap Value's
best-performing stocks were in the telecommunications, computer equipment and
software areas. Computer software manufacturers have enjoyed robust growth due
to a healthy U.S. economy. Businesses are growing, the employment rate is high
and wages are up--all of which are fueling healthy demand for computers and
software. Large Cap Value's strongest contributor to returns, Computer
Associates International, is a sound, well-managed software and services
provider. Demand for the company's client/server products is strong, and the
company is also having success with its systems' management product, whose
components it intends to market individually. The company has a reputation for
making strategic acquisitions and is beginning to feel the synergies of its
recent acquisition of software maker Platinum Technologies.
Oracle Systems and Sun Microsystems also contributed. Oracle is the world's
largest maker of database management systems software that allows users to
create and use data in computer-based files. The company wisely designed its
products to work through the Internet, a strategy that is paying off nicely as
more companies are moving their systems online. Oracle's share price was down
earlier this year due to investor disappointment over slow revenue growth, but
good results in the second quarter have rekindled the market's interest and the
stock is rebounding nicely.
Sun manufactures network-based computer systems and software for both
commercial and technical applications. Investors had been concerned that demand
for the popular Windows software might hurt Sun, but demand for Sun's products
has remained strong as corporations around the globe move into company-wide
networking and the Internet.
WHAT'S DRIVING GROWTH IN THE TELECOMMUNICATIONS INDUSTRY?
The same factors that are driving growth for computer companies are also
helping telecommunications equipment providers, and Large Cap Value's stake
there has been beneficial. Nortel Networks, a leading supplier of equipment for
telecommunications systems, added significantly to returns. The company has
transformed itself from a manufacturer of equipment for voice networks to a
provider of integrated network solutions with its acquisition last fall of Bay
Networks, which specializes in data networking. Investors have demonstrated
their approval and the stock is moving up.
WHICH INDUSTRIES OR STOCKS WERE THE MOST DISAPPOINTING?
Financial companies were the biggest source of our problems, even though
Large Cap Value was underweighted in this group relative to its index. The
Federal Reserve moved short-term interest rates up 50 basis points during the
period, which pressured banks and insurance companies. Competition has become
more intense in the financial services industry, and many banks were not able to
meet overly optimistic market expectations. These stocks were punished
disproportionately. Examples of holdings in this sector whose performance was
disappointing included First Union, Bank of America, Allstate and Chubb.
Large Cap Value's returns were also dampened by its stake in healthcare.
[right margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF
9/30/99
EXXON CORP. 3.3%
FORD MOTOR CO. 3.0%
CITIGROUP INC. 2.4%
BELL ATLANTIC CORP. 2.2%
PHILIP MORRIS COMPANIES INC. 2.1%
AT&T CORP. 2.1%
FPL GROUP, INC. 1.9%
MCI WORLDCOM, INC. 1.9%
INTERNATIONAL BUSINESS
MACHINES CORP. 1.9%
MOBIL CORP. 1.9%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF
9/30/99
BANKS 12.8%
ENERGY RESERVES AND PRODUCTION 7.9%
TELEPHONE 7.8%
PROPERTY AND CASUALTY INSURANCE 5.7%
ELECTRICAL UTILITIES 5.2%
www.americancentury.com 25
Large Cap Value--Q&A
- --------------------------------------------------------------------------------
(Continued)
Competition in this industry is intense, and managed-care companies have been
fighting to control costs, build membership, and gain economies of scale. One of
our holdings in this group is Healthsouth, the nation's largest provider of
outpatient rehabilitative services. After a prolonged period of strong growth,
Healthsouth is facing more competitive conditions. Even though the company
announced that its third- and fourth-quarter operating margins would be lower
than anticipated, we believe that Healthsouth's problems are transitory and are
maintaining our position.
FORD IS ONE OF LARGE CAP VALUE'S LARGEST HOLDINGS. WHAT DREW YOU TO THIS STOCK?
Ford screens attractively on our free cash flow models. As in past cycles,
concerns around how well the big automaker can perform if the economy slows have
kept Ford's stock price treading water in recent months. But the combination of
improving overall global manufacturing efficiency, along with a large cash hoard
on the balance sheet and the introduction of several interesting new models,
provides upside potential versus today's modest valuation. The stock also has an
above market 3.8% current dividend.
DO YOU ANTICIPATE MAKING ANY SIGNIFICANT STRUCTURAL CHANGES TO THE PORTFOLIO IN
THE MONTHS AHEAD?
Not currently. As we mentioned earlier, we manage Large Cap Value using a
bottom-up, stock-by stock approach. However, an event or trend affecting one
company in a given industry often affects others in that industry as well. An
industry that is undergoing a wave of merger activity, for example, may serve as
a hotbed of good value opportunities, which could result in a higher weighting
in that area. Our focus, however, remains trained on finding solid,
fundamentally strong companies selling at the most attractive prices. We believe
these companies will offer the best long-term opportunities for investors when
the market again rewards value investors.
[left margin]
"OUR FOCUS, HOWEVER, REMAINS TRAINED ON FINDING SOLID, FUNDAMENTALLY STRONG
COMPANIES SELLING AT THE MOST ATTRACTIVE PRICES."
[pie chart data below]
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF SEPTEMBER 30, 1999
Temporary Cash Investments 5.4%
Common Stocks 94.6%
26 1-800-345-2021
Large Cap Value--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period. The
securities are grouped by asset class (such as common stocks, corporate bonds,
temporary cash investments, as applicable), and some asset classes are further
broken down by industry or country.
NOTE: For securities denominated in foreign currencies, the market value is
translated into U.S. dollars based on exchange rates as of the last day of
reporting period.
SEPTEMBER 30, 1999 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 94.6%
APPAREL & TEXTILES -- 0.7%
2,900 Liz Claiborne, Inc. $ 89,900
-------------------
BANKS -- 12.8%
6,700 Banc One Corp. 233,244
4,000 BankAmerica Corp. 222,750
2,700 Chase Manhattan Corp. 203,512
7,100 Citigroup Inc. 312,400
4,500 First Union Corp. 160,031
2,800 Fleet Financial Group, Inc. 102,550
3,500 KeyCorp 90,344
3,500 National City Corp. 93,406
2,700 Summit Bancorp. 87,581
4,800 U.S. Bancorp 144,900
-----------------
1,650,718
-----------------
CHEMICALS -- 2.8%
3,000 Air Products and Chemicals, Inc. 87,188
2,000 FMC Corp.(1) 96,500
700 Minnesota Mining &
Manufacturing Co. 67,244
5,100 Sherwin-Williams Co. 106,781
----------------
357,713
----------------
COMPUTER HARDWARE &
BUSINESS MACHINES -- 1.9%
1,200 Hewlett-Packard Co. 110,400
1,500 Sun Microsystems, Inc.(1) 139,547
----------------
249,947
----------------
COMPUTER SOFTWARE -- 4.5%
2,200 Computer Associates International, Inc. 134,750
2,000 International Business Machines Corp. 242,750
1,400 Microsoft Corp.(1) 126,831
1,600 Oracle Corp.(1) 72,850
----------------
577,181
----------------
CONSUMER DURABLES -- 1.0%
2,000 Whirlpool Corp. 130,625
----------------
DEFENSE/AEROSPACE -- 1.9%
2,800 Boeing Co. 119,350
3,900 Lockheed Martin Corp. 127,481
----------------
246,831
-----------------
Shares Value
- --------------------------------------------------------------------------------
DEPARTMENT STORES -- 1.6%
3,500 Dillard's Inc. Cl A $ 71,094
4,200 Sears, Roebuck & Co. 131,775
-----------------
202,869
-----------------
ELECTRICAL EQUIPMENT -- 4.5%
4,100 Harris Corp. 113,262
3,900 ITT Industries, Inc. 124,069
2,000 Lucent Technologies Inc. 129,750
700 Motorola, Inc. 61,600
2,900 Nortel Networks Corp. 147,900
-----------------
576,581
-----------------
ELECTRICAL UTILITIES -- 5.2%
3,500 American Electric Power Co., Inc. 119,438
4,600 Constellation Energy Group 129,375
6,900 Edison International 167,756
5,000 FPL Group, Inc. 251,875
----------------
668,444
----------------
ENERGY RESERVES & PRODUCTION -- 7.9%
2,400 Chevron Corp. 213,000
5,600 Exxon Corp. 425,250
2,400 Mobil Corp. 241,800
2,300 Royal Dutch Petroleum Co.
New York Shares 135,844
----------------
1,015,894
----------------
ENVIRONMENTAL SERVICES -- 0.8%
5,500 Waste Management, Inc. 105,875
----------------
FINANCIAL SERVICES -- 3.8%
4,000 Countrywide Credit Industries, Inc. 129,000
3,300 Fannie Mae 206,869
4,000 Household International, Inc. 160,500
----------------
496,369
----------------
FOOD & BEVERAGE -- 1.7%
4,600 ConAgra, Inc. 103,788
3,900 PepsiCo, Inc. 117,975
----------------
221,763
----------------
GAS & WATER UTILITIES -- 0.9%
5,800 Sempra Energy 120,712
----------------
HEAVY ELECTRICAL EQUIPMENT -- 2.4%
2,100 Cooper Industries, Inc. 98,175
3,300 Emerson Electric Co. 208,519
----------------
306,694
----------------
See Notes to Financial Statements www.americancentury.com 27
Large Cap Value--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
INDUSTRIAL PARTS -- 1.8%
2,700 Parker-Hannifin Corp. $ 120,994
3,500 Snap-on Inc. 113,750
----------------
234,744
----------------
INFORMATION SERVICES -- 0.4%
1,100 Electronic Data Systems Corp. 58,231
----------------
LEISURE -- 2.2%
2,600 Eastman Kodak Co. 196,138
5,000 Mattel, Inc. 95,000
----------------
291,138
----------------
LIFE AND HEALTH INSURANCE -- 0.9%
4,600 Torchmark Corp. 119,025
----------------
MEDIA -- 2.1%
4,100 Disney (Walt) Co. 106,088
2,500 MediaOne Group Inc.(1) 170,781
----------------
276,869
----------------
MEDICAL PROVIDERS & SERVICES -- 2.4%
4,800 Columbia/HCA Healthcare Corp. 101,700
13,000 Healthsouth Rehabilitation Corp.(1) 78,812
2,700 United HealthCare Corp. 131,456
----------------
311,968
----------------
MINING & METALS -- 0.9%
4,600 Crown Cork & Seal Co., Inc. 111,550
---------------
MOTOR VEHICLES & PARTS -- 3.0%
7,700 Ford Motor Co. 386,444
---------------
OIL REFINING -- 2.8%
3,644 Conoco Inc. Cl B 99,754
2,400 Texaco Inc. 151,500
3,900 USX-Marathon Group 114,075
----------------
365,329
----------------
PHARMACEUTICALS -- 2.4%
1,600 American Home Products Corp. 66,400
500 Lilly (Eli) & Co. 32,000
2,100 Merck & Co., Inc. 136,106
3,800 Mylan Laboratories Inc. 69,825
----------------
304,331
----------------
PROPERTY AND CASUALTY INSURANCE -- 5.7%
6,400 Allstate Corp. 159,600
2,800 Chubb Corp. (The) 139,475
2,800 MBIA Inc. 130,550
Shares Value
- --------------------------------------------------------------------------------
2,700 MGIC Investment Corp. $ 128,925
2,100 SAFECO Corp. 58,734
4,200 St. Paul Companies, Inc. 115,500
----------------
732,784
----------------
PUBLISHING -- 2.6%
2,500 American Greetings Corp. Cl A 64,375
2,700 Deluxe Corp. 91,800
3,200 Knight-Ridder, Inc. 175,600
----------------
331,775
----------------
RESTAURANTS -- 1.2%
3,600 McDonald's Corp. 154,800
----------------
SECURITIES & ASSET MANAGEMENT -- 0.5%
2,100 Franklin Resources, Inc. 64,575
----------------
SEMICONDUCTOR -- 0.4%
700 Texas Instruments Inc. 57,575
----------------
TELEPHONE -- 7.8%
6,200 AT&T Corp. 269,700
4,300 Bell Atlantic Corp. 289,444
2,600 GTE Corp. 199,875
3,400 MCI WorldCom, Inc.(1) 244,269
----------------
1,003,288
----------------
THRIFTS -- 1.0%
4,500 Washington Mutual, Inc. 131,625
----------------
TOBACCO -- 2.1%
7,900 Philip Morris Companies Inc. 270,081
----------------
TOTAL COMMON STOCKS 12,224,248
----------------
(Cost $13,257,977)
TEMPORARY CASH INVESTMENTS -- 5.4%
Repurchase Agreement, BA Security Services,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.21%, dated 9/30/99,
due 10/1/99 (Delivery value $100,014) 100,000
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 5.25%, dated 9/30/99,
due 10/1/99 (Delivery value $600,088) 600,000
-----------------
TOTAL TEMPORARY CASH INVESTMENTS 700,000
-----------------
(Cost $700,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $12,924,248
=================
(Cost $13,957,977)
NOTES TO SCHEDULE OF INVESTMENTS
(1) Non-income producing.
28 1-800-345-2021 See Notes to Financial Statements
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. For each class of shares, the net assets divided by shares outstanding
is the share price, or NET ASSET VALUE PER SHARE. This statement also breaks
down the fund's net assets into capital (shareholder investments) and
performance (investment income and gains/losses).
SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE EQUITY INCOME SMALL CAP LARGE CAP
VALUE VALUE
ASSETS
<S> <C> <C> <C> <C>
Investment securities--unaffiliated,
at value (identified
cost of $1,843,730,917, $364,062,
369, $16,481,658,
and $13,957,977,
respectively) (Note 3) .................... $ 1,699,053,934 $ 337,176,546 $ 16,191,525 $ 12,924,248
Investment securities--affiliated,
at value (identified cost
of $202,099,145 and
$10,803,279) (Note 5) ..................... 186,357,013 11,236,012 -- --
Cash ........................................ -- 20,159,637 141,119 --
Receivable for investments sold ............. 8,446,201 8,693,400 1,270,256 --
Receivable for variation margin
on futures contracts ...................... 2,698,152 -- -- --
Dividends and interest receivable ........... 2,207,955 1,229,796 19,320 24,148
------------- ----------- ---------- ----------
1,898,763,255 378,495,391 17,622,220 12,948,396
------------- ----------- ---------- ----------
LIABILITIES
Disbursements in excess of
demand deposit cash ....................... 11,723,225 -- -- 76,195
Payable for investments purchased ........... 12,256,825 7,165,411 429,936 63,152
Accrued management fees (Note 2) ............ 1,604,732 307,872 18,848 9,550
Distribution fees payable (Note 2) .......... 12,415 3,517 -- --
Service fees payable (Note 2) ............... 12,415 3,517 -- --
Accrued expenses and other liabilities ...... 86,445 29,955 2,859 190
Payable for directors' fees and expenses .... 1,159 230 10 7
------------- ----------- ---------- ----------
25,697,216 7,510,502 451,653 149,094
------------- ----------- ---------- ----------
Net Assets .................................. $ 1,873,066,039 $ 370,984,889 $ 17,170,567 $ 12,799,302
=============== =============== =============== ===============
NET ASSETS CONSIST OF:
Capital (par value and
paid-in surplus) ........................... $ 1,923,367,257 $ 369,235,263 $ 17,043,768 $ 13,887,549
Undistributed net investment income ......... 441,984 265,532 27,562 2,452
Accumulated undistributed net
realized gain
(loss) on investments ..................... 111,219,308 27,943,184 389,370 (56,970)
Net unrealized depreciation on
investments (Note 3) ...................... (161,962,510) (26,453,090) (290,133) (1,033,729)
------------- ----------- ---------- ----------
$ 1,873,066,039 $ 370,990,889 $ 17,170,567 $ 12,799,302
=============== =============== =============== ===============
Investor Class
Net assets .................................. $ 1,775,037,252 $ 344,550,005 $ 16,122,402 $ 12,799,302
Shares outstanding .......................... 294,063,594 55,116,913 3,206,383 2,809,738
Net asset value per share ................... $ 6.04 $ 6.25 $ 5.03 $ 4.56
Advisor Class
Net assets .................................. $ 57,546,023 $ 17,023,092 N/A N/A
Shares outstanding .......................... 9,535,179 2,723,630 N/A N/A
Net asset value per share ................... $ 6.04 $ 6.25 N/A N/A
Institutional Class
Net assets .................................. $ 40,482,764 $ 9,417,792 $ 1,048,165 N/A
Shares outstanding .......................... 6,699,976 1,505,917 208,198 N/A
Net asset value per share ................... $ 6.04 $ 6.25 $ 5.03 N/A
</TABLE>
See Notes to Financial Statements www.americancentury.com 29
<TABLE>
<CAPTION>
Statements of Operations
- --------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
VALUE EQUITY INCOME SMALL CAP LARGE CAP
VALUE VALUE(1)
INVESTMENT INCOME
Income:
<S> <C> <C> <C> <C>
Dividends (including $1,204,428 and $0
from affiliates for
Value and Equity Income, respectively) .... $ 21,858,025 $ 6,011,877 $ 159,542 $ 45,892
Interest .................................... 2,415,464 1,416,903 11,774 7,022
------------- ------------- ------------- -------------
24,273,489 7,428,780 171,316 52,914
------------- ------------- ------------- -------------
Expenses (Note 2):
Management fees ............................. 10,087,857 1,797,256 108,738 17,089
Distribution fees - Advisor Class ........... 78,650 19,721 -- --
Service fees - Advisor Class ................ 78,650 19,721 -- --
Directors' fees and expenses ................ 10,168 1,841 81 12
------------- ------------- ------------- -------------
10,255,325 1,838,539 108,819 17,101
------------- ------------- ------------- -------------
Net investment income ....................... 14,018,164 5,590,241 62,497 35,813
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain (loss) on investments
(includes $(1,652,893) and $169,971
from affiliates for
Value and Equity Income, respectively) .... 109,241,997 21,541,179 429,262 (56,970)
Change in net unrealized depreciation
on investments ............................ (32,015,426) (9,340,611) 109,879 (1,033,729)
------------- ------------- ------------- -------------
Net realized and unrealized gain (loss)
on investments .............................. 77,226,571 12,200,568 539,141 (1,090,699)
------------- ------------- ------------- -------------
Net Increase (Decrease) in Net Assets
Resulting from Operations ................... $ 91,244,735 $ 17,790,809 $ 601,638 $ (1,054,886)
============= ============= ============= =============
</TABLE>
(1) July 30, 1999 (inception) through September 30, 1999.
30 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED) AND YEAR ENDED MARCH 31, 1999
Increase (Decrease) in Net Assets
VALUE EQUITY INCOME
SEPT. 30, 1999 MARCH 31, 1999 SEPT. 30, 1999 MARCH 31, 1999
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income ............. $ 14,018,164 $ 26,795,802 $ 5,590,241 $ 10,637,986
Net realized gain (loss)
on investments .................. 109,241,997 195,098,537 21,541,179 31,755,781
Change in net unrealized
appreciation (depreciation)
on investments .................. (32,015,426) (486,683,191) (9,340,611) (45,429,913)
----------- ------------ ---------- -----------
Net increase (decrease) in
net assets resulting from
operations ...................... 91,244,735 (264,788,852) 17,790,809 (3,036,146)
----------- ------------ ---------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class .................. (13,160,162) (27,029,374) (5,049,292) (10,625,704)
Advisor Class ................... (344,559) (556,573) (219,062) (199,229)
Institutional Class ............. (330,516) (232,110) (128,262) (26,713)
From net realized gains
on investment transactions:
Investor Class .................. -- (334,647,261) -- (43,173,325)
Advisor Class ................... -- (8,157,990) -- (824,603)
Institutional Class ............. -- (2,250,870) -- (700)
In excess of net realized gains
on investment transactions:
Investor Class .................. -- -- -- --
----------- ------------ ---------- -----------
Decrease in net assets
from distributions .............. (13,835,237) (372,874,178) (5,396,616) (54,850,274)
----------- ------------ ---------- -----------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase (decrease) in
net assets from capital
share transactions .............. (14,304,852) (327,999,543) 47,106,510 12,684,149
----------- ------------ ---------- -----------
Net increase (decrease)
in net assets ..................... 63,104,646 (965,662,573) 59,500,703 (45,202,271)
NET ASSETS
Beginning of period ............... 1,809,961,393 2,775,623,966 311,490,186 356,692,457
------------- ------------- ----------- -----------
End of period ..................... $ 1,873,066,039 $ 1,809,961,393 $ 370,990,889 $ 311,490,186
=============== =============== =============== ===============
Undistributed net
investment income ................. $ 441,984 $ 259,057 $ 265,532 $ 71,907
=============== =============== =============== ===============
</TABLE>
See Notes to Financial Statements www.americancentury.com 31
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
(Continued)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND YEAR ENDED MARCH
31, 1999
Increase (Decrease) in Net Assets
SMALL CAP VALUE LARGE CAP VALUE
SEPT. 30, 1999 MARCH 31, 1999(1) SEPT. 30, 1999(2)
OPERATIONS
<S> <C> <C> <C>
Net investment income .................... $ 62,497 $ 64,053 $ 35,813
Net realized gain (loss)
on investments ......................... 429,262 65,026 (56,970)
Change in net unrealized appreciation
(depreciation) on investments .......... 109,879 (400,012) (1,033,729)
Net increase (decrease) in net assets
resulting from operations .............. 601,638 (270,933) (1,054,886)
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ......................... (52,866) (37,689) (33,361)
Advisor Class .......................... -- -- --
Institutional Class .................... (4,581) (3,852) --
From net realized gains
on investment transactions:
Investor Class ......................... -- (56,049) --
Advisor Class .......................... -- -- --
Institutional Class .................... -- (8,977) --
In excess of net realized gains
on investment transactions:
Investor Class ......................... -- (39,892) --
Decrease in net assets
from distributions ....................... (57,447) (146,459) (33,361)
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase (decrease) in net assets
from capital share transactions ........ 4,230,107 12,813,661 13,887,549
Net increase (decrease) in net assets .... 4,774,298 12,396,269 12,799,302
NET ASSETS
Beginning of period ...................... 12,396,269 -- --
End of period ............................ $ 17,170,567 $ 12,396,269 $ 12,799,302
Undistributed net investment income ...... $ 27,562 $ 22,512 $ 2,452
</TABLE>
(1) July 31, 1998 (inception) through March 31, 1999.
(2) July 30, 1999 (inception) through September 30, 1999.
32 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1999 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Capital Portfolios, Inc. (the corporation)
is registered under the Investment Company Act of 1940 as an open-end management
investment company. Value Fund (Value), Equity Income Fund (Equity Income),
Small Cap Value Fund (Small Cap Value), and Large Cap Value Fund (Large Cap
Value) (the funds) are four of the six funds issued by the corporation. The
funds are diversified under the 1940 Act. The investment objective of Value,
Small Cap Value and Large Cap Value is long-term capital growth. The production
of income is a secondary objective. Value, Small Cap Value and Large Cap Value
seek to achieve their investment objective by primarily investing in equity
securities of companies that management believes to be undervalued at the time
of purchase. Small Cap Value invests in companies with smaller market
capitalization, Value invests in companies with medium to large market
capitalization, and Large Cap Value invests in companies with larger market
capitalization. The investment objective of Equity Income is the production of
current income through investments in income producing equity securities.
Capital appreciation is a secondary objective.
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 Advisor Class for
Small Cap Value had not commenced as of September 30, 1999. Sale of the Advisor
Class and Institutional Class had not commenced for Large Cap Value as of
September 30, 1999. The following significant accounting policies are in
accordance with generally accepted accounting principles; these policies 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 is the possibility that the change
in value of the contract may not correlate with the changes in value of the
underlying securities. Upon entering into a futures contract, each fund is
required to deposit either cash or securities in an amount equal to a certain
percentage of the contract value (initial margin). Subsequent payments
(variation margin) are made or received daily, in cash, by the funds. The
variation margin is equal to the daily change in the contract value and is
recorded as unrealized gains and losses. The fund recognizes a realized gain or
loss when the contract is closed or expires. Net realized and unrealized gains
or losses occurring during the holding period of futures contracts are a
component of realized gain (loss) on investments and unrealized appreciation
(depreciation) on investments, respectively.
REPURCHASE AGREEMENTS -- The funds may enter into repurchase agreements with
institutions that the fund's investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. Each fund requires that the collateral, represented by securities,
received in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable each fund to obtain those securities in the event of a
default under the repurchase agreement. ACIM monitors, on a daily basis, the
securities transferred to ensure the value, including accrued interest, of the
securities under each repurchase agreement is equal to or greater than amounts
owed to each fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, each fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury or Agency obligations.
INCOME TAX STATUS -- It is the funds' policy to distribute all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under the provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded
on the ex-dividend date. Distributions from net investment income are declared
and paid quarterly. Distributions from net realized gains are generally 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.
www.americancentury.com 33
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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, under
which ACIM 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. Following is the management fee schedules for
the funds:
VALUE EQUITY SMALL CAP LARGE CAP
INCOME VALUE VALUE
Investor 1.00% 1.00% 1.25% 0.70% to 0.90%
Advisor 0.75% 0.75% 1.00% 0.45% to 0.65%
Institutional 0.80% 0.80% 1.05% 0.50% to 0.70%
The management fee for Large Cap Value varies depending on fund asset
levels. As fund assets increase, the fee applied decreases
For the six months ended September 30, 1999, the effective annual Investor
Class management fee for Large Cap Value was 0.90%.
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 $157,300 and $39,442 for Value and Equity Income,
respectively.
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, and
the corporation's transfer agent, American Century Services Corporation.
34 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the six
months ended September 30, 1999 for Value, Equity Income and Small Cap Value for
the period July 30, 1999 (inception) through September 30, 1999 for Large Cap
Value, were as follows:
<TABLE>
VALUE EQUITY INCOME SMALL CAP VALUE LARGE CAP VALUE
<S> <C> <C> <C> <C>
Purchases ............ $1,281,946,895 $261,610,650 $18,325,691 $14,589,086
Proceeds from sales .. $1,331,678,942 $241,587,370 $14,870,733 $ 1,278,402
On September 30, 1999, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of investments
for federal income tax purposes was as follows:
VALUE EQUITY INCOME SMALL CAP VALUE LARGE CAP VALUE
Appreciation ......... $ 71,994,955 $ 6,034,596 $ 579,961 $ 144,429
Depreciation ......... (256,210,751) (35,913,382) (1,418,506) (1,178,158)
--------------- -------------- ----------- -------------
Net .................. $ (184,215,796) $(29,878,786) $ (838,545) $ (1,033,729)
============== ============ =========== ============
Federal Tax Cost ..... $2,069,626,743 $378,291,344 $17,030,070 $ 13,957,977
============== ============ =========== ============
</TABLE>
www.americancentury.com 35
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
All shares are $0.01 par value. Transactions in shares of the funds were as
follows:
<TABLE>
VALUE EQUITY INCOME
SHARES AMOUNT SHARES AMOUNT
INVESTOR CLASS
<S> <C> <C> <C> <C>
Shares authorized .......... 500,000,000 75,000,000
=========== ==========
Six months ended September 30, 1999
Sold ....................... 82,166,355 $ 538,904,157 15,819,569 $ 103,905,598
Issued in reinvestment
of distributions ......... 2,042,841 13,015,445 731,768 4,685,133
Redeemed ................... (87,997,040) (569,680,135) (11,285,909) (72,808,066)
----------- ------------ ----------- -----------
Net increase (decrease) .... (3,787,844) $ (17,760,533) 5,265,428 $ 35,782,665
========== =============== ========= ===============
Year ended March 31, 1999
Sold ....................... 118,264,078 $ 794,918,831 28,666,383 $ 190,764,951
Issued in reinvestment
of distributions ......... 59,242,080 356,864,255 8,142,886 50,735,119
Redeemed ................... (230,575,028) (1,525,819,152) (36,724,976) (244,017,477)
============ ============== =========== ============
Net increase
(decrease) ................. (53,068,870) $ (374,036,066) 84,293 $ (2,517,407)
=========== =============== ====== ===============
ADVISOR CLASS
Shares authorized .......... 25,000,000 25,000,000
========== ==========
Six months ended September 30, 1999
Sold ..................... 2,668,269 $ 17,385,491 1,109,944 $ 7,223,564
Issued in reinvestment
of distributions ......... 54,555 347,336 31,511 201,368
Redeemed ................... (2,592,221) (16,969,387) (477,401) (3,085,055)
---------- ----------- -------- ----------
Net increase ............... 130,603 $ 763,440 664,054 $ 4,339,877
======= =============== ======= ===============
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
========= =============== ========= ===============
INSTITUTIONAL CLASS
Shares authorized .......... 25,000,000 25,000,000
========== ==========
Six months ended September 30, 1999
Sold ....................... 1,291,737 $ 8,524,998 1,142,510 $ 7,523,063
Issued in reinvestment
of distributions ......... 33,972 215,515 14,529 92,332
Redeemed ................... (911,124) (6,048,272) (97,005) (631,427)
-------- ---------- ------- --------
Net increase ............... 414,585 $ 2,692,241 1,060,034 $ 6,983,968
======= =============== ========= ===============
Year ended March 31, 1999(1)
Sold ....................... 6,519,460 $ 40,062,309 442,110 $ 2,690,641
Issued in reinvestment
of distributions ......... 407,798 2,446,081 3,773 22,517
Redeemed ................... (1,410,565) (9,404,043) -- --
---------- ----------
Net increase ............... 5,516,693 $ 33,104,347 445,883 $ 2,713,158
========= =============== ======= ===============
</TABLE>
(1) Sale of the Institutional Class commenced on July 8, 1998 for Equity Income.
36 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
All shares are $0.01 par value. Transactions in shares of the funds were as
follows:
<TABLE>
SMALL CAP VALUE LARGE CAP VALUE
SHARES AMOUNT SHARES AMOUNT
INVESTOR CLASS
<S> <C> <C> <C> <C>
Shares authorized 50,000,000 50,000,000
Six months ended =============== ==============
September 30, 1999(1)
Sold 2,186,772 $11,489,626 3,032,626 $14,946,737
Issued in reinvestment
of distributions 9,816 52,321 7,095 32,212
Redeemed (1,402,401) (7,311,840) (229,983) (1,091,400)
---------- ---------- -------- ----------
Net increase 794,187 $4,230,107 2,809,738 $13,887,549
======= ========== ========= ===========
Year ended March 31, 1999(2)
Sold 3,844,651 $18,830,986
Issued in reinvestment
of distributions 27,162 131,361
Redeemed (1,459,617) (7,153,176)
---------- ----------
Net increase (decrease) 2,412,196 $11,809,171
========= ===========
INSTITUTIONAL CLASS
Shares authorized 25,000,000 25,000,000
Six months ended ============== ============
September 30, 1999
Sold -- --
Issued in reinvestment
of distributions -- --
Redeemed -- --
-------------- ------------
Net increase -- --
============== ============
Year ended March 31, 1999(3)
Sold 211,202 $1,020,384
Issued in reinvestment
of distributions 2,655 12,829
Redeemed (5,659) (28,723)
------ -------
Net increase 208,198 $1,004,490
======= ==========
</TABLE>
(1) Sale of the Investor Class commenced on July 30, 1999 for Large Cap Value.
(2) Sale of the Investor Class commenced on July 31, 1998 for Small Cap Value.
(3) Sale of the Institutional Class commenced on October 26, 1998 for Small Cap
Value.
www.americancentury.com 37
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
5. AFFILIATED COMPANY TRANSACTIONS
A summary of transactions for each issuer which is or was an affiliate at or
during the six months ended September 30, 1999, follows:
<TABLE>
SHARE BALANCE PURCHASE SALES REALIZED DIVIDEND SEPTEMBER 30, 1999
FUND/ISSUER 3/31/99 COST COST GAIN INCOME SHARE BALANCE MARKET VALUE
VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
Flowserve Corp. 2,083,300 $ 4,486,365 $ 917,066 $ (141,325) $ 574,938 2,316,000 $ 38,503,500
GTECH Holdings Corp. 2,000,000 236,311 10,225,728 (1,746,052) -- 1,686,300 36,150,056
LabOne, Inc.(1) 420,000 -- -- -- 239,400 630,000(2) 6,004,688
Littelfuse, Inc. 836,500 5,665,378 866,065 112,053 -- 1,085,400 24,184,069
Superior Industries
International, Inc. 2,292,000 125,080 7,732,106 122,431 390,090 2,018,000 56,504,000
XTRA Corp. 521,600 4,613,170 -- -- -- 629,200 25,010,700
----------- ----------- ----------- ---------- ------------
$15,126,304 $19,740,965 $(1,652,893) $1,204,428 $186,357,013
=========== =========== =========== ========== ============
EQUITY INCOME
National Presto
Industries, Inc. 364,800 $912,298 $3,707,590 $169,971 -- 290,900 $11,236,012
=========== =========== =========== ========== ============
</TABLE>
(1) Formerly Lab Holdings Inc.
(2) Includes adjustments for shares received from stock split and/or stock
spinoff during the period.
- --------------------------------------------------------------------------------
6. BANK LOANS
Value, Equity Income and Small Cap Value, along with certain other funds
managed by ACIM, entered into an unsecured $570,000,000 bank line of credit
agreement with Chase Manhattan Bank. Borrowings under the agreement bear
interest at the Federal Funds rate plus 0.40%. The funds may borrow money for
temporary or emergency purposes to fund shareholder redemptions. The funds did
not borrow from the line during the six months ended September 30, 1999.
38 1-800-345-2021
<TABLE>
<CAPTION>
Value--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the fund is not five years old). It also includes several key statistics for
each reporting period, including TOTAL RETURN, INCOME RATIO (net income as a
percentage of average net assets), EXPENSE RATIO (operating expenses as a
percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the fund's
trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Investor Class
1999(1) 1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period .....................$ 5.77 $ 7.73 $ 6.58 $ 6.32 $ 5.46 $ 4.98
------------ ------------ ------------ ------------ ------------ ----------
Income From Investment Operations
Net Investment Income(2) .............. 0.05 0.08 0.10 0.12 0.13 0.12
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ............ 0.26 (0.80) 2.35 0.87 1.34 0.75
------------ ------------ ------------ ------------ ------------ ----------
Total From Investment Operations ...... 0.31 (0.72) 2.45 0.99 1.47 0.87
------------ ------------ ------------ ------------ ------------ ----------
Distributions
From Net Investment Income ............ (0.04) (0.09) (0.10) (0.12) (0.12) (0.12)
In Excess of Net Investment Income .... -- -- -- --(3) (0.01) --
From Net Realized Gains on
Investment Transactions ............... -- (1.15) (1.20) (0.61) (0.48) (0.27)
------------ ------------ ------------ ------------ ------------ ----------
Total Distributions ................... (0.04) (1.24) (1.30) (0.73) (0.61) (0.39)
------------ ------------ ------------ ------------ ------------ ----------
Net Asset Value, End of Period ..........$ 6.04 $ 5.77 $ 7.73 $ 6.58 $ 6.32 $ 5.46
============ ============ ============ ============ ============ ==========
Total Return(4) ....................... 5.42% (9.88)% 39.94% 15.92% 28.06% 18.56%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................... 1.00%(5) 1.00% 1.00% 1.00% 0.97% 1.00%
Ratio of Net Investment Income
to Average Net Assets ................... 1.38%(5) 1.19% 1.38% 1.86% 2.17% 2.65%
Portfolio Turnover Rate ................. 68% 130% 130% 111% 145% 94%
Net Assets, End
of Period (in thousands) ................$ 1,775,037 $ 1,719,367 $ 2,713,562 $ 1,743,582 $ 881,885 $ 348,281
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(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 39
<TABLE>
<CAPTION>
Value--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Advisor Class
1999(1) 1999 1998 1997(2)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $ 5.77 $ 7.73 $ 6.58 $ 6.71
---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income(3) ............................ 0.04 0.06 0.08 0.05
Net Realized and Unrealized Gain (Loss)
on Investment Transactions .......................... 0.27 (0.80) 2.35 0.48
---------- ---------- ---------- ----------
Total From Investment Operations .................... 0.31 (0.74) 2.43 0.53
---------- ---------- ---------- ----------
Distributions
From Net Investment Income .......................... (0.04) (0.07) (0.08) (0.05)
In Excess of Net Investment Income .................. -- -- -- --(4)
From Net Realized Gains on Investment Transactions .. -- (1.15) (1.20) (0.61)
---------- ---------- ---------- ----------
Total Distributions ................................. (0.04) (1.22) (1.28) (0.66)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ........................ $ 6.04 $ 5.77 $ 7.73 $ 6.58
========== ========== ========== ==========
Total Return(5) ..................................... 5.27% (10.09)% 39.60% 8.07%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ..... 1.25%(6) 1.25% 1.25% 1.25%(6)
Ratio of Net Investment Income to Average Net Assets .. 1.13%(6) 0.94% 1.13% 1.50%(6)
Portfolio Turnover Rate ............................... 68% 130% 130% 111%
Net Assets, End of Period (in thousands) .............. $ 57,546 $ 54,277 $ 56,118 $ 29,250
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) October 2, 1996 (commencement of sale) through March 31, 1997.
(3) Computed using average shares outstanding throughout the period.
(4) Per share amount was less than $0.005.
(5) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(6) Annualized.
40 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Value--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Institutional Class
1999(1) 1999 1998(2)
PER-SHARE DATA
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $ 5.78 $ 7.73 $ 7.84
---------- ---------- ----------
Income From Investment Operations
Net Investment Income(3) ............................ 0.05 0.10 0.15
Net Realized and Unrealized Gain (Loss)
on Investment Transactions .......................... 0.26 (0.80) 1.02
---------- ---------- ----------
Total From Investment Operations .................... 0.31 (0.70) 1.17
---------- ---------- ----------
Distributions
From Net Investment Income .......................... (0.05) (0.10) (0.08)
From Net Realized Gains on Investment Transactions .. -- (1.15) (1.20)
---------- ---------- ----------
Total Distributions ................................. (0.05) (1.25) (1.28)
---------- ---------- ----------
Net Asset Value, End of Period ........................ $ 6.04 $ 5.78 $ 7.73
========== ========== ==========
Total Return(4) ..................................... 5.36% (9.52)% 17.14%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ..... 0.80%(5) 0.80% 0.80%(5)
Ratio of Net Investment Income to Average Net Assets .. 1.58%(5) 1.39% 2.97%(5)
Portfolio Turnover Rate ............................... 68% 130% 130%
Net Assets, End of Period (in thousands) .............. $ 40,483 $ 36,318 $ 5,944
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) July 31, 1997 (commencement of sale) through March 31, 1998.
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
See Notes to Financial Statements www.americancentury.com 41
<TABLE>
<CAPTION>
Equity Income--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the fund is not five years old). It also includes several key statistics for
each reporting period, including TOTAL RETURN, INCOME RATIO (net income as a
percentage of average net assets), EXPENSE RATIO (operating expenses as a
percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the fund's
trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Investor Class
1999(1) 1999 1998 1997 1996 1995(2)
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .......$ 5.95 $ 7.15 $ 6.31 $ 6.10 $ 5.42 $ 5.00
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income(3) ................. 0.10 0.22 0.25 0.22 0.20 0.09
Net Realized and Unrealized Gain (Loss) on
Investment Transactions .................. 0.29 (0.23) 1.99 0.75 1.13 0.44
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment Operations ......... 0.39 (0.01) 2.24 0.97 1.33 0.53
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ............... (0.09) (0.23) (0.24) (0.21) (0.19) (0.09)
In Excess of Net Investment Income ....... -- -- -- --(4) (0.01) --
From Net Realized Gains on
Investment Transactions .................. -- (0.96) (1.16) (0.55) (0.45) (0.02)
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions ...................... (0.09) (1.19) (1.40) (0.76) (0.65) (0.11)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period .............$ 6.25 $ 5.95 $ 7.15 $ 6.31 $ 6.10 $ 5.42
=========== =========== =========== =========== =========== ===========
Total Return(5) .......................... 6.60% (0.44)% 37.78% 16.24% 25.67% 10.69%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ...................... 1.00%(6) 1.00% 1.00% 1.00% 0.98% 1.00%(6)
Ratio of Net Investment Income
to Average Net Assets ...................... 3.07%(6) 3.31% 3.52% 3.46% 3.51% 4.04%(6)
Portfolio Turnover Rate .................... 70% 180% 158% 159% 170% 45%
Net Assets, End of Period (in thousands) ...$ 344,550 $ 296,585 $ 355,962 $ 199,388 $ 116,692 $ 52,213
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) August 1, 1994 (inception) through March 31, 1995.
(3) Computed using average shares outstanding throughout the period.
(4) Per share amount was less than $0.005.
(5) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(6) Annualized.
42 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Equity Income--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Advisor Class
1999(1) 1999 1998 1997(2)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $ 5.95 $ 7.16 $ 6.31 $ 6.57
---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income(3) ............................ 0.09 0.21 0.23 0.02
Net Realized and Unrealized Gain (Loss)
on Investment Transactions .......................... 0.30 (0.24) 2.00 (0.21)
---------- ---------- ---------- ----------
Total From Investment Operations .................... 0.39 (0.03) 2.23 (0.19)
---------- ---------- ---------- ----------
Distributions
From Net Investment Income .......................... (0.09) (0.22) (0.22) (0.07)
In Excess of Net Investment Income .................. -- -- -- --(4)
From Net Realized Gains on Investment Transactions .. -- (0.96) (1.16) --
---------- ---------- ---------- ----------
Total Distributions ................................. (0.09) (1.18) (1.38) (0.07)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ........................ $ 6.25 $ 5.95 $ 7.16 $ 6.31
========== ========== ========== ==========
Total Return(5) ..................................... 6.47% (0.75)% 37.71% (2.89)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ..... 1.25%(6) 1.25% 1.25% 1.25%(6)
Ratio of Net Investment Income to Average Net Assets .. 2.82%(6) 3.06% 3.27% 1.64%(6)
Portfolio Turnover Rate ............................... 70% 180% 158% 159%
Net Assets, End of Period (in thousands) .............. $ 17,023 $ 12,251 $ 731 $ 18
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) March 7, 1997 (commencement of sale) through March 31, 1997.
(3) Computed using average shares outstanding throughout the period.
(4) Per share amount was less than $0.005.
(5) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(6) Annualized.
See Notes to Financial Statements www.americancentury.com 43
<TABLE>
<CAPTION>
Equity Income--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Institutional Class
1999(1) 1999(2)
PER-SHARE DATA
<S> <C> <C>
Net Asset Value, Beginning of Period ........................... $ 5.95 $ 6.96
--------- ---------
Income From Investment Operations
Net Investment Income(3) ..................................... 0.11 0.07
Net Realized and Unrealized Gain on Investment Transactions .. 0.29 0.06
--------- ---------
Total From Investment Operations ............................. 0.40 0.13
--------- ---------
Distributions
From Net Investment Income ................................... (0.10) (0.18)
From Net Realized Gains on Investment Transactions ........... -- (0.96)
--------- ---------
Total Distributions .......................................... (0.10) (1.14)
--------- ---------
Net Asset Value, End of Period ................................. $ 6.25 $ 5.95
========= =========
Total Return(4) .............................................. 6.72% 1.60%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets .............. 0.80%(5) 0.80%(5)
Ratio of Net Investment Income to Average Net Assets ........... 3.27%(5) 1.61%(5)
Portfolio Turnover Rate ........................................ 70% 180%
Net Assets, End of Period (in thousands) ....................... $ 9,418 $ 2,654
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) July 8, 1998 (commencement of sale) through March 31, 1999.
(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.
44 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Small Cap Value--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the fund is not five years old). It also includes several key statistics for
each reporting period, including TOTAL RETURN, INCOME RATIO (net income as a
percentage of average net assets), EXPENSE RATIO (operating expenses as a
percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the fund's
trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED
Investor Class
1999(1) 1999(2)
PER-SHARE DATA
<S> <C> <C>
Net Asset Value, Beginning of Period .................................. $ 4.73 $ 5.00
---------- ----------
Income From Investment Operations
Net Investment Income(3) ............................................ 0.02 0.03
Net Realized and Unrealized Gain (Loss) on Investment Transactions .. 0.30 (0.24)
---------- ----------
Total From Investment Operations .................................... 0.32 (0.21)
Distributions
From Net Investment Income .......................................... (0.02) (0.02)
From Net Realized Gains on Investment Transactions .................. -- (0.02)
In Excess of Net Realized Gains ..................................... -- (0.02)
---------- ----------
Total Distributions ................................................. (0.02) (0.06)
---------- ----------
Net Asset Value, End of Period ........................................ $ 5.03 $ 4.73
========== ==========
Total Return(4) ..................................................... 6.68% (4.24)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ..................... 1.25%(5) 1.25%(5)
Ratio of Net Investment Income to Average Net Assets .................. 0.83%(5) 1.02%(5)
Portfolio Turnover Rate ............................................... 90% 153%
Net Assets, End of Period (in thousands) .............................. $ 16,122 $ 11,410
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) July 31, 1998 (inception) through March 31, 1999.
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
See Notes to Financial Statements www.americancentury.com 45
<TABLE>
<CAPTION>
Small Cap Value--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED
Institutional Class
1999(1) 1999(2)
PER-SHARE DATA
<S> <C> <C>
Net Asset Value, Beginning of Period .................................. $ 4.74 $ 4.83
--------- ---------
Income From Investment Operations
Net Investment Income(3) ............................................ 0.02 0.03
Net Realized and Unrealized Gain (Loss) on Investment Transactions .. 0.29 (0.06)
--------- ---------
Total From Investment Operations .................................... 0.31 (0.03)
--------- ---------
Distributions
From Net Investment Income .......................................... (0.02) (0.02)
From Net Realized Gains on Investment Transactions .................. -- (0.04)
--------- ---------
Total Distributions ................................................. (0.02) (0.06)
--------- ---------
Net Asset Value, End of Period ........................................ $ 5.03 $ 4.74
========= =========
Total Return(4) ..................................................... 6.56% (0.60)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ..................... 1.05%(5) 1.05%(5)
Ratio of Net Investment Income to Average Net Assets .................. 1.03%(5) 1.22%(5)
Portfolio Turnover Rate ............................................... 90% 153%
Net Assets, End of Period (in thousands) .............................. $ 1,048 $ 986
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) October 26, 1998 (commencement of sale) through March 31, 1999.
(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.
46 1-800-345-2021 See Notes to Financial Statements
Large Cap Value--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
income as a percentage of average net assets), EXPENSE RATIO (operating expenses
as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the
fund's trading activity).
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) ..................................... 0.02
Net Realized and Unrealized Loss on Investment Transactions .. (0.45)
----------
Total From Investment Operations ............................. (0.43)
----------
Distributions
From Net Investment Income ................................... (0.01)
----------
Net Asset Value, End of Period ................................. $ 4.56
==========
Total Return(3) .............................................. (8.56)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets .............. 0.90%(4)
Ratio of Net Investment Income to Average Net Assets ........... 1.89%(4)
Portfolio Turnover Rate ........................................ 13%
Net Assets, End of Period (in thousands) ....................... $ 12,799
(1) July 30, 1999 (inception) through September 30, 1999 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
See Notes to Financial Statements www.americancentury.com 47
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 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.
48 1-800-345-2021
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY & POLICIES
American Century offers 14 growth and income funds including domestic
equity, balanced, asset allocation, and specialty. Value, Equity Income, Small
Cap Value, and Large 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.
Equity Income may buy stocks that are trading at fair value if the stock pays a
generous dividend. In all four 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.
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. 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.
AMERICAN CENTURY LARGE CAP VALUE seeks long-term capital growth with income
as a secondary objective. The fund invests primarily in equity securities of
large well-established companies that have good cash flow, reasonable growth
prospects, and appear to be undervalued at the time of purchase. It uses a
relative value approach, which considers the price for a company's fundamentals
within the context of its historical relationship to the overall market.
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.
[right margin]
PORTFOLIO MANAGERS
========================
Value and Equity Income
PHIL DAVIDSON
SCOTT MOORE, CFA
========================
Small Cap Value
TODD VINGERS, CFA
BEN GRELE, CFA
========================
Large Cap Value
MARK MALLON
CHARLES RITTER, CFA
========================
www.americancentury.com 49
Glossary
- --------------------------------------------------------------------------------
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on pages 39-47.
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 staple companies.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS-- generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of more than $5 billion. These tend to be the stocks that
make up the Dow Jones Industrial Average and the S&P 500.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS--generally considered to be stocks of
companies with a market capitalization (the total value of a company's
outstanding stock) of between $1 billion and $5 billion. These tend to be the
stocks that make up the S&P 400.
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS-- generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of less than $1 billion. These tend to be the stocks that
make up the Russell 2000 Index.
* VALUE STOCKS-- generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.
50 1-800-345-2021
Glossary
- -----------------------------------------------------------------------------
(Continued)
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.
www.americancentury.com 51
Notes
- --------------------------------------------------------------------------------
52 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: Large Cap Value
Conservative Equity Income
- --------------------------------------------------------------------------------
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(reg.tm)
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 1-800-345-2021 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
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
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
9910 Funds Distributor, Inc. is the distributor of
SH-SAN-18153 American Century funds
(c)1999 American Century Services Corporation
<PAGE>
[front cover]
September 30, 1999
SEMIANNUAL REPORT
- -----------------
AMERICAN CENTURY
[graphic of stairs]
- -----------------------
Real Estate Fund
[american century logo(reg.sm)]
American
Century
[inside front cover]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
- --------------------------------------------------------------------------------
Y2K, short for the Year 2000, refers more specifically to the date change from
December 31, 1999, to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years--99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000, a non-event for American Century investors.
Currently, our systems have been modified, tested and returned to production,
and we have tested our systems with our vendors and business partners.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition, our Y2K team has developed contingency plans. These plans are
designed to minimize the impact on our investors and help us maintain operations
in the event of any Y2K-related incidents. We have conducted practice drills of
contingency scenarios and will continue to refine our plans during the rest of
1999 to respond quickly and effectively so that the date change is as seamless
as possible for investors. We expect the Year 2000 to be business as usual at
American Century.
Year 2000 Readiness Disclosure
[left margin]
REAL ESTATE
(REACX)
- ------------------------------------
Turn to the inside back cover of this report to see a list of American Century
funds classified by objective and risk.
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Our Message to You
- ---------------------------------------------------------------------------
[photo James E.Stowers III and James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
Real estate fund investors can be forgiven if they look back on the six
months ended September 30, 1999, with a little frustration. Although real estate
stocks outperformed the broader stock market during the period, the market has
yet to recognize how undervalued real estate investment trusts are compared with
their underlying properties.
At least one investor of note recognized this value -- famed value investor
Warren Buffett made a personal investment in two REITs this past spring. While
this attracted some attention to the REIT market, it was a fleeting interest,
and REITs remain as undervalued today as they were six months ago.
Turning to corporate matters, American Century has long pioneered the use
of technologies that improve the efficiency of capital markets, lower the costs
of trading securities, and ultimately offer better returns for you. Toward that
end, we've made investments in several companies that are creating such
technologies, including Archipelago, Optimark, Tradepoint Financial Networks,
W.R. Hambrecht and, most recently, WorldStreet Corporation. WorldStreet, located
in Boston, is developing a customized software application for portfolio
managers that marries portfolio holdings with real time market information.
We're also pleased to announce that American Century's investor account
statement is the first fund company statement to win the Communications Seal
from DALBAR, Inc., an independent financial services research firm. DALBAR
commends us for meeting investors' needs with an attractive document that's easy
to read and understand.
Finally, in the spirit of our ongoing Year 2000 readiness disclosures,
we've provided an update on our preparations for Y2K on the inside front cover
of this report. We understand that our diligence in this area is very important
to you.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/James E. Stowers, Jr.
James E. Stowers, Jr.
Chairman of the Board and Founder
/s/James E. Stowers III
James E. Stowers III
Vice Chairman of the Board and Chief Executive Officer
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 STATEMENTS
Statement of Assets and
Liabilities .............................................................. 9
Statement of Operations .................................................. 10
Statements of Changes
in Net Assets ............................................................ 11
Notes to Financial
Statements ............................................................... 12
Financial Highlights ..................................................... 16
OTHER INFORMATION
Share Class and Retirement
Account Information .................................................... 19
Background Information
Investment Philosophy
and Policies ........................................................ 20
Fund Management
Team ................................................................ 20
Fund Background ....................................................... 20
Comparative Indices ................................................... 20
Portfolio Managers .................................................... 20
Glossary ................................................................. 21
www.americancentury.com 1
Report Highlights
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MARKET PERSPECTIVE
* Real estate investment trusts (REITs) posted small gains during the
six-month period ended September 30, 1999.
* REITs, like the stock market as a whole, surged higher in the second
quarter of the year, then reversed direction in the third quarter.
* REITs started the period strong as investors began to seek out shares that
were undervalued and out of favor.
* Investor demand dissipated in the third quarter after two interest rate
hikes by the Federal Reserve led to concerns about rising interest rates,
slower economic growth, and weaker corporate earnings.
* REITs struggled despite a healthy real estate environment--supply and
demand remained very balanced, which helped sustain high occupancy rates
and moderate rent growth.
* Apartment REITs were the best performers, while hotel and shopping malls
REITs fared the worst.
MANAGEMENT Q&A
* American Century Real Estate (ACRE) outperformed the Wilshire REIT Index
for the six months ended September 30.
* One reason for this outperformance was the fund's overweight positions in
apartment and office REITs, which together comprised almost two-thirds of
the portfolio by the end of the period.
* Apartment and office REITs were attractively valued despite strong
fundamentals, high occupancy rates, and healthy rent growth.
* Many REITs have been taking steps to enhance shareholder value, such as
buying back stock at a time when most REITs are trading at discounts of
15-20% to the market value of their underlying properties.
* We continue to believe that the REIT sector is one of the most attractive
investment values right now, but it may be a while until the market
recognizes the value.
[left margin]
REAL ESTATE(1)
(REACX)
TOTAL RETURNS: AS OF 9/30/99
6 Months 1.55%(2)
1 Year -2.94%
INCEPTION DATE: 9/21/95
NET ASSETS: $135.5 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor, Advisor, and Institutional classes.
Investment terms are defined in the Glossary on pages 21-22.
2 1-800-345-2021
Market Perspective from Mark Mallon
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/photo Mark Mallon/
Mark Mallon, head of specialty, asset allocation, and growth and income equity
funds at American Century
PERFORMANCE OVERVIEW
During the six months ended September 30, 1999, the flat performance of
both real estate stocks and the broader market masked some significant
volatility. Stocks surged higher in the second quarter of the year, then
reversed direction in the third quarter, ending the six-month period with a
small gain. Real estate stocks, including real estate investment trusts (REITs),
followed a similar pattern but produced slightly higher returns overall (see the
chart and performance table at right).
A TALE OF TWO MARKETS
REITs started the period strong--the Wilshire REIT Index returned 10% in
April. Part of the reason for this was the resurgence of value stocks. After
several years of focusing on a handful of large-cap growth stocks, investors
began to seek out shares that were undervalued and out of favor.
REITs certainly fit the bill--they had experienced a steady downturn since
late 1997, despite a fairly positive climate for real estate. By early 1999,
most REITs were trading at a 10-15% discount to the market value of their
underlying properties.
REVERSAL OF FORTUNE
But the REIT rally was short-lived. The Federal Reserve (the U.S. central
bank) raised short-term interest rates at the end of June and again in late
August. Investors began to worry about rising interest rates, slower economic
growth, and weaker corporate earnings.
As a result, stocks fell in fits and starts throughout the third quarter,
with most of the major indices registering losses. REITs were no exception--the
Wilshire REIT Index fell more than 8% for the quarter.
Disappointingly, REITs struggled despite the continuation of a
fundamentally healthy real estate environment. Supply and demand in the real
estate market remained very balanced, which helped sustain high occupancy rates
and moderate rent growth.
SECTOR PERFORMANCE
Apartment companies were the best-performing sector of the REIT market.
Many apartment REITs have consistently met or beat earnings expectations. They
are also perceived as a defensive investment that would hold up well during an
economic downturn.
Hotel REITs were among the worst performers during the period. Increasing
vacancy rates hurt revenues at limited-service and extended-stay hotels, and
full-service hotels saw slower growth. Shopping mall REITs also fell out of
favor amid negative perceptions of costly acquisitions.
[left margin]
MARKET RETURNS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
- ---------------------------------------------------
S&P 500 0.36%
- ---------------------------------------------------
WILSHIRE REIT 1.42%
- ---------------------------------------------------
Sources: Lipper Inc. and Russell/Mellon Analytical
[line chart data]
MARKET PERFORMANCE (GROWTH OF $1.00)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
S&P 500 Wilshire REIT Index
3/31/99 1.00 1.00
4/30/99 1.04 1.10
5/31/99 1.01 1.13
6/30/99 1.07 1.11
7/31/99 1.04 1.07
8/31/99 1.03 1.06
9/30/99 1.00 1.01
Value on 9/30/99
S&P 500 $1.00
Wilshire REIT $1.01
www.americancentury.com 3
ACRE--Performance
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<TABLE>
<CAPTION>
TOTAL RETURNS AS OF SEPTEMBER 30, 1999
INVESTOR CLASS (INCEPTION 9/21/95)(1) ADVISOR CLASS (INCEPTION 10/6/98) INSTITUTIONAL CLASS (INCEPTION 6/16/97)
ACRE WILSHIRE REIT ACRE WILSHIRE REIT ACRE WILSHIRE REIT
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(2) 1.55% 1.42% 1.43% 1.42% 1.65% 1.42%
1 YEAR -2.94% -4.78% -- -- -2.71% -4.78%
- -----------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS 6.15% 5.08% -- -- -- --
LIFE OF FUND 10.13% 8.33%(3) 3.71%(2) -2.91%(2)(4) -2.50% -3.94%(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 19-21 for information about share classes, the Wilshire REIT Index,
and returns.
[line chart data]
GROWTH OF $10,000 OVER LIFE OF FUND
Real Estate Fund Wilshire REIT Index
Date Value Value
9/21/1995 $10,000 $10,000
12/31/1995 $10,500 $10,405
3/31/1996 $10,883 $10,685
6/30/1996 $11,350 $11,123
9/30/1996 $12,329 $11,873
12/31/1996 $14,784 $14,259
3/31/1997 $15,320 $14,403
6/30/1997 $16,096 $15,076
9/30/1997 $18,438 $16,882
12/31/1997 $18,510 $17,063
3/31/1998 $18,386 $16,892
6/30/1998 $17,529 $16,189
9/30/1998 $15,189 $14,466
12/31/1998 $15,159 $14,161
3/31/1999 $14,518 $13,581
6/30/1999 $16,287 $15,015
9/30/1999 $14,744 $13,774
Value on 9/30/99
ACRE $14,744
Wilshire REIT Index $13,774
The graph at left shows the growth of a $10,000 investment over the life of the
fund while the graph below shows the fund's year-by-year performance. The
Wilshire REIT Index is provided for comparison in each graph. The index returns
in both graphs are since 9/30/95, the date nearest Investor Class's inception
for which data are available. 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.
[bar chart data]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDING SEPTEMBER 30)
Real Estate Wilshire REIT Index
Date Return Return
9/30/1996 23.16 18.73
9/30/1997 49.58 42.20
9/30/1998 -17.62 -14.31
9/30/1999 -2.94 -4.78
4 1-800-345-2021
ACRE--Q&A
- --------------------------------------------------------------------------------
/photo Karen Knudson and Kim Redding/
An interview with Karen Knudson and Kim Redding, portfolio managers on the
American Century Real Estate fund investment team.
HOW DID ACRE PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER 30, 1999?
In absolute terms, the fund's return was fairly modest, reflecting the
generally flat performance of the real estate investment trust (REIT) market.
However, ACRE outperformed both its benchmark index and the average real estate
fund.
ACRE's six-month return was 1.55%, compared with a 1.42% return for the
Wilshire REIT Index and the 1.36% average return of the 140 real estate funds
tracked by Lipper Inc.* (See the previous page for other fund performance
comparisons.) The S&P 500 Index, a broad stock market measure, returned 0.36%.
WHY DID THE FUND OUTPERFORM ITS BENCHMARK AND PEERS?
We expanded our holdings of apartment and office REITs, which were the best
performers in the REIT market during the six-month period. We liked these two
sectors so much that, by the end of the period, they made up almost two-thirds
of the portfolio. In addition, seven of our top 10 holdings were apartment or
office companies.
WHAT ATTRACTED YOU TO THESE SECTORS?
We saw a lot of value. Like most REITs, office and apartment companies have
been trading at substantial discounts to the value of their underlying
properties. But the fundamentals of the apartment and office markets are very
strong--supply and demand is balanced, occupancy rates remain high, and
properties are generating healthy rent growth. On top of that, many of these
companies are consistently beating earnings expectations.
They're also well managed as public companies. Apartment companies in
particular have adapted more quickly to the changing REIT environment than other
property types.
CAN YOU TALK A LITTLE MORE ABOUT HOW THE REIT MARKET HAS CHANGED?
REITs are capital intensive companies, meaning they need a regular inflow
of cash to invest in new properties. This capital was easy to get back in the
mid-'90s, when money was pouring into the REIT market because it was a
relatively new, "hot" sector of the stock market. Between 1995 and 1997, the
capitalization of the REIT market quadrupled.
But in the past couple of years, the hot money has flowed out of REITs and
into big technology and growth stocks. The real estate market has continued to
do well, though, so REIT companies kept their focus on property acquisition.
They figured that the capital scarcity was temporary, and cash inflows would
return when investors recognized the value.
That hasn't happened yet, so REIT managers are now exploring creative
alternatives to grow their businesses.
*All fund rturns referenced inthis interview ae for Investor Class shares.
[right margin]
"WE SAW A LOT OF VALUE. LIKE MOST REITS, OFFICE AND APARTMENT COMPANIES HAVE
BEEN TRADING AT SUBSTANTIAL DISCOUNTS TO THE VALUE OF THEIR UNDERLYING
PROPERTIES."
[pie chart data]
FUND ALLOCATION
AS OF SEPTEMBER 30, 1999
Office 36%
Multi-family Residential 25%
Mall & Shopping Center 13%
Industrial 10%
Equity Real Estate Investment Trust 5%
Other 11%
AS OF MARCH 31, 1999
Office 32%
Multi-family Residential 19%
Mall & Shopping Center 21%
Industrial 11%
Equity Real Estate Investment Trust 7%
Other 10%
www.americancentury.com 5
ACRE--Q&A
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(Continued)
HOW HAVE COMPANIES DEALT WITH THIS CHANGE?
Some are still coming to grips with it, but the most successful companies
have recognized the need to be sensitive to shareholder interests. They realized
that the best way to draw investors back to the REIT market is by making an
effort to enhance shareholder value.
One way for companies to accomplish this is to buy back some of their own
stock. Most REITs are trading at discounts of 15-20% to the market value of
their underlying properties, and some are as much as 50% below market value.
Stock buybacks allow companies to essentially reinvest in their own portfolio of
properties at prices well below market value.
So far in 1999, about 20 companies have announced stock buyback plans, and
we expect this to be a growing trend in the REIT market going forward.
AND APARTMENT AND OFFICE COMPANIES HAVE BEEN LEADING THE WAY IN STOCK BUYBACKS?
That's right. Apartment and office buildings are among the easiest
properties to buy and sell, so it's been relatively easy for these companies to
raise cash by paring back their portfolios. The cash can then be used for stock
buybacks or new property acquisitions, depending on which offers the best value
In contrast, shopping mall and hotel companies have been slower to adopt
this strategy. Some have recently announced buyback plans, but didn't specify
how they were going to finance them. Others have continued to expand by buying
new properties instead of their own shares.
That's one reason why we've added to our holdings in apartment and office
firms instead of hotel and mall REITs. It's also one of the reasons why these
companies have performed well in the past six months.
CAN YOU GIVE SOME EXAMPLES OF STRONG PERFORMERS IN ACRE'S PORTFOLIO?
One of our best performers this year was Essex Property, an apartment
company based on the West Coast. Essex has repeatedly exceeded earnings
estimates, and rent growth in most of its markets is very strong.
Another top-performing company we like is AvalonBay Communities, which is
also an apartment REIT and one of our top 10 holdings. The company concentrates
its property investments in supply-constrained markets, where building
opportunities are limited and opportunities for rent growth are strong.
The common thread between these two companies is that they've been
successful by operating in selected markets. We're able to find out what's going
on in local real estate markets from our extensive research staff, located in
offices around the country. That helps us invest in companies that benefit from
the strongest markets.
LET'S TALK ABOUT YOUR LARGEST HOLDING, HIGHWOODS PROPERTIES. SIX MONTHS AGO, YOU
DIDN'T OWN IT AT ALL, AND NOW IT'S ABOUT 7% OF THE PORTFOLIO. WHAT CAUSED THE
TURNAROUND?
A year ago, we sold our Highwoods shares because the office company was
still focused on growth through acquisition. But now we think the company has
taken a turn for the better. Management has backed off of its acquisition
strategy, cleaned up the company's balance sheet, and made some beneficial
adjustments to its portfolio of properties.
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
9/30/99 3/31/99
- -------------------------------------------
HIGHWOODS
PROPERTIES, INC. 6.9% -
CARRAMERICA REALTY
CORP. 5.4% 4.8%
MACK-CALI REALTY
CORP. 5.3% 5.7%
AVALONBAY
COMMUNITIES INC. 5.1% 3.8%
ARDEN REALTY, INC. 4.8% 5.0%
EQUITY RESIDENTIAL
PROPERTIES TRUST 4.5% 3.7%
LIBERTY PROPERTY
TRUST 4.2% 3.5%
SIMON PROPERTY
GROUP, INC. 3.9% 6.0%
TRIZECHAHN
CORPORATION 3.9% 3.1%
VORNADO REALTY TRUST 3.7% 3.2%
PORTFOLIO AT A GLANCE
- -------------------------------------------
9/30/99 3/31/99
NO. OF COMPANIES 40 41
MEDIAN REIT FFO(1)
RATIO 8.3 8.9
MEDIAN MARKET $1.50 $1.00
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 35%(2) 66%(3)
EXPENSE RATIO (FOR
INVESTOR CLASS) 1.20%(4) 1.20%
(1) Funds from operations.
(2) Six months ended 9/30/99.
(3) Year ended 3/31/99.
(4) Annualized.
Investment terms are defined in the Glossary on pages 21-22.
6 1-800-345-2021
ACRE--Q&A
- --------------------------------------------------------------------------------
(Continued)
We started buying shares of Highwoods in May, right after they reported
first-quarter earnings that missed analysts' estimates by a penny. The market
has been punishing stocks that fail to meet earnings expectations, even by a
little, so we were able to buy shares at a very attractive value.
More recently, Highwoods has been rumored to be a privatization target. So
far this year, two public REITs have been purchased and taken private, either by
a management-led group or a third party.
WHAT'S THE SIGNIFICANCE OF PRIVATIZATION?
It's another indication of the intrinsic value in the REIT market. By going
private, a publicly traded REIT can capture the difference between its share
price and the market value of its properties. And as we've mentioned before,
that difference is pretty significant right now.
We may see more privatization activity if REIT bargains persist. Like stock
buybacks, privatization helps take shares out of circulation, which benefits the
REIT market as a whole.
WE'VE COVERED MOST OF THE GOOD NEWS. WHAT WAS THE BAD NEWS IN THE PORTFOLIO OVER
THE PAST SIX MONTHS?
ACRE's hotel REITs all posted double-digit losses during the six-month
period. We've focused on full-service hotels and stayed away from
limited-service and extended-stay chains, which have seen slowing revenue growth
and lower occupancy rates. But the market has painted all hotel REITs with the
same broad brush, so our holdings have lost ground along with the rest of the
sector.
The fund's shopping mall REITs also performed poorly, although we were
underweighted in this sector. Simon Property Group, a top ten holding, was one
of our most disappointing performers. We really like this company--it is well
managed, owns the largest portfolio of malls in the country, and uses its
dominant position as leverage in tenant negotiations.
However, Simon completed several major property acquisitions earlier this
year. Although these transactions improved the company's long-term strategic
position, many investors thought that Simon should be buying back its shares at
a discount rather than deploying capital on acquisitions.
LOOKING AHEAD, WHAT'S YOUR OUTLOOK FOR THE REAL ESTATE MARKET AS WE HEAD INTO
THE YEAR 2000?
We currently expect the real estate market to benefit from the persistent
strength of the U.S. economy. The current economic expansion is expected to
enter its tenth year in early 2000 and become the longest since World War II. If
that happens, all the positive attributes of the real estate market-- favorable
supply and demand balance, healthy occupancy rates, solid rent growth, steadily
rising asset values--should continue in the coming year.
Those attributes have yet to be reflected in REIT share prices, which
remain well below the market value of the underlying properties. REITs on
average currently offer double-digit earnings growth, a dividend yield of more
than 7.5%, and a price-to-earnings (P/E) ratio of 8.5. By comparison, the S&P
500's P/E ratio is 31, and Microsoft's is 63!
As a result, we think REITs are one of the most attractive investment
values available right now. Unfortunately, it may still be a while before the
market recognizes this value. But when it does, we expect REITs to perform very
well.
[right margin]
"WE MAY SEE MORE PRIVATIZATION ACTIVITY IF REIT BARGAINS PERSIST. LIKE STOCK
BUY-BACKS, PRIVATIZATION HELPS TAKE SHARES OUT OF CIRCULATION, WHICH BENEFITS
THE REIT MARKET AS A WHOLE."
[pie chart data]
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF SEPTEMBER 30, 1999
Common Stocks 100%
AS OF MARCH 31, 1999
Common Stocks 100%
www.americancentury.com 7
ACRE--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period. The
securities are grouped by asset class (such as common stocks, corporate bonds,
temporary cash investments, as applicable), and some asset classes are further
broken down by industry or country.
SEPTEMBER 30, 1999 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS
CONSTRUCTION & REAL PROPERTY -- 3.6%
6,650 Beacon Capital Partners, Inc.-
Voting Trust
(Acquired 9/17/99,
Cost $318,718)(1)(2) $ 318,718
184,720 Starwood Hotels & Resorts
Worldwide, Inc. 4,121,565
148,270 Wyndham International, Inc. Cl A(1) 389,209
---------------
4,829,492
---------------
DIVERSIFIED COMPANIES-- 4.4%
179,800 Developers Diversified Realty Corp. 2,517,200
170,024 Duke-Weeks Realty Corp. 3,315,468
6,665 Vornado Operating Co.(1) 39,990
---------------
5,872,658
---------------
EQUITY REAL ESTATE INVESTMENT TRUST - 5.4%
318,197 Host Marriott Corp. 3,022,871
271,355 Meristar Hospitality Corp. 4,138,164
---------------
7,161,035
---------------
HOTELS - 0.2%
55 Interstate Hotels Corp.(1) 174
100,500 Meristar Hotels & Resorts, Inc.(1) 295,219
---------------
295,393
---------------
INDUSTRIAL - 9.7%
174,500 AMB Property Corp. 3,697,219
244,900 Liberty Property Trust 5,556,169
195,510 Prologis Trust 3,690,251
---------------
12,943,639
---------------
MULTI-FAMILY RESIDENTIAL - 24.7%
118,200 Apartment Investment and
Management Co. 4,521,150
251,600 Archstone Communities Trust 4,859,025
198,869 AvalonBay Communities Inc. 6,736,687
139,889 Camden Property Trust 3,759,517
Shares Value
- -----------------------------------------------------------------------------
142,202 Equity Residential Properties Trust $ 6,025,810
124,700 Essex Property Trust, Inc. 4,356,706
68,100 Post Properties, Inc. 2,677,181
---------------
32,936,076
---------------
NEIGHBORHOOD & COMMUNITY
SHOPPING CENTERS - 7.2%
24,000 Bradley Real Estate, Inc. 441,000
14,200 Federal Realty Investment Trust 297,312
41,700 JP Realty, Inc. 714,112
62,100 Kimco Realty Corporation 2,220,075
53,200 New Plan Excel Realty Trust 947,625
152,000 Vornado Realty Trust 4,940,000
---------------
9,560,124
---------------
OFFICE - 36.4%
294,900 Arden Realty, Inc. 6,414,075
150,000 Beacon Properties Corp.
(Acquired 3/17/98, Cost
$3,000,000)(2) 1,987,500
64,800 Boston Properties, Inc. 1,988,550
326,500 CarrAmerica Realty Corp. 7,162,594
189,500 Equity Office Properties Trust 4,405,875
353,900 Highwoods Properties, Inc. 9,157,162
192,200 Kilroy Realty Corp. 4,060,225
263,900 Mack-Cali Realty Corp. 7,075,819
7,067 Reckson Associates Realty
Corp. Cl B 154,591
28,000 Spieker Properties, Inc. 971,250
273,800 TrizecHahn Corporation 5,185,088
---------------
48,562,729
---------------
REGIONAL MALLS - 6.3%
102,700 General Growth Properties, Inc. 3,235,050
231,800 Simon Property Group, Inc. 5,201,012
---------------
8,436,062
---------------
STORAGE - 2.1%
109,748 Public Storage, Inc. 2,764,278
---------------
TOTAL INVESTMENT SECURITIES - 100.0% $133,361,486
===============
(Cost $150,747,699)
NOTES TO SCHEDULE OF INVESTMENTS
(1) Non-income producing.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or is a
private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at September 30, 1999 was
$2,306,486, which represented 1.7% of net assets.
8 1-800-345-2021 See Notes to Financial Statements
Statement of Assets and Liabilities
- ----------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. For each class of shares, the net assets divided by shares outstanding
is the share price, or NET ASSET VALUE PER SHARE. This statement also breaks
down the fund's net assets into capital (shareholder investments) and
performance (investment income and gains/losses).
SEPTEMBER 30, 1999 (UNAUDITED)
ASSETS
Investment securities, at value
(identified cost of $150,747,699) (Note 3) ................ $ 133,361,486
Receivable for investments sold .............................. 2,146,916
Dividend and interest receivable ............................. 1,057,605
-------------
136,566,007
-------------
LIABILITIES
Disbursements in excess of demand deposit cash ............... 913,098
Payable for management fees (Note 2) ......................... 134,259
Distribution fees payable (Note 2) ........................... 673
Service fees payable (Note 2) ................................ 673
Payable for directors' fees and expenses ..................... 81
Accrued expenses and other liabilities ....................... 7,621
-------------
1,056,405
-------------
Net Assets ................................................... $ 135,509,602
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ...................... $ 170,861,241
Undistributed net investment income .......................... 1,518,908
Accumulated net realized loss
on investment transactions ................................ (19,484,334)
Net unrealized depreciation on investments (Note 3) .......... (17,386,213)
-------------
$ 135,509,602
=============
Investor Class
Net assets ................................................... $ 107,578,653
Shares outstanding ........................................... 8,972,578
Net asset value per share .................................... $ 11.99
Advisor Class
Net assets ................................................... $ 3,646,250
Shares outstanding ........................................... 304,194
Net asset value per share .................................... $ 11.99
Institutional Class
Net assets ................................................... $ 24,284,699
Shares outstanding ........................................... 2,024,557
Net asset value per share .................................... $ 12.00
See Notes to Financial Statements www.americancentury.com 9
Statement of Operations
- --------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $7,187) ............. $ 5,122,429
Interest ........................................................ 84,833
-----------
5,207,262
-----------
Expenses (Note 2):
Management fees ................................................. 884,013
Distribution fees - Advisor Class ............................... 2,164
Service fees - Advisor Class .................................... 2,164
Directors' fees and expenses .................................... 735
-----------
889,076
-----------
Net investment income ........................................... 4,318,186
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3)
Net realized loss on investments ................................ (2,948,264)
Change in net unrealized depreciation on investments ............ 755,092
-----------
Net realized and unrealized loss on investments ................. (2,193,172)
-----------
Net Increase in Net Assets Resulting from Operations ............ $ 2,125,014
===========
10 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND YEAR ENDED MARCH 31, 1999
Decrease in Net Assets
SEPTEMBER 30, 1999 MARCH 31, 1999
OPERATIONS
<S> <C> <C>
Net investment income .................................................. $ 4,318,186 $ 7,908,100
Net realized loss on investment transactions ........................... (2,948,264) (18,562,395)
Change in net unrealized appreciation (depreciation) on investments .... 755,092 (23,965,828)
------------- -------------
Net increase (decrease) in net assets resulting from operations ........ 2,125,014 (34,620,123)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS From net investment income:
Investor Class ....................................................... (2,836,518) (4,933,750)
Advisor Class ........................................................ (60,811) (4,632)
Institutional Class .................................................. (648,361) (1,054,610)
From net realized gains on investment transactions:
Investor Class ....................................................... -- (1,111,296)
Advisor Class ........................................................ -- (325)
Institutional Class .................................................. -- (266,386)
------------- -------------
Decrease in net assets from distributions .............................. (3,545,690) (7,370,999)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase (decrease) in net assets from capital share transactions .. (118,265) 28,322,183
------------- -------------
Net decrease in net assets ............................................. (1,538,941) (13,668,939)
NET ASSETS
Beginning of period .................................................... 137,048,543 150,717,482
------------- -------------
End of period .......................................................... $ 135,509,602 $ 137,048,543
============= =============
Undistributed net investment income .................................... $ 1,518,908 $ 746,412
============= =============
</TABLE>
See Notes to Financial Statements www.americancentury.com 11
Notes to Financial Statements
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1999 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Capital Portfolios, Inc. (the corporation)
is registered under the Investment Company Act of 1940 as an open-end management
investment company. Real Estate Fund (the fund) is one of the six 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
rather than a more diversified portfolio of investments. The fund may be subject
to certain risks similar to those associated with direct ownership of real
estate including but not limited to: local or regional economic conditions,
changes in zoning laws, credit risk, and interest rate risk. The fund is
authorized to issue three classes of shares: the Investor Class, the Advisor
Class, and the Institutional Class. The three classes of shares differ
principally in their respective shareholder servicing and distribution expenses
and arrangements. All shares of the fund represent an equal pro rata interest in
the assets of the class to which such shares belong, and have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
for class specific expenses and exclusive rights to vote on matters affecting
only individual classes. The following significant accounting policies are in
accordance with generally accepted accounting principles; these policies 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. 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 net
investment income and net realized 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.
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.
12 1-800-345-2021
Notes to Financial Statements
- ---------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM 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.
RREEF America L.L.C. ("RREEF") has served as the investment subadvisor to
the fund since January 27, 1998 pursuant to an investment subadvisory agreement
between ACIM and RREEF. On September 17, 1999, the corporation and ACIM received
a letter from RREEF that stated RREEF's intention to resign as the fund's
subadvisor effective as of the close of business on December 31, 1999. The
resignation is subject to certain conditions, including the approval by
shareholders. The fund's Board of Directors accepted RREEF's resignation at a
meeting on September 23, 1999, and approved a new subadvisory agreement with
J.P. Morgan Investment Management Inc. ("JPMIM"). If the agreement is approved
at the shareholder meeting scheduled to be held on December 17, 1999, JPMIM will
begin subadvising the fund on January 1, 2000. The terms of the new subadvisory
agreement between JPMIM 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 pay all costs associated with retaining JPMIM 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 six months ended September 30, 1999 were $4,328.
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, for the six months ended September 30, 1999, were $52,640,072 and
$51,738,928, respectively.
As of September 30, 1999, accumulated net unrealized depreciation was
$20,733,071, based on the aggregate cost of investments for federal income tax
purposes of $154,094,557, which consisted of unrealized appreciation of $943,000
and unrealized depreciation of $21,676,071.
www.americancentury.com 13
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- ---------------------------------------------------------------------------
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
=============
Six months ended September 30, 1999
Sold ......................................... 4,342,946 $ 57,036,227
Issued in reinvestment of distributions ...... 210,128 2,616,878
Redeemed ..................................... (4,691,458) (61,272,490)
------------- -------------
Net decrease ................................. (138,384) $ (1,619,385)
============= =============
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
============= =============
ADVISOR CLASS
- --------------------------------------------------------------------------------
Shares Authorized ............................ 25,000,000
=============
Six months ended September 30, 1999
Sold ......................................... 268,254 $ 3,456,874
Issued in reinvestment of distributions ...... 4,595 55,815
Redeemed ..................................... (5,718) (72,568)
------------- -------------
Net increase ................................. 267,131 $ 3,440,121
============= =============
October 6, 1998 through March 31, 1998(1)
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) Sale of the Advisor Class commenced on October 6, 1998.
14 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- ----------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
All shares are $0.01 par value. Transactions in shares of the fund were as
follows:
SHARES AMOUNT
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
Shares Authorized .......................... 25,000,000
============
Six months ended September 30, 1999
Sold ....................................... 325,738 $ 4,133,746
Issued in reinvestment of distributions .... 39,371 490,532
Redeemed ................................... (513,719) (6,563,279)
------------ ------------
Net decrease ............................... (148,610) $ (1,939,001)
============ ============
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
============ ============
- --------------------------------------------------------------------------------
5. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $570,000,000 bank line of credit agreement with Chase Manhattan Bank.
Borrowings under the agreement bear interest at the Federal Funds rate plus
0.40%. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. The fund did not borrow from the line during the six
months ended September 30, 1999.
www.americancentury.com 15
<TABLE>
<CAPTION>
ACRE--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
income as a percentage of average net assets), EXPENSE RATIO (operating expenses
as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the
fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Investor Class
1999(1) 1999 1998(2) 1997 1996 1995(3)
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .............$ 12.10 $ 16.12 $ 16.06 $ 12.29 $ 9.82 $ 10.00
----------- ----------- ----------- --------- --------- -----------
Income From Investment Operations
Net Investment Income .......................... 0.37(4) 0.73(4) 0.25(4) 0.67(4) 0.55 0.07
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .............. (0.17) (4.09) 0.26 4.13 2.27 (0.25)
----------- ----------- ----------- --------- --------- -----------
Total From Investment Operations ............... 0.20 (3.36) 0.51 4.80 2.82 (0.18)
----------- ----------- ----------- --------- --------- -----------
Distributions
From Net Investment Income ..................... (0.31) (0.54) (0.18) (0.48) (0.35) --
From Net Realized Gains on
Investment Transactions ........................ -- (0.12) (0.27) (0.55) -- --
----------- ----------- ----------- --------- --------- -----------
Total Distributions ............................ (0.31) (0.66) (0.45) (1.03) (0.35) --
----------- ----------- ----------- --------- --------- -----------
Net Asset Value, End of Period ...................$ 11.99 $ 12.10 $ 16.12 $ 16.06 $ 12.29 $ 9.82
=========== =========== =========== ========= ========= ===========
Total Return(5) ................................ 1.55% (21.04)% 3.26% 40.69% 29.28% (1.80)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............................ 1.20%(6) 1.20% 1.15%(6) 1.17% 1.00% 1.50%(6)
Ratio of Operating Expenses
to Average Net Assets
(before expense waivers and reimbursements)(7) ... 1.20%(6) 1.20% 1.20%(6) 1.82% 6.83% 14.83%(6)
Ratio of Net Investment Income
to Average Net Assets ............................ 5.64%(6) 5.41% 3.75%(6) 4.48% 5.84% 6.66%(6)
Ratio of Net Investment Income
to Average Net Assets
(before expense waivers and reimbursements)(7) ... 5.64%(6) 5.41% 3.70%(6) 3.84% 0.01% (6.67)%(6)
Portfolio Turnover Rate .......................... 35% 66% 28% 69% 86% --
Net Assets, End of Period
(in thousands) ...................................$ 107,579 $ 110,285 $ 135,922 $ 76,932 $ 7,209 $ 2,983
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) 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.
(3) September 21, 1995 (inception) through October 31, 1995.
(4) Computed using average shares outstanding throughout the period.
(5) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(6) Annualized.
(7) During the periods ended October 31, 1996 and October 31, 1995 and for a
portion of the period ended October 31, 1997, the manager voluntarily agreed
to waive its management fee and reimburse certain expenses incurred by the
fund. Also, prior to the unified management fee structure, effective June
13, 1997, the custodian offset part of its fees for balance credits given to
the fund. During the period ended March 31, 1998, a portion of the
subadvisory fee, which is paid for subadvisory services, was waived.
16 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
ACRE--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED
Advisor Class
1999(1) 1999(2)
- ------------------------------------------------------------------------------------------
PER-SHARE DATA
<S> <C> <C>
Net Asset Value, Beginning of Period ............................$ 12.10 $ 12.22
--------- ---------
Income From Investment Operations
Net Investment Income(3) ...................................... 0.41 0.43
Net Realized and Unrealized Loss on Investment Transactions ... (0.23) (0.15)
--------- ---------
Total From Investment Operations .............................. 0.18 0.28
--------- ---------
Distributions
From Net Investment Income .................................... (0.29) (0.28)
From Net Realized Gains on Investment Transactions ............ -- (0.12)
--------- ---------
Total Distributions ........................................... (0.29) (0.40)
--------- ---------
Net Asset Value, End of Period ..................................$ 11.99 $ 12.10
========= =========
Total Return(4) ............................................... 1.43% 2.25%
- ------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ............... 1.45%(5) 1.45%(5)
Ratio of Net Investment Income to Average Net Assets ............ 5.39%(5) 5.16%(5)
Portfolio Turnover Rate ......................................... 35% 66%
Net Assets, End of Period (in thousands) ........................$ 3,646 $ 449
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) October 6, 1998 (commencement of sale) through March 31, 1999.
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
See Notes to Financial Statements www.americancentury.com 17
<TABLE>
<CAPTION>
ACRE--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Institutional Class
1999(1) 1999 1998(2) 1997(3)
- -------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ..................$ 12.11 $ 16.12 $ 16.06 $ 14.24
---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income(4) ............................ 0.38 0.78 0.26 0.28
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ........................ (0.17) (4.09) 0.26 1.63
---------- ---------- ---------- ----------
Total From Investment Operations .................... 0.21 (3.31) 0.52 1.91
---------- ---------- ---------- ----------
Distributions
From Net Investment Income .......................... (0.32) (0.58) (0.19) (0.09)
From Net Realized Gains on Investment Transactions .. -- (0.12) (0.27) --
---------- ---------- ---------- ----------
Total Distributions ................................. (0.32) (0.70) (0.46) (0.09)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ........................$ 12.00 $ 12.11 $ 16.12 $ 16.06
========== ========== ========== ==========
Total Return(5) ..................................... 1.65% (20.77)% 3.32% 13.40%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ..... 1.00%(6) 1.00% 0.95%(6) 1.00%(6)
Ratio of Operating Expenses to Average Net Assets
(before expense waivers and reimbursements)(7) ...... 1.00%(6) 1.00% 1.00%(6) 1.00%(6)
Ratio of Net Investment Income to Average Net Assets .. 5.84%(6) 5.61% 4.00%(6) 4.85%(6)
Ratio of Net Investment Income to Average Net Assets
(before expense waivers and reimbursements)(7) ...... 5.84%(6) 5.61% 3.95%(5) 4.85%(6)
Portfolio Turnover Rate ............................... 35% 66% 28% 69%
Net Assets, End of Period (in thousands) ..............$ 24,285 $ 26,315 $ 14,795 $ 13,365
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) Five month period ended March 31, 1998. The fund's fiscal year end was
changed from October 31 to March 31 resulting in a five month reporting
period. Periods prior to 1998 are based on a fiscal year ended October 31.
(3) June 16, 1997 (commencement of sale) through October 31, 1997.
(4) Computed using average shares outstanding throughout the period.
(5) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(6) Annualized.
(7) During the period ended March 31, 1998, a portion of the subadvisory fee,
which is paid for subadvisory services, was waived.
18 1-800-345-2021 See Notes to Financial Statements
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.
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 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 19
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
RREEF America LLC, and its predecessor company, have served as the fund's
investment subadvisor since its inception. RREEF has notified the fund and
American Century Investment Management, Inc. (ACIM), the fund's investment
adviser, of its intention to resign as the fund's subadvisor effective as of the
close of business on December 31, 1999. In connection with its resignation,
RREEF informed ACIM and the fund that RREEF has entered into an arrangement with
J.P. Morgan Investment Management Inc. (JPMIM) providing for RREEF's resignation
as subadvisor and the purchase by JPMIM from RREEF of certain books and records
relating to the fund. The resignation is subject to certain conditions,
including the approval by shareholders of JPMIM as the new subadvisor of the
fund. A special meeting of the fund shareholders has been scheduled for December
17, 1999. If the new subadvisory agreement is approved by shareholders, JPMIM
will begin subadvising the fund on January 1, 2000. JPMIM's parent company is a
significant minority shareholder of ACIM's parent company. (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
20 1-800-345-2021
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.
www.americancentury.com 21
Glossary
- ------------------------------------------------------------------------------
(Continued)
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.
* 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, provided
by either dividend-paying equities or a combination of equity and fixed-income
securities.
* 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.
22 1-800-345-2021
Notes
- --------------------------------------------------------------------------------
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 -- Large Cap Value
Conservative Equity Income
===============================================================================
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(reg.tm)
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 1-800-345-2021 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
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
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
9911 Funds Distributor, Inc. is the distributor
SH-SAN-18154 of American Century funds
(c)1999 American Century Services Corporation
<PAGE>
[front cover]
SEPTEMBER 30, 1999
SEMIANNUAL REPORT
- -----------------
AMERICAN CENTURY
[graphic of stairs]
EQUITY INDEX
[american century logo (reg. sm)]
American
Century
[inside front cover]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
- --------------------------------------------------------------------------------
Y2K, short for the Year 2000, refers more specifically to the date change from
December 31, 1999, to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years--99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000, a non-event for American Century investors.
Currently, our systems have been modified, tested and returned to production,
and we have tested our systems with our vendors and business partners.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition, our Y2K team has developed contingency plans. These plans are
designed to minimize the impact on our investors and help us maintain operations
in the event of any Y2K-related incidents. We have conducted practice drills of
contingency scenarios and will continue to refine our plans during the rest of
1999 to respond quickly and effectively so that the date change is as seamless
as possible for investors. We expect the Year 2000 to be business as usual at
American Century.
Year 2000 Readiness Disclosure
[left margin}
EQUITY INDEX
(ACIVX)
- -------------------
TURN TO THE INSIDE BACK COVER OF THIS REPORT TO SEE A LIST OF AMERICAN CENTURY
FUNDS CLASSIFIED BY OBJECTIVE AND RISK.
RECEIVE YOUR ANNUAL REPORTS ONLINE
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Questions? Call 1-800-345-2021 or go to www.americancentury.com.
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.
Over the six months ended September 30, 1999, investments in the S&P 500
Index fund had to cope with returns that were less stellar than many have come
to expect during the last several years of the ongoing U.S. economic expansion.
Rising interest rates were the main culprit that held back the returns of the
S&P 500. As rates rose -- along with corporate borrowing costs -- we saw a
decline in the price investors were willing to pay for corporate earnings. With
many of the market leaders of the S&P 500 already trading at historically high
valuations, the large-capitalization stocks that make up the S&P 500 didn't
perform as well as their mid- and small-cap counterparts.
Within the S&P 500 itself, a select group of companies were chosen as
leaders. These firms were able to provide predictable earnings in an
unpredictable economy. Hearkening to the drumbeat of corporate America's drive
toward increased productivity and consumers' attraction to the World Wide Web,
most of these forerunners were technology firms, companies that provide the
hardware for the explosive growth of the Internet, or electronic equipment
companies.
Turning to corporate matters, American Century has long pioneered the use
of technologies that improve the efficiency of capital markets, lower the costs
of trading securities, and ultimately offer better returns for you. Toward that
end, we've made investments in several companies that are creating such
technologies, including Archipelago, Optimark, Tradepoint Financial Networks,
W.R. Hambrecht and, most recently, WorldStreet Corporation. WorldStreet, located
in Boston, is developing a customized software application for portfolio
managers that marries portfolio holdings with real time market information.
We're also pleased to announce that American Century's investor account
statement is the first fund company statement to win the Communications Seal
from DALBAR, Inc., an independent financial services research firm. DALBAR
commends us for meeting investors' needs with an attractive document that's easy
to read and understand.
Finally, in the spirit of our ongoing Year 2000 readiness disclosures,
we've provided an update on our preparations for Y2K on the inside front cover
of this report. We understand that our diligence in this area is very important
to you.
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
EQUITY INDEX
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Portfolio at a Glance .................................................. 5
Top Ten Holdings ....................................................... 6
Top Five Industries .................................................... 6
Schedule of Investments ................................................ 7
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 14
Statement of Operations ................................................ 15
Statements of Changes
in Net Assets ....................................................... 16
Notes to Financial
Statements .......................................................... 17
Financial Highlights ................................................... 20
OTHER INFORMATION
Share Class and Retirement
Account Information ................................................. 22
Background Information
Investment Philosophy
and Policies ..................................................... 23
Fund Management ..................................................... 23
Comparative Indices ................................................. 23
Glossary ............................................................... 24
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
MARKET PERSPECTIVE
* The six-month period was marked by heightened market volatility and a
sharp--but short--shift in investor sentiment. Investors entered the period
still interested only in the 20 or so large, household-name growth stocks
that had been leading the market for several quarters. A few weeks into the
second quarter, however, the market suddenly bolted to value stocks,
particularly smaller and medium-sized companies whose prices, beaten down
over the previous three years, were too attractive to pass up.
* The shift was over in a matter of weeks, however, as two interest rate
increases by the Federal Reserve sent investors back into "safety-first"
growth stocks. Earnings were once again the name of the game, and companies
whose earnings fell short of expectations, even a little, were swiftly
punished. That put a premium on high-growth technology stocks, which were
the big winners over the period.
EQUITY INDEX
* Equity Index returned 0.02% during the first half of its fiscal year,
compared to a 0.36% return posted by the S&P 500 Index.
* Corporate America's effort to capitalize on the Internet drove success for
computer-related companies such as IBM, Intel, and Hewlett Packard, all of
which were among fund holdings. Investors shifted their preference from
Internet-service providers, which led the market in early 1999, to
companies that provide hardware and electrical equipment for Internet and
other applications.
* Pharmaceutical companies, banks, and financial services companies struggled
during the period. Drug stocks entered 1999 with inflated valuations and
stumbled as regulatory and political concerns developed, while banks faced
increasing pricing and competitive pressures in the wake of rising interest
rates.
[left margin]
EQUITY INDEX(1)
(ACIVX)
TOTAL RETURNS: AS OF 9/30/99
6 Months 0.02%(2)
INCEPTION DATE: 2/26/99
NET ASSETS: $384.7 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Institutional classes.
Investment terms are defined in the Glossary on pages 24-25.
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
DOWN FROM THE PERCH
Rising interest rates sparked volatility in the markets, and limited the
return of the S&P 500 to only 0.36% during the first six months of American
Century Equity Index Fund's fiscal year. On one hand, robust growth in the U.S.
economy provided some optimism regarding corporate earnings. On the other, that
same growth sparked fears of imminent inflation and caused interest rates to
march upward. The fact that the S&P 500 had been trading at historically high
valuations also hurt. Rising interest rates -- which translate into increased
borrowing costs -- lowered the prices investors were willing to pay for
corporate earnings. As such, the market convulsed with uncertainty and investors
gravitated away from large-capitalization issues. For the six months ended
September 30, 1999, the S&P MidCap 400, an index of midsize equities, returned
4.57%, and the Russell 2000 Index of small stocks rose 8.25%.
POCKETS OF STRONG GROWTH
In spite of the S&P 500's volatility and flat six-month return, there were
sectors that were buoyed by consistently strong earnings growth and stellar
corporate management. The growth of the Internet provided stimulus to both the
economy and the market. At the beginning of 1999, Internet retailers and service
providers -- "dot.com stocks" -- posted astronomical market gains. But these
stocks fell dramatically and were replaced as market leaders by other
technology-related companies, including those that provide the hardware for the
Internet. We also saw a run-up in the share prices of many semiconductor firms,
as the microchip product cycle bottomed and the industry started to rebound.
ONGOING FOCUS ON CORPORATE EARNINGS AND INTEREST RATES
The strong economy and vibrant stock market of the past several years have
been supported by low unemployment, inflation, and interest rates. Consumer
spending spurred by the wealth effect -- added economic activity provided by
investors cashing in appreciated stocks to spend the proceeds -- have helped
sustain this expansion. Productivity improvements and access to competitive
information -- especially via the Internet -- have kept prices down in spite of
a vigorous level of growth that historically has caused inflation. On the
downside, this loss of pricing power could dampen corporate earnings, as could
rising interest rates through increased borrowing costs and a slowing of
economic growth. Shortly after the period covered by this report, the Fed
shifted to a bias toward hiking rates yet again in order to subdue inflationary
pressure. Going forward, market observers will be keenly eyeing emerging
economic data for signs of inflation or clues regarding Fed monetary policy. As
a result, there may be some market volatility in the months ahead.
[right margin]
"THE STRONG ECONOMY AND VIBRANT STOCK MARKET OF THE PAST SEVERAL YEARS HAVE
BEEN SUPPORTED BY LOW UNEMPLOYMENT, INFLATION, AND INTEREST RATES."
MARKET RETURNS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
S&P 500 0.36%
S&P MIDCAP 400 4.57%
RUSSELL 2000 8.25%
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 SIX MONTHS ENDED SEPTEMBER 30, 1999
S&P 500 S&P Mid-Cap 400 Russell 2000
3/31/1999 1.00 1.00 1.00
4/30/1999 1.04 1.08 1.09
5/31/1999 1.01 1.08 1.11
6/30/1999 1.07 1.14 1.16
7/31/1999 1.04 1.12 1.12
8/31/1999 1.03 1.08 1.08
9/30/1999 1.00 1.05 1.08
www.americancentury.com 3
Equity Index--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1999*
INVESTOR CLASS INSTITUTIONAL CLASS
(INCEPTION 2/26/99) (INCEPTION 2/26/99)
EQUITY INDEX S&P 500 EQUITY INDEX S&P 500
6 MONTHS 0.02% 0.36% 0.13% 0.36%
LIFE OF FUND 4.02% 4.38% 4.14% 4.38%
*Returns for periods less than one year are not annualized.
See pages 22-25 for information about share classes, the S&P 500 Index and
returns.
[mountain chart -- data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Equity Index S&P 500
2/26/1999 10000.00 10000.00
3/31/1999 10400.00 10400.00
4/30/1999 10779.60 10802.48
5/31/1999 10519.81 10547.54
6/30/1999 11097.35 11133.98
7/31/1999 10756.66 10785.49
8/31/1999 10696.42 10732.64
9/30/1999 10414.00 10438.57
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
HOW DID EQUITY INDEX FUND PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER 30,
1999?
Equity Index Fund returned 0.02% during the first half of its fiscal year,
compared to 0.36% for the Standard & Poor's 500 Index.* The fund's return
slightly trailed that of the index -- and will most likely continue to do so
going forward -- because of costs associated with the fund's operation, such as
administrative and management fees that are deducted from assets. In addition, a
small portion of the fund's assets are invested in low-risk, low-return money
market securities in order to fund redemptions.
HOW WOULD YOU CHARACTERIZE THE S&P OVER THE PAST SIX MONTHS?
The returns of the S&P 500 were propelled by technology stocks within the
index, especially those companies that offer technological hardware products.
Amid a relatively uncertain and volatile investment environment, investors
gravitated toward companies they felt offered the best prospects for
ever-improving earnings growth. Overall, they found computer hardware,
semiconductor, and electrical equipment companies to be most appealing.
WHAT WAS IT ABOUT THESE COMPANIES THAT HELPED THEM THRIVE?
Corporate America's continuing drive to improve productivity and to take
advantage of e-commerce over the Internet were the main forces behind their
success. Computer-related companies such as IBM, Intel, and Hewlett-Packard were
the main beneficiaries of the move toward increased productivity. On the
Internet side, there was a significant shift over the past six months. Investors
abandoned Internet-service providers, the market leaders of early 1999 that had
enjoyed astronomical share-price gains at the beginning of the year, in spite of
the fact that many of the companies had yet to post any profits. The service
provider group included America Online, the company that suffered the worst
share-price declines in the S&P 500 during this most recent six-month period.
Stock market participants instead looked to benefit from the more stable
prospects offered by those companies that provide hardware and electrical
equipment for Internet and other applications. As a result, we saw a run-up in
the stocks of Cisco Systems, Lucent Technologies, Oracle Systems, Nortel
Networks, General Electric, and Sun Microsystems. Signs of a recovery in Asia
and a worldwide shortage of computer chips also helped another segment of the
technology sector -- semiconductor manufacturers -- including Texas Instruments.
WHICH SECTORS STRUGGLED DURING THE SIX MONTHS?
Three industries had a particularly rough go of it during the period:
pharmaceuticals, food and beverage, and financial services, especially banks.
Drug stocks entered the period perched at historically high valuations, and were
hit hard by two main concerns. First, there was uncertainty over the future of
the regulatory and political backdrop; as elections in the Year 2000 loom
closer, investors have become concerned about what effect changes to Medicare
might have on the large pharmaceutical firms. In addition, there was a lull in
the new
* All fund returns referenced in this interview are for Investor Class shares.
[right margin]
"AMID A RELATIVELY UNCERTAIN AND VOLATILE INVESTMENT ENVIRONMENT, INVESTORS
GRAVITATED TOWARD COMPANIES THEY FELT OFFERED THE BEST PROSPECTS FOR
EVER-IMPROVING EARNINGS GROWTH."
PORTFOLIO AT A GLANCE
9/30/99 3/31/99
NO. OF COMPANIES 500 500
MEDIAN P/E RATIO 29.1 22.3
MEDIAN MARKET $7.49 $7.78
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 2%(1) 0%(2)
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.49%(3) 0.49%(3)
(1) Six months ended 9/30/99.
(2) For the period from 2/26/99 (inception) to 3/31/99.
(3) Annualized.
Investment terms are defined in the Glossary on pages 24-25.
www.americancentury.com 5
Equity Index--Q&A
- --------------------------------------------------------------------------------
(Continued)
product pipeline. As a result, companies such as Pfizer, Merck, Eli Lilly and
American Home Products posted disappointing results. Turning to the food and
beverage industry, one might have thought these steady-earnings-growth companies
would have benefited from the relative uncertainty and volatility the market
presented over the past six months. However, companies such as Coca-Cola and
Gillette failed to meet earnings expectations -- in part due to pricing
pressures -- and were also hurt by investors looking for more dynamic growth
from other sectors that were better poised to fully benefit from the strong
economy. The source of problems for financial services firms in general, and
banks in particular, could be summed up in two words: interest rates. With rates
on the rise, investors became concerned about shrinking margins between the
interest banks earned and the rates they would have to pay depositors.
WHAT'S THE OUTLOOK FOR THE REST OF THE YEAR?
It's always difficult to predict the direction of the market. That being
said, a fair amount of weight will be given to economic indicators and their
effect on Federal Reserve Board monetary policy. During the period, sustained
economic growth and signs of recovery in foreign markets, especially Asia,
kindled fears of imminent inflation. Although no significant signs of inflation
appeared, a vibrant U.S. economy and record-low unemployment spurred the Fed to
try to head off inflation before it appeared by raising a key short-term
interest rate in July and August. If the economy continues to grow at a rapid
pace, unemployment stays low, and we start to see signs of inflationary
pressures building, the Fed may feel it necessary to put the brakes on the
economy even further by raising rates yet again.
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
9/30/99 3/31/99
MICROSOFT CORP. 4.3% 3.8%
GENERAL ELECTRIC CO.
(U.S.) 3.6% 3.0%
INTEL CORP. 2.3% 1.7%
CISCO SYSTEMS INC. 2.1% 1.5%
INTERNATIONAL BUSINESS
MACHINES CORP. 2.0% 1.4%
WAL-MART STORES, INC. 2.0% 1.7%
LUCENT TECHNOLOGIES
INC. 1.8% 1.2%
EXXON CORP. 1.7% 1.4%
MERCK & CO., INC. 1.4% 1.6%
CITIGROUP INC. 1.4% 1.2%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
9/30/99 3/31/99
COMPUTER SOFTWARE 7.8% 6.1%
TELEPHONE 7.5% 6.6%
PHARMACEUTICALS 7.5% 8.1%
BANKS 7.2% 7.3%
COMPUTER HARDWARE &
BUSINESS MACHINES 6.5% 5.0%
6 1-800-345-2021
Equity Index--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period. The
securities are grouped by asset class (such as common stocks, corporate bonds,
temporary cash investments, as applicable), and some asset classes are further
broken down by industry or country.
SEPTEMBER 30, 1999 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.7%
AIRLINES -- 0.2%
5,694 AMR Corp.(1) $ 310,323
5,159 Delta Air Lines Inc. 250,212
18,513 Southwest Airlines Co. 281,166
2,850 US Airways Group Inc.(1) 74,812
--------------------
916,513
--------------------
ALCOHOL - 0.4%
17,199 Anheuser-Busch Companies, Inc. 1,205,005
2,562 Brown-Forman Corp. Cl B 159,805
1,355 Coors (Adolph) Co. Cl B 73,339
--------------------
1,438,149
--------------------
APPAREL & TEXTILES -- 0.4%
2,314 Liz Claiborne, Inc. 71,734
10,320 NIKE, Inc. 586,950
1,943 Reebok International Ltd.(1) 20,766
1,336 Russell Corp. 18,954
33,252 Sara Lee Corp. 779,344
672 Springs Industries, Inc. Cl A 22,806
4,357 VF Corp. 135,067
--------------------
1,635,621
--------------------
BANKS -- 7.2%
6,507 AmSouth Bancorporation 152,508
43,081 Banc One Corp. 1,499,757
27,146 Bank of New York Co., Inc. (The) 907,694
63,292 BankAmerica Corp. 3,524,573
10,864 BankBoston Corp. 471,226
11,522 BB & T Corp. 373,025
30,560 Chase Manhattan Corp. 2,303,460
123,644 Citigroup Inc. 5,440,336
5,706 Comerica, Inc. 288,866
9,784 Fifth Third Bancorp 595,295
35,183 First Union Corp. 1,251,195
36,349 Firstar Corp. 931,443
20,899 Fleet Financial Group, Inc. 765,426
8,502 Huntington Bancshares Inc. 226,100
16,549 KeyCorp 427,171
19,033 Mellon Bank Corp. 642,364
6,503 Morgan (J.P.) & Co. 742,968
22,915 National City Corp. 611,544
4,075 Northern Trust Corp. 340,390
11,123 PNC Bank Corp. 586,043
8,152 Regions Financial Corp. 244,305
Shares Value
- -------------------------------------------------------------------------------
3,924 Republic New York Corp. $ 241,081
6,107 SouthTrust Corp. 219,089
5,853 State Street Corp. 378,250
6,361 Summit Bancorp. 206,335
11,800 SunTrust Banks, Inc. 775,850
9,804 Synovus Financial Corp. 183,212
26,724 U.S. Bancorp 806,731
5,158 Union Planters Corp. 210,188
7,458 Wachovia Corp. 586,385
60,524 Wells Fargo & Co. 2,398,263
--------------------
28,331,073
--------------------
CHEMICALS -- 2.0%
8,414 Air Products and Chemicals, Inc. 244,532
2,710 Ashland Inc. 91,124
4,206 Avery Dennison Corp. 221,866
8,126 Dow Chemical Co. 923,317
35,714 du Pont (E.I.) de Nemours & Co. 2,174,090
2,859 Eastman Chemical Co. 114,360
4,766 Engelhard Corp. 86,682
1,211 FMC Corp.(1) 58,431
2,583 Grace (W.R.) & Co. (Del.)(1) 41,489
2,167 Great Lakes Chemical Corp. 82,481
3,681 Hercules Inc. 105,369
9,216 Illinois Tool Works Inc. 687,168
14,784 Minnesota Mining
& Manufacturing Co. 1,420,188
6,384 PPG Industries, Inc. 383,040
5,822 Praxair, Inc. 267,812
7,765 Rohm and Haas Co. 280,511
3,105 Sealed Air Corp.(1) 159,325
6,249 Sherwin-Williams Co. 130,838
6,242 Tenneco Inc. 106,114
4,884 Union Carbide Corp. 277,472
3,034 Vulcan Materials Co. 111,120
--------------------
7,967,329
--------------------
CLOTHING STORES -- 0.5%
31,479 Gap, Inc. (The) 1,007,328
7,864 Limited, Inc. (The) 300,798
5,171 Nordstrom, Inc. 139,617
11,811 TJX Companies, Inc. (The) 331,446
--------------------
1,779,189
--------------------
COMPUTER HARDWARE &
BUSINESS MACHINES -- 6.5%
2,900 Adaptec, Inc.(1) 115,184
5,754 Apple Computer, Inc.(1) 364,120
6,262 Cabletron Systems, Inc.(1) 98,235
See Notes to Financial Statements www.americancentury.com 7
Equity Index--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
118,405 Cisco Systems Inc.(1) $ 8,114,443
62,364 Compaq Computer Corp. 1,430,474
1,787 Data General Corp.(1) 37,639
93,110 Dell Computer Corp.(1) 3,893,162
37,141 EMC Corp. (Mass.)(1) 2,653,260
11,420 Gateway Inc.(1) 507,476
37,098 Hewlett-Packard Co. 3,413,016
5,332 IKON Office Solutions Inc. 56,986
4,336 Lexmark International
Group, Inc. Cl A(1) 349,048
2,638 Network Appliances, Inc.(1) 188,947
9,907 Pitney Bowes Inc. 603,708
8,365 Seagate Technology, Inc.(1) 257,747
6,819 Silicon Graphics, Inc.(1) 74,583
28,357 Sun Microsystems, Inc.(1) 2,638,087
24,263 Xerox Corp. 1,017,530
--------------------
25,813,645
--------------------
COMPUTER SOFTWARE -- 7.8%
2,189 Adobe Systems Inc. 248,383
2,170 Autodesk, Inc. 47,469
8,676 BMC Software, Inc.(1) 620,605
19,786 Computer Associates
International, Inc. 1,211,892
13,348 Compuware Corp.(1) 347,465
66,229 International Business
Machines Corp. 8,038,545
186,565 Microsoft Corp.(1) 16,901,623
12,352 Novell, Inc.(1) 255,146
52,796 Oracle Corp.(1) 2,403,868
9,801 Parametric Technology Corp.(1) 132,007
8,695 PeopleSoft, Inc. 147,543
10,395 Unisys Corp.(1) 469,074
--------------------
30,823,620
--------------------
CONSTRUCTION & REAL PROPERTY -- 0.3%
1,485 Armstrong World Industries, Inc. 66,732
2,174 Centex Corp. 64,269
1,236 Fleetwood Enterprises, Inc. 24,952
2,731 Fluor Corp. 109,923
6,373 Georgia-Pacific Corp. 258,106
1,762 Kaufman & Broad Home Corp. 36,341
15,061 Masco Corp. 466,891
2,027 Owens Corning 43,961
1,617 Pulte Corp. 35,170
--------------------
1,106,345
--------------------
CONSUMER DURABLES -- 0.1%
3,242 Black & Decker Corp. (The) 148,119
3,259 Maytag Corp. 108,565
2,829 Whirlpool Corp. 184,769
--------------------
441,453
--------------------
DEFENSE/AEROSPACE -- 1.1%
20,250 AlliedSignal Inc. 1,213,734
35,273 Boeing Co. 1,503,512
6,759 General Dynamics Corp. 422,015
Shares Value
- --------------------------------------------------------------------------------
3,183 Goodrich (B.F.) Company (The) $ 92,307
14,400 Lockheed Martin Corp. 470,700
2,565 Northrop Grumman Corp. 163,038
12,347 Raytheon Co. Cl B 612,720
--------------------
4,478,026
--------------------
DEPARTMENT STORES -- 2.9%
8,016 Costco Companies, Inc.(1) 576,902
16,266 Dayton Hudson Corp. 976,977
3,932 Dillard's Inc. Cl A 79,869
7,718 Federated Department Stores, Inc.(1) 337,180
18,072 Kmart Corp.(1) 211,216
5,854 Kohl's Corp.(1) 387,096
12,333 May Department Stores Co. (The) 449,384
9,643 Penney (J.C.) Company, Inc. 331,478
13,984 Sears, Roebuck & Co. 438,748
162,844 Wal-Mart Stores, Inc. 7,745,268
--------------------
11,534,118
--------------------
ELECTRICAL EQUIPMENT -- 4.2%
4,147 ADC Telecommunications, Inc.(1) 173,785
2,896 Andrew Corp.(1) 50,137
8,931 Corning Inc. 612,332
4,914 Danaher Corp. 258,906
7,794 Dover Corp. 318,580
2,592 Eaton Corp. 223,722
6,248 General Instrument Corp.(1) 300,685
2,866 Harris Corp. 79,173
4,617 Honeywell Inc. 513,930
3,286 ITT Industries, Inc. 104,536
3,121 Johnson Controls, Inc. 206,961
3,250 KLA-Tencor Corporation(1) 211,352
111,538 Lucent Technologies Inc. 7,236,028
1,625 Millipore Corp. 61,039
22,109 Motorola, Inc. 1,945,592
48,611 Nortel Networks Corp. 2,479,161
2,724 Scientific-Atlanta, Inc. 135,008
9,363 Solectron Corp.(1) 672,380
1,752 Tektronix, Inc. 58,692
14,368 Tellabs, Inc.(1) 818,527
5,727 Thermo Electron Corp.(1) 76,957
--------------------
16,537,483
--------------------
ELECTRICAL UTILITIES -- 2.0%
7,020 AES Corp. (The)(1) 414,180
5,025 Ameren Corp. 190,008
7,054 American Electric Power Co., Inc. 240,718
5,575 Carolina Power & Light Co. 197,216
7,753 Central & South West Corp. 163,782
5,832 CINergy Corp. 165,118
8,315 Consolidated Edison, Inc. 345,072
5,442 Constellation Energy Group 153,056
7,166 Dominion Resources, Inc. (Va.) 323,366
5,300 DTE Energy Company 191,462
13,308 Duke Energy Corp. 733,604
12,870 Edison International 312,902
8 1-800-345-2021 See Notes to Financial Statements
Equity Index--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
9,081 Entergy Corp. $ 262,781
8,674 FIRSTENERGY CORP. 221,187
3,496 Florida Progress Corp. 161,690
6,641 FPL Group, Inc. 334,540
4,721 GPU Inc. 154,023
4,207 New Century Energies, Inc. 140,672
6,808 Niagara Mohawk Holdings Inc.(1) 105,098
5,580 Northern States Power Co. (Minn.) 120,319
10,771 PacifiCorp 216,766
7,087 PECO Energy Co. 265,762
14,000 PG&E Corp. 362,250
5,699 PP&L Resources, Inc. 154,229
8,131 Public Service Enterprise Group Inc. 314,060
10,818 Reliant Energy, Inc. 292,762
4,062 Sonat Inc. 161,211
25,330 Southern Co. 652,247
10,315 Texas Utilities Co. 384,878
7,997 Unicom Corp. 295,389
--------------------
8,030,348
--------------------
ENERGY RESERVES & PRODUCTION -- 5.0%
3,273 Amerada Hess Corp. 200,471
4,575 Anadarko Petroleum Corp. 139,823
4,049 Apache Corp. 174,866
11,822 Atlantic Richfield Co. 1,047,725
6,512 Burlington Resources Inc. 239,316
24,016 Chevron Corp. 2,131,420
88,847 Exxon Corp. 6,746,819
3,133 Kerr-McGee Corp. 172,511
28,643 Mobil Corp. 2,885,782
12,651 Occidental Petroleum Corp. 292,554
9,345 Phillips Petroleum Co. 455,569
78,497 Royal Dutch Petroleum Co.
New York Shares 4,636,229
9,130 Union Pacific Resources 146,651
8,835 Unocal Corp. 327,447
--------------------
19,597,183
--------------------
ENTERTAINMENT -- 0.5%
22,518 Carnival Corp. Cl A 979,533
2,586 King World Productions, Inc.(1) 96,975
25,383 Viacom, Inc. Cl B(1) 1,072,432
--------------------
2,148,940
--------------------
ENVIRONMENTAL SERVICES -- 0.1%
4,944 Allied Waste Industries, Inc.(1) 57,783
22,341 Waste Management, Inc. 430,064
--------------------
487,847
--------------------
FINANCIAL SERVICES -- 6.4%
16,457 American Express Co. 2,215,524
9,368 Aon Corp. 276,942
26,728 Associates First Capital Corp. 962,208
3,540 Block (H & R), Inc. 153,769
7,304 Capital One Financial Corp. 284,856
26,535 Cendant Corp.(1) 470,996
Shares Value
- --------------------------------------------------------------------------------
4,089 Countrywide Credit Industries, Inc. $ 131,870
37,606 Fannie Mae 2,357,426
25,452 Federal Home Loan
Mortgage Corporation 1,323,504
119,900 General Electric Co. (U.S.) 14,215,644
17,640 Household International, Inc. 707,805
4,062 Kansas City Southern Industries, Inc. 188,629
9,620 Marsh & McLennan Companies, Inc. 658,970
29,440 MBNA Corp. 671,600
5,171 Providian Financial Corp. 409,479
6,082 SLM Holding Corp. 261,526
2,037 Temple-Inland Inc. 123,238
--------------------
25,413,986
--------------------
FOOD & BEVERAGE -- 3.3%
22,670 Archer-Daniels-Midland Co. 276,291
10,319 Bestfoods 500,472
16,042 Campbell Soup Co. 627,643
90,410 Coca-Cola Company (The) 4,345,331
15,531 Coca-Cola Enterprises, Inc. 350,418
17,916 ConAgra, Inc. 404,230
5,576 General Mills, Inc. 452,353
13,279 Heinz (H.J.) Co. 570,997
5,162 Hershey Foods Corp. 251,325
14,812 Kellogg Co. 554,524
11,835 Nabisco Group Holdings Corp. 177,525
53,721 PepsiCo, Inc. 1,625,060
8,811 Pioneer Hi-Bred International, Inc. 350,788
5,007 Quaker Oats Co. (The) 309,808
4,354 Supervalu Inc. 94,972
12,202 SYSCO Corp. 427,833
20,965 Unilever N.V. New York Shares 1,428,241
4,222 Wrigley (Wm.) Jr. Company 290,526
--------------------
13,038,337
--------------------
FOREST PRODUCTS & PAPER -- 0.8%
1,905 Bemis Co., Inc. 64,532
2,045 Boise Cascade Corp. 74,515
3,524 Champion International Corp. 181,046
8,131 Fort James Corp. 216,996
15,036 International Paper Co. 722,668
19,543 Kimberly-Clark Corp. 1,026,008
3,942 Louisiana-Pacific Corp. 61,594
3,781 Mead Corp. (The) 129,972
1,079 Potlatch Corp. 44,441
3,668 Westvaco Corp. 93,992
7,331 Weyerhaeuser Co. 422,449
4,073 Willamette Industries, Inc. 175,648
--------------------
3,213,861
--------------------
GAS & WATER UTILITIES -- 0.2%
4,294 CMS Energy Corp. 145,728
3,101 Columbia Energy Group 171,718
3,524 Consolidated Natural Gas Co. 219,810
819 Eastern Enterprises 38,032
1,759 NICOR Inc. 65,413
See Notes to Financial Statements www.americancentury.com 9
Equity Index--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
1,205 ONEOK, Inc. $ 36,527
1,342 People's Energy Corp. 47,222
8,817 Sempra Energy 183,504
--------------------
907,954
--------------------
GOLD -- 0.2%
14,203 Barrick Gold Corp. 308,915
5,986 Freeport-McMoran
Copper & Gold, Inc. Cl B 93,157
9,467 Homestake Mining Co. 86,978
6,015 Newmont Mining Corp. 155,638
11,689 Placer Dome Inc. 173,874
--------------------
818,562
--------------------
GROCERY STORES -- 0.6%
15,315 Albertson's, Inc. 605,900
1,370 Great Atlantic &
Pacific Tea Co., Inc. (The) 41,528
30,162 Kroger Co. (The)(1) 665,449
18,157 Safeway Inc.(1) 691,101
5,434 Winn-Dixie Stores, Inc. 161,322
--------------------
2,165,300
--------------------
HEAVY ELECTRICAL EQUIPMENT -- 0.5%
3,430 Cooper Industries, Inc. 160,352
1,506 Cummins Engine Company, Inc. 75,018
16,009 Emerson Electric Co. 1,011,569
1,393 Foster Wheeler Corp. 16,803
3,507 Grainger (W.W.), Inc. 168,555
2,160 Phelps Dodge Corp. 118,935
6,935 Rockwell International Corp. 364,088
2,048 Thomas & Betts Corp. 104,448
--------------------
2,019,768
--------------------
HEAVY MACHINERY -- 0.1%
2,715 Case Corp. 135,241
8,561 Deere & Co. 331,204
278 NACCO Industries, Inc. Cl A 19,425
--------------------
485,870
--------------------
HOME PRODUCTS -- 2.2%
2,046 Alberto-Culver Company Cl B 47,314
9,631 Avon Products, Inc. 238,969
8,673 Clorox Co. (The) 331,742
21,444 Colgate-Palmolive Co. 981,063
4,751 Ecolab Inc. 162,128
6,226 Fortune Brands, Inc. 200,788
39,906 Gillette Company 1,354,310
3,923 International Flavors & Fragrances Inc. 135,344
1,496 National Service Industries, Inc. 47,124
10,275 Newell Co. 293,480
48,620 Procter & Gamble Co. (The) 4,558,125
12,054 Ralston Purina Co. 335,252
2,156 Tupperware Corp. 43,659
--------------------
8,729,298
--------------------
Shares Value
- -------------------------------------------------------------------------------
HOTELS -- 0.1%
4,527 Harrah's Entertainment, Inc.(1) $ 125,624
9,401 Hilton Hotels Corporation 92,835
7,176 Mirage Resorts, Inc.(1) 100,912
--------------------
319,371
--------------------
INDUSTRIAL PARTS -- 0.9%
826 Briggs & Stratton Corp. 48,218
13,145 Caterpillar Inc. 720,510
2,558 Crane Co. 57,395
6,631 Genuine Parts Company 176,136
6,096 Ingersoll-Rand Co. 334,899
2,171 McDermott International, Inc. 43,963
1,363 Milacron Inc. 24,193
4,603 Pall Corp. 106,732
3,947 Parker-Hannifin Corp. 176,875
2,320 Snap-on Inc. 75,400
3,257 Stanley Works (The) 82,036
5,563 Textron Inc. 430,437
2,297 Timken Co. 37,039
17,645 United Technologies Corp. 1,046,569
--------------------
3,360,402
--------------------
INDUSTRIAL SERVICES(2)
2,587 Ryder System, Inc. 52,710
--------------------
INFORMATION SERVICES -- 1.3%
22,663 Automatic Data Processing, Inc. 1,011,336
5,288 Ceridian Corp.(1) 131,539
5,833 Computer Sciences Corp.(1) 410,133
6,087 Dun & Bradstreet Corp. (The) 181,849
18,053 Electronic Data Systems Corp. 955,681
5,405 Equifax Inc. 152,016
15,878 First Data Corp. 696,647
11,665 IMS Health Inc. 266,108
10,301 Interpublic Group of Companies, Inc. 423,629
11,987 Laidlaw Inc. 80,912
6,490 Omnicom Group Inc. 513,927
8,972 Paychex, Inc. 306,450
957 Shared Medical Systems Corp. 44,740
--------------------
5,174,967
--------------------
INTERNET -- 1.4%
13,181 3Com Corp.(1) 378,542
40,178 America Online Inc.(1) 4,178,512
5,676 QUALCOMM Inc.(1) 1,073,651
--------------------
5,630,705
--------------------
LEISURE -- 0.4%
3,388 Brunswick Corp. 84,276
11,714 Eastman Kodak Co. 883,675
7,139 Hasbro, Inc. 153,042
15,160 Mattel, Inc. 288,040
1,625 Polaroid Corp. 42,250
--------------------
1,451,283
--------------------
10 1-800-345-2021 See Notes to Financial Statements
Equity Index--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
LIFE AND HEALTH INSURANCE -- 0.7%
5,167 Aetna Inc. $ 254,475
9,734 AFLAC Inc. 407,611
9,227 American General Corp. 583,031
7,375 CIGNA Corp. 573,406
11,811 Conseco Inc. 228,100
7,340 Lincoln National Corp. 275,709
5,012 Torchmark Corp. 129,686
8,694 UNUM Corp. 255,930
--------------------
2,707,948
--------------------
MEDIA -- 2.5%
25,952 CBS Corp.(1) 1,200,280
12,122 Clear Channel
Communications, Inc.(1) 968,245
27,144 Comcast Corp. Cl A 1,081,519
75,567 Disney (Walt) Co. 1,955,296
22,250 MediaOne Group Inc.(1) 1,519,953
1,902 Meredith Corp. 69,066
46,736 Time Warner Inc. 2,839,212
8,688 Tribune Co. 432,228
--------------------
10,065,799
--------------------
MEDICAL PRODUCTS & SUPPLIES -- 3.4%
55,765 Abbott Laboratories 2,049,364
1,904 Bard (C.R.), Inc. 89,607
2,048 Bausch & Lomb Inc. Cl A 135,040
10,696 Baxter International, Inc. 644,434
9,109 Becton, Dickinson and Co. 255,621
4,084 Biomet, Inc. 107,333
14,510 Boston Scientific Corp.(1) 358,216
11,014 Guidant Corp. 590,626
49,183 Johnson & Johnson 4,518,688
2,586 Mallinckrodt Inc. 78,065
42,878 Medtronic, Inc. 1,522,169
3,113 St. Jude Medical, Inc.(1) 98,060
30,267 Tyco International Ltd. 3,125,068
--------------------
13,572,291
--------------------
MEDICAL PROVIDERS & SERVICES -- 0.4%
21,019 Columbia/HCA Healthcare Corp. 445,340
4,071 HCR Manor Care, Inc.(1) 69,970
15,333 HEALTHSOUTH Corp.(1) 92,956
6,017 Humana Inc.(1) 41,367
9,931 Service Corp. International 104,896
11,297 Tenet Healthcare Corp.(1) 198,404
6,418 United HealthCare Corp. 312,476
2,411 Wellpoint Health Networks Inc.(1) 137,427
--------------------
1,402,836
--------------------
MINING & METALS -- 0.6%
8,387 Alcan Aluminium Ltd. 262,094
13,458 Alcoa Inc. 835,237
7,172 Allegheny Teledyne Inc. 121,028
1,384 ASARCO Inc. 37,108
1,096 Ball Corporation 48,292
Shares Value
- --------------------------------------------------------------------------------
4,657 Bethlehem Steel Corporation(1) $ 34,345
4,481 Crown Cork & Seal Co., Inc. 108,664
3,275 Cyprus Amax Minerals Co. 64,272
6,884 Inco Ltd. 147,146
3,243 Nucor Corp. 154,448
5,702 Owens-Illinois, Inc.(1) 112,971
2,323 Reynolds Metals Co. 140,251
3,252 USX-U.S. Steel Group 83,739
3,289 Worthington Industries, Inc. 55,810
--------------------
2,205,405
--------------------
MOTOR VEHICLES & PARTS -- 1.3%
2,732 Cooper Tire and Rubber Company 48,152
6,103 Dana Corp. 226,574
20,605 Delphi Automotive Systems Corp. 330,968
44,385 Ford Motor Co. 2,227,572
23,680 General Motors Corp. 1,490,360
5,705 Goodyear Tire & Rubber Co. (The) 274,553
2,439 Navistar International Corp.(1) 113,414
2,855 PACCAR Inc. 145,070
4,360 TRW Inc. 216,910
--------------------
5,073,573
--------------------
OIL REFINING -- 1.1%
7,757 Coastal Corp. (The) 317,552
23,230 Conoco Inc. Cl B 635,921
25,924 Enron Corp. 1,069,365
3,384 Sunoco, Inc. 92,637
19,671 Texaco Inc. 1,241,732
4,200 Tosco Corp. 106,050
11,275 USX-Marathon Group 329,794
15,757 Williams Companies, Inc. (The) 589,903
--------------------
4,382,954
--------------------
OIL SERVICES -- 0.6%
11,959 Baker Hughes Inc. 346,811
16,150 Halliburton Co. 662,150
1,777 Helmerich & Payne, Inc. 44,980
3,005 Rowan Companies, Inc.(1) 48,831
19,976 Schlumberger Ltd. 1,244,754
--------------------
2,347,526
--------------------
PHARMACEUTICALS -- 7.5%
2,440 Allergan, Inc. 268,400
3,670 ALZA Corp.(1) 157,122
47,971 American Home Products Corp. 1,990,796
18,731 Amgen Inc.(1) 1,526,576
72,673 Bristol-Myers Squibb Co. 4,905,427
9,927 Cardinal Health, Inc. 541,022
40,022 Lilly (Eli) & Co. 2,561,408
10,175 McKesson HBOC, Inc. 295,075
85,862 Merck & Co., Inc. 5,564,931
23,177 Monsanto Co. 827,129
3,575 PE Corp-PE Biosystems Group 258,294
141,816 Pfizer, Inc. 5,096,512
18,596 Pharmacia & Upjohn Inc. 922,826
See Notes to Financial Statements www.americancentury.com 11
Equity Index--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
53,901 Schering-Plough Corp. $ 2,351,431
3,672 Sigma-Aldrich Corp. 116,471
31,207 Warner-Lambert Co. 2,071,365
3,521 Watson Pharmaceuticals, Inc.(1) 107,611
--------------------
29,562,396
--------------------
PROPERTY AND CASUALTY
INSURANCE -- 2.0%
29,527 Allstate Corp. 736,330
56,673 American International Group, Inc. 4,927,009
5,992 Chubb Corp. (The) 298,476
6,101 Cincinnati Financial Corp. 228,978
8,414 Hartford Financial Services
Group Inc. (The) 343,922
3,923 Jefferson-Pilot Corp. 247,885
4,040 Loews Corp. 283,558
3,662 MBIA Inc. 170,741
4,054 MGIC Investment Corp. 193,578
2,702 Progressive Corp. (Ohio) 220,720
5,016 SAFECO Corp. 140,291
8,418 St. Paul Companies, Inc. 231,495
--------------------
8,022,983
--------------------
PUBLISHING -- 0.6%
2,560 American Greetings Corp. Cl A 65,920
2,962 Deluxe Corp. 100,708
4,876 Donnelley (R.R.) & Sons Co. 140,794
3,387 Dow Jones & Co., Inc. 180,781
10,305 Gannett Co., Inc. 712,977
2,586 Harcourt General Inc. 107,642
1,335 Jostens, Inc. 25,532
2,859 Knight-Ridder, Inc. 156,888
7,207 McGraw-Hill Companies, Inc. (The) 348,639
6,525 New York Times Co. (The) Cl A 244,688
2,611 Times Mirror Co. (New) Cl A 171,836
--------------------
2,256,405
--------------------
RAILROADS -- 0.4%
17,231 Burlington Northern Santa Fe Corp. 473,852
7,997 CSX Corp. 338,873
13,865 Norfolk Southern Corp. 339,692
9,089 Union Pacific Corp. 436,840
--------------------
1,589,257
--------------------
RESTAURANTS -- 0.7%
5,006 Darden Restaurants, Inc. 97,930
9,084 Marriott International, Inc. 296,933
49,691 McDonald's Corp. 2,136,713
5,578 Tricon Global Restaurants Inc.(1) 228,349
4,595 Wendy's International, Inc. 121,193
--------------------
2,881,118
--------------------
SECURITIES & ASSET MANAGEMENT -- 1.2%
4,205 Bear Stearns Companies Inc. 161,630
9,235 Franklin Resources, Inc. 283,976
4,328 Lehman Brothers Holdings Inc. 252,376
13,504 Merrill Lynch & Co., Inc. 907,300
Shares Value
- --------------------------------------------------------------------------------
20,963 Morgan Stanley Dean Witter & Co. $ 1,869,638
5,289 Paine Webber Group, Inc. 191,726
30,029 Schwab (Charles) Corp. 1,011,602
--------------------
4,678,248
--------------------
SEMICONDUCTOR -- 3.5%
5,209 Advanced Micro Devices, Inc.(1) 89,530
13,587 Applied Materials, Inc.(1) 1,055,115
1,635 EG&G, Inc. 65,093
120,984 Intel Corp. 8,994,404
5,175 LSI Logic Corp.(1) 266,512
9,108 Micron Technology, Inc.(1) 606,251
6,118 National Semiconductor Corp.(1) 186,599
28,753 Texas Instruments Inc. 2,364,934
--------------------
13,628,438
--------------------
SPECIALTY STORES -- 2.1%
5,546 AutoZone, Inc.(1) 155,635
3,900 Bed Bath & Beyond Inc.(1) 136,378
7,446 Best Buy Co., Inc.(1) 462,117
7,338 Circuit City Stores-Circuit City Group 309,572
4,057 Consolidated Stores Corp.(1) 89,508
14,269 CVS Corp. 582,354
8,134 Dollar General Corp. 251,137
54,275 Home Depot, Inc. 3,724,622
1,478 Longs Drug Stores Corp. 44,155
13,585 Lowe's Companies, Inc. 662,269
13,678 Office Depot, Inc.(1) 139,345
1,807 Pep Boys-Manny, Moe & Jack (The) 26,879
9,499 Rite Aid Corp. 131,205
16,973 Staples, Inc.(1) 370,224
7,185 Tandy Corp. 371,375
9,109 Toys 'R' Us, Inc.(1) 136,635
36,757 Walgreen Co. 932,709
--------------------
8,526,119
--------------------
TELEPHONE -- 7.5%
40,307 Ameritech Corp. 2,708,127
116,767 AT&T Corp. 5,079,364
56,883 Bell Atlantic Corp. 3,828,937
69,081 BellSouth Corp. 3,108,645
5,067 Century Telephone Enterprises, Inc. 205,847
26,648 Global Crossing Holdings Ltd.(1) 705,339
35,656 GTE Corp. 2,741,055
68,263 MCI WorldCom, Inc.(1) 4,904,270
72,028 SBC Communications Inc. 3,677,930
31,762 Sprint Corp. 1,723,088
18,460 U S WEST, Inc. 1,053,374
--------------------
29,735,976
--------------------
THRIFTS -- 0.2%
2,045 Golden West Financial Corp. (Del.) 200,921
21,435 Washington Mutual, Inc. 626,974
--------------------
827,895
--------------------
12 1-800-345-2021 See Notes to Financial Statements
Equity Index--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
TOBACCO -- 1.0%
87,569 Philip Morris Companies Inc. $ 2,993,758
15,628 Seagram Co. Ltd. (The) 711,074
6,536 UST Inc. 197,306
--------------------
3,902,138
--------------------
TRUCKING, SHIPPING & AIR FREIGHT -- 0.1%
10,865 FDX Corporation(1) 421,019
--------------------
WIRELESS TELECOMMUNICATIONS -- 0.7%
10,736 ALLTEL Corp. 755,546
11,627 Nextel Communications, Inc.(1) 788,819
16,145 Sprint PCS(1) 1,203,812
--------------------
2,748,177
--------------------
TOTAL COMMON STOCKS 386,387,757
--------------------
(Cost $386,829,060)
Principal Amount Value
- -------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 2.3%
$600,000 U.S. Treasury Bills, 4.71%,
12/23/99(3)(4) $ 593,484
Repurchase Agreement, State Street
Boston Corp., (U.S. Treasury obligations),
in a joint trading account at 5.25%,
dated 9/30/99, due 10/1/99
(Delivery value $8,701,269) 8,700,000
--------------------
TOTAL TEMPORARY CASH INVESTMENTS 9,293,484
--------------------
(Cost $9,293,519)
TOTAL INVESTMENT SECURITIES -- 100.0% $395,681,241
======================
(Cost $396,122,579)
FUTURES CONTRACTS
Underlying Face Unrealized
Purchased Expiration Date Amount at Value Loss
- --------------------------------------------------------------------------------
250 S&P 500 December
Futures 1999 $8,115,625 $(394,550)
=======================================
Futures contracts appear at the end of the schedule of investments. These
contracts are typically based on a stock index, such as the S&P 500, and they
tend to track the performance of the index while remaining very liquid (easy to
buy and sell). By investing its cash assets in index futures, the fund can stay
fully invested in stocks while having easy access to the money.
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.
See Notes to Financial Statements www.americancentury.com 13
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. For each class of shares, the net assets divided by shares outstanding
is the share price, or NET ASSET VALUE PER SHARE. This statement also breaks
down the fund's net assets into capital (shareholder investments) and
performance (investment income and gains/losses).
SEPTEMBER 30, 1999 (UNAUDITED)
ASSETS
Investment securities, at value
(identified cost of $396,122,579) (Note 3) ................ $ 395,681,241
Receivable for investments sold .............................. 713,220
Dividend and interest receivable ............................. 446,205
Receivable for variation margin on futures contracts ......... 97,841
-------------
396,938,507
-------------
LIABILITIES
Disbursements in excess of demand deposit cash ............... 12,088,143
Payable for management fees (Note 2) ......................... 104,539
Payable for directors' fees and expenses ..................... 225
-------------
12,192,907
-------------
Net Assets ................................................... $ 384,745,600
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ...................... $ 383,165,871
Undistributed net investment income .......................... 113,608
Accumulated net realized gain on investment transactions ..... 2,302,009
Net unrealized depreciation on investments (Note 3) .......... (835,888)
-------------
$ 384,745,600
=============
Investor Class
Net assets ................................................... $ 43,973,494
Shares outstanding ........................................... 8,505,676
Net asset value per share .................................... $ 5.17
Institutional Class
Net assets ................................................... $ 340,772,106
Shares outstanding ........................................... 65,899,297
Net asset value per share .................................... $ 5.17
14 1-800-345-2021 See Notes to Financial Statements
Statement of Operations
- --------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $45,139) .......... $ 2,354,316
Interest ...................................................... 573,993
------------
2,928,309
------------
Expenses (Note 2):
Management fees ............................................... 572,074
Directors' fees and expenses .................................. 1,966
------------
574,040
------------
Net investment income ......................................... 2,354,269
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3)
Net realized gain on investments .............................. 1,650,901
Change in net unrealized appreciation on investments .......... (10,002,977)
------------
Net realized and unrealized loss on investments ............... (8,352,076)
------------
Net Decrease in Net Assets Resulting from Operations .......... $ (5,997,807)
============
See Notes to Financial Statements www.americancentury.com 15
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND FEBRUARY 26, 1999
(INCEPTION) THROUGH MARCH 31, 1999
SEPTEMBER 30, MARCH 31,
1999 1999
Increase in Net Assets
OPERATIONS
Net investment income ....................... $ 2,354,269 $ 323,966
Net realized gain on
investment transactions .................. 1,650,901 651,108
Change in net unrealized
appreciation on investments .............. (10,002,977) 9,167,089
------------- -------------
Net increase (decrease) in net
assets resulting from operations ......... (5,997,807) 10,142,163
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ............................ (231,664) --
Institutional Class ....................... (2,332,963) --
------------- -------------
Decrease in net assets from distributions ... (2,564,627) --
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase in net assets from
capital share transactions ............... 111,718,670 271,447,201
------------- -------------
Net increase in net assets .................. 103,156,236 281,589,364
NET ASSETS
Beginning of period ......................... 281,589,364 --
------------- -------------
End of period ............................... $ 384,745,600 $ 281,589,364
============= =============
Undistributed net investment income ......... $ 113,608 $ 323,966
============= =============
16 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Capital Portfolios, Inc. (the corporation)
is registered under the Investment Company Act of 1940 as an open-end management
investment company. American Century Equity Index Fund (the fund) is one of the
six 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. The following significant accounting policies are in
accordance with generally accepted accounting principles; these policies 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. 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 is 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 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 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.
www.americancentury.com 17
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM 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 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, for the six months ended September 30, 1999, were $153,449,472 and
$6,025,092, respectively.
On September 30, 1999, accumulated net unrealized depreciation on
investments was $461,103, based on the aggregate cost of investments for federal
income tax purposes of $396,142,344, which consisted of unrealized appreciation
of $30,572,641 and unrealized depreciation of $31,033,744.
18 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
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 ............................. 25,000,000
=============
Six months ended September 30, 1999
Sold .......................................... 7,119,243 $38,357,866
Issued in reinvestment of distributions ....... 42,794 223,758
Redeemed ...................................... (1,930,053) (10,392,087)
------------- -------------
Net increase .................................. 5,231,984 $28,189,537
============= =============
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 ............................. 100,000,000
=============
Six months ended September 30, 1999
Sold .......................................... 26,246,251 $144,237,348
Issued in reinvestment of distributions ....... 443,064 2,318,013
Redeemed ...................................... (11,704,845) (63,026,228)
------------- -------------
Net increase .................................. 14,984,470 $ 83,529,133
============= =============
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
============= =============
www.americancentury.com 19
Equity Index--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
income as a percentage of average net assets), EXPENSE RATIO (operating expenses
as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the
fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED
Investor Class
1999(1) 1999(2)
==============================================================================
PER-SHARE DATA
Net Asset Value, Beginning of Period .................. $5.20 $5.00
---------- ----------
Income From Investment Operations
Net Investment Income(3) ............................ 0.03 0.01
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ....................... (0.03) 0.19
---------- ----------
Total From Investment Operations .................... -- 0.20
---------- ----------
Distributions
From Net Investment Income .......................... (0.03) --
---------- ----------
Net Asset Value, End of Period ........................ $5.17 $5.20
========== ==========
Total Return(4) ..................................... 0.02% 4.00%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ..... 0.49%(5) 0.49%(5)
Ratio of Net Investment Income to Average Net Assets .. 1.09%(5) 1.13%(5)
Portfolio Turnover Rate ............................... 2% --
Net Assets, End of Period (in thousands) .............. $43,973 $17,010
(1) Six months ended September 30, 1999 (unaudited).
(2) February 26, 1999 (inception) through March 31, 1999.
(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.
20 1-800-345-2021 See Notes to Financial Statements
Equity Index--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED
Institutional Class
1999(1) 1999(2)
===============================================================================
PER-SHARE DATA
Net Asset Value, Beginning of Period .................. $5.20 $5.00
---------- ----------
Income From Investment Operations
Net Investment Income(3) ............................ 0.04 0.01
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ....................... (0.03) 0.19
---------- ----------
Total From Investment Operations .................... 0.01 0.20
---------- ----------
Distributions
From Net Investment Income .......................... (0.04) --
---------- ----------
Net Asset Value, End of Period ........................ $5.17 $5.20
========== ==========
Total Return(4) ..................................... 0.13% 4.00%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ..... 0.29%(5) 0.29%(5)
Ratio of Net Investment Income to Average Net Assets .. 1.29%(5) 1.33%(5)
Portfolio Turnover Rate ............................... 2% --
Net Assets, End of Period (in thousands) .............. $340,772 $264,580
(1) Six months ended September 30, 1999 (unaudited).
(2) February 26, 1999 (inception) through March 31, 1999.
(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.
See Notes to Financial Statements www.americancentury.com 21
Share Class and Retirement Account Information
- --------------------------------------------------------------------------------
SHARE CLASSES
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.
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 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.
22 1-800-345-2021
Background Information
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INVESTMENT PHILOSOPHY AND 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 worldwide.
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 Corporation, 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 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 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 Russell 2000 represents
approximately 10% of the total market capitalization of the top 3,000 companies.
The average market capitalization of the index is approximately $420 million.
"Standard & Poor's,(reg.tm)" "S&P 500,(reg.tm)" and "S&P(reg.tm)" are trademarks
of The McGraw-Hill Companies, Inc., and have been licensed for use by American
Century Investment Management, Inc. The fund is not sponsored, endorsed, sold or
promoted by Standard & Poor's, and Standard & Poor's makes no representation
regarding the advisability of investing in the fund.
www.americancentury.com 23
Glossary
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RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on pages 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 staple companies.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS-- generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of more than $5 billion. These tend to be the stocks that
make up the Dow Jones Industrial Average and the S&P 500.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS--generally considered to be stocks of
companies with a market capitalization (the total value of a company's
outstanding stock) of between $1 billion and $5 billion. These tend to be the
stocks that make up the S&P 400.
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS-- generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of less than $1 billion. These tend to be the stocks that
make up the Russell 2000 Index.
24 1-800-345-2021
Glossary
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(Continued)
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 provided
by either dividend-paying equities or a combination of equity and fixed-income
securities.
* 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.
www.americancentury.com 25
Notes
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26 1-800-345-2021
Notes
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www.americancentury.com 27
Notes
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28 1-800-345-2021
[inside back cover]
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INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
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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: Large Cap Value
Conservative Equity Income
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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(reg.tm)
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 1-800-345-2021 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
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
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.
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American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9911 Funds Distributor, Inc. is the distributor
SH-SAN-18155 of American Century funds
(c)1999 American Century Services Corporation
