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<p><b>March 31, 2000</b></p>
<p><font size=6>A</font><font size=4>MERICAN</font><font size=6> C</font><font size=4>ENTURY<sup>®</sup></font></p>
<p><font size=6><i> Annual Report</i></font></p>
<p align="CENTER">[GRAPHIC OMITTED]</p>
<p><font size="4">Value<BR>
Equity Income<BR>
Small Cap Value<BR>
Large Cap Value</font></p>
<p align="right">[AMERICAN CENTURY(R) LOGO]</p>
<p><b>Value</b><br>
(TWVLX)</p>
<HR width="300" size="1" noshade align="left">
<p><b>Equity Income</b><br>
(TWEIX)</p>
<HR width="300" size="1" noshade align="left">
<p><b>Small Cap Value</b><br>
(ASVIX)</p>
<HR width="300" size="1" noshade align="left">
<p><b>Large Cap Value</b><br>
(N/A)</p>
<hr width="300" size="1" noshade align="left">
<p><font size=4><i>Turn to the inside back<br>
cover of this report to<br>
see a list of American<br>
Century funds classified<br>
by objective and risk.</i></font></p>
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<P><FONT size=5>Our Message to You</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P>[PHOTO OMITTED]</P>
<P><FONT size=2><I> James E. Stowers III, seated, with James E. Stowers,
Jr.</I></FONT></P>
<P>The year ended March 31, 2000, offered few bright spots for impatient
value-oriented investors. Except for slivers of time at the beginning and end
of the period, value stocks could gain little traction amid the almost frenzied
preference investors had for high-growth technology stocks. As a result, the
four conservative equity funds covered in this report turned in mixed results
for the year. Small Cap Value was able to post a double-digit return,
reflecting the fact that the action that occurred in the value universe was
primarily at the small end of the capitalization range. Fighting a stronger
headwind, however, our two flagship value-oriented funds, Value and Equity
Income, provided more modest gains for their fiscal year. Meanwhile, the share
price of our newest conservative equity fund, Large Cap Value, declined over
its eight-month lifespan.</P>
<P>As your portfolio managers indicate in their discussions, they adhered to
their disciplined strategies of investing in high-quality, inexpensively priced
companies. True, that genre of firms has been out of favor for a frustratingly
long time, but we think we're seeing signs that investors could be starting to
notice the abundance of fundamentally sound companies whose share prices are
extremely attractive. In any event, we are staying true to our investment style
and discipline and filling our conservative equity portfolios with what we
perceive as the market's best value opportunities. Our funds have shown over
time that when the value style is in vogue, we're capable of providing
above-average returns at attractive levels of risk.</P>
<P>Besides serving the nearly two million investors who look to American
Century for investment management, we also have an obligation to the 3,000
people who work on your behalf — to create a positive, safe, and productive
work environment for American Century staff. This commitment was recognized and
rewarded in late 1999 when American Century ranked in the top 40 of <I>Fortune</I>
magazine's "100 Best Companies to Work For."</P>
<P>We do not take this recognition lightly; acknowledgements like this allow us
to recruit talented and dedicated people, from service representatives to
investment professionals. This intellectual capital is our most valuable
resource and is essential in our efforts to provide you with excellent
investment management and service.</P>
<P>As always, we appreciate your continued confidence in American Century.</P>
<P>Sincerely,</P>
<P>/s/ James E. Stowers, Jr.</P>
<P>James E. Stowers, Jr.<BR>
<I>Chairman of the Board and Founder</I></P>
<P>/s/ James E. Stowers III</P>
<P>James E. Stowers III<BR>
<I>Vice Chairman of the Board and<BR>
Chief Executive Officer</I></P>
<P><FONT size=5>Table of Contents</FONT></P>
<P> <A HREF="#A">Report Highlights</A><BR>
<A HREF="#B">Market Perspective</A></P>
<P><A HREF="#C"><B>Value</B></A><BR>
<A HREF="#D">Performance Information</A><BR>
<A HREF="#E">Management Q&A</A><BR>
<A HREF="#F">Schedule of Investments</A></P>
<P><A HREF="#G"><B>Equity Income</B></A><BR>
<A HREF="#H">Performance Information</A><BR>
<A HREF="#I">Management Q&A</A><BR>
<A HREF="#J">Schedule of Investments</A></P>
<P><A HREF="#K"><B>Small Cap Value</B></A><BR>
<A HREF="#L">Performance Information</A><BR>
<A HREF="#M">Management Q&A</A><BR>
<A HREF="#N">Schedule of Investments</A></P>
<P><A HREF="#O"><B>Large Cap Value</B></A><BR>
<A HREF="#P">Performance Information</A><BR>
<A HREF="#Q">Management Q&A</A><BR>
<A HREF="#R">Schedule of Investments</A></P>
<P><A HREF="#S"><B>Financial Statements</B></A><BR>
<A HREF="#T">Statements of Assets and Liabilities</A><BR>
<A HREF="#U">Statements of Operations</A><BR>
<A HREF="#V">Statements of Changes in Net Assets</A><BR>
<A HREF="#W">Notes to Financial Statements</A><BR>
<A HREF="#X">Financial Highlights</A><BR>
<A HREF="#Y">Independent Auditors' Report</A></P>
<P><A HREF="#Z"><B>Other Information</B></A><BR>
<A HREF="#AA">Share Class and Retirement Account Information</A><BR>
<A HREF="#AB">Background Information</A><BR>
<A HREF="#AC">Investment Philosophy and Policies</A><BR>
<A HREF="#AD">Comparative Indices</A><BR>
<A HREF="#AE">Portfolio Managers</A><BR>
<A HREF="#AF">Glossary</A></P>
<A NAME="A"></A><P><FONT size=5>Report Highlights</FONT></P>
<HR width="100%" size="1" noshade align="left">
- ----------------------------------------
Value(1)
(TWVLX)
- ----------------------------------------
Total Returns: AS OF 3/31/00
6 Months -3.79%(2)
1 Year 1.42%
Inception Date: 9/1/93
- ----------------------------------------
Net Assets: $1.5 billion(3)
- ----------------------------------------
- ----------------------------------------
Equity Income(1)
(TWEIX)
- ----------------------------------------
Total Returns: AS OF 3/31/00
6 Months -2.55%(2)
1 Year 3.88%
Inception Date: 8/1/94
- ----------------------------------------
Net Assets: $316.7 million(3)
- ----------------------------------------
- ----------------------------------------
Small Cap Value(1)
(ASVIX)
- ----------------------------------------
Total Returns: AS OF 3/31/00
6 Months 7.21%(2)
1 Year 14.37%
Inception Date: 7/31/98
- ----------------------------------------
Net Assets: $20.1 million(3)
- ----------------------------------------
- ----------------------------------------
Large Cap Value(1)
(N/A)
- ----------------------------------------
Total Returns: AS OF 3/31/00
6 Months 1.46%(2)
Since Inception -7.22%(2)
Inception Date: 7/30/99
Net Assets: $12.7 million(3)
- ----------------------------------------
<P><FONT size=2>(1) Investor Class.</FONT></P>
<P><FONT size=2>(2) Not annualized.</FONT></P>
<P><FONT size=2>(3) Includes Investor, Advisor, and Institutional classes.</FONT></P>
<P><FONT size=2>Investment terms are defined in the Glossary on pages 52–53.</FONT></P>
<A NAME="B"></A><P><FONT size=4><B>Market Perspective</B></FONT></P>
<UL type="square">
<LI>The year ended March 31, 2000, introduced the "New Economy" — stocks of
companies involved in the Internet and other developing technologies — that
enticed investors with remarkable accelerating price momentum. "Old Economy"
companies — financial services, industrial and retail — commanded only
occasional investor interest.</LI>
<LI>Rapid economic growth and low unemployment introduced inflationary concerns,
prompting the Federal Reserve to hike short-term interest rates five times to
slow a potential runaway economy.</LI>
</UL>
<A NAME="C"></A><P><FONT size=4><B>Value</B></FONT></P>
<UL type="square">
<LI>Value returned 1.42% during its fiscal year, underperforming its new
benchmark, the Lipper Multi-Cap Value Index, which gained 5.42%. The S&P 500
gained 17.94%.</LI>
<LI>Growth stocks dominated the market, with technology companies leading that
trend and driving the Nasdaq Composite to record levels.</LI>
<LI>Chemical companies were Value's strongest performers and some of the fund's
largest holdings. Electrical equipment companies also contributed to
performance.</LI>
<LI>Holdings in banks and food and beverage companies detracted from performance.
Banks suffered in the rising interest rate environment, while traditionally
slower-growing food and beverage companies stumbled.</LI>
</UL>
<A NAME="G"></A><P><FONT size=4><B>Equity Income</B></FONT></P>
<UL type="square">
<LI>Equity Income returned 3.88% during its fiscal year, outperforming its
benchmark, the Lipper Equity Income Index, which gained 3.25%.</LI>
<LI>Chemical companies, paper and forest products firms, and gas and electric
utilities were the strongest contributors to performance.</LI>
<LI>Banks and food and beverage companies, which were hurt by rising interest
rates and pricing pressures, respectively, hindered performance.</LI>
</UL>
<A NAME="K"></A><P><FONT size=4><B>Small Cap Value</B></FONT></P>
<UL type="square">
<LI>Small Cap Value gained 14.37% during its fiscal year, underperforming its
benchmark, the S&P SmallCap 600/BARRA Value Index, which returned 17.14%.</LI>
<LI>While growth and technology companies led the market, the value style
suffered. Technology stocks, typically high-priced and therefore not portfolio
candidates, led to the fund's light exposure.</LI>
<LI>Small Cap Value's substantial overweight in the energy sector proved
beneficial as oil and gas prices rose. Strong stock selection in electric
utilities and medical products and supplies companies also contributed.</LI>
<LI>Performance was restrained by holdings in food and beverage firms and leisure
companies.</LI>
</UL>
<A NAME="O"></A><P><FONT size=4><B>Large Cap Value</B></FONT></P>
<UL type="square">
<LI>Large Cap Value declined 7.22% in its first eight months of operation. It
underperformed its benchmark, the S&P 500/BARRA Value Index, which gained 2.29%.</LI>
<LI>Large Cap Value sought the out-of-favor stocks of older and more established
value-oriented companies.</LI>
<LI>Holdings across several industries, including motor vehicles and auto parts,
contributed to performance.</LI>
<LI>Performance was weakened by holdings in tobacco and financial services, while
securities of telephone and energy companies provided mixed results.</LI>
</UL>
<P><FONT size=5>Market Perspective from Mark Mallon</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P>[PHOTO OMITTED]</P>
<P><FONT size=2><I>Mark Mallon, head of specialty, asset allocation, and
growth and income equity funds at American Century</I></FONT></P>
<P><FONT size=4><I>"During the year, investors showed periodic interest in
attractively valued "Old Economy" companies — interest-rate sensitive
financial services, industrial and retail stocks."</I></FONT></P>
<P><FONT size=4><B>Two Economies, Two Results</B></FONT></P>
<P>Technology stocks dominated the market during the past fiscal year. For the
12 months ended March 31, 2000, the tech-heavy Nasdaq Composite Index posted an
astounding return of 85.81%, while the Standard & Poor's 500 Index and the Dow
Jones Industrial Average returned 17.94% and 12.93%, respectively.</P>
<P>During the year, investors showed periodic interest in attractively valued
"Old Economy" companies — interest-rate sensitive financial services,
industrial and retail stocks. The main issue driving the market, however, was
accelerating price momentum for "New Economy" companies involved in the
Internet and other developing technologies.</P>
<P><FONT size=4><B>Gauging the Impact of Interest Rates</B></FONT></P>
<P>Another issue confronting investors over the year was Federal Reserve
monetary policy. Rapid economic growth, combined with the lowest unemployment
rate in 30 years, spurred the Fed to implement a series of five hikes in
short-term interest rates, designed to slow the economy enough to keep
inflationary pressures from building.</P>
<P>Market volatility was high during the year due to investors' concerns that
rising interest rates could knock the legs out from under the long-running bull
market. In the second quarter of 1999, small and midsized companies and
undervalued larger-capitalization stocks surged amid a backdrop of resurgent
growth in foreign economies. But the Fed continued to raise rates. As investors
tried to get a read on the economy, companies whose earnings exceeded
expectations were rewarded with ever-expanding stock prices, while companies
whose earnings fell short were swiftly punished.</P>
<P><FONT size=4><B>The New Century: Signs of a Shift?</B></FONT></P>
<P>Enthusiasm for small- and mid-capitalization technology growth stocks
carried through to the end of February 2000. However, after falling sharply
during the first two months of 2000, the Dow Industrials and the S&P 500 rallied
in March. Investors bargain-hunted, with the Dow enjoying its largest
single-day point gain ever, 499 points on March 16. Swings of 1% or more per
day in the major indices were the norm as investors assessed the direction of
the economy and the effect of rising interest rates.</P>
<P>Rising speculation, coupled with increased popularity of momentum-based
investing, fed the frenzy for new economy stocks, pushing valuations in the
technology sector to extraordinary heights. Toward the end of March, however,
there were signs that this speculative burst was peaking. Increased volatility
and the renaissance of old economy stocks indicated that the market might be
ready to turn back to more conventional methods of pricing and picking stocks
— something the four funds in this report haven't stopped doing. While the
value style has been out of vogue, we've stayed true to our investment
discipline. That patience could pay off in the months ahead.</P>
Market Returns
For the year ended March 31, 2000
- ----------------------------------------
S&P 500/BARRA Value 9.85%
- ----------------------------------------
S&P MidCap 400/BARRA Value 18.26%
- ----------------------------------------
S&P SmallCap 600/BARRA Value 17.14%
- ----------------------------------------
<P><FONT size=2>Source: Lipper Inc. and Russell/Mellon Analytical</FONT></P>
<P><FONT size=2>These indices represent the performance of large-, medium-, and
small-capitalization value stocks.</FONT></P>
<P ALIGN="CENTER">[GRAPHIC OMITTED]</P>
<P ALIGN="CENTER">[The following table was depicted as a line graph in the printed material.]</P>
Market Performance (Growth of $1.00)
For the year ended March 31, 2000
S&P 500/ S&P MidCap 400/ S&P SmallCap 600/
BARRA Value BARRA Value BARRA Value
3/31/1999 1.00 1.00 1.00
4/30/1999 1.09 1.10 1.09
5/31/1999 1.07 1.11 1.13
6/30/1999 1.11 1.15 1.20
7/31/1999 1.07 1.13 1.18
8/31/1999 1.05 1.09 1.13
9/30/1999 1.01 1.04 1.11
10/31/1999 1.06 1.06 1.08
11/30/1999 1.06 1.08 1.11
12/31/1999 1.10 1.11 1.14
1/31/2000 1.06 1.06 1.08
2/29/2000 0.99 1.03 1.13
3/31/2000 1.10 1.18 1.17
<A NAME="D"></A><P><FONT size=5>Value — Performance</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P><FONT size=4><B>Total Returns as of March 31, 2000</B></FONT></P>
----------------------------------------- ----------------------------------------- ---------------------------------------
Investor Class (inception 9/1/93) Advisor Class (inception 10/2/96) Institutional Class (inception 7/31/97)
----------------------------------------- ----------------------------------------- ---------------------------------------
Lipper S&P 500/ Lipper S&P 500/ Lipper S&P 500/
Multi-Cap BARRA Multi-Cap BARRA Multi-Cap BARRA
Value S&P 500 Value Value Value S&P 500 Value Value Value S&P 500 Value Value
6 Months(1) .......... -3.79% 17.51% 5.64% 9.22% -3.72% 17.51% 5.64% 9.22% -3.52% 17.51% 5.64% 9.22%
1 Year ............... 1.42% 17.94% 5.42% 9.85% 1.36% 17.94% 5.42% 9.85% 1.65% 17.94% 5.42% 9.85%
- -----------------------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
- -----------------------------------------------------------------------------------------------------------------------------------------------------
3 Years .............. 8.55% 27.40% 12.18% 18.28% 8.36% 27.40% 12.18% 18.28% -- -- -- --
5 Years .............. 13.68% 26.76% 16.07% 20.75% -- -- -- -- -- -- -- --
Life of Fund ......... 13.27% 21.96% 13.67% 16.98% 9.54% 26.87%(2) 13.46%(2) 19.10%(2) 2.83% 20.12% 5.69% 11.56%
<P><FONT size=2>(1) Returns for periods less than one year are not annualized.</FONT></P>
<P><FONT size=2>(2) Since 9/30/96, the date nearest the class's inception for
which data are available.</FONT></P>
<P><FONT size=2>See pages 50-52 for information about share classes, the
indices, and returns.</FONT></P>
<P><B><FONT size=4>Growth of $10,000 Over Life of Fund</FONT></B></P>
<P ALIGN="CENTER">[GRAPHIC OMITTED]</P>
<P ALIGN="CENTER">[The following table was depicted as a mountain graph in the printed material.]</P>
$10,000
investment
made 9/1/93
Lipper S&P 500/
S&P 500 Multi-Cap BARRA
Value Index Value Value
9/1/1993 $10,000 $10,000 $10,000 $10,000
9/30/1993 $10,000 $9,923 $9,993 $9,996
12/31/1993 $10,307 $10,153 $10,207 $10,038
3/31/1994 $10,083 $9,768 $9,925 $9,710
6/30/1994 $10,270 $9,809 $9,986 $9,800
9/30/1994 $10,741 $10,289 $10,419 $10,051
12/31/1994 $10,718 $10,287 $10,217 $9,976
3/31/1995 $11,953 $11,289 $11,038 $10,937
6/30/1995 $12,743 $12,367 $11,950 $11,890
9/30/1995 $13,305 $13,350 $12,868 $12,836
12/31/1995 $14,233 $14,154 $13,385 $13,667
3/31/1996 $15,295 $14,914 $14,162 $14,540
6/30/1996 $16,121 $15,584 $14,516 $14,838
9/30/1996 $16,253 $16,065 $14,944 $15,230
12/31/1996 $17,683 $17,403 $16,195 $16,672
3/31/1997 $17,745 $17,870 $16,468 $16,967
6/30/1997 $20,029 $20,992 $18,687 $19,422
9/30/1997 $22,396 $22,562 $20,553 $21,201
12/31/1997 $22,282 $23,209 $20,553 $21,672
3/31/1998 $24,833 $26,447 $22,903 $24,175
6/30/1998 $23,621 $27,320 $22,497 $24,301
9/30/1998 $21,058 $24,602 $19,078 $21,164
12/31/1998 $23,396 $29,842 $21,895 $24,853
3/31/1999 $22,383 $31,331 $22,053 $25,561
6/30/1999 $26,512 $33,543 $24,658 $28,321
9/30/1999 $23,596 $31,446 $22,007 $25,707
12/31/1999 $23,211 $36,126 $23,195 $28,013
3/31/2000 $22,699 $36,953 $23,249 $28,078
<P><FONT size=2>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.</FONT></P>
<P><B><FONT size=4>One-Year Returns Over Life of Fund</FONT> (Periods ended March 31)</B></P>
<P ALIGN="CENTER">[GRAPHIC OMITTED]</P>
<P ALIGN="CENTER">[The following table was depicted as a bar graph in the printed material.]</P>
Value S&P 500 Lipper Multi-Cap Value Fund Index
Date Return Return Return
3/31/1994 0.83 -2.32 -0.75
3/31/1995 18.56 15.57 11.22
3/31/1996 28.06 32.10 28.30
3/31/1997 15.92 19.83 16.28
3/31/1998 39.94 48.00 39.07
3/31/1999 -9.88 18.46 -3.71
3/31/2000 1.42 17.94 5.42
<P><FONT size=2>* From 9/1/93 to 3/31/94.</FONT></P>
<A NAME="E"></A><P><FONT size=5>Value — Q&A</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P>[PHOTO OMITTED]</P>
<P><FONT size=2><I>An interview with Phil Davidson and Scott Moore, portfolio
managers on the Value investment team.</I></FONT></P>
<P><FONT size=4><I>"Growth stocks led the market over the year, and within that
realm, technology-oriented companies were the strongest performers, taking
indices like the Nasdaq Composite to record levels."</I></FONT></P>
<P><B><I>How did Value perform for the year ended March 31, 2000?</I></B></P>
<P>Value gained 1.42% during its fiscal year.* It underperformed its new
benchmark, the Lipper Multi-Cap Value Index, which gained 5.42%. Value's
previous benchmark, the S&P 500/BARRA Value Index, rose 9.85% for the year,
while the S&P 500 posted a 17.94% gain.</P>
<P><B><I>Why was the fund's benchmark changed?</I></B></P>
<P>Value's original benchmark, the S&P 500/BARRA Value Index, reflects the
performance of S&P 500 stocks that have characteristics associated with
value-style securities. But because the index tracks stocks in the S&P 500, it
reflects the performance of generally larger companies. In contrast, Value
tends to invest across the capitalization spectrum. In fact, as of March 31,
about 35% of Value's assets were invested in mid-cap companies, with another
34% in small-caps. Even with this disparity in capitalization, until recently
the S&P 500/BARRA Value Index was the most appropriate index for the fund.</P>
<P>In September 1999, Lipper Inc., the leading mutual fund ranking
organization, introduced value-oriented indices based on investment style as
well as capitalization. Its new Lipper Multi-Cap Value Index is not restricted
by capitalization, and reflects the performance of small-, medium- and
large-cap value stocks. In our opinion, it is more representative of Value's
portfolio.</P>
<P><B><I>What factors caused Value to underperform its benchmark and the
broader market?</I></B></P>
<P>To begin with, our investment approach was out of favor for virtually the
entire period. Growth stocks led the market over the year, and within that
realm, technology-oriented companies were the strongest performers, taking
indices like the Nasdaq Composite to record levels. In fact, value stocks
became sources of capital for investors caught up in the technology move.</P>
<P>From our perspective, valuation levels of the majority of technology stocks
are at historically and extremely high levels. As a result, they do not meet
our criterion for ownership. It is no secret that "value tech" stocks are often
companies that are facing structural problems that can result in viability
concerns.</P>
<P>Additional factors influencing Value's performance were its relatively hefty
stake in banks and food and beverage companies. Rising interest rates weighed
on the bank group as a whole, while the defensive nature of food stocks,
combined with the historically slower growth of that industry, made them an
unappealing choice for investors.</P>
<P><B><I>Which industries or stocks contributed the most to returns?</I></B></P>
<P>Value's best-performing stocks for the year were chemical companies, which
were also among its largest holdings. Two holdings that particularly helped the
fund were Nalco Chemical and Minnesota Mining and Manufacturing (3M).</P>
<P>Nalco was Value's top contributing holding for the year; the company makes
water treatment products. We built a position in Nalco when its shares fell as
a result of slowing sales in Asia and Latin America. We sold the stock in
mid-1999 at a significant gain upon news that it would be acquired by Suez
Lyonnaise, a French chemical firm. 3M is a global supplier of a variety of
chemical products and related materials. Its recent success has been driven by
just the opposite — improving sales in Asia and Latin America — and the
company's strategic effort to promote its faster-growing products. 3M was one
of our largest holdings at the end of the period.</P>
<P>Value's second best-performing group for the year was electrical equipment
companies. This industry is highly diversified, and not all companies within
the industry have fared well in recent history. Once again, strong individual
stock selection was key. Our top-performers included Littelfuse, Inc. and
Cooper Industries.</P>
<P>Littelfuse makes fuses and other circuit-protection devices for use in the
automotive, electronic and general industrial markets. Strengthening demand for
electronics has resulted in a great year for Littelfuse, particularly in its
foreign markets, and the company has begun reaping the benefits of its October
1999 acquisition of another electronic products firm, Harris Suppression
Products Group. Cooper Industries is also a leading electrical products
company. The company is benefiting from a restructuring program it implemented
last year, as well as a series of acquisitions that are improving the company's
asset base.</P>
<P><B><I>Were there any other standout performers?</I></B></P>
<P>Yes. Value benefited significantly from its healthcare-related
holdings — specifically companies that provide medical services, products or
supplies — and did so in an environment that wasn't kind to healthcare stocks in
general. This industry has struggled as investors have discarded more
traditional healthcare stocks, such as pharmaceuticals and health insurers, in
favor of "New Economy" stocks, such as biotechnology and medical firms.
However, good individual stock selection resulted in these groups' strong
contribution to performance.</P>
<P>One example is Columbia HCA, Value's second-best performing holding for the
year. Columbia HCA is the largest hospital-management company in the country.
Several factors contributed to the firm's success, including the implementation
of a successful restructuring program and the recent passing of legislation
that will restore a portion of Medicare funding previously cut by the Balanced
Budget Act of 1997. The government's ongoing investigation into HCA's billing
practices is also wrapping up, which is further good news for the company.</P>
<P>A second example is Beckman Coulter, which makes laboratory instruments and
products. This outperformance was due in large part to the recently completed
and successful integration of Coulter Corp., a maker of hematology products
that Beckman acquired in late 1997.</P>
<P><B><I>Which industries or stocks detracted the most from performance?</I></B></P>
<P>Value's greatest disappointments were holdings in the financial services
sector, a diverse group that includes banks, brokerage firms, financial
services companies, insurance providers, credit card companies and other
financially-related businesses. Continued robust economical growth domestically
and abroad led the Federal Reserve Board to raise key short-term interest rates
five times during the period. While most firms in this broad group are
considered to be interest-rate sensitive, banks have been the hardest hit by
rising rates.</P>
<P>Although Value's overall weighting in this group was in line with that of
its index, we were focused primarily on banks, rather than brokerage firms,
which suffered to a lesser degree. Names that detracted from returns included
Keycorp, Summit Bancorp, First Virginia Bank, Inc., and First Union.</P>
<P>Food and beverage companies were additional drains on performance. Sluggish
sales, competitive pressures and low commodity prices have weighed on the
industry. As a result, we were disappointed by our positions in Interstate
Bakeries (IBC), Archer-Daniels-Midland (ADM), a grain processor, and Tyson
Foods (TSN), which produces poultry and grain products. All three firms have
continued to struggle in a tough operating environment. IBC's difficulties were
additionally compounded by a much-publicized labor strike in early 2000, while
sluggish export markets and near-bumper crops have kept ADM's margins low.
Tyson suffered similarly as excess capacity and downward pricing of alternative
proteins weighed on its stock prices. However, these firms remain attractively
valued and well-positioned going forward.</P>
<P><B><I>Did you make any significant changes to the portfolio during the six
months?</I></B></P>
<P>We raised our stake significantly in telecommunications companies, which
went from 1.7% of investments at mid-year to more than 7%. Traditional
telecommunications companies (like GTE) sold off as investors became
increasingly worried about competitive pressure from new entrants.</P>
<P>On the sell side, we lowered our stake in energy companies as oil and gas
prices have recovered, and switched our exposure into global integrated
companies, such as Royal Dutch and Chevron. We also reduced our technology
weighting, primarily though the sale of a single holding, Autodesk, which was
one of the fund's top contributors during the second half of the year. Value
maintains a significant weighting in chemical companies and food and beverage
firms.</P>
<P><B><I>What's your outlook for value investing?</I></B></P>
<P>Although the market's long-running preference for growth stocks has
surpassed record levels for duration, we know that the market has historically
moved back and forth between the growth and value styles. We believe our
disciplined, "pure-play" value approach will serve investors well when the
market once again favors value.</P>
<P>We'd like to point out that because Value adheres to a strict value
discipline, it will struggle the most when the value style is out of favor.
However, we fully expect that when value as a style once again outperforms
growth, Value's "pure-play" approach should relatively enable it to perform
better. This performance characteristic was clearly illustrated in 1999. In the
fourth calendar quarter of the year, Value declined 1.63% while the Lipper
Multi-Cap Value Index gained 5.40%. But in the second calendar quarter of 1999,
when investors briefly "rediscovered" attractively priced companies, Value
returned 18.45%, versus a 11.81% gain for the Lipper Multi-Cap Value Index.</P>
<P>We remain confident that the market's current preference for growth stocks
will not continue unabated, and that a shift to the value style of investing
will occur. In the meantime, we will continue to be true to our discipline of
investing in high-quality companies at attractive values, which we believe will
reward investors handsomely when value is back in vogue.</P>
<P><B><FONT size=4>Portfolio at a Glance</FONT></B></P>
- -----------------------------------------------
3/31/00 3/31/99
- -----------------------------------------------
No. of Companies 60 71
Median P/E Ratio 15.5 15.5
Median Market $ 2.77 $ 1.87
Capitalization billion billion
Portfolio Turnover 115% 130%
Expense Ratio (for
Investor Class) 1.00% 1.00%
<P><FONT size=2>Investment terms are defined in the Glossary on pages 52–53.</FONT></P>
<P><FONT size=2>*All fund returns referenced in this interview are for Investor
Class shares.</FONT></P>
<P><B><FONT size=4>Top Ten Holdings</FONT></B></P>
- --------------------------------------
% of fund investments
- --------------------------------------
As of As of
3/31/00 9/30/99
FPL Group, Inc. 4.7% 3.5%
First Virginia
Banks, Inc. 4.4% 4.4%
GTE Corp. 4.3% 1.7%
Minnesota Mining &
Manufacturing Co. 4.3% 3.4%
Summit Bancorp. 4.2% 4.3%
Columbia/HCA
Healthcare Corp. 3.7% 2.5%
Chevron Corp. 3.3% --
Interstate Bakeries
Corp. 3.1% 3.2%
AGL Resources Inc. 3.1% 2.0%
Emerson Electric Co. 3.0% --
<P><B><FONT size=4>Top Five Industries</FONT></B></P>
- --------------------------------------
% of fund investments
- --------------------------------------
As of As of
3/31/00 9/30/99
Banks 10.6% 14.6%
Energy Reserves
& Production 9.1% 7.0%
Electrical Utilities 8.1% 8.5%
Food & Beverage 7.7% 9.0%
Telephone 7.1% 1.7%
<P><FONT size=4><I>"We believe our disciplined, "pure-play" value approach will
serve investors well when the market once again favors value."</I></FONT></P>
<P><B><FONT size=4>Types of Investments in the Portfolio</FONT></B></P>
<P ALIGN="CENTER">[GRAPHIC OMITTED]</P>
<P ALIGN="CENTER">[The following tables were depicted as pie charts in the printed material.]</P>
- ------------------------------------------------------
As of March 31, 2000
- ------------------------------------------------------
Common Stocks and Futures 97.3%
Temporary Cash Investments 2.7%
- ------------------------------------------------------
As of September 30, 1999
- ------------------------------------------------------
Common Stocks and Futures 97.7%
Temporary Cash Investments 2.3%
<A NAME="F"></A><P><FONT size=5>Value — Schedule of Investments</FONT></P>
<HR width="100%" size="1" noshade align="left">
MARCH 31, 2000
Shares Value
======================================================================
- ----------------------------------------------------------------------
COMMON STOCKS -- 94.9%
- ----------------------------------------------------------------------
APPAREL & TEXTILES -- 1.4%
456,800 Liz Claiborne, Inc. $ 20,927,150
--------------
BANKS -- 10.6%
1,780,050 First Virginia Banks, Inc. 66,863,129
1,599,400 KeyCorp 30,388,600
2,484,200 Summit Bancorp. 65,210,250
--------------
162,461,979
--------------
CHEMICALS -- 5.3%
749,400 Minnesota Mining & Manufacturing Co. 66,368,738
371,400 Praxair, Inc. 15,459,525
--------------
81,828,263
--------------
COMPUTER HARDWARE
& BUSINESS MACHINES -- 1.0%
578,900 Xerox Corp. 15,051,400
--------------
COMPUTER SOFTWARE -- 1.1%
106,600 Autodesk, Inc. 4,836,975
548,900 Parametric Technology Corp.(1) 11,578,359
--------------
16,415,334
--------------
DEFENSE/AEROSPACE -- 0.3%
190,000 Lockheed Martin Corp. 3,883,125
--------------
ELECTRICAL EQUIPMENT -- 1.2%
507,000 Littelfuse, Inc.(1)(2) 18,584,719
--------------
ELECTRICAL UTILITIES -- 8.1%
574,200 Florida Progress Corp. 26,341,425
1,577,600 FPL Group, Inc. 72,668,200
1,888,600 Niagara Mohawk Holdings Inc.(1) 25,496,100
--------------
124,505,725
--------------
ENERGY RESERVES & PRODUCTION -- 9.1%
289,400 Burlington Resources Inc. 10,707,800
542,100 Chevron Corp. 50,110,369
657,400 Murphy Oil Corp. 37,882,675
711,400 Royal Dutch Petroleum Co.
New York Shares 40,949,962
--------------
139,650,806
--------------
FINANCIAL SERVICES -- 0.5%
173,000 Student Loan Corp. (The) 7,082,188
--------------
FOOD & BEVERAGE -- 7.7%
3,881,967 Archer-Daniels-Midland Co. 40,275,408
3,333,400 Interstate Bakeries Corp.(2) 47,500,950
179,500 Lance, Inc. 1,895,969
2,624,700 Tyson Foods, Inc. CI A 29,199,788
--------------
118,872,115
--------------
FOREST PRODUCTS & PAPER -- 2.0%
581,500 Bemis Co., Inc. 21,442,812
367,300 Sonoco Products Co. 8,631,550
--------------
30,074,362
--------------
GAS & WATER UTILITIES -- 4.7%
2,550,800 AGL Resources Inc. 46,870,950
140,800 People's Energy Corp. 3,863,200
816,800 Washington Gas Light Co. 22,206,750
--------------
72,940,900
--------------
GOLD -- 0.5%
523,700 Barrick Gold Corp. 8,215,544
--------------
HEAVY ELECTRICAL EQUIPMENT -- 5.0%
849,800 Cooper Industries, Inc. 29,743,000
885,400 Emerson Electric Co. 46,815,525
--------------
76,558,525
--------------
HOME PRODUCTS(3)
22,800 Lancaster Colony Corp. 696,112
--------------
INDUSTRIAL PARTS -- 2.6%
1,396,600 Flowserve Corp.(2) 17,981,225
250,000 Tecumseh Products CI A 11,007,812
450,000 York International Corp. 10,518,750
--------------
39,507,787
--------------
INDUSTRIAL SERVICES -- 1.5%
621,200 XTRA Corp.(1)(2) 23,605,600
--------------
INFORMATION SERVICES -- 3.4%
694,700 Ceridian Corp.(1) 13,329,556
231,900 Computer Sciences Corp.(1) 18,349,088
723,900 Dun & Bradstreet Corp. (The) 20,721,638
--------------
52,400,282
--------------
LEISURE -- 1.8%
1,490,000 GTECH Holdings Corp.(1)(2) 27,658,125
--------------
MEDICAL PRODUCTS & SUPPLIES -- 2.3%
334,200 Beckman Coulter Inc. 21,451,462
470,000 Dentsply International Inc. 13,439,062
--------------
34,890,524
--------------
MEDICAL PROVIDERS & SERVICES -- 4.0%
2,238,600 Columbia/HCA Healthcare Corp. 56,664,562
620,000 LabOne, Inc.(2) 4,107,500
--------------
60,772,062
--------------
MOTOR VEHICLES & PARTS -- 2.8%
1,382,300 Superior Industries International, Inc.(2) 43,801,631
--------------
OIL SERVICES -- 1.0%
491,700 Baker Hughes Inc. 14,873,925
--------------
PROPERTY & CASUALTY INSURANCE -- 5.6%
340,000 Allstate Corp. 8,096,250
500,000 Argonaut Group, Inc. 10,031,250
470,300 Chubb Corp. (The) 31,774,644
840,000 Horace Mann Educators Corp. 15,487,500
464,100 MGIC Investment Corp. 20,246,362
--------------
85,636,006
--------------
PUBLISHING -- 0.9%
795,000 Banta Corp. 14,608,125
--------------
RAILROADS -- 0.3%
200,000 CSX Corp. 4,700,000
--------------
RESTAURANTS -- 0.8%
395,100 Brinker International, Inc.(1) 11,729,531
58,700 Wendy's International, Inc. 1,185,006
--------------
12,914,537
--------------
SPECIALTY STORES -- 1.1%
1,425,300 Office Depot, Inc.(1) 16,480,031
--------------
TELEPHONE -- 7.1%
488,400 BellSouth Corp. 22,954,800
940,900 GTE Corp. 66,803,900
315,100 Sprint Corp. 19,851,300
--------------
109,610,000
--------------
TOBACCO -- 1.2%
1,182,300 UST Inc. 18,473,438
--------------
TOTAL COMMON STOCKS 1,457,680,320
(Cost $1,533,422,255) --------------
Value
======================================================================
- ----------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 5.1%
- ----------------------------------------------------------------------
Repurchase Agreement, Goldman Sachs & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 6.08%, dated 3/31/00,
due 4/3/00 (Delivery value $13,606,891) $ 13,600,000
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 6.05%, dated 3/31/00,
due 4/3/00 (Delivery value $64,632,569) 64,600,000
--------------
TOTAL TEMPORARY CASH INVESTMENTS 78,200,000
(Cost $78,200,000)
--------------
TOTAL INVESTMENT SECURITIES -- 100.0% $1,535,880,320
(Cost $1,611,622,255) ==============
- ----------------------------------------------------------------------
FUTURES CONTRACTS
- ----------------------------------------------------------------------
Expiration Underlying Face Unrealized
Purchased Date Amount at Value Gain
- ----------------------------------------------------------------------
99 S&P 500 June
Futures 2000 $37,570,500 $205,111
==============================
<P><FONT size=4><B>Notes to Schedule of Investments</B></FONT></P>
<P><FONT size=2>(1) Non-income producing.</FONT></P>
<P><FONT size=2>(2) Affiliated Company: represents ownership of at least 5% of
the voting securities of the issuer and is, therefore, an affiliate as defined
in the Investment Company Act of 1940. (See Note 5 in Notes to Financial
Statements for a summary of transactions for each issuer which is or was an
affiliate at or during the year ended March 31, 2000.)</FONT></P>
<P><FONT size=2>(3) Industry is less than 0.05% of total investment securities.</FONT></P>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<A NAME="H"></A><P><FONT size=5>Equity Income — Performance</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P><B><FONT size=4>Total Returns as of March 31, 2000</FONT></B></P>
------------------------------------- ------------------------------------- --------------------------------------
Investor Class (inception 8/1/94) Advisor Class (inception 3/7/97) Institutional Class (inception 7/8/98)
------------------------------------- ------------------------------------- --------------------------------------
Equity S&P 500 Lipper Equity Equity S&P 500 Lipper Equity Equity S&P 500 Lipper Equity
Income Income Income Income Income Income
Fund Index Fund Index Fund Index
6 Months* ............ -2.55% 17.51% 3.22% -2.69% 17.51% 3.22% -2.46% 17.51% 3.22%
1 Year ............... 3.88% 17.94% 3.25% 3.61% 17.94% 3.25% 4.09% 17.94% 3.25%
- ------------------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
- ------------------------------------------------------------------------------------------------------------------------------------------------
3 Years .............. 12.53% 27.40% 13.04% 12.30% 27.40% 13.04% -- -- --
5 Years .............. 15.79% 26.76% 15.91% -- -- -- -- -- --
Life of Fund ......... 15.88% 25.65% 15.15% 10.95% 24.58% 11.21% 3.29% 17.61% 2.42%
<P><FONT size=2>* Returns for periods less than one year are not annualized.</FONT></P>
<P><FONT size=2>See pages 50-52 for information about share classes, the
indices, and returns.</FONT></P>
<P><B><FONT size=4>Growth of $10,000 Over Life of Fund</FONT></B></P>
<P ALIGN="CENTER">[GRAPHIC OMITTED]</P>
<P ALIGN="CENTER">[The following table was depicted as a line graph in the printed material.]</P>
$10,000
investment
made 8/1/94
Lipper
Equity Equity
Income S&P 500 Income
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
12/31/1999 $23,239 $36,827 $23,057
3/31/2000 $23,043 $37,671 $22,871
<P><FONT size=2>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.</FONT></P>
<P><B><FONT size=4>One-Year Returns Over Life of Fund</FONT> (Periods ended March 31)</B></P>
<P ALIGN="CENTER">[GRAPHIC OMITTED]</P>
<P ALIGN="CENTER">[The following table was depicted as a bar graph in the printed material.]</P>
Equity Income Lipper Equity Income Fund Index
Date Return Return
3/31/1995 10.69 6.32
3/31/1996 25.67 25.95
3/31/1997 16.24 15.39
3/31/1998 37.78 37.52
3/31/1999 -0.44 1.59
3/31/2000 3.88 3.25
<P><FONT size=2>* From 8/1/94 to 3/31/95.</FONT></P>
<A NAME="I"></A><P><FONT size=5>Equity Income — Q&A</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P><FONT size=2><I>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.</I></FONT></P>
<P><FONT size=4><I>"Equity Income's strongest-performing industry was
chemicals, which prospered from a market shift to value stocks in the second
calendar quarter of 1999."</I></FONT></P>
<P><B><I>How did Equity Income perform during its fiscal year?</I></B></P>
<P>For the year ended March 31, 2000, Equity Income posted a 3.88% return.* The
fund continued to outperform its benchmark, the Lipper Equity Income Index,
which gained 3.25% during the year. The S&P 500 rose 17.94%.</P>
<P>Equity Income's longer-term performance has also been good. According to
Lipper Inc., the fund has outperformed the average equity income fund for the
one-, three-, and five-year periods ended March 31, 2000. (See the Total Return
table on the previous page for other fund performance comparisons.)</P>
<P><B><I>What stocks or sectors contributed to the fund's performance?</I></B></P>
<P>Equity Income's strongest-performing industry was chemicals, which prospered
from a market shift to value stocks in the second calendar quarter of 1999. Two
names in this group that added to returns include Nalco Chemical and Minnesota
Mining and Manufacturing.</P>
<P>Nalco, which makes chemicals for water treatment, was acquired for cash by
Suez Lyonnaise, a French chemical firm, in June. We sold this stock at a
significant gain. In fact, it was the fund's largest contributor for the year.</P>
<P>Minnesota Mining & Manufacturing (3M) produces and globally markets a variety
of chemical products, tapes and adhesives. The company had a great year in
general in 1999 and has continued to demonstrate good results in 2000, thanks
in part to strengthening sales in recovering Asian and Latin American markets.</P>
<P>Another top-performing industry was paper and forest products. As we
discussed in the fund's semiannual report, a strong economy and increasing
demand for paper and lumber in several key foreign regions are driving
performance in this group. One of the fund's top holdings was Consolidated
Paper, North America's leading producer of coated printing and specialty
papers. We bought this stock when its price was depressed due to slowing demand
in the company's foreign markets and excess inventories. The stock subsequently
rebounded in response to improved global demand and restructuring within the
industry. Consolidated Paper was subsequently acquired by Stora Enso, a large
Finnish paper company, at substantial gain to the fund.</P>
<P>Equity Income's holdings in selected gas and electric utilities also were
beneficial. AGL Resources, a natural gas distributor serving Georgia, was an
outstanding performer. At the time of our semiannual report, this company
detracted from returns as its earnings temporarily declined due to industry
deregulation. Despite the disappointing earnings, we held our position based on
our belief that AGL is a sound company and the probability of an earnings
recovery was high. This proved to be a good decision, as cost reduction efforts
and a healthy service territory have allowed earnings recovery to begin. We
received a 6.5% yield on our investment while we awaited this recovery.</P>
<P>Another top holding was Avista Corporation's convertible security. Avista is
an energy services company with utility and subsidiary operations in the
northwestern United States. The company is pioneering research on fuel cells -
independent power distribution systems that convert natural gas into
electricity. The market's anticipation of the profitability of fuel cells
caused the security to outperform in early 2000 and we eliminated this security
on that strength.</P>
<P><B><I>Where there other holdings that contributed significantly?</I></B></P>
<P>Yes, Mercantile Bancorporation and Sbarro were standout performers that both
benefited through acquisition. Although banks and financial services companies
in general struggled during the period, Mercantile was an exception; the bank
was acquired in May 1999 by Firstar at a very attractive price, and climbed to
third on Equity Income's list of top contributors. Sbarro was also something of
an acquisition story. Sbarro is a chain of Italian restaurants, and has
performed well during a period in which the Sbarro family offered to buy out
the company. The deal was ultimately completed and we sold our position at a
substantial gain.</P>
<P><B><I>What stocks or sectors detracted from the fund's performance?</I></B></P>
<P>Our most disappointing holdings were in the banking and food and beverage
industries. One factor weighing on banks was the Federal Reserve's
interest-rate hikes last summer. Higher rates hurt banks by reducing profit
margins and increasing concerns about asset quality. Another factor was that
after such an extended period of success, investors' expectations were high.
When many banks announced disappointing earnings in a rising-rate environment,
investors simply went in search of greener pastures. Names that dampened
returns included KeyCorp, Summit Bancorp and First Virginia Bank.</P>
<P>Another holding in this group that hurt performance was Student Loan Corp.,
which originates, holds, and services student loans. Citicorp presented a
buyout offer that was rejected by Student Loan as inadequate, and Student
Loan's stock subsequently dropped 20%. Similar to our approach with AGL
Resources, we continue to hold our position in Student Loan because we believe
the stock is undervalued. We are receiving a 6% yield on this security while we
wait for its valuation to increase.</P>
<P>Food and beverage holdings have also struggled, as increasing competition,
pricing pressure and low commodity prices have weighed on the food industry.
Investors have also been quick to shun this typically defensive, slower-growing
group in favor of faster-moving technology shares. Companies that detracted
include Lance Inc., and Archer-Daniels-Midland (ADM). Lance makes bakery
products and snack food items that are sold through a proprietary vending
machines operation, while ADM is one of the world's largest grain processors.
Both firms' fundamentals remain good, despite the problems plaguing the
industry, and we continue to watch these stocks closely.</P>
<P>A third holding, Ralston Purina's convertible security, was also a drain on
earnings. This holding is convertible into Interstate Bakeries Corp. (IBC), a
major producer of breads and snack cakes. IBC has been swimming against
difficult tides in the food industry, and its problems have been further
compounded by a much-publicized labor strike in the northeastern United States.</P>
<P><B><I>Were there any other disappointing holdings?</I></B></P>
<P>Yes. UST Inc., which is the nation's leading producer and marketer of
smokeless tobacco. The company has done a great job of protecting its 75%
market share, primarily through the success of its aggressive marketing
program, and is positioned to dominate various marketing venues going forward.
UST's stock dropped appreciably in early 2000 when the company received an
unfavorable ruling in an antitrust lawsuit, a verdict that is currently under
appeal. Regardless of the outcome, we believe the firm is fundamentally sound
and has sufficient financial resources to successfully resolve the issue if
necessary, so we are sitting tight.</P>
<P><B><I>What significant changes did you make to the portfolio during the six
months?</I></B></P>
<P>We've actually made very few shifts on an industry or sector basis because
we are comfortable with the fund's current allocations and exposure. Our few
notable changes include the repositioning of securities within the financial
services sector, such as our increased stake in Student Loan, which has
resulted in an improved risk/reward exposure in the portfolio. We also took a
slightly larger positioning in industrials, such as Emerson Electric, that
became attractively priced due to the "Old Economy" sell off.</P>
<P>On the sell side, we reduced our stake in basic materials companies, such as
Consolidated Paper, which was acquired by another firm.</P>
<P><B><I>What is your outlook for the market and the fund?</I></B></P>
<P>Although the recent environment has been a very difficult one for Equity
Income investors, we are pleased with Equity Income's risk- adjusted returns
and long-term performance relative to its peers. Although we cannot predict
when the market will once again favor value-oriented firms, we remain
disciplined in our effort to seek mature, out-of-favor companies with good
yields and strong underlying businesses. We believe these types of companies
can provide a measure of stability in times of market volatility and also
provide solid, long-term prospects for appreciation.</P>
<P><B><FONT size=4>Portfolio at a Glance</FONT></B></P>
- ---------------------------------------------
3/31/00 3/31/99
- ---------------------------------------------
No. of Companies 58 69
Median P/E Ratio 15.6 15.6
Median Market $ 1.87 $ 1.41
Capitalization billion billion
Portfolio Turnover 141% 180%
Expense Ratio (for
Investor Class) 1.00% 1.00%
<P><FONT size=2>Investment terms are defined in the Glossary on pages 52-53.</FONT></P>
<P><FONT size=2>*All fund returns referenced in this interview are for Investor
Class shares.</FONT></P>
<P><B><FONT size=4>Top Ten Holdings</FONT></B></P>
---------------------
% of fund investments
---------------------
As of As of
3/31/00 9/30/99
FPL Group, Inc. 4.8% 1.1%
Minnesota Mining &
Manufacturing Co. 4.6% 2.4%
First Virginia
Banks, Inc. 4.4% 4.8%
WICOR, Inc. 4.1% 2.5%
AGL Resources Inc. 3.7% 4.9%
Summit Bancorp. 3.6% 3.8%
National Presto
Industries, Inc. 3.5% 3.2%
Office Depot, Inc.,
5.00%, 12/11/07
(Conv. Bond) 3.5% 0.5%
Bush Boake Allen Inc. 3.4% 2.6%
Columbia HCA/
Healthcare Corp,
6.75%, 10/1/06
(Con. Pref.) 3.3% 2.6%
<P><B><FONT size=4>Top Five Industries</FONT></B></P>
---------------------
% of fund investments
---------------------
As of As of
3/31/00 9/30/99
Gas & Water Utilities 12.4% 11.5%
Banks 10.7% 14.9%
Chemicals 8.9% 7.7%
Energy Reserves
& Production 5.8% 5.9%
Electrical Utilities 5.7% 5.5%
<P><FONT size=4><I>"Although we cannot predict when the market will once again
favor value-oriented firms, we remain disciplined in our effort to seek mature,
out-of-favor companies with good yields and strong underlying businesses."</I></FONT></P>
<P><B><FONT size=4>Types of Investments in the Portfolio</FONT></B></P>
<P ALIGN="CENTER">[GRAPHIC OMITTED]</P>
<P ALIGN="CENTER">[The following tables were depicted as pie charts in the printed material.]</P>
- -------------------------------------------------------
As of March 31, 2000
- -------------------------------------------------------
Common Stocks and Futures 82.5%
Convertible Bonds 8.5%
Convertible Preferred Stocks 5.8%
Temporary Cash Investments 3.2%
- -------------------------------------------------------
As of September 30, 1999
- -------------------------------------------------------
Common Stocks 75.6%
Convertible Bonds 8.5%
Convertible Preferred Stocks 12.2%
Temporary Cash Investments 1.4%
Corporate Bonds 2.3%
<A NAME="J"></A><P><FONT size=5>Equity Income — Schedule of Investments</FONT></P>
<HR width="100%" size="1" noshade align="left">
MARCH 31, 2000
Shares Value
======================================================================
COMMON STOCKS -- 80.3%
BANKS -- 10.7%
22,800 Century Bancorp, Inc. CI A $ 300,675
128,350 Commerce Bancshares, Inc. 3,986,872
365,300 First Virginia Banks, Inc. 13,721,581
127,000 KeyCorp 2,413,000
434,000 Summit Bancorp. 11,392,500
44,391 UMB Financial Corp. 1,620,272
------------
33,434,900
------------
CHEMICALS -- 8.9%
116,300 AptarGroup, Inc. 3,103,756
377,900 Bush Boake Allen Inc.(1) 10,510,344
161,200 Minnesota Mining & Manufacturing Co. 14,276,278
------------
27,890,378
------------
COMPUTER HARDWARE
& BUSINESS MACHINES -- 0.5%
59,700 Xerox Corp. 1,552,200
------------
CONSUMER DURABLES -- 4.9%
167,300 HON INDUSTRIES Inc. 4,307,975
335,800 National Presto Industries, Inc.(2) 10,955,475
------------
15,263,450
------------
ELECTRICAL UTILITIES -- 5.7%
64,000 Florida Progress Corp. 2,936,000
325,800 FPL Group, Inc. 15,007,166
------------
17,943,166
------------
ENERGY RESERVES & PRODUCTION -- 5.6%
94,800 Chevron Corp. 8,763,075
28,000 Murphy Oil Corp. 1,613,500
125,600 Royal Dutch Petroleum Co.
New York Shares 7,229,850
------------
17,606,425
------------
EQUITY REAL ESTATE
INVESTMENT TRUST -- 0.3%
43,300 Manufactured Home Communities, Inc. 1,001,312
------------
FINANCIAL SERVICES -- 3.1%
234,600 Student Loan Corp. (The) 9,603,938
------------
FOOD & BEVERAGE -- 4.0%
365,172 Archer-Daniels-Midland Co. 3,788,660
596,100 Lance, Inc. 6,296,306
223,000 Tyson Foods, Inc. CI A 2,480,875
------------
12,565,841
------------
FOREST PRODUCTS & PAPER -- 3.1%
170,000 Bemis Co., Inc. 6,268,750
143,800 Sonoco Products Co. 3,379,300
------------
9,648,050
------------
GAS & WATER UTILITIES -- 12.4%
625,700 AGL Resources Inc. 11,497,238
189,600 Cascade Natural Gas Corp. 3,057,300
86,300 Northwest Natural Gas Co. 1,688,244
359,000 Washington Gas Light Co. 9,760,312
415,700 WICOR, Inc. 12,886,700
------------
38,889,794
------------
GOLD -- 0.5%
107,900 Barrick Gold Corp. 1,692,681
------------
GROCERY STORES -- 0.7%
63,800 Weis Markets, Inc. 2,169,200
------------
HEAVY ELECTRICAL EQUIPMENT -- 4.2%
138,000 Cooper Industries, Inc. 4,830,000
157,800 Emerson Electric Co. 8,343,675
------------
13,173,675
------------
HOME PRODUCTS -- 2.0%
305,200 WD-40 Co. 6,361,512
------------
INDUSTRIAL PARTS -- 3.5%
136,300 Nordson Corp. 6,274,059
69,100 Pall Corp. 1,550,431
68,900 Tecumseh Products CI A 3,033,753
------------
10,858,243
------------
INDUSTRIAL SERVICES -- 2.3%
187,600 XTRA Corp.(1) 7,128,800
------------
INFORMATION SERVICES -- 0.9%
100,000 Dun & Bradstreet Corp. (The) 2,862,500
------------
LEISURE -- 0.4%
63,800 Russ Berrie and Co., Inc. 1,180,300
------------
MEDICAL PROVIDERS & SERVICES -- 0.2%
83,300 LabOne, Inc. 551,862
------------
MINING & METALS -- 0.4%
101,300 American National Can Group, Inc. 1,329,562
------------
MOTOR VEHICLES & PARTS -- 0.5%
53,600 Superior Industries International, Inc. 1,698,450
------------
PROPERTY & CASUALTY INSURANCE -- 1.2%
32,100 Argonaut Group, Inc. 644,006
24,200 Chubb Corp. (The) 1,635,012
80,100 Horace Mann Educators Corp. 1,476,844
------------
3,755,862
------------
SECURITIES & ASSET MANAGEMENT -- 0.9%
168,000 United Asset Management Corp. 2,908,500
------------
TELEPHONE -- 2.1%
63,100 GTE Corp. 4,480,100
33,700 Sprint Corp. 2,123,100
------------
6,603,200
------------
TOBACCO -- 1.3%
270,500 UST Inc. 4,226,562
------------
TOTAL COMMON STOCKS 251,900,363
(Cost $265,076,753) ------------
MARCH 31, 2000
Shares/Principal Amount Value
======================================================================
- ----------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS -- 5.8%
- ----------------------------------------------------------------------
ENERGY RESERVES & PRODUCTION -- 0.2%
41,000 Belco Oil & Gas Corp., 6.50%,
12/31/49 635,500
------------
HOME PRODUCTS -- 3.1%
334,100 Ralston Purina Co., 7.00%, 8/1/00 9,751,544
------------
RAILROADS -- 1.8%
140,200 Union Pacific Capital Trust, 6.25%,
4/1/28 (Acquired 3/21/00-3/28/00
Cost $5,582,319)(3) 5,476,562
------------
RESTAURANTS -- 0.7%
49,800 Wendy's International Inc., Series A
5.00%, 9/15/26 2,340,600
------------
TOTAL CONVERTIBLE PREFERRED STOCKS 18,204,206
(Cost $23,332,850) ------------
- ----------------------------------------------------------------------
CONVERTIBLE BONDS -- 8.5%
- ----------------------------------------------------------------------
MEDICAL PROVIDERS & SERVICES -- 3.3%
$11,790,000 Columbia HCA/Healthcare Corp.,
6.75%, 10/1/06 (Acquired
10/23/97-3/31/00,
Cost $10,653,175)(3) 10,257,300
------------
OIL SERVICES -- 1.8%
3,100,000 Baker Hughes Inc., 3.40%, 5/5/08(4) 2,344,375
2,783,000 Diamond Offshore Drilling, Inc.,
3.75%, 2/15/07 3,160,444
------------
5,504,819
------------
SPECIALTY STORES -- 3.4%
15,775,000 Office Depot, Inc., 5.00%,
12/11/07(4) 10,825,594
------------
TOTAL CONVERTIBLE BONDS 26,587,713
(Cost $26,257,193) ------------
Value
======================================================================
- ----------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 5.4%
- ----------------------------------------------------------------------
Repurchase Agreement, Goldman Sachs & Co., Inc.,
(U.S. Treasury obligations), in a joint trading
account at 6.08%, dated 3/31/00, due 4/3/00
(Delivery value $15,607,904) $ 15,600,000
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 6.05%, dated 3/31/00,
due 4/3/00 (Delivery value $1,200,605) 1,200,000
------------
TOTAL TEMPORARY CASH INVESTMENTS 16,800,000
(Cost $16,800,000) ------------
TOTAL INVESTMENT SECURITIES -- 100.0% $313,492,282
(Cost $331,466,796) ------------
- ----------------------------------------------------------------------
FUTURES CONTRACTS
- ----------------------------------------------------------------------
Expiration Underlying Face Unrealized
Purchased Date Amount at Value Loss
- ----------------------------------------------------------------------
18 S&P 500 June
Futures 2000 $6,831,000 $(84,575)
================================
<P><FONT size=4><B>Notes to Schedule of Investments</B></FONT></P>
<P><FONT size=2>(1) Non-income producing.</FONT></P>
<P><FONT size=2>(2) Affiliated Company: represents ownership of at least 5% of
the voting securities of the issuer and is, therefore, an affiliate as defined
in the Investment Company Act of 1940. (See Note 5 in Notes to Financial
Statements for a summary of transactions for each issuer which is or was an
affiliate at or during the year ended March 31, 2000.)</FONT></P>
<P><FONT size=2>(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 March 31, 2000, was
$15,733,862, which represented 5.0% of net assets.</FONT></P>
<P><FONT size=2>(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.</FONT></P>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<A NAME="L"></A><P><FONT size=5>Small Cap Value — Performance</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P><B><FONT size=4>Total Returns as of March 31, 2000</FONT></B></P>
---------------------------------- ---------------------------------- ----------------------------------------
Investor Class (inception 7/31/98) Advisor Class (inception 12/31/99) Institutional Class (inception 10/26/98)
---------------------------------- ---------------------------------- ----------------------------------------
Small Cap S&P SmallCap 600/ Small Cap S&P SmallCap 600/ Small Cap S&P SmallCap 600/
Value BARRA Value Index Value BARRA Value Index Value BARRA Value Index
6 Months(1) ... 7.21% 5.52% -- -- 7.36% 5.52%
1 Year ........ 14.37% 17.14% -- -- 14.39% 17.14%
Life of Fund .. 5.61% 2.04% 6.86% 2.83% 9.42% 10.24%(2)
<P><FONT size=2>(1) Returns for periods less than one year are not annualized.</FONT></P>
<P><FONT size=2>(2) Since 10/31/98, the date nearest the class's inception for
which data are available.</FONT></P>
<P><FONT size=2>See pages 50-52 for information about share classes, the index,
and returns.</FONT></P>
<P><B><FONT size=4>Growth of $10,000 Over Life of Fund</FONT></B></P>
<P ALIGN="CENTER">[GRAPHIC OMITTED]</P>
<P ALIGN="CENTER">[The following table was depicted as a mountain graph in the printed material.]</P>
$10,000
investment
made 7/31/98
S&P SmallCap
Small Cap 600/Barra
Value Value
7/31/1998 $10,000 $10,000
8/31/1998 $8,620 $8,196
9/30/1998 $9,020 $8,630
10/31/1998 $9,820 $9,008
11/30/1998 $10,240 $9,392
12/31/1998 $10,331 $9,761
1/31/1999 $9,928 $9,649
2/28/1999 $9,443 $8,864
3/31/1999 $9,576 $8,829
4/30/1999 $10,203 $9,598
5/31/1999 $10,872 $9,981
6/30/1999 $11,089 $10,587
7/31/1999 $11,089 $10,422
8/31/1999 $10,642 $9,985
9/30/1999 $10,216 $9,801
10/31/1999 $9,952 $9,575
11/30/1999 $10,114 $9,790
12/31/1999 $10,242 $10,058
1/31/2000 $9,982 $9,543
2/29/2000 $9,982 $9,974
3/31/2000 $10,952 $10,343
<P><FONT size=2>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 S&P SmallCap 600/BARRA Value Index is provided for comparison
in each graph. 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 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.</FONT></P>
<P><B><FONT size=4>One-Year Returns Over Life of Fund</FONT> (Periods ended March 31)</B></P>
<P ALIGN="CENTER">[GRAPHIC OMITTED]</P>
<P ALIGN="CENTER">[The following table was depicted as a bar graph in the printed material.]</P>
Small-Cap Value S&P 600/ BARRA Value
Date Return Return
3/31/1999 -4.24 -11.71
3/31/2000 14.37 17.14
<P><FONT size=2>* From 7/31/98 to 3/31/99.</FONT></P>
<A NAME="M"></A><P><FONT size=5>Small Cap Value — Q&A</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P>[PHOTO OMITTED]</P>
<P><FONT size=2><I>An interview with Todd Vingers and Ben Giele, portfolio
managers on the Small Cap Value investment team.</I></FONT></P>
<P><FONT size=4><I>"Growth stocks led the market during the period, with
technology stocks among the strongest performers."</I></FONT></P>
<P><B><I>How did Small Cap Value perform for the year ended March 31, 2000?</I></B></P>
<P>Small Cap Value gained 14.37% for the year, underperforming the 17.14%
increase posted by its benchmark, the S&P SmallCap 600/BARRA Value Index.*</P>
<P>Small Cap Value's longer-term performance has been solid, especially given
investors' ongoing preference for growth stocks. Over the course of Small Cap
Value's relatively short life span, growth companies have dominated the market,
with technology companies at the forefront. Since its inception on July 31,
1998, Small Cap Value has gained 5.61%, substantially outperforming the 2.04%
gain recorded by its benchmark and the 0.77% gain posted by the Lipper
Small-Cap Value Index. Small Cap Value has also fared well against its peers.
Since the fund's inception date, the average small-cap value fund tracked by
Lipper Inc., has returned 4.22%.</P>
<P><B><I>What factors contributed to the fund's relative performance?</I></B></P>
<P>Our value investment approach continued to be out of favor, which certainly
played a role. Growth stocks led the market during the period, with technology
stocks among the strongest performers. The indices' returns paint a pretty
clear picture of what was working and what was not. For the year ending March
31, 2000, the S&P SmallCap Growth Index gained 24.98%, compared to the 17.14%
return posted by the S&P SmallCap 600/BARRA Value Index.</P>
<P>In our view, valuations of many technology stocks are at very high levels.
As a result, they don't fall within our value parameters. Also, in searching
for stocks for Small Cap Value's portfolio, we look for fundamentally sound
companies whose stocks are inexpensive due to transitory problems or temporary
economic conditions. Often, technology stocks that are attractively priced have
become inexpensive due to fundamental problems in their underlying businesses,
and therefore are not portfolio candidates. That's why the fund's technology
stake was relatively light. The technology issues we held performed very well,
but the fund simply did not own enough of this group to keep pace with the
sector.</P>
<P>On the other hand, Small Cap Value's weighting in energy relative to its
index, has contributed to the fund's longer-term outperformance. Small Cap
Value launched with a substantial overweight in the energy sector, which proved
to be a big benefit in early 1999 and again in early 2000, as oil and gas
prices rose steadily and supplies in the United States remained tight. Names in
this group that helped boost returns include Belco Oil and Gas, Swift Energy
and Devon Energy, all of which are U.S.-based exploration and production
companies. We reduced our stake in this industry in late spring as energy
prices and stock valuations rose signigicantly; however, the fund continues to
maintain a significant exposure to this group.</P>
<P><B><I>Which sectors or stocks contributed the most to returns?</I></B></P>
<P>Small Cap Value's stake in a related group, electric utilities, also proved
beneficial. Two firms in particular — IDACORP, Inc. and Avista Corp. — were
standout performers. We held IDACORP's common stock, while in the case of
Avista, we held the firm's convertible security. IDACORP is the holding company
for Idaho Power, a hydroelectric utility that also has an ownership stake in
several coal plants and markets natural gas through trading operations, while
Avista supplies electricity and gas in eastern Washington and northern Idaho.
Although both firms' core business is power generation, the two are also
involved in pioneering research and development of fuel cells — distributed
power systems that convert the chemical energy of a fuel into electricity.
Deregulation within the power industry and the attractive environmental
characteristics of fuel cells — which have either no or low emissions — are
expected to drive demand for the systems exponentially. Market speculation
about fuel cells' profit potential pushed Avista and IDACORP stock up
dramatically — albeit briefly — in early 2000. We eliminated both stocks
from the portfolio on this strength.</P>
<P><B><I>Which other investments provided good performance?</I></B></P>
<P>The fund also got a boost from holdings in medical products and supplies
companies. The healthcare industry in general has struggled as investors have
turned toward technology companies; however, good individual stock selection
was key. Our best contributor in this group was Beckman Coulter, which makes
lab instruments and products. The company had an outstanding year in 1999, due
to escalating synergies resulting from its 1997 acquisition of Coulter.</P>
<P>A second top industry performer was Dentsply International, a supplier of
dental products ranging from x-ray systems and instruments to anesthetics and
miscellaneous disposal supplies. We bought the stock when its price had been
driven down by several transitory issues, such as inventory buildup that
resulted from consolidation among product suppliers in the United States and
weakened European demand. Both issues have abated and Dentsply's stock is
rebounding.</P>
<P><B><I>You mentioned the fund's few technology holdings were strong
performers. Can you elaborate?</I></B></P>
<P>Yes. Two software holdings — Autodesk, Inc. and Caere Corporation — met
our value criteria and contributed significantly. We bought Autodesk, which
makes software for architectural and mechanical design, when its stock price
was depressed due to product cycle issues. Cost-cutting efforts and excitement
over new products ultimately helped boost the company's stock appreciably, and
we eliminated this stock as it reached fair value.</P>
<P>Caere makes scanning software and hardware that converts optical characters
into computer-usable text. The firm was acquired in March of 2000 by ScanSoft,
a leading developer of digital imaging software, at a significant premium for
Caere shareholders.</P>
<P>In a related group, strong growth in the computer and telecommunications
arenas raised earnings for several semiconductor distribution firms in the
portfolio. Names that helped included Avnet and Arrow Electric. Avnet is a
global semiconductor distributor, while Arrow is the world's largest
distributor of electronic components and computer products to industrial and
commercial customers. Improved demand, firming sales prices and reduced
inventories in the distribution network have contributed to these firms' recent
turnaround. Expanding need for electronic content in consumer and industrial
products bodes well for this group and these companies' valuations remain
reasonable, so we are holding our position in these two firms.</P>
<P><B><I>Which sectors or stocks were disappointing?</I></B></P>
<P>We continued to be disappointed in the performance of our food and beverage
holdings and our stake in leisure companies. As we discussed in the semiannual
report, competitive pressures, sluggish sales and low commodity prices have
held this group back, and little has changed in terms of the industry's health.
Although we have reduced or eliminated several holdings in this group, we
believe most of the trouble plaguing the industry is temporary and are
therefore maintaining our position.</P>
<P>Department 56 and Boyd's Collection, Ltd., which both market collectibles,
were negative performers. Department 56 makes and markets giftware and
collectibles, including the Original Snow Village Collection, a popular line of
ceramic buildings. Although Department 56 has a loyal customer base, sales have
been impacted recently by the difficult implementation of a new computer
system, and the stock has dropped considerably.</P>
<P>Boyd's Collection, Ltd. markets its high-quality, handcrafted giftware
through catalogs, department stores and electronic retail channels. Boyd's went
public in May of 1999, and immediately saw its net sales rise dramatically,
which continued through the third quarter of 1999. However, the company's
fortunes reversed dramatically in the fourth quarter in response to softening
demand for its resin collectibles line due to changing market conditions. We
believe that both companies will resolve their current difficulties and are
therefore sitting tight.</P>
<P><B><I>Did you make any significant changes to the portfolio since the
semiannual report?</I></B></P>
<P>We increased our stake in the financial sector, which went from 11.2% of
investments to more than 14%, as valuations in this group have grown
increasingly attractive in the wake of rising interest rates and investors'
migration to technology companies. We similarly added to our weighting in gas
utilities, again, as prices became attractive in this group.</P>
<P>We reduced our technology exposure with the elimination of Autodesk, which
we discussed earlier, and Caere, via its acquisition by another software firm.
Although we continue to search for attractive opportunities in this richly
valued arena, we are currently finding it difficult to identify fundamentally
sound, financially stable technology companies at the inexpensive prices we
seek.</P>
<P><B><I>What's your outlook for value investing?</I></B></P>
<P>Although we shy away from making predictions about market direction, we do
believe that with valuations at their current extremes, investors perhaps
already are beginning to recognize value and question the lofty prices of the
stocks currently leading the market. The current risk/reward trade-off
continues to be quite attractive for value investors, particularly those
fishing in the small-cap value arena, and we are optimistic that a market
rotation is on the horizon.</P>
<P>In the meantime, we will continue to strive for good relative performance
versus the market and our peers. We continue to search for high-quality,
inexpensively priced companies, which we believe will benefit investors
handsomely when the value style of investing returns to favor.</P>
<P><B><FONT size=4>Portfolio at a Glance</FONT></B></P>
- -------------------------------------------
3/31/00 3/31/99
- -------------------------------------------
No. of Companies 72 72
Median P/E Ratio 11.5 12.9
Median Market $614 $567
Capitalization million million
Portfolio Turnover 178% 153%(1)
Expense Ratio (for
Investor Class) 1.25% 1.25%(2)
<P><FONT size=2>(1) For the period 7/31/98 to 3/31/99.</FONT></P>
<P><FONT size=2>(2) Annualized.</FONT></P>
<P><FONT size=2>Investment terms are defined in the Glossary on pages 52-53.</FONT></P>
<P><FONT size=2>*All fund returns referenced in this interview are for Investor
Class shares.</FONT></P>
<P><B><FONT size=4>Top Ten Holdings</FONT></B></P>
- -----------------------------------------
% of fund investments
- -----------------------------------------
As of As of
3/31/00 9/30/99
Department 56, Inc. 2.4% 3.3%
National Presto
Industries, Inc. 2.4% 1.9%
AGL Resources Inc. 2.4% 3.9%
Dentsply
International Inc. 2.4% 2.6%
Northwest Natural
Gas Co. 2.3% --
GTECH Holdings Corp. 2.2% 2.4%
Corn Products
International, Inc. 2.1% 0.5%
Lancaster
Colony Corp. 2.1% 0.8%
Swift Energy Co. 2.1% 1.3%
International
Multifoods Corp. 2.0% 1.4%
<P><B><FONT size=4>Top Five Industries</FONT></B></P>
- -----------------------------------------
% of fund investments
- -----------------------------------------
As of As of
3/31/00 9/30/99
Gas & Water Utilities 10.6% 5.3%
Food & Beverage 9.3% 12.0%
Leisure 7.1% 6.9%
Property and Casualty
Insurance 6.8% 7.2%
Energy Reserves
& Production 5.6% 6.7%
<P><FONT size=4><I>"The current risk/ reward tradeoff continues to be quite
attractive for value investors, particularly those fishing in the small-cap
value arena, and we are optimistic that a market rotation is on the horizon."</I></FONT></P>
<P><B><FONT size=4>Types of Investments in the Portfolio</FONT></B></P>
<P ALIGN="CENTER">[GRAPHIC OMITTED]</P>
<P ALIGN="CENTER">[The following tables were depicted as pie charts in the printed material.]</P>
- ----------------------------------------------------------
As of March 31, 2000
- ----------------------------------------------------------
Common Stocks and Futures 95.1%
Temporary Cash Investments 4.9%
- ----------------------------------------------------------
As of September 30, 1999
- ----------------------------------------------------------
Common Stocks 97.8%
Convertible Preferred Stocks 2.2%
<A NAME="N"></A><P><FONT size=5>Small Cap Value — Schedule of Investments</FONT></P>
<HR width="100%" size="1" noshade align="left">
MARCH 31, 2000
Shares Value
======================================================================
- ----------------------------------------------------------------------
COMMON STOCKS -- 91.0%
- ----------------------------------------------------------------------
APPAREL & TEXTILES -- 0.5%
9,800 Wolverine World Wide, Inc. $ 107,803
------------
BANKS -- 3.5%
12,000 Keystone Financial, Inc. 220,125
11,600 MetroCorp Bancshares Inc. 78,662
4,200 TCF Financial Corp. 100,012
6,400 Whitney Holding Corp. 207,200
2,200 Wilmington Trust Corporation 106,975
------------
712,974
------------
CHEMICALS -- 1.8%
29,200 Lilly Industries, Inc. CI A 361,350
------------
CLOTHING STORES -- 2.6%
11,600 Buckle, Inc. (The)(1) 187,050
16,900 Claire's Stores, Inc. 339,056
------------
526,106
------------
COMPUTER SOFTWARE -- 1.5%
20,013 ScanSoft, Inc.(1) 100,690
15,100 Structural Dynamics Research Corp.(1) 203,378
------------
304,068
------------
CONSUMER DURABLES -- 4.3%
50,100 Griffon Corp.(1) 391,406
14,800 National Presto Industries, Inc. 482,850
------------
874,256
------------
DRUGS -- 0.5%
9,200 Covance Inc.(1) 98,900
------------
ELECTRICAL UTILITIES -- 1.6%
18,200 Maine Public Service Co. 317,372
------------
ENERGY RESERVES & PRODUCTION -- 5.6%
18,200 Belco Oil & Gas Corp.(1) 188,825
5,800 Devon Energy Corp. 281,662
23,200 Swift Energy Co.(1) 414,700
46,800 Titan Exploration, Inc.(1) 235,462
------------
1,120,649
------------
FINANCIAL SERVICES -- 0.9%
17,000 MicroFinancial Inc. 176,375
------------
FOOD & BEVERAGE -- 9.3%
17,800 Corn Products International, Inc. 428,312
29,500 International Multifoods Corp. 394,562
7,200 Interstate Bakeries Corp. 102,600
24,400 Lance, Inc. 257,725
12,000 Michael Foods, Inc. 251,250
39,500 Omega Protein Corp.(1) 101,219
15,700 Universal Foods Corp. 335,588
------------
1,871,256
------------
FOREST PRODUCTS & PAPER -- 2.6%
2,700 Rayonier, Inc. 131,625
29,800 Wausau-Mosinee Paper Corp. 385,538
------------
517,163
------------
GAS & WATER UTILITIES -- 10.6%
26,000 AGL Resources Inc. 477,750
18,900 Cascade Natural Gas Corp. 304,762
23,200 Northwest Natural Gas Co. 453,850
10,700 People's Energy Corp. 293,581
12,400 Piedmont Natural Gas Co., Inc. 323,175
8,800 WICOR, Inc. 272,800
------------
2,125,918
------------
HEAVY ELECTRICAL EQUIPMENT -- 0.5%
6,000 Regal-Beloit Corp. 105,000
------------
HOME PRODUCTS -- 3.4%
14,000 Lancaster Colony Corp. 427,438
12,200 WD-40 Co. 254,294
------------
681,732
------------
INDUSTRIAL PARTS -- 5.1%
10,100 Applied Power Inc. 287,850
26,900 Flowserve Corp. 346,338
7,000 National Service Industries, Inc. 147,438
5,600 Tecumseh Products CI A 246,575
------------
1,028,201
------------
INDUSTRIAL SERVICES -- 2.1%
9,400 G & K Services Inc. CI A 183,006
6,500 XTRA Corp.(1) 247,000
------------
430,006
------------
INFORMATION SERVICES -- 1.0%
11,100 Pomeroy Computer Resources, Inc.(1) 203,269
------------
LEISURE -- 7.1%
37,800 Boyds Collection, Ltd. (The)(1) 229,162
32,900 Department 56, Inc.(1) 487,331
23,800 GTECH Holdings Corp.(1) 441,788
14,200 Russ Berrie and Co., Inc. 262,700
------------
1,420,981
------------
MEDICAL PRODUCTS & SUPPLIES -- 4.1%
5,500 Beckman Coulter Inc. 353,031
16,700 Dentsply International Inc. 477,516
------------
830,547
------------
MOTOR VEHICLES & PARTS -- 1.5%
9,600 Superior Industries International, Inc. 304,200
------------
OIL REFINING -- 1.6%
12,800 Ultramar Diamond Shamrock Corp. 324,800
------------
PROPERTY & CASUALTY INSURANCE -- 6.8%
19,300 HCC Insurance Holdings, Inc. 255,725
14,600 Horace Mann Educators Corp. 269,188
10,675 Medical Assurance, Inc.(1) 203,492
5,200 PMI Group, Inc. (The) 246,675
8,146 Radian Group Inc. 387,953
------------
1,363,033
------------
PUBLISHING -- 0.9%
5,100 Banta Corp. 93,712
9,800 Schawk, Inc. 77,175
------------
170,887
------------
RESTAURANTS -- 3.0%
3,500 Brinker International, Inc.(1) 103,906
12,200 Jack in the Box Inc.(1) 260,012
6,900 Morton's Restaurant Group, Inc.(1) 131,531
5,200 Wendy's International, Inc. 104,975
------------
600,424
------------
SECURITIES & ASSET MANAGEMENT -- 1.2%
6,500 John Nuveen Co. CI A 248,625
------------
SEMICONDUCTOR -- 2.4%
4,500 Arrow Electronics, Inc.(1) 158,625
5,200 Avnet, Inc. 327,600
------------
486,225
------------
SPECIALTY STORES -- 1.3%
14,500 Duckwall-ALCO Stores, Inc.(1) 119,172
11,700 Guitar Center, Inc.(1) 134,184
------------
253,356
------------
THRIFTS -- 1.6%
16,700 Washington Federal, Inc. 318,866
------------
TRUCKING, SHIPPING & AIR FREIGHT -- 2.1%
19,800 Heartland Express, Inc.(1) 276,581
33,500 Motor Cargo Industries, Inc.(1) 149,180
------------
425,761
------------
TOTAL COMMON STOCKS 18,310,103
(Cost $17,705,951) ------------
- ----------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 9.0%
- ----------------------------------------------------------------------
Repurchase Agreement, Goldman Sachs & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 6.08%, dated 3/31/00,
due 4/3/00 (Delivery value $900,456) 900,000
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 6.05%, dated 3/31/00,
due 4/3/00 (Delivery value $900,454) 900,000
------------
TOTAL TEMPORARY CASH INVESTMENTS 1,800,000
(Cost $1,800,000) ------------
TOTAL INVESTMENT SECURITIES -- 100.0% $ 20,110,103
(Cost $19,505,951) ------------
- ----------------------------------------------------------------------
FUTURES CONTRACTS
- ----------------------------------------------------------------------
Expiration Underlying Face Unrealized
Purchased Date Amount at Value Loss
- ----------------------------------------------------------------------
3 Russell 2000 June
Futures 2000 $826,875 $(34,248)
============================
<P><FONT size=4><B>Notes to Schedule of Investments</B></FONT></P>
<P><FONT size=2>(1) Non-income producing.</FONT></P>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<A NAME="P"></A><P><FONT size=5>Large Cap Value — Performance</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P><B><FONT size=4>Total Returns as of March 31, 2000*</FONT></B></P>
----------------------------------------------
Investor Class (inception 7/30/99)
----------------------------------------------
S&P 500/
Large Cap Value S&P 500 BARRA Value
6 Months ...... 1.46% 17.51% 9.22%
Life of Fund... -7.22% 13.72% 2.29%
<P><FONT size=2>* Returns for periods less than one year are not annualized.</FONT></P>
<P><FONT size=2>See pages 50-52 for information about share classes, the
indices and returns.</FONT></P>
<P><B><FONT size=4>Growth of $10,000 Over Life of Fund</FONT></B></P>
<P ALIGN="CENTER">[GRAPHIC OMITTED]</P>
<P ALIGN="CENTER">[The following table was depicted as a mountain graph in the printed material.]</P>
$10,000
investment
made 7/30/99
Large Cap S&P 500/
Value S&P 500 BARRA Value
7/30/1999 $10,000 $10,000 $10,000
8/31/1999 $9,560 $9,951 $9,747
9/30/1999 $9,144 $9,678 $9,366
10/31/1999 $9,505 $10,291 $9,894
11/30/1999 $9,465 $10,502 $9,836
12/31/1999 $9,403 $11,118 $10,206
1/31/2000 $9,161 $10,560 $9,881
2/29/2000 $8,316 $10,361 $9,263
3/31/2000 $9,278 $11,374 $10,230
<P><FONT size=2>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 and S&P 500 Index are
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 indices 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.</FONT></P>
<A NAME="Q"></A><P><FONT size=5>Large Cap Value — Q&A</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P>[PHOTO OMITTED]</P>
<P><FONT size=2><I>An interview with Mark Mallon and Charles Ritter, portfolio
managers on the Large Cap Value investment team.</I></FONT></P>
<P><FONT size=4><I>"Good value stocks are those that are bought at relatively
inexpensive prices, with the hope that they will increase in share price over
time due to positive developments in their specific businesses, industries or
the overall investment environment."</I></FONT></P>
<P><B><I>How did Large Cap Value perform since it was introduced on July 30,
1999?</I></B></P>
<P>Unfortunately, Large Cap Value's first eight months in operation coincided
with a difficult period for value-oriented funds. Since its inception, Large
Cap Value declined 7.22%. During the same timeframe, the fund's benchmark, the S&P 500/BARRA
Value Index, returned 2.29%. Over the same period, the Russell 1000 Value
Index, another broad-based measure of large-capitalization Value stocks,
declined 1.56%. The S&P 500 Index, representative of the broader market, gained
13.72%.</P>
<P><B><I>What factors influenced the fund's performance?</I></B></P>
<P>During the period covered by this report, "New Economy" technology stocks
were the market leaders. For the most part, these were mid-capitalization
growth stocks with high price-to-earnings ratios and very little, if any,
earnings. As is evident in its name, Large Cap Value looks for stocks of older,
more established, value-oriented companies — precisely the types of firms
that were out of favor during the period. Large Cap Value also carries more of
a value bias than its performance benchmark, which means when the value style
is out of favor, the fund will typically lag its benchmark.</P>
<P><B><I>Can you please review how the fund is managed?</I></B></P>
<P>We use a disciplined, bottom-up approach, selecting companies one at a time
for Large Cap Value's portfolio. That means we buy and sell stocks on the basis
of the companies' individual merits, rather than as a result of broad sector or
industry themes. Good value stocks are those that are bought at relatively
inexpensive prices, with the hope that they will increase in share price over
time due to positive developments in their specific businesses, industries or
the overall investment environment.</P>
<P>Our search for these stocks begins with a proprietary database that
identifies attractively priced stocks. To identify those that are attractively
priced, we compare a stock's 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 its historical values. We also look
for companies with high cash flow and above-average dividend growth potential.
Next, we depend on fundamental research to determine which companies are
financially strong and appear to have solid long-term prospects. We focus for
the most part on larger companies — those with a market capitalization of
$5 billion or more — and also take care to maintain a portfolio well
diversified across sectors and industries.</P>
<P><B><I>Which areas proved to be the most fertile for investment opportunities?</I></B></P>
<P>The fund benefited significantly from three older, more established
companies that took actions to unlock shareholder value. General Motors
announced a program enabling investors to exchange shares of General Motors for
shares of GM Hughes Electronics, a subsidiary. The program should lead to a
significant reduction in General Motors shares outstanding. The stock reacted
very positively as growth investors bought shares of General Motors as a way of
buying GM Hughes Electronics at a discount. Value investors bought shares in
anticipation of much higher earnings per share at General Motors.</P>
<P>Hewlett-Packard performed well due to two factors. It spun off a portion of
one of its operations into a new company, Agilent Technologies, a
test-equipment provider. This spring, Hewlett-Packard shareholders will receive
one-third of a share of Agilent for every share of Hewlett-Packard they own. As
Agilent's stock price skyrocketed, and the company maintained its strong
position in the printer market, the price investors were willing to pay for
Hewlett-Packard also increased.</P>
<P>A third contributor to performance was TRW, a company with an interesting
combination of old and new economy characteristics. The company is a major
supplier of auto parts, but it also has operations in defense electronics. The
technology in its defense operations has been cutting edge, but the company has
historically been unable to successfully commercialize it. Recently, TRW began
licensing its technology to other companies in return for equity stakes. The
initial results have been very promising and the company's stock price has
responded nicely.</P>
<P><B><I>With technology doing so well recently, has this been an area of
emphasis in the fund?</I></B></P>
<P>No, in general the fund has not had a major position in technology. At the
end of the fiscal year, technology companies represented 13.4% of investments,
similar to the technology weighting of the S&P/BarraValue Index but well below
the S&P 500 Index's 34.3% technology stake. Our value-oriented approach makes it
difficult to emphasize areas that are popular in the market. However, prior to
the run-up in "New Economy" stocks, the fund established modest positions in
the technology sector.</P>
<P>An example of our approach is Oracle, the world's largest supplier of
software that allows users to create and manage data in computer-based files.
We took a position in the stock last summer, when investors were still
skeptical about the company's long-term prospects. However, by late in 1999,
Oracle's new strategy — designing its products to work through the
Internet — was viewed quite favorably as more companies began connecting
their systems to the Internet. While we usually envision holding a position for
several years, Oracle's four-fold price increase since our purchase caused the
stock to fall outside our valuation disciplines. We therefore sold it after the
end of our fiscal year.</P>
<P><B><I>Which investments proved to be disappointing?</I></B></P>
<P>Philip Morris, buffeted by tobacco litigation, was the fund's biggest
laggard due to concerns about pending litigation. However, we still own the
stock because the company's fundamentals remain very strong and its share price
is incredibly low relative to its earnings power.</P>
<P>Financial services stocks continued to struggle. Although Large Cap Value's
position in financial stocks was in line with its index, these stocks were a
drag on performance. Rising interest rates spurred by Federal Reserve Board
monetary policy was one of the main reasons for their underperformance.
However, some banks and financial firms suffered even more from
company-specific problems. Banc One, for example, encountered an unexpected
slowdown in the growth of one of its credit card units. Meanwhile, Allstate
faced a tough pricing environment in the personal property and casualty
insurance industry.</P>
<P>At the same time, not all of the fund's finance-related stocks posted poor
performance. In fact, Citigroup proved to be one of the better-performing
stocks for us. This company benefited from the synergy emerging from the
marriage between Citicorp and the Travelers Group that created it. In addition,
during a period when the capital markets were very strong, the company
benefited from the solid performance of its Salomon Smith Barney franchise.</P>
<P><B><I>Telephone stocks made up one of the fund's largest sector weightings
at about 8% of the fund. How did those investments fare?</I></B></P>
<P>These stocks have moved up and down in price as public sentiment wavered
regarding the potential success of the mergers rampant in the industry. As a
result, our telephone holdings provided a mixed performance. Over the period, AT&T,which
is merging with MediaOne, did fairly well, but Bell Atlantic and MCI WorldCom,
which are merging with GTE and Sprint, respectively, did not. Overall, we are
positive about the fundamentals of the companies we own in this group and
expect share prices to reflect these strong fundamentals as merger
uncertainties are removed.</P>
<P><B><I>Energy companies currently comprise nearly 8% of the fund. Have higher
oil prices helped these stocks?</I></B></P>
<P>Our energy holdings, including Exxon Mobil, Chevron and Royal Dutch
Petroleum, moved up in 1999 when oil prices started to rise. However, during
the latter part of 1999 and the beginning of 2000, oil prices reached a high
level that investors did not believe was sustainable. In addition, there
typically is a lag between oil price increases and the time when the benefits
of higher oil prices start to show up in oil company earnings. As a result, the
stock prices came under pressure. However, we believe that when oil company
earnings growth becomes more visible and the price of oil moderates to more
sustainable levels, these companies' share prices will improve.</P>
<P><B><I>What is your outlook for the near future?</I></B></P>
<P>The stocks of older, established companies have been beaten down to very low
levels. Historically speaking, it's unrealistic for these stocks to remain so
depressed; the companies offer solid fundamentals and too much value. On a
company-by-company basis, we see no evidence of earnings disappointments that
would lead us to believe large-scale problems are imminent, nor do we think
there are there any foreseeable difficulties on the horizon in the overall
economy that would lead to broad-based earnings shortfalls. As a result of this
positive fundamental backdrop, we believe there will be an eventual move back
toward more reasonable valuations and better performance by the kinds of value
stocks found in Large Cap Value.</P>
<P><B><FONT size=4>Portfolio at a Glance</FONT></B></P>
- -----------------------------------------------------------
3/31/00 9/30/99
- -----------------------------------------------------------
No. of Companies 89 86
Median P/E Ratio 12.5 16.0
Median Market $ 12.7 $ 18.4
Capitalization billion billion
Portfolio Turnover 51%(1) 13%(2)
Expense Ratio (for
Investor Class) 0.90%(3) 0.90%(3)
<P><FONT size=2>(1) For the period from 7/30/99 to 3/31/00.</FONT></P>
<P><FONT size=2>(2) For the period from 7/30/99 to 9/30/99.</FONT></P>
<P><FONT size=2>(3) Annualized.</FONT></P>
<P><FONT size=2>Investment terms are defined in the Glossary on pages 52-53.</FONT></P>
<P><B><FONT size=4>Top Ten Stock Holdings</FONT></B></P>
- -----------------------------------------
% of fund investments
- -----------------------------------------
As of As of
3/31/00 9/30/99
Exxon Mobil Corp. 4.7% 5.2%(1)
Citigroup Inc. 2.8% 2.4%
AT&T Corp. 2.6% 2.1%
MCI WorldCom, Inc. 2.0% 1.9%
Bell Atlantic Corp. 2.0% 2.2%
Philip Morris
Companies Inc. 2.0% 2.1%
International Business
Machines Corp. 1.9% 1.9%
FPL Group, Inc. 1.8% 1.9%
Banc One Corp. 1.7% 1.8%
Ford Motor Co. 1.6% 3.0%
<P><FONT size=2>(1) Exxon Corp. and Mobil Corp. merged on 11/30/99. The 9/30/99
percentages represent both Exxon Corp. and Mobil Corp. shares owned by the fund.</FONT></P>
<P><B><FONT size=4>Top Five Industries</FONT></B></P>
- -----------------------------------------
% of fund investments
- -----------------------------------------
As of As of
3/31/00 9/30/99
Banks 11.7% 12.8%
Telephone 8.1% 7.8%
Energy Reserves
& Production 7.5% 7.9%
Investment Trusts 6.9% --
Property and Casualty
Insurance 5.2% 5.7%
<P><FONT size=4><I>"The stocks of older, established companies have been beaten
down to very low levels. Historically speaking, it's unrealistic for these
stocks to remain so depressed; the companies offer solid fundamentals and too
much value."</I></FONT></P>
<P><B><FONT size=4>Types of Investments in the Portfolio</FONT></B></P>
<P ALIGN="CENTER">[GRAPHIC OMITTED]</P>
<P ALIGN="CENTER">[The following tables were depicted as pie charts in the printed material.]</P>
- ------------------------------------------------
As of March 31, 2000
- ------------------------------------------------
Common Stocks 94.5%
Temporary Cash Investments 5.5%
- ------------------------------------------------
As of September 30, 1999
- ------------------------------------------------
Common Stocks 94.6%
Temporary Cash Investments 5.4%
<A NAME="R"></A><P><FONT size=5>Large Cap Value — Schedule of Investments</FONT></P>
<HR width="100%" size="1" noshade align="left">
MARCH 31, 2000
Shares Value
======================================================================
- ----------------------------------------------------------------------
COMMON STOCKS -- 94.5%
- ----------------------------------------------------------------------
APPAREL & TEXTILES -- 1.4%
1,200 Liz Claiborne, Inc. $ 54,972
4,900 VF Corp. 117,906
-----------
172,878
-----------
BANKS -- 11.7%
6,100 Banc One Corp. 209,688
3,200 Bank of America Corp. 167,800
1,600 Chase Manhattan Corp. 139,500
5,900 Citigroup Inc. 349,944
3,500 First Union Corp. 130,375
3,300 Fleet Boston Financial Corp. 120,450
6,000 KeyCorp 114,000
5,900 National City Corp. 121,688
2,300 Summit Bancorp. 60,375
2,800 U.S. Bancorp 61,250
-----------
1,475,070
-----------
CHEMICALS -- 3.2%
3,200 Air Products and Chemicals, Inc. 91,000
2,200 FMC Corp.(1) 124,300
700 Minnesota Mining & Manufacturing Co. 61,994
5,500 Sherwin-Williams Co. 120,656
-----------
397,950
-----------
COMPUTER HARDWARE
& BUSINESS MACHINES -- 2.6%
2,300 Compaq Computer Corp. 61,238
1,300 Hewlett-Packard Co. 172,331
4,100 Lanier Worldwide Inc.(1) 8,456
900 Sun Microsystems, Inc.(1) 84,347
-----------
326,372
-----------
COMPUTER SOFTWARE -- 4.1%
1,800 Computer Associates International, Inc. 106,538
2,000 International Business Machines Corp. 236,000
1,100 Microsoft Corp.(1) 117,184
800 Oracle Corp.(1) 62,375
-----------
522,097
-----------
CONSUMER DURABLES -- 0.9%
2,000 Whirlpool Corp. 117,250
-----------
DEFENSE/AEROSPACE -- 2.5%
1,800 Boeing Co. 68,288
5,400 Lockheed Martin Corp. 110,362
4,400 Raytheon Co. CI A 82,775
1,000 TRW Inc. 58,500
-----------
319,925
-----------
DEPARTMENT STORES -- 2.9%
6,600 Dillard's Inc. CI A 108,488
13,000 Kmart Corp.(1) 125,938
4,100 Sears, Roebuck & Co. 126,588
-----------
361,014
-----------
DRUGS -- 2.3%
1,600 American Home Products Corp. 85,800
1,500 Lilly (Eli) & Co. 94,500
1,800 Merck & Co., Inc. 111,825
-----------
292,125
-----------
ELECTRICAL EQUIPMENT -- 3.3%
2,200 Harris Corp. 76,038
3,600 ITT Industries, Inc. 111,825
700 Motorola, Inc. 99,662
1,000 Nortel Networks Corp. 126,000
-----------
413,525
-----------
ELECTRICAL UTILITIES -- 3.2%
2,200 American Electric Power Co., Inc. 65,588
6,800 Edison International 112,625
5,000 FPL Group, Inc. 230,312
-----------
408,525
-----------
ENERGY RESERVES & PRODUCTION -- 7.5%
1,900 Chevron Corp. 175,631
7,568 Exxon Mobil Corp. 588,885
3,200 Royal Dutch Petroleum Co.
New York Shares 184,200
-----------
948,716
-----------
ENVIRONMENTAL SERVICES -- 0.4%
3,600 Waste Management, Inc. 49,275
-----------
FINANCIAL SERVICES -- 4.1%
4,400 Countrywide Credit Industries, Inc. 119,900
2,400 Fannie Mae 135,450
800 General Electric Co. (U.S.) 124,150
3,700 Household International, Inc. 138,056
-----------
517,556
-----------
FOOD & BEVERAGE -- 2.1%
7,100 ConAgra, Inc. 128,688
3,800 Heinz (H.J.) Co. 132,525
-----------
261,213
-----------
FOREST PRODUCTS & PAPER -- 0.3%
1,500 Fort James Corp. 33,000
-----------
HEAVY ELECTRICAL EQUIPMENT-- 2.3%
2,700 Cooper Industries, Inc. 94,500
3,600 Emerson Electric Co. 190,350
-----------
284,850
-----------
HOME PRODUCTS -- 0.6%
2,700 Avon Products, Inc. 78,469
-----------
INDUSTRIAL PARTS -- 1.5%
2,400 Parker-Hannifin Corp. 99,150
3,700 Snap-on Inc. 96,894
-----------
196,044
-----------
INFORMATION SERVICES -- 0.5%
1,000 Electronic Data Systems Corp. 64,188
-----------
INVESTMENT TRUSTS -- 6.9%
3,000 Equity Residential Properties Trust 120,562
5,000 Standard and Poor's 500
Depositary Receipt 752,812
-----------
873,374
-----------
LEISURE -- 1.2%
2,300 Eastman Kodak Co. 124,919
2,100 Mattel, Inc. 21,918
-----------
146,837
-----------
LIFE & HEALTH INSURANCE -- 0.9%
5,100 Torchmark Corp. 117,938
-----------
MEDIA -- 1.8%
2,200 Disney (Walt) Co. 91,025
1,700 MediaOne Group Inc.(1) 137,700
-----------
228,725
-----------
MEDICAL PROVIDERS & SERVICES -- 1.4%
5,000 Columbia/HCA Healthcare Corp. 126,562
10,000 HEALTHSOUTH Corp.(1) 55,625
-----------
182,187
-----------
MINING & METALS -- 0.7%
5,500 Crown Cork & Seal Co., Inc. 88,000
-----------
MOTOR VEHICLES & PARTS -- 2.6%
4,300 Ford Motor Co. 197,531
1,600 General Motors Corp. 132,500
-----------
330,031
-----------
OIL REFINING -- 1.1%
5,100 USX-Marathon Group 132,919
-----------
PROPERTY & CASUALTY INSURANCE -- 5.2%
7,000 Allstate Corp. 166,688
2,100 Chubb Corp. (The) 141,881
2,400 Loews Corp. 120,000
2,000 MBIA Inc. 104,125
2,800 MGIC Investment Corp. 122,150
-----------
654,844
-----------
PUBLISHING -- 2.3%
3,100 American Greetings Corp. CI A 56,575
4,000 Deluxe Corp. 106,000
2,400 Knight-Ridder, Inc. 122,250
-----------
284,825
-----------
RESTAURANTS -- 0.7%
2,200 McDonald's Corp. 82,638
-----------
SECURITIES & ASSET MANAGEMENT -- 0.4%
1,600 Franklin Resources, Inc. 53,500
-----------
SEMICONDUCTOR -- 0.9%
900 Intel Corp. 118,631
-----------
TELEPHONE -- 8.1%
5,800 AT&T Corp. 326,250
4,100 Bell Atlantic Corp. 250,612
2,600 GTE Corp. 184,600
5,700 MCI WorldCom, Inc.(1) 258,816
-----------
1,020,278
-----------
THRIFTS -- 0.9%
4,500 Washington Mutual, Inc. 119,250
-----------
TOBACCO -- 2.0%
11,800 Philip Morris Companies Inc. 249,275
-----------
TOTAL COMMON STOCKS 11,923,294
(Cost $12,782,899) -----------
- ----------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 5.5%
- ----------------------------------------------------------------------
Repurchase Agreement, Goldman Sachs & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 6.08%, dated 3/31/00,
due 4/3/00 (Delivery value $600,304) 600,000
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 6.05%, dated 3/31/00,
due 4/3/00 (Delivery value $100,050) 100,000
-----------
TOTAL TEMPORARY CASH INVESTMENTS 700,000
(Cost $700,000) -----------
TOTAL INVESTMENT SECURITIES -- 100.0% $12,623,294
(Cost $13,482,899) ===========
<P><FONT size=4><B>Notes to Schedule of Investments</B></FONT></P>
<P><FONT size=2>(1) Non-income producing.</FONT></P>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<A NAME="S"></A><A NAME="T"></A><P><FONT size=5>Statements of Assets and Liabilities</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P>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).</P>
MARCH 31, 2000 VALUE EQUITY INCOME
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
Investment securities-unaffiliated, at value (identified cost of $1,393,105,218 and
$319,108,090, respectively) (Note 3) ............................................ $1,352,640,570 $ 302,536,807
Investment securities-affiliated, at value (identified cost of $218,517,037
and $12,358,706, respectively) (Note 3 and 5) ................................... 183,239,750 10,955,475
Cash .............................................................................. 2,921,961 486,901
Receivable for investments sold ................................................... 46,178,533 10,660,293
Receivable for variation margin on futures contracts .............................. 2,179,077 399,150
Dividends and interest receivable ................................................. 2,260,597 878,243
-------------- -------------
1,589,420,488 325,916,869
-------------- -------------
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ................................................. 43,022,645 8,969,545
Accrued management fees (Note 2) .................................................. 1,187,776 249,186
Distribution fees payable (Note 2) ................................................ 11,968 4,104
Service fees payable (Note 2) ..................................................... 11,968 4,104
Accrued directors' fees and expenses .............................................. 925 204
Accrued expenses and other liabilities ............................................ 13,826 806
-------------- -------------
44,249,108 9,227,949
-------------- -------------
Net Assets ........................................................................ $1,545,171,380 $ 316,688,920
============== =============
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------------------------------
Capital (par value and paid-in surplus) ........................................... $1,807,721,038 $ 361,924,618
Undistributed net investment income ............................................... 216,825 169,371
Accumulated net realized loss on investments ...................................... (187,229,659) (27,345,980)
Net unrealized appreciation (depreciation) on investments (Note 3) ............... (75,536,824) (18,059,089)
-------------- -------------
$1,545,171,380 $ 316,688,920
============== =============
Investor Class
Net assets ........................................................................ $1,388,645,838 $ 282,691,731
Shares outstanding ................................................................ 259,329,091 51,378,884
Net asset value per share ......................................................... $5.35 $5.50
Advisor Class
Net assets ........................................................................ $ 61,323,470 $ 20,281,357
Shares outstanding ................................................................ 11,451,178 3,685,979
Net asset value per share ......................................................... $5.36 $5.50
Institutional Class
Net assets ........................................................................ $ 95,202,072 $ 13,715,832
Shares outstanding ................................................................ 17,763,864 2,492,272
Net asset value per share ......................................................... $5.36 $5.50
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
MARCH 31, 2000 SMALL CAP VALUE LARGE CAP VALUE
- --------------------------------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------------------------------
Investment securities-unaffiliated, at value (identified cost of $19,505,951 and
$13,482,899, respectively) (Note 3) .......................................... $20,110,103 $12,623,294
Cash ........................................................................... 66,343 60,730
Receivable for investments sold ................................................ 555,503 192,158
Receivable for variation margin on futures contracts ........................... 59,198 --
Dividends and interest receivable .............................................. 34,834 24,404
----------- -----------
20,825,981 12,900,586
----------- -----------
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------------------------------------------
Payable for investments purchased .............................................. 665,973 221,005
Accrued management fees (Note 2) ............................................... 19,561 8,576
Distribution fees payable (Note 2) ............................................. 13 --
Service fees payable (Note 2) .................................................. 13 --
Accrued directors' fees and expenses ........................................... 11 7
Accrued expenses and other liabilities ......................................... 86 19
----------- -----------
685,657 229,607
----------- -----------
Net Assets ..................................................................... $20,140,324 $12,670,979
=========== ===========
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------------------------
Capital (par value and paid-in surplus) ........................................ $19,927,707 $13,583,301
Undistributed net investment income ............................................ 4,105 2,261
Accumulated net realized loss on investments ................................... (361,392) (54,978)
Net unrealized appreciation (depreciation) on investments (Note 3) ............. 569,904 (859,605)
----------- -----------
$20,140,324 $12,670,979
=========== ===========
Investor Class
Net assets ..................................................................... $17,689,787 $12,670,979
Shares outstanding ............................................................. 3,512,220 2,762,133
Net asset value per share ...................................................... $5.04 $4.59
Advisor Class
Net assets ..................................................................... $ 91,126 N/A
Shares outstanding ............................................................. 18,092 N/A
Net asset value per share ...................................................... $5.04 N/A
Institutional Class
Net assets ..................................................................... $ 2,359,411 N/A
Shares outstanding ............................................................. 468,052 N/A
Net asset value per share ...................................................... $5.04 N/A
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<A NAME="U"></A><P><FONT size=5>Statements of Operations</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P>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.</P>
YEAR ENDED MARCH 31, 2000 VALUE EQUITY INCOME
- ----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ----------------------------------------------------------------------------------------------------------------
Income:
Dividends (including $2,712,507 and $33,580 from affiliates, respectively) $ 42,661,230 $ 13,077,918
Interest .................................................................. 3,457,926 2,587,842
------------ ------------
46,119,156 15,665,760
------------ ------------
Expenses (Note 2):
Management fees ........................................................... 18,344,810 3,497,171
Distribution fees -- Advisor Class ........................................ 151,091 46,569
Service fees -- Advisor Class ............................................. 151,091 46,569
Directors' fees and expenses .............................................. 15,448 2,987
------------ ------------
18,662,440 3,593,296
------------ ------------
Net investment income ..................................................... 27,456,716 12,072,464
------------ ------------
- ----------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3)
- ----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (includes $(7,878,963) and $169,971
from affiliates, respectively) .......................................... (64,634,047) (4,967,548)
Change in net unrealized depreciation on investments ...................... 54,410,260 (946,610)
------------ ------------
Net realized and unrealized loss on investments ........................... (10,223,787) (5,914,158)
------------ ------------
Net Increase in Net Assets Resulting from Operations ...................... $ 17,232,929 $ 6,158,306
============ ============
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
YEAR ENDED MARCH 31, 2000 SMALL CAP VALUE LARGE CAP VALUE(1)
- ------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------
Income:
Dividends ..................................................... $ 384,666 $ 187,465
Interest ...................................................... 39,806 21,809
---------- ---------
424,472 209,274
---------- ---------
Expenses (Note 2):
Management fees ............................................... 229,550 72,002
Distribution fees -- Advisor Class ............................ 16 --
Service fees -- Advisor Class ................................. 16 --
Directors' fees and expenses .................................. 139 48
---------- ---------
229,721 72,050
---------- ---------
Net investment income ......................................... 194,751 137,224
---------- ---------
- ------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments ....................... 733,268 (54,978)
Change in net unrealized depreciation on investments .......... 969,916 (859,605)
---------- ---------
Net realized and unrealized gain (loss) on investments ........ 1,703,184 (914,583)
---------- ---------
Net Increase (Decrease) in Net Assets Resulting from Operations $1,897,935 $(777,359)
========== =========
<P><FONT size=2>(1) July 30, 1999 (inception) through March 31, 2000.</FONT></P>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<A NAME="V"></A><P><FONT size=5>Statements of Changes in Net Assets</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P>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 pages for the most recent period),
income and capital gain distributions, and shareholder investments and
redemptions.</P>
YEARS ENDED MARCH 31, 2000 AND MARCH 31, 1999
----------------------------------- -----------------------------
VALUE EQUITY INCOME
----------------------------------- -----------------------------
Increase (Decrease) in Net Assets 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income ............................ $ 27,456,716 $ 26,795,802 $ 12,072,464 $ 10,637,986
Net realized gain (loss) on investments .......... (64,634,047) 195,098,537 (4,967,548) 31,755,781
Change in net unrealized appreciation
(depreciation) on investments .................. 54,410,260 (486,683,191) (946,610) (45,429,913)
-------------- -------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations ...................... 17,232,929 (264,788,852) 6,158,306 (3,036,146)
-------------- -------------- ------------ ------------
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income:
Investor Class ................................. (25,653,978) (27,029,374) (11,012,731) (10,625,704)
Advisor Class .................................. (772,801) (556,573) (597,277) (199,229)
Institutional Class ............................ (1,071,307) (232,110) (364,992) (26,713)
From net realized gains on investment
transactions:
Investor Class ................................. -- (334,647,261) (1,310,069) (43,173,325)
Advisor Class .................................. -- (8,157,990) (86,899) (824,603)
Institutional Class ............................ -- (2,250,870) (37,489) (700)
In excess of net realized gains on investment
transactions:
Investor Class ................................. (115,434,046) -- (24,998,209) --
Advisor Class .................................. (4,234,803) -- (1,632,922) --
Institutional Class ............................ (4,904,936) -- (714,849) --
-------------- -------------- ------------ ------------
Decrease in net assets from distributions ........ (152,071,871) (372,874,178) (40,755,437) (54,850,274)
-------------- -------------- ------------ ------------
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from capital
share transactions ............................. (129,951,071) (327,999,543) 39,795,865 12,684,149
-------------- -------------- ------------ ------------
Net increase (decrease) in net assets ............ (264,790,013) (965,662,573) 5,198,734 (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 .................................... $1,545,171,380 $1,809,961,393 $316,688,920 $311,490,186
============== ============== ============ ============
Undistributed net investment income .............. $ 216,825 $ 259,057 $ 169,371 $ 71,907
============== ============== ============ ============
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
YEARS ENDED MARCH 31, 2000 AND MARCH 31, 1999
----------------------------- -----------
SMALL CAP VALUE LARGE CAP VALUE
----------------------------- -----------
Increase (Decrease) in Net Assets 2000 1999(1) 2000(2)
- ----------------------------------------------------------------------------------------------------------------------------
OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income ............................................... $ 194,751 $ 64,053 $ 137,224
Net realized gain (loss) on investments ............................. 733,268 65,026 (54,978)
Change in net unrealized appreciation (depreciation) on investments . 969,916 (400,012) (859,605)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations ..... 1,897,935 (270,933) (777,359)
----------- ----------- -----------
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income:
Investor Class .................................................... (195,699) (37,689) (134,963)
Advisor Class ..................................................... (260) -- --
Institutional Class ............................................... (17,199) (3,852) --
From net realized gains on investment transactions:
Investor Class .................................................... (674,150) (56,049) --
Advisor Class ..................................................... -- -- --
Institutional Class ............................................... (19,226) (8,977) --
In excess of net realized gains on investment transactions:
Investor Class .................................................... (351,429) (39,892) --
Advisor Class ..................................................... -- -- --
Institutional Class ............................................... (9,963) -- --
----------- ----------- -----------
Decrease in net assets from distributions ........................... (1,267,926) (146,459) (134,963)
----------- ----------- -----------
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from capital share transactions 7,114,046 12,813,661 13,583,301
----------- ----------- -----------
Net increase (decrease) in net assets ............................... 7,744,055 12,396,269 12,670,979
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
Beginning of period ................................................. 12,396,269 -- --
----------- ----------- -----------
End of period ....................................................... $20,140,324 $12,396,269 $12,670,979
=========== =========== ===========
Undistributed net investment income ................................. $ 4,105 $ 22,512 $ 2,261
=========== =========== ===========
<P><FONT size=2>(1) July 31, 1998 (inception) through March 31, 1999.</FONT></P>
<P><FONT size=2>(2) July 30, 1999 (inception) through March 31, 2000.</FONT></P>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<A NAME="W"></A><P><FONT size=5>Notes to Financial Statements</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P><B>MARCH 31, 2000</B></P>
<HR width=100% noshade size=1 align="left">
<P><FONT size=4><B>1. Organization and Summary of Significant Accounting
Policies</B></FONT></P>
<P><B>Organization</B> — American Century Capital Portfolios, Inc. (the
corporation) is registered under the Investment Company Act of 1940 (the 1940
Act) 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 following
significant accounting policies are in accordance with generally accepted
accounting principles; these policies may require the use of estimates by fund
management.</P>
<P><B>Multiple Class</B> — 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 commenced on December 31, 1999. Sale of the Advisor Class and
Institutional Class had not commenced for Large Cap Value as of March 31, 2000.</P>
<P><B>Security Valuations</B> — Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or at 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.</P>
<P><B>Security Transactions</B> — 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.</P>
<P><B>Investment Income</B> — 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.</P>
<P><B>Futures Contracts</B> — 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.</P>
<P><B>Repurchase Agreements</B> — 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.</P>
<P><B>Joint Trading Account</B> — 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.</P>
<P><B>Income Tax Status</B> — 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.</P>
<P><B>Distributions to Shareholders</B> — 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.</P>
<P>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.</P>
<P>At March 31, 2000, Large Cap Value had accumulated net realized capital loss
carryovers for federal income tax purposes of $4,788 (expiring in 2008) which
may be used to offset future taxable gains.</P>
<P>For the five month period ended March 31, 2000, Value, Equity Income, and Small
Cap Value incurred net capital losses of $173,002,368, $25,386,721, and $73,910,
respectively. The funds have elected to treat such losses as having been
incurred in the following fiscal year.</P>
<P><B>Additional Information</B> — Funds Distributor, Inc. (FDI) is a distributor of
the corporation.</P>
<P>Certain officers of FDI are also officers of the corporation.</P>
<HR width=100% noshade size=1 align="left">
<P><FONT size=4><B>2. Transactions with Related Parties</B></FONT></P>
<P>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 1940 Act (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 are the management fee schedules for the funds:</P>
Investor Advisor Institutional
Value 1.00% 0.75% 0.80%
Equity Income 1.00% 0.75% 0.80%
Small Cap Value 1.25% 1.00% 1.05%
Large Cap Value
Ranges 0.70% to 90% 0.45% to 0.65% 0.50% to 0.70%
<P>The management fee for Large Cap Value varies depending on fund asset levels. As
fund assets increase, the fee applied decreases. For the period ended March 31,
2000, the effective annual Investor Class management fee for Large Cap Value was
0.90%.</P>
<P>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
1940 Act. 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 year ended March 31,
2000, were $302,182, $93,138, and $32 for Value, Equity Income, and Small Cap
Value, respectively.</P>
<P>Effective March 13, 2000, American Century Investment Services, Inc. (ACIS),
became a distributor of the corporation.</P>
<P>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, a
distributor of the corporation, ACIS, and the corporation's transfer agent,
American Century Services Corporation.</P>
<HR width=100% noshade size=1 align="left">
<P><FONT size=4><B>3. Investment Transactions</B></FONT></P>
<P>Investment transactions, excluding short-term investments, for the year ended
March 31, 2000 for Value, Equity Income, and Small Cap Value and for the period
July 30, 1999 (inception) through March 31, 2000 for Large Cap Value, were as
follows:</P>
VALUE EQUITY INCOME SMALL CAP VALUE LARGE CAP VALUE
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Purchases ......... $2,033,171,979 $483,258,512 $35,640,933 $18,301,827
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Proceeds from sales $2,341,231,784 $492,170,046 $31,229,135 $ 5,395,800
<P>On March 31, 2000, 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:</P>
VALUE EQUITY INCOME SMALL CAP VALUE LARGE CAP VALUE
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Appreciation ... $ 118,833,321 $ 11,857,439 $ 1,589,092 $ 647,589
Depreciation ... (208,597,434) (31,901,852) (1,836,338) (1,557,384)
-------------- ------------ ----------- -----------
Net ............ $ (89,764,113) $(20,044,413) $ (247,246) $ (909,795)
============== ============ =========== ===========
Federal Tax Cost $1,625,644,433 $333,536,695 $20,357,349 $13,543,527
============== ============ =========== ===========
<HR width=100% noshade size=1 align="left">
<P><FONT size=4><B>4. Capital Share Transactions</B></FONT></P>
<P>All shares are $0.01 par value. Transactions in shares of the funds were as
follows:</P>
-----------------------------------------------------------------------
VALUE EQUITY INCOME
-----------------------------------------------------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
INVESTOR CLASS
- -----------------------------------------------------------------------------------------------------------------------
Shares authorized ..................... 500,000,000 75,000,000
============ ===========
Year ended March 31, 2000
Sold .................................. 186,053,261 $ 1,117,033,732 35,646,612 $ 220,011,159
Issued in reinvestment of distributions 25,598,938 139,493,288 6,084,481 34,369,985
Redeemed .............................. (250,174,546) (1,463,357,452) (40,203,694) (237,400,931)
------------ --------------- ----------- ---------------
Net increase (decrease) ............... (38,522,347) $ (206,830,432) 1,527,399 $ 16,980,213
============ =============== =========== ===============
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
============ ===========
Year ended March 31, 2000
Sold .................................. 8,119,010 $ 47,286,198 4,221,019 $ 25,880,618
Issued in reinvestment of distributions 900,517 4,889,948 387,918 2,177,940
Redeemed .............................. (6,972,925) (40,826,420) (2,982,534) (17,692,229)
------------ --------------- ----------- ---------------
Net increase .......................... 2,046,602 $ 11,349,726 1,626,403 $ 10,366,329
============ =============== =========== ===============
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
============ ===========
Year ended March 31, 2000
Sold .................................. 15,501,895 $ 89,167,470 2,511,738 $ 15,122,592
Issued in reinvestment of distributions 1,078,998 5,826,592 182,011 1,022,370
Redeemed .............................. (5,102,420) (29,464,427) (647,360) (3,695,639)
------------ --------------- ----------- ---------------
Net increase .......................... 11,478,473 $ 65,529,635 2,046,389 $ 12,449,323
============ =============== =========== ===============
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
============ =============== =========== ===============
<P><FONT size=2>(1) Sale of the Institutional Class commenced on July 8, 1998 for Equity
Income.</FONT></P>
<P><FONT size=2>All shares are $0.01 par value. Transactions in shares of the funds were as
follows:</FONT></P>
----------------------------------------------------------------
SMALL CAP VALUE LARGE CAP VALUE
----------------------------------------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------
INVESTOR CLASS
- ---------------------------------------------------------------------------------------------------------------
Shares authorized ..................... 50,000,000 50,000,000
========== ==========
Year ended March 31, 2000(1)
Sold .................................. 5,348,105 $ 26,704,906 4,620,800 $ 22,127,099
Issued in reinvestment of distributions 261,755 1,209,414 27,851 128,228
Redeemed .............................. (4,509,836) (22,066,727) (1,886,518) (8,672,026)
---------- ------------ ---------- ------------
Net increase .......................... 1,100,024 $ 5,847,593 2,762,133 $ 13,583,301
========== ============ ========== ============
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 .......................... 2,412,196 $ 11,809,171
========== ============
- ---------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ---------------------------------------------------------------------------------------------------------------
Shares authorized ..................... 25,000,000 25,000,000
========== ==========
Year ended March 31, 2000(3)
Sold .................................. 18,043 $ 84,220
Issued in reinvestment of distributions 52 260
Redeemed .............................. (3) (12)
---------- ------------
Net increase .......................... 18,092 $ 84,468
========== ============
- ---------------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- ---------------------------------------------------------------------------------------------------------------
Shares authorized ..................... 25,000,000 25,000,000
========== ==========
Year ended March 31, 2000
Sold .................................. 383,046 $ 1,788,334
Issued in reinvestment of distributions 7,871 36,738
Redeemed .............................. (131,063) (643,087)
---------- ------------
Net increase .......................... 259,854 $ 1,181,985
========== ============
Year ended March 31, 1999(4)
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
========== ============
<P><FONT size=2>(1) Sale of the Investor Class commenced on July 30, 1999 for
Large Cap Value.</FONT></P>
<P><FONT size=2>(2) Sale of the Investor Class commenced on July 31, 1998 for
Small Cap Value.</FONT></P>
<P><FONT size=2>(3) Sale of the Advisor Class commenced on December 31, 1999
for Small Cap Value.</FONT></P>
<P><FONT size=2>(4) Sale of the Institutional Class commenced on October 26,
1998 for Small Cap Value.</FONT></P>
<HR width=100% noshade size=1 align="left">
<P><FONT size=4><B>5. Affiliated Company Transactions</B></FONT></P>
<P>A summary of transactions for each issuer which is or was an affiliate at or
during the year ended March 31, 2000, follows:</P>
-----------------------------
March 31, 2000
Share Balance Purchase Sales Realized Dividend -----------------------------
Fund/Issuer 3/31/99 Cost Cost Gain (Loss) Income Share Balance Market Value
- -----------------------------------------------------------------------------------------------------------------------------------------
VALUE
- -----------------------------------------------------------------------------------------------------------------------------------------
Flowserve Corp. ................ 2,083,300 $ 4,486,365 $20,590,087 $(8,541,387) $ 899,178 1,396,600 $ 17,981,225
GTECH Holdings Corp. ........... 2,000,000 236,311 16,418,129 (3,774,843) -- 1,490,000 27,658,125
Interstate Bakeries Corp. ...... 2,000,700 38,812,779 17,772,112 (2,519,616) 718,854 3,333,400 47,500,950
LabOne, Inc.(1) ................ 420,000 -- 249,452 (173,204) 352,800 620,000(2) 4,107,500
Littelfuse, Inc. ............... 836,500 5,979,953 12,279,578 6,292,842 -- 507,000 18,584,719
Superior Industries
International, Inc. .......... 2,292,000 125,080 23,945,059 863,273 741,675 1,382,300 43,801,631
XTRA Corp. ..................... 521,600 4,660,435 432,523 (26,028) -- 621,200 23,605,600
----------- ----------- ----------- ---------- ------------
$54,300,923 $91,686,940 $(7,878,963) $2,712,507 $183,239,750
=========== =========== =========== ========== ============
- -----------------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME
- -----------------------------------------------------------------------------------------------------------------------------------------
National Presto Industries, Inc. 364,800 $ 2,467,725 $ 3,707,590 $ 169,971 $ 33,580 335,800 $ 10,955,475
=========== =========== =========== ========== ============
<P><FONT size=2>(1) Formerly known as Lab Holdings Inc.</FONT></P>
<P><FONT size=2>(2) Includes adjustments for shares received from stock split
and/or stock spinoff during the period.</FONT></P>
<HR width=100% noshade size=1 align="left">
<P><FONT size=4><B>6. Bank Loans</B></FONT></P>
<P>The funds, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The funds may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The funds did not borrow from the line during
the year ended March 31, 2000.</P>
<A NAME="X"></A><P><FONT size=5>Value — Financial Highlights</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P>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).</P>
For a Share Outstanding Throughout the Years Ended March 31
-----------------------------------------------------------------------
Investor Class
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ............... $ 5.77 $ 7.73 $ 6.58 $ 6.32 $ 5.46
---------- ---------- ---------- ---------- --------
Income From Investment Operations
Net Investment Income(1) ......................... 0.09 0.08 0.10 0.12 0.13
Net Realized and Unrealized Gain (Loss) on
Investment Transactions .......................... (0.01) (0.80) 2.35 0.87 1.34
---------- ---------- ---------- ---------- --------
Total From Investment Operations ................. 0.08 (0.72) 2.45 0.99 1.47
---------- ---------- ---------- ---------- --------
Distributions
From Net Investment Income ....................... (0.09) (0.09) (0.10) (0.12) (0.12)
In Excess of Net Investment Income ............... -- -- -- --(2) (0.01)
From Net Realized Gains on Investment Transactions -- (1.15) (1.20) (0.61) (0.48)
In Excess of Net Realized Gains on
Investment Transactions .......................... (0.41) -- -- -- --
---------- ---------- ---------- ---------- --------
Total Distributions .............................. (0.50) (1.24) (1.30) (0.73) (0.61)
---------- ---------- ---------- ---------- --------
Net Asset Value, End of Period ..................... $ 5.35 $ 5.77 $ 7.73 $ 6.58 $ 6.32
========== ========== ========== ========== ========
Total Return(3) .................................. 1.42% (9.88)% 39.94% 15.92% 28.06%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets .. 1.00% 1.00% 1.00% 1.00% 0.97%
Ratio of Net Investment Income to Average Net Assets 1.48% 1.19% 1.38% 1.86% 2.17%
Portfolio Turnover Rate ............................ 115% 130% 130% 111% 145%
Net Assets, End of Period (in thousands) ........... $1,388,646 $1,719,367 $2,713,562 $1,743,582 $881,885
<P><FONT size=2>(1) Computed using average shares outstanding throughout the
period.</FONT></P>
<P><FONT size=2>(2) Per share amount was less than $0.005.</FONT></P>
<P><FONT size=2>(3) Total return assumes reinvestment of dividends and capital
gains distributions, if any.</FONT></P>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
----------------------------------------------
Advisor Class
----------------------------------------------
2000 1999 1998 1997(1)
- ------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ................................ $ 5.77 $ 7.73 $ 6.58 $ 6.71
------- ------- ------- -------
Income From Investment Operations
Net Investment Income(2) .......................................... 0.07 0.06 0.08 0.05
Net Realized and Unrealized Gain (Loss) on Investment Transactions 0.01 (0.80) 2.35 0.48
------- ------- ------- -------
Total From Investment Operations .................................. 0.08 (0.74) 2.43 0.53
------- ------- ------- -------
Distributions
From Net Investment Income ........................................ (0.08) (0.07) (0.08) (0.05)
In Excess of Net Investment Income ................................ -- -- -- --(3)
From Net Realized Gains on Investment Transactions ................ -- (1.15) (1.20) (0.61)
In Excess of Net Realized Gains on Investment Transactions ........ (0.41) -- -- --
------- ------- ------- -------
Total Distributions ............................................... (0.49) (1.22) (1.28) (0.66)
------- ------- ------- -------
Net Asset Value, End of Period ..................................... $ 5.36 $ 5.77 $ 7.73 $ 6.58
======= ======= ======= =======
Total Return(4) ................................................... 1.36% (10.09)% 39.60% 8.07%
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets ................... 1.25% 1.25% 1.25% 1.25%(5)
Ratio of Net Investment Income to Average Net Assets ................ 1.23% 0.94% 1.13% 1.50%(5)
Portfolio Turnover Rate ............................................. 115% 130% 130% 111%
Net Assets, End of Period (in thousands) ............................ $61,323 $54,277 $56,118 $29,250
<P><FONT size=2>(1) October 2, 1996 (commencement of sale) through March 31,
1997.</FONT></P>
<P><FONT size=2>(2) Computed using average shares outstanding throughout the
period.</FONT></P>
<P><FONT size=2>(3) Per share amount was less than $0.005.</FONT></P>
<P><FONT size=2>(4) Total return assumes reinvestment of dividends and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized.</FONT></P>
<P><FONT size=2>(5) Annualized.</FONT></P>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
----------------------------------------
Institutional Class
----------------------------------------
2000 1999 1998(1)
- ------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ............................... $ 5.78 $ 7.73 $ 7.84
------- ------- ------
Income From Investment Operations
Net Investment Income(2) ......................................... 0.10 0.10 0.15
Net Realized and Unrealized Gain (Loss) on Investment Transactions (0.01) (0.80) 1.02
------- ------- ------
Total From Investment Operations ................................. 0.09 (0.70) 1.17
------- ------- ------
Distributions
From Net Investment Income ....................................... (0.10) (0.10) (0.08)
From Net Realized Gains on Investment Transactions ............... -- (1.15) (1.20)
In Excess of Net Realized Gains on Investment Transactions ....... (0.41) -- --
------- ------- ------
Total Distributions .............................................. (0.51) (1.25) (1.28)
------- ------- ------
Net Asset Value, End of Period ..................................... $ 5.36 $ 5.78 $ 7.73
======= ======= ======
Total Return(3) .................................................. 1.65% (9.52)% 17.14%
- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets .................. 0.80% 0.80% 0.80%(4)
Ratio of Net Investment Income to Average Net Assets ............... 1.68% 1.39% 2.97%(4)
Portfolio Turnover Rate ............................................ 115% 130% 130%
Net Assets, End of Period (in thousands) ........................... $95,202 $36,318 $5,944
<P><FONT size=2>(1) July 31, 1997 (commencement of sale) through March 31, 1998.</FONT></P>
<P><FONT size=2>(2) Computed using average shares outstanding throughout the
period.</FONT></P>
<P><FONT size=2>(3) Total return assumes reinvestment of dividends and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized.</FONT></P>
<P><FONT size=2>(4) Annualized.</FONT></P>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<P><FONT size=5>Equity Income — Financial Highlights</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P>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).</P>
For a Share Outstanding Throughout the Years Ended March 31
-----------------------------------------------------------------
Investor Class
-----------------------------------------------------------------
2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ....................... $ 5.95 $ 7.15 $ 6.31 $ 6.10 $ 5.42
-------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income(1) ................................. 0.21 0.22 0.25 0.22 0.20
Net Realized and Unrealized Gain (Loss) on
Investment Transactions .................................. 0.03 (0.23) 1.99 0.75 1.13
-------- -------- -------- -------- --------
Total From Investment Operations ......................... 0.24 (0.01) 2.24 0.97 1.33
-------- -------- -------- -------- --------
Distributions
From Net Investment Income ............................... (0.21) (0.23) (0.24) (0.21) (0.19)
In Excess of Net Investment Income ....................... -- -- -- --(2) (0.01)
From Net Realized Gains on Investment Transactions ....... (0.02) (0.96) (1.16) (0.55) (0.45)
In Excess of Net Realized Gains on Investment Transactions (0.46) -- -- -- --
-------- -------- -------- -------- --------
Total Distributions ...................................... (0.69) (1.19) (1.40) (0.76) (0.65)
-------- -------- -------- -------- --------
Net Asset Value, End of Period ............................. $ 5.50 $ 5.95 $ 7.15 $ 6.31 $ 6.10
======== ======== ======== ======== ========
Total Return(3) .......................................... 3.88% (0.44)% 37.78% 16.24% 25.67%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets .......... 1.00% 1.00% 1.00% 1.00% 0.98%
Ratio of Net Investment Income to Average Net Assets ....... 3.41% 3.31% 3.52% 3.46% 3.51%
Portfolio Turnover Rate .................................... 141% 180% 158% 159% 170%
Net Assets, End of Period (in thousands) ................... $282,692 $296,585 $355,962 $199,388 $116,692
<P><FONT size=2>(1) Computed using average shares outstanding throughout the
period.</FONT></P>
<P><FONT size=2>(2) Per share amount was less than $0.005.</FONT></P>
<P><FONT size=2>(3) Total return assumes reinvestment of dividends and capital
gains distributions, if any.</FONT></P>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
------------------------------------------------
Advisor Class
------------------------------------------------
2000 1999 1998 1997(1)
- ------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ............................... $ 5.95 $ 7.16 $ 6.31 $ 6.57
------- ------- ------ ------
Income From Investment Operations
Net Investment Income(2) ......................................... 0.20 0.21 0.23 0.02
Net Realized and Unrealized Gain (Loss) on Investment Transactions 0.02 (0.24) 2.00 (0.21)
------- ------- ------ ------
Total From Investment Operations ................................. 0.22 (0.03) 2.23 (0.19)
------- ------- ------ ------
Distributions
From Net Investment Income ....................................... (0.19) (0.22) (0.22) (0.07)
In Excess of Net Investment Income ............................... -- -- -- --(3)
From Net Realized Gains on Investment Transactions ............... (0.02) (0.96) (1.16) --
In Excess of Net Realized Gains on Investment Transactions ....... (0.46) -- -- --
------- ------- ------ ------
Total Distributions .............................................. (0.67) (1.18) (1.38) (0.07)
------- ------- ------ ------
Net Asset Value, End of Period ..................................... $ 5.50 $ 5.95 $ 7.16 $ 6.31
======= ======= ====== ======
Total Return(4) .................................................. 3.61% (0.75)% 37.71% (2.89)%
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets .................. 1.25% 1.25% 1.25% 1.25%(5)
Ratio of Net Investment Income to Average Net Assets ............... 3.16% 3.06% 3.27% 1.64%(5)
Portfolio Turnover Rate ............................................ 141% 180% 158% 159%
Net Assets, End of Period (in thousands) ........................... $20,281 $12,251 $ 731 $ 18
<P><FONT size=2>(1) March 7, 1997 (commencement of sale) through March 31, 1997.</FONT></P>
<P><FONT size=2>(2) Computed using average shares outstanding throughout the
period.</FONT></P>
<P><FONT size=2>(3) Per share amount was less than $0.005.</FONT></P>
<P><FONT size=2>(4) Total return assumes reinvestment of dividends and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized.</FONT></P>
<P><FONT size=2>(5) Annualized.</FONT></P>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
------------------------
Institutional Class
------------------------
2000 1999(1)
- -----------------------------------------------------------------------------------------
PER-SHARE DATA
- -----------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ........................ $ 5.95 $ 6.96
------- ------
Income From Investment Operations
Net Investment Income(2) .................................. 0.22 0.07
Net Realized and Unrealized Gain on Investment Transactions 0.03 0.06
------- ------
Total From Investment Operations .......................... 0.25 0.13
------- ------
Distributions
From Net Investment Income ................................ (0.22) (0.18)
From Net Realized Gains on Investment Transactions ........ (0.02) (0.96)
In Excess of Net Realized Gains on Investment Transactions (0.46) --
------- ------
Total Distributions ....................................... (0.70) (1.14)
------- ------
Net Asset Value, End of Period .............................. $ 5.50 $ 5.95
======= ======
Total Return(3) ........................................... 4.09% 1.60%
- -----------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets ........... 0.80% 0.80%(4)
Ratio of Net Investment Income to Average Net Assets ........ 3.61% 1.61%(4)
Portfolio Turnover Rate ..................................... 141% 180%
Net Assets, End of Period (in thousands) .................... $13,716 $2,654
<P><FONT size=2>(1) July 8, 1998 (commencement of sale) through March 31, 1999.</FONT></P>
<P><FONT size=2>(2) Computed using average shares outstanding throughout the
period.</FONT></P>
<P><FONT size=2>(3) Total return assumes reinvestment of dividends and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized.</FONT></P>
<P><FONT size=2>(4) Annualized.</FONT></P>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<P><FONT size=5>Small Cap Value — Financial Highlights</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P>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).</P>
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
-----------------------
Investor Class
-----------------------
2000 1999(1)
------- -------
- ----------------------------------------------------------------------------------------------
PER-SHARE DATA
- ----------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ............................... $ 4.73 $ 5.00
------- -------
Income From Investment Operations
Net Investment Income(2) ......................................... 0.05 0.03
Net Realized and Unrealized Gain (Loss) on Investment Transactions 0.60 (0.24)
------- -------
Total From Investment Operations ................................. 0.65 (0.21)
------- -------
Distributions
From Net Investment Income ....................................... (0.06) (0.02)
From Net Realized Gains on Investment Transactions ............... (0.17) (0.02)
In Excess of Net Realized Gains on Investment Transactions ....... (0.11) (0.02)
------- -------
Total Distributions .............................................. (0.34) (0.06)
------- -------
Net Asset Value, End of Period ..................................... $5.04 $4.73
======= =======
Total Return(3) .................................................. 14.37% (4.24)%
- ----------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets .................. 1.25% 1.25%(4)
Ratio of Net Investment Income to Average Net Assets ............... 1.04% 1.02%(4)
Portfolio Turnover Rate ............................................ 178% 153%
Net Assets, End of Period (in thousands) ........................... $17,690 $11,410
<P><FONT size=2>(1) July 31, 1998 (inception) through March 31, 1999.</FONT></P>
<P><FONT size=2>(2) Computed using average shares outstanding throughout the
period.</FONT></P>
<P><FONT size=2>(3) Total return assumes reinvestment of dividends and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized.</FONT></P>
<P><FONT size=2>(4) Annualized.</FONT></P>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
For a Share Outstanding Throughout the Period Indicated
--------------
Advisor Class
--------------
2000(1)
- ------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ........................ $ 4.73
-------
Income From Investment Operations
Net Investment Income(2) .................................. 0.03
Net Realized and Unrealized Gain on Investment Transactions 0.29
-------
Total From Investment Operations .......................... 0.32
-------
Distributions
From Net Investment Income ................................ (0.01)
-------
Net Asset Value, End of Period .............................. $ 5.04
=======
Total Return(3) ........................................... 6.86%
- ------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets ........... 1.50%(4)
Ratio of Net Investment Income to Average Net Assets ........ 2.21%(4)
Portfolio Turnover Rate ..................................... 178%
Net Assets, End of Period ................................... $91,126
<P><FONT size=2>(1) December 31, 1999 (commencement of sale) through March 31,
2000.</FONT></P>
<P><FONT size=2>(2) Computed using average shares outstanding throughout the
period.</FONT></P>
<P><FONT size=2>(3) Total return assumes reinvestment of dividends and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized.</FONT></P>
<P><FONT size=2>(4) Annualized.</FONT></P>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
----------------------
Institutional Class
----------------------
2000 1999(1)
- ----------------------------------------------------------------------------------------------
PER-SHARE DATA
- ----------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ............................... $ 4.74 $ 4.83
------ ------
Income From Investment Operations
Net Investment Income(2) ......................................... 0.07 0.03
Net Realized and Unrealized Gain (Loss) on Investment Transactions 0.58 (0.06)
------ ------
Total From Investment Operations ................................. 0.65 (0.03)
------ ------
Distributions
From Net Investment Income ....................................... (0.07) (0.02)
From Net Realized Gains on Investment Transactions ............... (0.17) (0.04)
In Excess of Net Realized Gains on Investment Transactions ....... (0.11) --
------ ------
Total Distributions .............................................. (0.35) (0.06)
------ ------
Net Asset Value, End of Period ..................................... $ 5.04 $ 4.74
====== ======
Total Return(3) .................................................. 14.39% (0.60)%
- ----------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets .................. 1.05% 1.05%(4)
Ratio of Net Investment Income to Average Net Assets ............... 1.24% 1.22%(4)
Portfolio Turnover Rate ............................................ 178% 153%
Net Assets, End of Period (in thousands) ........................... $2,359 $ 986
<P><FONT size=2>(1) October 26, 1998 (commencement of sale) through March 31,
1999.</FONT></P>
<P><FONT size=2>(2) Computed using average shares outstanding throughout the
period.</FONT></P>
<P><FONT size=2>(3) Total return assumes reinvestment of dividends and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized.</FONT></P>
<P><FONT size=2>(4) Annualized.</FONT></P>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<P><FONT size=5>Large Cap Value — Financial Highlights</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P>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).</P>
For a Share Outstanding Throughout the Period Indicated
--------------
Investor Class
--------------
2000(1)
- ---------------------------------------------------------------------------
PER-SHARE DATA
- ---------------------------------------------------------------------------
Net Asset Value, Beginning of Period ........................ $ 5.00
-------
Income From Investment Operations
Net Investment Income(2) .................................. 0.05
Net Realized and Unrealized Loss on Investment Transactions (0.41)
-------
Total From Investment Operations .......................... (0.36)
-------
Distributions
From Net Investment Income ................................ (0.05)
-------
Net Asset Value, End of Period .............................. $ 4.59
=======
Total Return(3) ........................................... (7.22)%
- ---------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets ........... 0.90%(4)
Ratio of Net Investment Income to Average Net Assets ........ 1.72%(4)
Portfolio Turnover Rate ..................................... 51%
Net Assets, End of Period (in thousands) .................... $12,671
<P><FONT size=2>(1) July 30, 1999 (inception) through March 31, 2000.</FONT></P>
<P><FONT size=2>(2) Computed using average shares outstanding throughout the
period.</FONT></P>
<P><FONT size=2>(3) Total return assumes reinvestment of dividends and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized.</FONT></P>
<P><FONT size=2>(4) Annualized.</FONT></P>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<A NAME="Y"></A><P><FONT size=5>Independent Auditors' Report</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P>The Board of Directors and Shareholders,<BR>
American Century Capital Portfolios, Inc.:</P>
<P>We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Value Fund, Equity Income Fund,
Small Cap Value Fund, and Large Cap Value Fund, (collectively the "Funds"),
four of the funds comprising American Century Capital Portfolios, Inc., as of
March 31, 2000, and the related statements of operations for the year then
ended (July 30, 1999 [inception] through March 31, 2000 for Large Cap Value
Fund), the statements of changes in net assets for each of the two years in the
period then ended (July 30, 1999 [inception] through March 31, 2000 for Large
Cap Value Fund and for the year then ended and for the period July 31, 1998
[inception] through March 31, 1999 for Small Cap Value Fund), and the financial
highlights for the periods presented. These financial statements and the
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.</P>
<P>We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned at March 31, 2000, by correspondence
with the custodian and brokers; where replies were not received from brokers,
we performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.</P>
<P>In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial positions of
Value Fund, Equity Income Fund, Small Cap Value Fund, and Large Cap Value Fund
as of March 31, 2000, the results of their operations for the year then ended
(July 30, 1999 [inception] through March 31, 2000 for Large Cap Value), the
changes in their net assets for each of the two years in the period then ended
(July 30, 1999 [inception] through March 31, 2000 for Large Cap Value Fund and
for the year then ended and for the period July 31, 1998 [inception] through
March 31, 1999 for Small Cap Value Fund), and the financial highlights for
periods presented in conformity with accounting principles generally accepted
in the United States of America.</P>
<P>Deloitte & Touche LLP<BR>
Kansas City, Missouri<BR>
May 12, 2000</P>
<A NAME="Z"></A><A NAME="AA"></A><P><FONT size=5>Share Class and Retirement Account Information</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P><FONT size=4><B>Share Classes</B></FONT></P>
<P>Three classes of shares are authorized for sale by the funds: Investor
Class, Advisor Class and Institutional Class.</P>
<P><B>Investor Class</B> 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.</P>
<P><B>Advisor Class</B> shares are sold through banks, broker-dealers, insurance com
panies and financial advisors. Advisor Class shares are subject to a 0.50% Rule
12b-1 service and distri bu tion fee. Half of that fee is available to pay for
recordkeeping and administrative services, and half is available to pay for
distri bu tion 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.</P>
<P><B>Institutional Class</B> 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 institu tional 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.</P>
<P>All classes of shares represent a pro rata interest in the funds and
generally have the same rights and preferences.</P>
<P><FONT size=4><B>Retirement Account Information</B></FONT></P>
<P>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
with hold federal income tax prior to the withdrawal.</P>
<P>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.</P>
<P>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 respon s ible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withhold ing and estimated tax payments
are not sufficient.</P>
<A NAME="AB"></A><P><FONT size=5>Background Information</FONT></P>
<HR width="100%" size="1" noshade align="left">
<A NAME="AC"></A><P><FONT size=4><B>Investment Philosophy & Policies</B></FONT></P>
<P>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.</P>
<P><B>American Century Value</B> 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.</P>
<P><B>American Century Equity Income</B> 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.</P>
<P><B>American Century Small Cap Value</B> 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.</P>
<P><B>American Century Large Cap Value</B> 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.</P>
<A NAME="AD"></A><P><FONT size=4><B>Comparative Indices</B></FONT></P>
<P>The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.</P>
<P><B>The S&P 500 Index</B> 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, it is intended to be a broad
measure of U.S. stock market performance.</P>
<P><B>The S&P 500/BARRA Value Index</B> 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.</P>
<P><B>The Lipper Equity Income Fund Index</B> is a non-weighted index of the 30
largest equity income mutual funds. Lipper, Inc., is an independent mutual fund
ranking service.</P>
<P><B>The Lipper Multi-Cap Value Index</B> consists of the largest funds tracked by
Lipper, Inc. that seek long-term growth of capital by investing in companies of
all capitalization sizes that are considered to be undervalued relative to a
major unmanaged stock index based on price-to- current earnings, book value,
asset value, or other factors.</P>
<P><B>The S&P SmallCap 600/BARRA Value Index</B> 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.</P>
<A NAME="AE"></A><P><FONT SIZE="4"><B>Portfolio Managers</B></FONT></P>
<HR width=200 noshade size=1 align="left">
<P><B>Value and Equity Income</B></P>
<HR width=200 noshade size=1 align="left">
<P> Phil Davidson<BR>
Scott Moore, CFA</P>
<HR width=200 noshade size=1 align="left">
<P><B>Small Cap Value</B></P>
<HR width=200 noshade size=1 align="left">
<P> Todd Vingers, CFA<BR>
Ben Giele, CFA</P>
<HR width=200 noshade size=1 align="left">
<P><B>Large Cap Value</B></P>
<HR width=200 noshade size=1 align="left">
<P> Mark Mallon<BR>
Charles Ritter, CFA</P>
<A NAME="AF"></A><P><FONT size=5>Glossary</FONT></P>
<HR width="100%" size="1" noshade align="left">
<P><FONT size=4><B>Returns</B></FONT></P>
<UL type="square">
<LI><B>Total Return</B> 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.</LI>
<LI><B>Average Annual Returns</B> 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 39-48.</LI>
</UL>
<P><FONT size=4><B>Investment Terms</B></FONT></P>
<UL type="square">
<LI><B>Median Market Capitalization</B> — 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.</LI>
<LI><B>Number of Companies</B> — the number of different companies held by a fund on a
given date.</LI>
<LI><B>Portfolio Turnover</B> — 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.</LI>
<LI><B>Price/Book Ratio</B> — 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.)</LI>
<LI><B>Price/Earnings (P/E) Ratio</B> — 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.)</LI>
</UL>
<P><FONT size=4><B>Types of Stocks</B></FONT></P>
<UL type="square">
<LI><B>Blue Chip Stocks</B> — 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.</LI>
<LI><B>Cyclical Stocks</B> — 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.</LI>
<LI><B>Growth Stocks</B> — 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.</LI>
<LI><B>Large-Capitalization ("Large-Cap") Stocks</B> — the stocks of companies
with a market capitalization (the total value of a company's outstanding stock)
of more than $11.4 billion. This is Lipper's market capitalization breakpoint as
of March 31, 2000, although it may be subject to change based on market
fluctuations. The Dow Jones Industrial Average and the S&P 500 Index generally
consist of stocks in this range.</LI>
<LI><B>Medium-Capitalization ("Mid-Cap") Stocks</B> — the stocks of companies with
a market capitalization (the total value of a company's outstanding stock) of
between $2.4 billion and $11.4 billion. This is Lipper's market capitalization
breakpoint as of March 31, 2000, although it may be subject to change based on
market fluctuations. The S&P 400 Index and Russell 2500 Index generally consist
of stocks in this range.</LI>
<LI><B>Small-Capitalization ("Small-Cap") Stocks</B> — the stocks of companies with a
market capitalization (the total value of a company's outstanding stock) of less
than $2.4 billion. This is Lipper's market capitalization breakpoint as of March
31, 2000, although it may be subject to change based on market fluctuations. The
S&P 600 Index and the Russell 2000 Index generally consist of stocks in this
range.</LI>
<LI><B>Value Stocks</B> — generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.</LI>
</UL>
<P><FONT size=4><B>Fund Classifications</B></FONT></P>
<P>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.</P>
<P><B>Investment Objective</B></P>
<P>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.</P>
<UL type="square">
<LI><B>Capital Preservation</B> — offers taxable and tax-free money market funds for
relative stability of principal and liquidity.</LI>
<LI><B>Income</B> — 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.</LI>
<LI><B>Growth & Income</B> — offers funds that emphasize both growth and income provided
by either dividend-paying equities or a combination of equity and fixed-income
securities.</LI>
<LI><B>Growth</B> — offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high
price-fluctuation risk.</LI>
</UL>
<P><B>Risk</B></P>
<P>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.</P>
<UL type="square">
<LI><B>Conservative</B> — these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.</LI>
<LI><B>Moderate</B> — these funds generally provide moderate return potential with
moderate price-fluctuation risk.</LI>
<LI><B>Aggressive</B> — these funds generally provide high return potential with
corresponding high price-fluctuation risk.</LI>
</UL>
<p align="center"><b><font size=6>I</font><font size=4>NVESTMENT</font><font size=6>
O</font><font size=4>BJECTIVE</font></b></p>
- ----------------------------------------------------------------------------------------------
CAPITAL PRESERVATION INCOME
Taxable Tax-Free Taxable Bonds Tax-Free Bonds
Money Markets Money Markets
- ----------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
- ----------------------------------------------------------------------------------------------
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
- ----------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
- ----------------------------------------------------------------------------------------------
Long-Term Treasury CA Long-Term
Target 2005* Tax-Free
Bond Long-Term Tax-Free
Premium Bond CA Insured Tax-Free
- ----------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
- ----------------------------------------------------------------------------------------------
Premium FL Municipal Intermediate-Term Bond CA Intermediate-Term
Capital Reserve Money Market Intermediate-Term Tax-Free
Prime CA Municipal Treasury AZ Intermediate-Term
Money Market Money Market GNMA Municipal
Premium CA Tax-Free Inflation-Adjusted FL Intermediate-Term
Government Reserve Money Market Treasury Municipal
Government Agency Tax-Free Limited-Term Bond Intermediate-Term
Money Market Money Market Target 2000* Tax-Free
Capital Preservation Short-Term Government CA Limited-Term
Short-Term Treasury Tax-Free
Limited-Term
Tax-Free
- ----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME GROWTH
Asset Allocation/ Domestic Equity Specialty Domestic Equity Specialty International
Balanced
- -------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
- -------------------------------------------------------------------------------------------------------------------------
Small Cap Quantitative Veedot(2) Emerging Markets
Small Cap Value New Opportunities Global Gold International Discovery
Giftrust(R) International Growth
Vista Global Growth
Heritage
Growth
Ultra(R)
Select
- -------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
- -------------------------------------------------------------------------------------------------------------------------
Strategic Allocation: Equity Growth Utilities Global Natural
Aggressive Equity Index Real Estate Resources
Balanced Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
- -------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<P><FONT size=2><I>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.</I></FONT></P>
<P><FONT size=2><I>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.</I></FONT></P>
<P><FONT size=2><I>*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.</I></FONT></P>
<P><FONT size=2><I>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.</I></FONT></P>
<p>[AMERICAN CENTURY LOGO]</p>
<p><b>P.O. Box 419200<br>
Kansas City, Missouri 64141-6200</b></p>
<p><b>www.americancentury.com</b></p>
<p><b>Investor Relations</b><br>
1-800-345-2021 or 816-531-5575</p>
<p><b>Automated Information Line</b><br>
1-800-345-8765</p>
<p><b>Fax:</b> 816-340-7962</p>
<p><b>Telecommunications Device for the Deaf</b><br>
1-800-634-4113 or 816-444-3485</p>
<p><b>Business, Not-For-Profit, Employer-Sponsored Retirement Plans</b><br>
1-800-345-3533</p>
<p><b>Banks and Trust Companies, Broker-Dealers, Financial Advisors, Insurance
Companies</b><br>
1-800-345-6488</p>
<p><b>American Century Capital Portfolios, Inc.</b></p>
<p><b>Investment Manager<br>
American Century Investment Management, Inc.</b><br>
Kansas City, Missouri</p>
<p><font size="2">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.</font></p>
<P align="right">[GRAPHIC OMITTED]</P>
<p><font size=5><i>Who we are</i></font></p>
<p>American Century offers investors more than 70 mutual funds that span the investment
spectrum. We currently manage $100 billion for roughly 2 million individuals,
institutions and corporations, with a range of services designed to make investing
easy and convenient.</p>
<p>For four decades, American Century has been a leader in performance, service
and innovation. From pioneering the use of computer technology in investing
to allowing investors to conduct transactions and receive financial advice over
the Internet, we have remained committed to building long-term relationships
and to helping investors achieve their dreams.</p>
<p>In a very real sense, investors put their future in our hands. With so much
at stake, our work continues to be guided by one central belief, shared by every
person at American Century: We succeed only if our investors succeed.</p>
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0005 American Century Investment Services, Inc.
SH-ANN-20176 (C)2000 American Century Services Corporation
<p> </p>
<p> </p>
<p> </p>
<P><B>March 31, 2000</B></P>
<p><font size=6>A</font><font size=4>MERICAN</font><font size=6> C</font><font size=4>ENTURY<sup>®</sup></font></p>
<p><font size=6><i> Annual Report</i></font></p>
<p align="CENTER">[GRAPHIC OMITTED]</p>
<p><b><font size="4">Real Estate</font></b></p>
<p align="right">[AMERICAN CENTURY(R) LOGO]</p>
<p><b>Real Estate</b><BR>
(REACX)</p>
<hr width="300" size="1" noshade align="left">
<p><font size="4"><i>Turn to the inside back<BR>
cover of this report to<BR>
see a list of American<BR>
Century funds classified<BR>
by objective and risk.</i></font></p>
<p><font size=5>Receive Your Annual Reports Online</font></p>
<hr width="100%" size="1" noshade align="left">
<p>Now you can receive documents such as annual reports, prospectuses, and
newsletters online rather than regular mail. Your link to American Century
documents is a click away with the Electronic Communication option.</p>
<ul type="square">
<LI>Receive links to documents by email
<LI>Download select documents and file electronically to save space in your file
cabinets
<LI>Read documents at your convenience</ul>
<p>To sign up for this option, visit www.americancentury.com and log in with your
secure OnePIN. Then simply select an account on your account list and choose the
Electronic Communication link. Questions? Call 1-800-345-2021. <B>Log in and take
control today!</B></p>
<p><font size=5>Get Investment Insight with Fund Advisor*</font></p>
<hr width="100%" size="1" noshade align="left">
<p>They say hindsight is 20/20. But what about insight? That's what you really want
when choosing mutual funds. Now you can get the insight you need with Fund
Advisor, an online tool that helps you select the right no-load funds for your
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you're on track to meet your personal financial goals. </p>
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<p><font size="2"><I><B>*Patent pending. Fund Advisor is guided by the portfolio
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<p><font size=5>Our Message to You</font></p>
<hr width="100%" size="1" noshade align="left">
<p>[PHOTO OMITTED]</p>
<p><font size="2"><i>James E. Stowers III, seated, with James E. Stowers, Jr.</i></font></p>
<p>1999 was another difficult year for real estate fund investors. While the
overall stock market stormed ahead to record highs and strong returns, real
estate stocks were left behind and largely ignored. Investors simply failed to
recognize or appreciate the tremendous value offered by real estate investment
trusts (REITs).</p>
<p>The first quarter of 2000, however, was a different story. The broader stock
market was wracked with extreme bouts of volatility, so investors turned to
REITs as an island of relative stability. Although drawn to the REIT sector by
the volatile market environment, investors may stay once they discover the
strong earnings growth and attractive values.</p>
<p>The new year also brought a change of management for the American Century Real
Estate fund. As of January 1, J.P. Morgan Investment Management took over
day-to-day responsibilities as sub-advisor for the fund from RREEF America,
which had managed the fund since its inception. J.P. Morgan and American Century
have been business partners since 1997, and we're confident that the new
management team's experience and skills will serve our shareholders well.</p>
<p>Besides serving the nearly two million investors who look to American Century
for investment management, we also have an obligation to the 3,000 people who
work on your behalf — to create a positive, safe, and productive work
environment for American Century staff. This commitment was recognized and
rewarded in 1999 when American Century ranked in the top 40 of <I>Fortune</I>
magazine's "100 Best Companies to Work For."</p>
<p>We do not take this recognition lightly — acknowledgements like this allow
us to recruit talented and dedicated people, from service representatives to
investment professionals. This intellectual capital is our most valuable
resource and an essential one in our efforts to provide you with excellent
investment management and service.</p>
<p>As always, we appreciate your continued confidence in American Century.</p>
<p>Sincerely,</p>
<p>/s/ James E. Stowers</p>
<p>James E. Stowers, Jr.<br>
<i>Chairman of the Board and Founder</i></p>
<p>/s/ James E. Stowers III</p>
<p>James E. Stowers III<br>
<i>Vice Chairman of the Board and<br>
Chief Executive Officer</i></p>
<p><font size=5>Table of Contents</font></p>
<p> <a href="#REAA">Report Highlights</a><br>
<a href="#REAB">Market Perspective</a><br></p>
<p><a href="#REAC"><B>Real Estate</B></a><br>
<a href="#READ">Performance Information</a><br>
<a href="#REAE">Management Q&A</a><br>
<a href="#REAF">Portfolio at a Glance</a><br>
<a href="#REAG">Top Ten Holdings</a><br>
<a href="#REAH">Yield</a><br>
<a href="#REAI">Schedule of Investments</a><br></p>
<p><a href="#REAJ"><B>Financial Statements</B></a><br>
<a href="#REAK">Statement of Assets and Liabilities</a><br>
<a href="#REAL">Statement of Operations</a><br>
<a href="#REAM">Statements of Changes in Net Assets</a><br>
<a href="#REAN">Notes to Financial Statements</a><br>
<a href="#REAO">Financial Highlights</a><br>
<a href="#REAP">Independent Auditors' Report</a><br>
<a href="#REAQ">Proxy Voting Results</a><br></p>
<p><a href="#REAR"><B>Other Information</B></a><br>
<a href="#REAS">Share Class and Retirement Account Information</a><br>
<a href="#REAT">Background Information</a><br>
<a href="#REAU">Investment Philosophy and Policies</a><br>
<a href="#REAV">Fund Management Team</a><br>
<a href="#REAW">Fund Background</a><br>
<a href="#REAX">Comparative Indices</a><br>
<a href="#REAY">Portfolio Manager</a><br>
<a href="#REAZ">Glossary</a><br></p>
<p><font size=5><a name="REAA"></a>Report Highlights</font></p>
<hr width="100%" size="1" noshade align="left">
- -----------------------------------------
Real Estate(1)
(REACX)
- -----------------------------------------
Total Returns: AS OF 3/31/00
6 Months ............ 1.30%(2)
1 Year .............. 2.87%
30-Day SEC Yield: ... 6.77%
Inception Date: 9/21/95
- -----------------------------------------
Net Assets: $94.6 million(3)
- -----------------------------------------
<P><FONT SIZE="2">(1) Investor Class.<BR>
(2) Not annualized.<BR>
(3) Includes Investor, Advisor, and Institutional classes.</FONT></P>
<p><font size="2">Investment terms are defined in the Glossary on pages
23-24.</font></p>
<p><b><font size="4"><a name="REAB"></a>Market Perspective</font></b></p>
<ul type="square"><li>American Century Real Estate (ACRE) Fund's fiscal year ended March 31, 2000.
The period opened with a brief return to undervalued stocks that had fallen from
favor. REITs became attractive to investors who took advantage of the effects of
the sustained slump, driving the Morgan Stanley REIT Index to a 12% gain in two
months.
<li>Despite this promising beginning, REITs declined under the pressure of
stocks of the "New Economy" — stocks of companies involved in the Internet
and other developing technologies — which prospered mightily by enticing
investors with remarkable accelerating price momentum. Meanwhile, stocks of the
"Old Economy" companies — financial services, industrial and
retail — commanded only occasional interest from investors.
<li>The state of the economy over the period increasingly weighed on investors.
Continued economic strength raised inflation fears and the concern over higher
interest rates. In the midst of the sound and fury of this volatile environment,
REITs became a source of value and stability, offering investors a market of
well-balanced supply and demand and growing returns on invested capital.</ul>
<p><b><font size="4">ACRE</font></b></p>
<ul type="square"><li>ACRE posted a return of 2.87% during its fiscal year, just behind its new
benchmark, the Morgan Stanley REIT Index, which turned in a 2.94% gain. This
return equaled the average return of 138 real estate funds tracked by Lipper
Inc., while the S&P 500 gained 17.94%.
<li>During the period, ACRE came under the direction of new portfolio manager
Daniel O'Connor, J.P. Morgan Investment Management. He assumed daily management
responsibilities on January 1, 2000. The fund also changed its benchmark to the
Morgan Stanley REIT Index. Both events precipitated changes to the portfolio,
particularly to align the fund more equally with its new benchmark.
<li>Portfolio composition for the period was predominated by office, residential
and retail REITs. Of these, office REITs were the top performers, aided by two
holdings that were poised for success due to managerial and regional strengths.
Another positive factor was the acquisition of one of the office REITs held by
the fund by another, which stands to reap formidable benefits from the deal.
<li>Hotel REITs were the worst performers during the fiscal year and our
exposure was significantly reduced in this area. Unfavorable fundamentals, such
as high vacancy fostered by new supply and decreasing revenue growth, made this
sector unappealing.</ul>
<p><font size=5>Market Perspective from Mark Mallon</font></p>
<hr width="100%" size="1" noshade align="left">
<p>[PHOTO OMITTED]</p>
<p><font size="2"><i>Mark Mallon, head of specialty, asset allocation, and
growth and income equity funds at American Century</i></font></p>
<p><b><font size="4">Performance Overview</font></b></p>
<p>Volatility was rampant in the U.S. stock market during the year ended March 31,
2000. To a lesser extent, this volatility extended to real estate stocks,
including real estate investment trusts (REITs). But when all was said and done,
the broader market indices posted double-digit returns for the year, while REIT
returns were more modest (see the performance table at right). </p>
<p><b><font size="4">They Love Me, They Love Me Not</font></b></p>
<p>REITs started the period on a high note. Investors began to shift away from
growth stocks, seeking out shares that were undervalued and out of favor. REITs
were the perfect candidate — they had been in a steady slump for a year and a
half despite a favorable real estate environment. Renewed demand for REITs
caused the Morgan Stanley REIT Index to jump by 12% in two months.</p>
<p>Unfortunately, the good times were fleeting. REITs fell along with the rest of
the stock market during the summer of 1999 as investors began to worry about
rising interest rates and weaker corporate profits. But even when the broader
market began to rebound in the fourth quarter of 1999, REITs were left behind as
investors focused on technology and other growth-oriented stocks.</p>
<p>By late 1999, REITs had given up their earlier gains and then some (see the
chart at right). </p>
<p><b><font size="4">A Glimmer of Hope</font></b></p>
<p>Although 1999 turned out to be another year of disappointment for REIT
investors, the first quarter of 2000 may have represented a turning point. The
broader stock market endured a period of extreme volatility — "New Economy"
technology stocks soared in January and February, then plunged as investors
rediscovered "Old Economy" stocks.</p>
<p>In this environment, REITs were a source of relative stability and even
outperformed the S&P 500 for the quarter. More importantly, long-term value
investors were finally attracted to the high dividend yields and solid growth
rates that many REITs offer.</p>
<p><b><font size="4">Sector Performance</font></b></p>
<p>Fundamentally, the environment for real estate remained healthy over the past
year. Supply and demand in the real estate market were well balanced, and
returns on invested capital continued to grow.</p>
<p>Among REITs, apartment companies were the top performers, thanks to strong
earnings and high occupancy rates. Industrial and office REITs also performed
well — industrial properties boomed as a result of increased demand from
growing e-commerce businesses.</p>
<p>Hotel REITs had the worst returns during the year. This sector has been
fundamentally weak, with relatively high vacancy rates and slowing revenue
growth. Retail and self-storage companies also struggled, although shopping mall
REITs have rebounded so far in 2000.</p>
<p><i><font size="4">"Fundamentally, the environment for real estate remained
healthy over the past year. Supply and demand in the real estate market were
well balanced, and returns on invested capital continued to grow."</font></i></p>
<p><b><font size="4">Market Returns </font></b></p>
<p><b>For the year ended March 31, 2000</b></p>
---------
S&P 500 17.94%
---------
Morgan Stanley REIT 2.94%
- ---------------------------------
<p><font size="2">Source: Lipper Inc. and Russell/Mellon Analytical</font></p>
<p><b><font size="4">Market Performance</font> (Growth of $1.00)</b></p>
<p><b>For the year ended March 31, 2000</b></p>
<p>[GRAPHIC OMITTED]</p>
<p>[The following table was depicted as a line graph in the printed material]</p>
Monthly Growth of $1 as of 3/31/2000
Morgan Stanley Morgan Stanley Wilshire Wilshire
S&P 500 S&P 500 REIT Index REIT Index REIT Index REIT Index
3/31/1999 $1.00 $1.00 $1.00
4/30/1999 3.87 $1.04 9.67 $1.10 9.64 $1.10
5/31/1999 -2.36 $1.01 2.12 $1.12 2.66 $1.13
6/30/1999 5.56 $1.07 -1.86 $1.10 -1.77 $1.11
7/31/1999 -3.13 $1.04 -3.14 $1.06 -3.40 $1.07
8/31/1999 -0.49 $1.03 -0.96 $1.05 -0.72 $1.06
9/30/1999 -2.74 $1.00 -4.18 $1.01 -4.35 $1.01
10/31/1999 6.33 $1.07 -2.28 $0.99 -2.10 $0.99
11/30/1999 2.05 $1.09 -1.48 $0.97 -1.35 $0.98
12/31/1999 5.87 $1.15 3.11 $1.00 3.78 $1.02
1/31/2000 -5.02 $1.10 0.62 $1.01 0.63 $1.02
2/29/2000 -1.89 $1.07 -1.59 $0.99 -1.55 $1.01
3/31/2000 9.78 $1.18 3.67 $1.03 3.96 $1.05
1 yr returns: 17.94 2.94 4.70
<a name="REAC"></a><a name="READ"></a><P><FONT size=5>ACRE — Performance</FONT></P>
<HR width="100%" size="1" noshade align="left">
<p><b><font size="4">Total Returns as of March 31, 2000</font></b></p>
------------------------------ ------------------------------- -----------------------------
Investor Class Advisor Class Institutional Class
(inception 9/21/95)(1) (inception 10/6/98) (inception 6/16/97)
------------------------------ ------------------------------- -----------------------------
Morgan Morgan Morgan
Stanley Stanley Stanley
Wilshire REIT Wilshire REIT Wilshire REIT
ACRE REIT Index ACRE REIT Index ACRE REIT Index
6 Months(2) ............. 1.30% 3.23% 1.90% 1.17% 3.23% 1.90% 1.51% 3.23% 1.90%
1 Year .................. 2.87% 4.70% 2.94% 2.62% 4.70% 2.94% 3.18% 4.70% 2.94%
- -------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
- -------------------------------------------------------------------------------------------------------------------------
3 Years ................. -0.84% -0.43% -1.23% -- -- -- -- -- --
Life of Fund ............ 9.27% 8.14%(3) 7.25%(3) 3.30% -1.14%(4) -2.75%(4) -1.53% -2.11%(5) -3.06%(5)
<P><FONT SIZE="2">(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.<BR>
(2) Returns for periods less than one year are not annualized.<BR>
(3) Since 9/30/95, the date nearest the class's inception for which data are
available.<BR>
(4) Since 9/30/98, the date nearest the class's inception for which data are
available.<BR>
(5) Since 6/30/97, the date nearest the class's inception for which data are
available.<BR>
See pages 21-23 for information about share classes, the indices, and returns.</FONT></P>
<p><b><font size="4">Growth of $10,000 Over Life of Fund</font></b></p>
<p>[GRAPHIC OMITTED]</p>
<p>[The following table was depicted as a line graph in the printed material]</p>
$10,000
investment
made 9/21/95
Real Estate Fund Morgan Stanley REIT Index Wilshire REIT Index
Date Value Return Value Return Value Return
9/21/1995 $10,000 $10,000 $10,000
12/31/1995 $10,500 5.00 $10,441 4.41 $10,405 4.05
3/31/1996 $10,883 3.65 $10,651 2.01 $10,685 2.70
6/30/1996 $11,350 4.29 $11,106 4.27 $11,123 4.10
9/30/1996 $12,329 8.62 $11,827 6.49 $11,873 6.74
12/31/1996 $14,784 19.92 $14,189 19.97 $14,259 20.10
3/31/1997 $15,320 3.62 $14,220 0.22 $14,403 1.01
6/30/1997 $16,096 5.07 $14,921 4.93 $15,076 4.68
9/30/1997 $18,438 14.55 $16,661 11.66 $16,882 11.98
12/31/1997 $18,510 0.39 $16,825 0.98 $17,063 1.07
3/31/1998 $18,386 -0.67 $16,704 -0.72 $16,892 -1.00
6/30/1998 $17,529 -4.66 $15,970 -4.39 $16,189 -4.16
9/30/1998 $15,189 -13.35 $14,285 -10.55 $14,466 -10.64
12/31/1998 $15,159 -0.20 $13,982 -2.12 $14,161 -2.11
3/31/1999 $14,518 -4.23 $13,309 -4.81 $13,581 -4.10
6/30/1999 $16,287 12.19 $14,628 9.91 $15,015 10.56
9/30/1999 $14,743 -9.48 $13,445 -8.09 $13,774 -8.27
12/31/1999 $14,749 0.04 $13,345 -0.74 $13,806 0.23
3/31/2000 $14,935 1.25 $13,700 2.66 $14,219 2.99
<p>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 and Morgan Stanley REIT Index are provided for comparison in
each graph. The indices returns in both graphs are since 9/30/95, the date
nearest the 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 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. </p>
<p><B><font size="4">One-Year Returns Over Life of Fund </font> (Periods ended
March 31) </B></p>
<p>[GRAPHIC OMITTED]</p>
<p>[The following table was depicted as a bar graph in the printed material]</p>
Fiscal-Year Returns as 3/31/2000 -- Real Estate Fund
Real Estate Morgan Stanley REIT Index Wilshire REIT Index
Date Return Return Return
---- ------ ------ ------
3/31/1996 8.83 6.51 6.85
3/31/1997 40.77 33.51 34.79
3/31/1998 20.03 17.47 17.28
3/31/1999 -21.04 -20.32 -19.66
3/31/2000 2.87 2.94 4.70
<p><font size="2">* ACRE return from 9/21/95 to 3/31/96.</font></p>
<p><font size=5><a name="REAE"></a>ACRE — Q&A</font></p>
<hr width="100%" size="1" noshade align="left">
<p>[PHOTO OMITTED]</p>
<p><i>An interview with Daniel O'Connor, a portfolio manager on the American
Century Real Estate (ACRE) fund investment team. Mr. O'Connor works for J.P.
Morgan Investment Management, which took over day-to-day management
responsibilities of ACRE from RREEF America as of January 1, 2000.</i></p>
<p><b><i>How did ACRE perform during the year ended March 31, 2000?</i></b></p>
<p>The fund's return was in line with the overall performance of the real estate
investment trust (REIT) market. ACRE's one-year return was 2.87%, which was just
behind the 2.94% return of its benchmark, the Morgan Stanley REIT Index.* The
fund's return matched the 2.87% average return of the 138 real estate funds
tracked by Lipper Inc. (See the previous page for additional fund performance
comparisons.) The S&P 500, a broad stock market measure, returned 17.94%.</p>
<p><b><i>ACRE's benchmark used to be the Wilshire REIT Index, but now it's the Morgan
Stanley REIT Index. Why the change?</i></b></p>
<p>Both indexes are considered to be standard, representative benchmarks of the
REIT market, but we've always favored the Morgan Stanley Index. When we first
began managing REIT portfolios in 1997, the Morgan Stanley Index was the only
continuously priced REIT index. Morgan Stanley also set strict standards for
inclusion so that the index contains only well-seasoned real estate companies.</p>
<p>In addition, the index excludes REITs that are not part of ACRE's investment
universe, such as healthcare REITs, mortgage REITs, and real estate finance
companies. We think this index is the most suitable benchmark for ACRE.</p>
<p><b><i>Have you made any changes to ACRE's portfolio as a result of the new
benchmark?</i></b></p>
<p>We've made quite a few changes to the portfolio since we began managing it at
the first of the year. That's bound to happen when management changes hands. It
also explains why ACRE's turnover was higher during the past year than it was
the year before (see the table on page 6).</p>
<p>We made some changes to bring the portfolio in line with our benchmark and
investment parameters; others we made based on our own outlook for certain
sectors of the REIT market.</p>
<p><b><i>Can you give some examples?</i></b></p>
<p>We reduced the size of several fund holdings. One example is Mack-Cali Realty,
an office REIT based in the Northeast. Mack-Cali was a top ten holding for most
of 1999, with a weighting in the portfolio that was about twice that of the
index. We have cut back this position to a weighting more in line with the
benchmark.</p>
<p>We also sold TrizecHahn because it didn't fit our investment parameters.
TrizecHahn concentrates on real estate operation and management rather than
property ownership.</p>
<p><b><i>What about your sector reallocation?</i></b></p>
<p>We significantly reduced ACRE's exposure to hotel REITs. The fundamentals of the
hotel sector were not favorable — an enormous amount of new supply has led to
high vacancy rates and slowing revenue growth — and we don't think things
will get better any time soon.</p>
<p><font size="2">* All fund returns referenced in this interview are for Investor
Class shares.</font></p>
<p><font size="4"><i>"The fund's return was in line with the overall performance of the real estate
investment trust (REIT) market."</i></font></p>
<p><b><font size="4">Fund Allocation</font></b></p>
<P ALIGN="CENTER">[GRAPHIC OMITTED]</P>
<P ALIGN="CENTER">[The following tables were depicted as pie charts in the printed material.]</P>
- --------------------------------------
As of March 31, 2000
- --------------------------------------
Office 23%
Mall & Shopping Center 23%
Multi-family Residential 20%
Diversified 11%
Other 9%
Industrial 7%
Storage 7%
- --------------------------------------
As of September 30, 1999
- --------------------------------------
Office 36%
Mall & Shopping Center 13%
Multi-family Residential 25%
Diversified 4%
Other 10%
Industrial 10%
Storage 2%
<p><b><font size="4"><a name="REAG"></a>Top Ten Holdings</font></b></p>
- ------------------------------------------------
% of fund investments
- ------------------------------------------------
As of As of
3/31/00 9/30/99
Equity Residential
Properties Trust 6.1% 4.5%
Equity Office
Properties Trust 5.6% 3.3%
Prologis Trust 5.4% 2.8%
Public Storage, Inc. 5.2% 2.1%
Cornerstone
Properties, Inc. 5.1% --
Vornado Realty Trust 4.5% 3.7%
National Golf
Properties Inc. 3.5% --
Arden Realty, Inc. 3.4% 4.8%
Meristar Hospitality
Corp 3.4% 3.1%
Crescent Real Estate
Equities Co. 3.4% --
<p><b><font size="4"><a name="REAF"></a>Portfolio at a Glance</font></b></p>
------------------------------------------------
3/31/00 3/31/99
- ------------------------------------------------
No. of Companies 36 41
Median REIT FFO*
Ratio 7.9 8.9
Median Market $1.25 $1.00
Capitalization billion billion
Portfolio Turnover 102% 66%
Expense Ratio (for
Investor Class) 1.20% 1.20%
<p><font size="2">*Funds from operations</font></p>
<p><font size="2">Investment terms are defined in the Glossary on pages 23-24.</font></p>
<p>As a result, we sold nearly all of the fund's hotel REITs, including Starwood,
Wyndham, and Host Marriott. The only one we held onto is Meristar Hospitality,
which specializes in high-end luxury hotels. Unlike its peers, Meristar has a
good balance sheet and operates in strong markets.</p>
<p>Overall, though, the fund is still dominated by office, residential, and retail
REITs, with a smattering of other sectors. For the most part, change was limited
to adjusting position sizes of the holdings in these sectors.</p>
<p><b><i>ACRE's top two holdings from six months ago — Highwoods Properties and
CarrAmerica Realty — are no longer in the portfolio. That's a pretty
substantial change.</i></b></p>
<p>We felt that these two companies were financially weak relative to other office
REITs. In particular, CarrAmerica is dependent on a significant amount of debt
financing, and given the recent rise in interest rates, this need for financing
is likely to hurt its performance. As for Highwoods, the company is suffering
from internal conflict, and we thought it best to avoid the stock until its
problems are resolved.</p>
<p><b><i>We've talked quite a bit about what you dropped from ACRE's portfolio. What
did you add?</i></b></p>
<p>One company that we like a lot is Cornerstone Properties, which was not in the
portfolio when we began managing it but now makes up about 5% (see the top ten
holdings table at left). Cornerstone is an office REIT with a premier portfolio
of office towers in central business districts around the country.</p>
<p>In February, Cornerstone agreed to be acquired by Equity Office Properties
(another top ten holding). When the deal is completed, the combined company will
be the largest owner and operator of office properties in the United States. It
will also be the dominant landlord in several key metropolitan areas with high
barriers to entry, including San Francisco, Boston, Chicago, and Washington DC.</p>
<p>Cornerstone shares surged by almost 20% after the deal was announced, while
Equity Office Properties declined a little. Over the long term, though, we think
this acquisition will strengthen Equity Office's strategic and financial
position.</p>
<p><b><i>Can you talk about other strong performers in ACRE's portfolio?</i></b></p>
<p>One of our best performers over the past year was Spieker Properties, an office
property owner based in Silicon Valley. Spieker is one of the few regional
office REITs still around, but what a region to be in. Demand for office space
in Silicon Valley has exploded over the past few years, and Spieker has
benefited significantly. Spieker was up 25% in the first quarter of 2000.</p>
<p>Another top-performing company that we like is Cousins Properties, which is also
an office REIT. Cousins is a well-managed company with a lot of flexibility,
which has enabled it to enter into a number of attractive joint ventures. The
company has experienced a 15% increase in funds from operations (FFO), the REIT
equivalent of earnings. We think Cousins is in an excellent position to succeed.</p>
<p><b><i>What holdings hurt fund performance during the past year?</i></b></p>
<p>As I mentioned before, hotel REITs have been the worst performers in the REIT
market, and the fund held several of them for most of the fiscal year.</p>
<p>More recently, one of the weaker-performing REITs in the fund's portfolio has
been Public Storage. Storage companies in general have been up and down over the
past six months, and Public Storage had the added burden of rumors that it was
negotiating an acquisition of smaller rival Shurgard Storage.</p>
<p>However, we think Public Storage has a favorable long-term outlook. The company
should ultimately benefit from consolidation in its industry, and it has already
shown the ability to improve its operating efficiency. We've established an
overweight position in this company.</p>
<p><b><i>What's your outlook for REITs going forward?</i></b></p>
<p>We think REITs are still as attractive as they've been over the past two years.
They continue to trade at a substantial discount to their underlying property
values. In addition, the fundamentals of the real estate market remain
favorable — balanced supply and demand, healthy rent growth, and rising
returns on invested capital.</p>
<p>REITs also offer relatively high dividend yields. As of March 31, ACRE's 30-day
SEC yield was 6.77%, up from 5.87% six months ago. ACRE's yield was also higher
than the 6.01% yield on the 10-year Treasury bond.</p>
<p><b><I>What are your plans for ACRE in the coming months?</I></b></p>
<p>We plan to continue focusing on selecting real estate companies that we feel
have the best prospects. REITs have been beaten down as a group over the past
two years, but as they start to recover, the best operators are beginning to
distinguish themselves from the pack. Those are the companies we are striving to
own.</p>
<p><font size="4"><I>"...the fundamentals of the real estate market remain
favorable — balanced supply and demand, healthy rent growth, and rising
returns on invested capital."
</I></font></p>
<p><b><font size="4"><a name="REAH"></a>Yield as of March 31, 2000</font></b></p>
- ----------------------------------
30-Day SEC Yield
- ----------------------------------
Investor Class 6.77%
Advisor Class 6.52%
Institutional Class 6.97%
<p><font size=5><a name="REAI"></a>ACRE — Schedule of Investments</font></p>
<hr width="100%" size="1" noshade align="left">
<p><b>MARCH 31, 2000</b></p>
Shares Value
- ------------------------------------------------------------------------
COMMON STOCKS - 94.0%
- ------------------------------------------------------------------------
DIVERSIFIED COMPANIES - 10.9%
38,800 Colonial Properties Trust $ 921,500
187,700 Crescent Real Estate Equities Co. 3,284,750
36,150 Developers Diversified Realty Corp. 501,581
132,124 Duke-Weeks Realty Corp. 2,526,872
163,800 National Golf Properties Inc. 3,450,038
-----------
10,684,741
-----------
HOTELS - 3.4%
189,955 Meristar Hospitality Corp. 3,312,340
-----------
INDUSTRIAL - 6.9%
63,200 Liberty Property Trust 1,512,850
274,210 Prologis Trust 5,278,543
-----------
6,791,393
-----------
MULTI-FAMILY RESIDENTIAL - 19.5%
69,169 AvalonBay Communities Inc. 2,533,315
93,389 Camden Property Trust 2,527,340
149,522 Equity Residential Properties Trust 6,008,915
43,530 Gables Residential Trust 979,425
34,500 Home Properties of New York, Inc. 922,875
44,400 Post Properties, Inc. 1,789,875
122,100 Summit Properties Inc. 2,335,162
199,050 United Dominion Realty Trust, Inc. 2,002,941
-----------
19,099,848
-----------
NEIGHBORHOOD & COMMUNITY
SHOPPING CENTERS - 9.4%
144,600 Federal Realty Investment Trust 2,792,588
53,500 Kimco Realty Corporation 2,006,250
130,600 Vornado Realty Trust 4,375,100
-----------
9,173,938
-----------
OFFICE - 23.4%
160,700 Arden Realty, Inc. 3,354,612
30,900 Boston Properties, Inc. 983,006
287,930 Cornerstone Properties, Inc. 5,020,779
84,400 Cousins Properties Inc. 3,106,975
216,300 Equity Office Properties Trust 5,434,538
125,500 Mack-Cali Realty Corp. 3,200,250
63,200 Mission West Properties Inc. 541,150
28,200 Spieker Properties, Inc. 1,254,900
-----------
22,896,210
-----------
REGIONAL MALLS - 13.7%
91,600 CBL & Associates Properties, Inc. 1,872,075
94,200 General Growth Properties, Inc. 2,867,212
117,800 IRT Property Co. 942,400
146,100 Macerich Co. (The) 3,013,312
114,400 Mills Corp. 2,059,200
39,600 Simon Property Group, Inc. 950,400
58,800 Urban Shopping Centers, Inc. 1,708,875
-----------
13,413,474
-----------
STORAGE - 6.8%
41,660 CenterPoint Properties Corp. CI A 1,517,986
243,148 Public Storage, Inc. 5,106,108
-----------
6,624,094
-----------
TOTAL COMMON STOCKS
(Cost $92,947,791) 91,996,038
-----------
- ------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS - 6.0%
- ------------------------------------------------------------------------
Repurchase Agreement, Goldman Sachs & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 6.08%, dated 3/31/00,
due 4/3/00 (Delivery value $4,802,432) 4,800,000
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 6.05%, dated 3/31/00,
due 4/3/00 (Delivery value $1,100,555) 1,100,000
-----------
TOTAL TEMPORARY CASH INVESTMENTS 5,900,000
(Cost $5,900,000)
-----------
TOTAL INVESTMENT SECURITIES - 100.0%
(Cost $98,847,791) $97,896,038
===========
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<p><font size=5><a name="REAJ"></a><a name="REAK"></a>Statement of Assets and Liabilities</font></p>
<hr width="100%" size="1" noshade align="left">
<p>This statement breaks down the fund's <B>assets</B> (such as securities, cash,
and other receivables) and <B>liabilities</B> (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 <B>net assets</B>. For each class of shares, the net assets divided
by shares outstanding is the share price, or <B>net asset value per share</B>.
This statement also breaks down the fund's net assets into capital
(shareholder investments) and performance (investment income and
gains/losses).</p>
<p><b>MARCH 31, 2000</b></p>
- --------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------
Investment securities, at value (identified cost of $98,847,791) (Note 3) .... $ 97,896,038
Cash ......................................................................... 45,072
Receivable for investments sold .............................................. 445,072
Dividends and interest receivable ............................................ 670,033
-------------
............................................................................. 99,056,215
-------------
- --------------------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 1,475,940
Payable for capital shares redeemed .......................................... 2,859,944
Payable for management fees (Note 2) ......................................... 95,993
Distribution fees payable (Note 2) ........................................... 1,085
Service fees payable (Note 2) ................................................ 1,085
Payable for directors' fees and expenses ..................................... 65
Accrued expenses and other liabilities ....................................... 140
-------------
............................................................................. 4,434,252
-------------
Net Assets ................................................................... $ 94,621,963
=============
- --------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------
Capital (par value and paid-in surplus) ...................................... $ 132,696,095
Undistributed net investment income .......................................... 48,198
Accumulated net realized loss on investment transactions ..................... (37,170,577)
Net unrealized depreciation on investments (Note 3) .......................... (951,753)
-------------
............................................................................. $ 94,621,963
=============
Investor Class, $0.01 Par Value
Net assets ................................................................... $ 73,812,218
Shares outstanding ........................................................... 6,285,284
Net asset value per share .................................................... $ 11.74
Advisor Class, $0.01 Par Value
Net assets ................................................................... $ 5,352,916
Shares outstanding ........................................................... 455,920
Net asset value per share .................................................... $ 11.74
Institutional Class, $0.01 Par Value
Net assets ................................................................... $ 15,456,829
Shares outstanding ........................................................... 1,315,810
Net asset value per share .................................................... $ 11.75
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<p><font size=5><a name="REAL"></a>Statement of Operations</font></p>
<hr width="100%" size="1" noshade align="left">
<p>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.</p>
<p><b>YEAR ENDED MARCH 31, 2000</b></p>
- -----------------------------------------------------------------------------
INVESTMENT INCOME
- -----------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $7,187) ............ $ 9,366,500
Interest ....................................................... 201,604
------------
............................................................... 9,568,104
------------
Expenses (Note 2):
Management fees ................................................ 1,552,784
Distribution fees -- Advisor Class ............................. 7,971
Service fees -- Advisor Class .................................. 7,971
Directors' fees and expenses ................................... 1,102
------------
............................................................... 1,569,828
------------
Net investment income .......................................... 7,998,276
------------
- -----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3)
- -----------------------------------------------------------------------------
Net realized loss on investments ............................... (22,624,326)
Change in net unrealized depreciation on investments ........... 17,189,552
------------
Net realized and unrealized loss on investments ................ (5,434,774)
------------
Net Increase in Net Assets Resulting from Operations ........... $ 2,563,502
============
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<p><font size=5><a name="REAM"></a>Statements of Changes in Net Assets</font></p>
<hr width="100%" size="1" noshade align="left">
<p>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.</p>
<p><b>YEARS ENDED MARCH 31, 2000 AND MARCH 31, 1999 </b></p>
Decrease in Net Assets 2000 1999
- ------------------------------------------------------------------------------------------------------------
OPERATIONS
- ------------------------------------------------------------------------------------------------------------
Net investment income .................................................... $ 7,998,276 $ 7,908,100
Net realized loss on investments ......................................... (22,624,326) (18,562,395)
Change in net unrealized depreciation on investments ..................... 17,189,552 (23,965,828)
------------- -------------
Net increase (decrease) in net assets resulting from operations .......... 2,563,502 (34,620,123)
------------- -------------
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------
From net investment income:
Investor Class ......................................................... (5,683,209) (4,933,750)
Advisor Class .......................................................... (208,155) (4,632)
Institutional Class .................................................... (1,271,720) (1,054,610)
In excess of net realized gains on investment transactions:
Investor Class ......................................................... -- (1,111,296)
Advisor Class .......................................................... -- (325)
Institutional Class .................................................... -- (266,386)
------------- -------------
Decrease in net assets from distributions ................................ (7,163,084) (7,370,999)
------------- -------------
- ------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from capital share transactions .... (37,826,998) 28,322,183
------------- -------------
Net decrease in net assets ............................................... (42,426,580) (13,668,939)
- ------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------
Beginning of period ...................................................... 137,048,543 150,717,482
------------- -------------
End of period ............................................................ $ 94,621,963 $ 137,048,543
============= =============
Undistributed net investment income ...................................... $ 48,198 $ 746,412
============= =============
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<p><font size=5><a name="REAN"></a>Notes to Financial Statements</font></p>
<hr width="100%" size="1" noshade align="left">
<p><b>MARCH 31, 2000</b></p>
<hr width="100%" size="1" noshade align="left">
<p><b><font size="4">1. Organization and Summary of Significant Accounting Policies</font></b></p>
<p><B>Organization </B> — American Century Capital Portfolios, Inc. (the
corporation) is registered under the Investment Company Act of 1940 (the
1940 Act) 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 as compared to
investing in 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 following significant accounting policies are in accordance with
generally accepted accounting principles; these policies may require the
use of estimates by fund management.</p>
<p><B>Multiple Class </B> — 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.</p>
<p><B>Security Valuations </B> — Portfolio securities traded primarily on a
principal securities exchange are valued at the last reported sales price,
or at 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.</p>
<p><B>Security Transactions </B> — 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.</p>
<p><B>Investment Income </B> — 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.</p>
<p><B>Repurchase Agreements </B> — 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.</p>
<p><B>Joint Trading Account </B> — 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.</p>
<p><B>Income Tax Status </B> — 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.</p>
<p><B>Distributions to Shareholders </B> — 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.</p>
<p>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.</p>
<p>At March 31, 2000, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $17,682,932 (expiring in
2007 through 2008) which may be used to offset future taxable gains.</p>
<p>For the five month period ended March 31, 2000, Real Estate incurred net
capital losses of $17,337,181. The fund has elected to treat such losses
as having been incurred in the following fiscal year.</p>
<p><B>Additional Information</B> — Funds Distributor, Inc. (FDI) is a
distributor of the corporation. Certain officers of FDI are also officers
of the corporation.</p>
<p><b><font size="4">2. Transactions with Related Parties</font></b></p>
<p>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 1940 Act (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.</p>
<p>The annual management fee is for each class of Real Estate is as follows.</p>
INVESTOR ADVISOR INSTITUTIONAL
CLASS CLASS CLASS
- ---------------------------------------------------------------
FUND AVERAGE NET ASSETS
- ---------------------------------------------------------------
$0 to $100,000,000 ........ 1.20% 0.95% 1.00%
over $100,000,000 ......... 1.15% 0.90% 0.95%
<p>RREEF America L.L.C. ("RREEF") voluntarily resigned as the fund's
investment advisor on December 31, 1999. The Board of Directors and a
majority of the fund's shareholders approved a new subadvisory agreement
with J.P. Morgan Investment Management Inc. (JPMIM), effective 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 continue to pay all costs associated with retaining JPMIM as the
subadvisor of the fund. JPMIM is a wholly owned subsidiary of J.P. Morgan
& Co. Incorporated, an equity investor in American Century Companies,
Inc.</p>
<p>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 1940 Act. 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
year ended March 31, 2000 were $15,942.</p>
<p>Effective March 13, 2000, American Century Investment Services, Inc.
(ACIS), became a distributor of the corporation.</p>
<p>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,
a distributor of the corporation, ACIS, and the corporation's transfer
agent, American Century Services Corporation.</p>
<hr width="100%" size="1" noshade align="left">
<p><b><font size="4">3. Investment Transactions</font></b></p>
<p>Purchases and sales of investment securities, excluding short-term
investments, for the year ended March 31, 2000, were $132,179,820 and
$169,402,521, respectively.</p>
<p>As of March 31, 2000, accumulated net unrealized depreciation was
$3,099,432, based on the aggregate cost of investments for federal income
tax purposes of $100,995,470, which consisted of unrealized appreciation
of $2,387,902 and unrealized depreciation of $5,487,334.</p>
<p>For the year ended March 31, 2000, the fund incurred net realized losses
of $456,413 from redemptions in kind. A redemption in kind occurs when a
fund delivers securities from its portfolio in lieu of cash as payment to
a redeeming shareholder.</p>
<hr width="100%" size="1" noshade align="left">
<p><b><font size="4">4. Capital Share Transactions</font></b></p>
<p>Transactions in shares of the fund were as follows:</p>
Shares Amount
- ----------------------------------------------------------------------------
INVESTOR CLASS
- ----------------------------------------------------------------------------
Shares Authorized .......................... 50,000,000
===========
Year ended March 31, 2000
Sold ....................................... 10,178,382 $ 125,814,882
Issued in reinvestment of distributions .... 443,712 5,211,042
Redeemed ................................... (13,447,772) (164,093,568)
----------- -------------
Net decrease ............................... (2,825,678) $ (33,067,644)
=========== =============
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
===========
Year ended March 31, 2000
Sold ....................................... 496,150 $ 6,097,594
Issued in reinvestment of distributions .... 16,812 192,141
Redeemed ................................... (94,105) (1,087,568)
----------- -------------
Net decrease ............................... 418,857 $ 5,202,167
=========== =============
October 6, 1998 through March 31, 1999
Sold ....................................... 38,324 $ 475,941
Issued in reinvestment of distributions .... 418 4,957
Redeemed ................................... (1,678) (21,062)
----------- -------------
Net increase ............................... 37,064 $ 459,836
=========== =============
- ----------------------------------------------------------------------------
INSTITUTIONAL CLASS
- ----------------------------------------------------------------------------
Shares Authorized .......................... 25,000,000
===========
Year ended March 31, 2000
Sold ....................................... 2,415,404 $ 28,971,588
Issued in reinvestment of distributions .... 91,834 1,074,105
Redeemed ................................... (3,364,595) (40,007,214)
----------- -------------
Net decrease ............................... (857,357) $ (9,961,521)
=========== =============
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
=========== =============
<hr width="100%" size="1" noshade align="left">
<p><b><font size="4">5. Bank Loans</font></b></p>
<p>The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended March 31, 2000.</p>
<p><font size=5><a name="REAO"></a>ACRE — Financial Highlights</font></p>
<hr width="100%" size="1" noshade align="left">
<p>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).</p>
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
----------------------------------------------------------------------
Investor Class
----------------------------------------------------------------------
2000 1999 1998(1) 1997 1996 1995(2)
- -----------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- -----------------------------------------------------------------------------------------------------------------------------
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 .............................. 0.74(3) 0.73(3) 0.25(3) 0.67(3) 0.55 0.07
Net Realized and Unrealized Gain (Loss) on
Investment Transactions ............................ (0.41) (4.09) 0.26 4.13 2.27 (0.25)
------- -------- -------- ------- ------ ------
Total From Investment Operations ................... 0.33 (3.36) 0.51 4.80 2.82 (0.18)
------- -------- -------- ------- ------ ------
From Net Investment Income ......................... (0.69) (0.54) (0.18) (0.48) (0.35) --
From Net Realized Gains on Investment Transactions.. -- (0.12) (0.27) (0.55) -- --
------- -------- -------- ------- ------ ------
Total Distributions ................................ (0.69) (0.66) (0.45) (1.03) (0.35) --
------- -------- -------- ------- ------ ------
Net Asset Value, End of Period ....................... $ 11.74 $ 12.10 $ 16.12 $ 16.06 $12.29 $ 9.82
======= ======== ======== ======= ====== ======
Total Return(4) .................................... 2.87% (21.04)% 3.26% 40.69% 29.28% (1.80)%
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to
Average Net Assets ................................... 1.20% 1.20% 1.15%(5) 1.17% 1.00% 1.50%(5)
Ratio of Operating Expenses to Average Net Assets
(before expense waivers and reimbursements)(6) ....... 1.20% 1.20% 1.20%(5) 1.82% 6.83% 14.83%(5)
Ratio of Net Investment Income to
Average Net Assets ................................... 5.95% 5.41% 3.75%(5) 4.48% 5.84% 6.66%(5)
Ratio of Net Investment Income to Average Net Assets
(before expense waivers and reimbursements)(6) ....... 5.95% 5.41% 3.70%(5) 3.84% 0.01% (6.67)%(5)
Portfolio Turnover Rate .............................. 102% 66% 28% 69% 86% --
Net Assets, End of Period (in thousands) ............. $73,812 $110,285 $135,922 $76,932 $7,209 $2,983
<P><FONT SIZE="2">(1) The period ended March 31, 1998 represents a five month reporting period.
The fund's fiscal year end was changed from October 31 to March 31 during the
period. Periods prior to 1998 are based on a fiscal year ended October 31.<BR>
(2) September 21, 1995 (inception) through October 31, 1995.<BR>
(3) Computed using average shares outstanding throughout the period.<BR>
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.<BR>
(5) Annualized.<BR>
(6) During the periods ended October 31, 1996 and October 31, 1995 and for a
portion of the period ended October 31, 1997, the manager voluntarily agreed to
waive its management fee and reimburse certain expenses incurred by the fund.
Also, prior to the unified management fee structure, effective June 13, 1997,
the custodian offset part of its fees for balance credits given to the fund.
During the period ended March 31, 1998, a portion of the subadvisory fee, which
is paid for subadvisory services, was waived.</FONT></P>
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
-----------------------
Advisor Class
-----------------------
2000 1999(1)
- -------------------------------------------------------------------------------------------
PER-SHARE DATA
- -------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period .............................. $12.10 $12.22
Income From Investment Operations
Net Investment Income(2) ........................................ 0.75 0.43
Net Realized and Unrealized Loss on Investment Transactions ..... (0.45) (0.15)
------ ------
Total From Investment Operations ................................ 0.30 0.28
------ ------
Distributions
From Net Investment Income ...................................... (0.66) (0.28)
From Net Realized Gains on Investment Transactions .............. -- (0.12)
------ ------
Total Distributions ............................................. (0.66) (0.40)
------ ------
Net Asset Value, End of Period .................................... $11.74 $12.10
====== ======
Total Return(3) ................................................. 2.62% 2.25%
- -------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets ................. 1.45% 1.45%(4)
Ratio of Net Investment Income to Average Net Assets .............. 5.70% 5.16%(4)
Portfolio Turnover Rate ........................................... 102% 66%
Net Assets, End of Period (in thousands) .......................... $5,353 $ 449
<P><FONT SIZE="2">(1) October 6, 1998 (commencement of sale) through March 31, 1999.<BR>
(2) Computed using average shares outstanding throughout the period.<BR>
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.<BR>
(4) Annualized.
</FONT></P>
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
---------------------------------------------
Institutional Class
---------------------------------------------
2000 1999 1998(1) 1997(2)
- --------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ................................. $12.11 $16.12 $16.06 $14.24
------- ------- ------- -------
Income From Investment Operations
Net Investment Income(3) ........................................... 0.75 0.78 0.26 0.28
Net Realized and Unrealized Gain (Loss) on Investment Transactions (0.38) (4.09) 0.26 1.63
------- ------- ------- -------
Total From Investment Operations ................................... 0.37 (3.31) 0.52 1.91
------- ------- ------- -------
Distributions
From Net Investment Income ......................................... (0.73) (0.58) (0.19) (0.09)
From Net Realized Gains on Investment Transactions ................. -- (0.12) (0.27) --
------- ------- ------- -------
Total Distributions ................................................ (0.73) (0.70) (0.46) (0.09)
------- ------- ------- -------
Net Asset Value, End of Period ....................................... $11.75 $12.11 $16.12 $16.06
======= ======= ======= =======
Total Return(4) .................................................... 3.18% (20.77)% 3.32% 13.40%
- --------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets .................... 1.00% 1.00% 0.95%(5) 1.00%(5)
Ratio of Operating Expenses to Average Net Assets
(before expense waivers and reimbursements)(6) ....................... 1.00% 1.00% 1.00%(5) 1.00%(5)
Ratio of Net Investment Income to Average Net Assets ................. 6.15% 5.61% 4.00%(5) 4.85%(5)
Ratio of Net Investment Income to Average Net Assets
(before expense waivers and reimbursements)(6) ....................... 6.15% 5.61% 3.95%(5) 4.85%(5)
Portfolio Turnover Rate .............................................. 102% 66% 28% 69%
Net Assets, End of Period (in thousands) ............................. $15,457 $26,315 $14,795 $13,365
<P><FONT SIZE="2">(1) The period ended March 31, 1998 represents a five month reporting period.
The fund's fiscal year end was changed from October 31 to March 31 during the
period. Periods prior to 1998 are based on a fiscal year ended October 31.<BR>
(2) June 16, 1997 (commencement of sale) through October 31, 1997.<BR>
(3) Computed using average shares outstanding throughout the period.<BR>
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.<BR>
(5) Annualized.<BR>
(6) During the period ended March 31, 1998, a portion of the subadvisory fee,
which is paid for subadvisory services, was waived.
</FONT></P>
<p><font size=5><a name="REAP"></a>Independent Auditors' Report</font></p>
<hr width="100%" size="1" noshade align="left">
<p>The Board of Directors and Shareholders,<BR>
American Century Capital Portfolios, Inc.:</p>
<p>We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Real Estate Fund (the "Fund"), one of the funds
comprising American Century Capital Portfolios, Inc., as of March 31, 2000, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods presented. These financial statements
and the financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements and
the financial highlights based on our audits.</p>
<p>We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at March 31, 2000, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.</p>
<p>In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Real
Estate Fund as of March 31, 2000, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented in conformity with accounting principles generally accepted in the
United States of America.</p>
<p>Deloitte & Touche LLP<BR>
Kansas City, Missouri<BR>
May 12, 2000</p>
<p><font size=5><a name="REAQ"></a>Proxy Voting Results</font></p>
<hr width="100%" size="1" noshade align="left">
<p>A special meeting of shareholders, in the Real Estate Fund, was held on December
17, 1999, to vote on the following proposals. The proposals received the
required majority of votes and were adopted.</p>
<p>A summary of voting results is listed below each proposal.</p>
<p>See Note 2 in the Notes to Financial Statements.</p>
<p><b><font size="4">Proposal 1:</font></b></p>
<p>To vote on the approval of a new subadvisory agreement.</p>
Investor Institutional Advisor
For: 5,951,274 1,190,964 322,210
Against: 61,055 4,233 1,209
Abstain: 60,118 48,956 6,735
<p><b><font size="4">Proposal 2:</font></b></p>
<p>To vote on the approval of an amendment to reduce the management fee schedule.</p>
Investor Institutional Advisor
For: 5,960,181 1,189,676 322,331
Against: 53,762 3,911 651
Abstain: 58,504 50,566 7,172
<p><font size=5><a name="REAR"></a><a name="REAS"></a>Share Class and Retirement Account Information</font></p>
<hr width="100%" size="1" noshade align="left">
<p><b><font size="4">Share Classes</font></b></p>
<p>Three classes of shares are authorized for sale by the fund: Investor Class,
Advisor Class and Institutional Class.</p>
<p><B>Investor Class </B>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.</p>
<p><B>Advisor Class </B>shares are sold through banks, broker-dealers, insurance com
panies 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.</p>
<p><B>Institutional Class </B>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.</p>
<p>All classes of shares represent a pro rata interest in the funds and generally
have the same rights and preferences.</p>
<p><b><font size="4">Retirement Account Information</font></b></p>
<p>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 with hold
federal income tax prior to the withdrawal.</p>
<p>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.</p>
<p>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 respon s ible for payment of estimated tax. You may incur penalties under the
estimated tax rules if your withholding and estimated tax payments are not
sufficient.</p>
<p><font size=5><a name="REAT"></a>Background Information</font></p>
<p><b><font size="4"><a name="REAY"></a>Portfolio Manager</font></b></p>
<p><b><font size="4">ACRE</font></b></p>
<p><b>Daniel O'Connor</b></p>
<hr width="100%" size="1" noshade align="left">
<p><b><font size="4"><a name="REAU"></a>Investment Philosophy and Policies</font></b></p>
<p>American Century offers 15 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.</p>
<p><B>American Century Real Estate Fund's </B>primary investment objective is long-term
capital appreciation, with income as a secondary objective.</p>
<p>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.</p>
<p>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. </p>
<p><b><font size="4"><a name="REAV"></a>Fund Management Team</font></b></p>
<p>RREEF America LLC, and its predecessor company, served as the fund's investment
subadvisor from its inception until it resigned on December 31, 1999. In
connection with its resignation, RREEF informed ACIM and the fund that RREEF had
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. JPMIM began 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.)</p>
<p><b><font size="4"><a name="REAW"></a>Fund Background</font></b></p>
<p>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.</p>
<p>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. </p>
<p><b><font size="4"><a name="REAX"></a>Comparative Indices</font></b></p>
<p>The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.</p>
<p>The <B>S&P Small Cap 600 Index </B>consists of 600 domestic stocks chosen for
market size, liquidity, and industry group representation.</p>
<p>The <B>S&P MidCap 400 Index</B> is the medium capitalization sector of the U.S.
market. Created by Standard & Poor's, it is considered to represent the
performance of mid-cap stocks in general.</p>
<p>The <B>S&P 500 Index</B> is a capitalization-weighted index of 500 widely traded
stocks. Created by Standard & Poor's, it is considered to represent the
performance of the stock market in general.</p>
<p>The <B>Morgan Stanley REIT Index</B> is a market capitalization-weighted total-return
index of real estate investment trusts (REITs) that meet certain liquidity
requirements. The index was designed to track the total-return performance of a
broad group of REIT stocks, assuming dividend reinvestment in the index on the
ex-dividend date.</p>
<p>The <B>Wilshire REIT Index</B> (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. </p>
<p><font size=5><a name="REAZ"></a>Glossary</font></p>
<hr width="100%" size="1" noshade align="left">
<p><b><font size="4">Returns</font></b></p>
<ul type="square"><li><B>Total Return </B>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.
<li><B>Average Annual Returns </B>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.</ul>
<p><b><font size="4">Investment Terms</font></b></p>
<ul type="square"><li><B>Funds From Operations (FFO)</B> — 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.
<li><B>Median Market Capitalization</B> — 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.
<li><B>Number of Companies</B> — the number of different companies held by a fund on
a given date.
<li><B>Portfolio Turnover</B> — 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.
<li><B>Price/Book Ratio</B> — 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.)
<li><B>Price/Earnings (P/E) Ratio</B> — 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.)</ul>
<p><b><font size="4">Types of Stocks </font></b></p>
<ul type="square"><li><B>Blue Chip Stocks</B> — 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.
<li><B>Cyclical Stocks</B> — 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.
<li><B>Growth Stocks</B> — 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.
<li><B>Large-Capitalization ("Large-Cap") Stocks</B> — the stocks of
companies with a market capitalization (the total value of a company's
outstanding stock) of more than $11.4 billion. This is Lipper's market
capitalization breakpoint as of March 31, 2000, although it may be subject to
change based on market fluctuations. The Dow Jones Industrial Average and the
S&P 500 Index generally consist of stocks in this range.
<li><B>Medium-Capitalization ("Mid-Cap") Stocks</B> — the stocks of
companies with a market capitalization (the total value of a company's
outstanding stock) of between $2.4 billion and $11.4 billion. This is Lipper's
market capitalization breakpoint as of March 31, 2000, although it may be
subject to change based on market fluctuations. The S&P 400 Index and
Russell 2500 Index generally consist of stocks in this range.
<li><B>Small-Capitalization ("Small-Cap") Stocks</B> — the stocks of
companies with a market capitalization (the total value of a company's
outstanding stock) of less than $2.4 billion. This is Lipper's market
capitalization breakpoint as of March 31, 2000, although it may be subject to
change based on market fluctuations. The S&P 600 Index and the Russell 2000
Index generally consist of stocks in this range.
<li><B>Value Stocks</B> — generally considered to be stocks that are
purchased because they are relatively inexpensive. These stocks are typically
characterized by low P/E ratios.</ul>
<p><b><font size="4">Fund Classifications</font></b></p>
<p>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.</p>
<p><b>Investment Objective</b></p>
<p>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.</p>
<ul type="square"><li><B>Capital Preservation </B> — offers taxable and tax-free money market funds
for relative stability of principal and liquidity.
<li><B>Income</B> — 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.
<li><B>Growth & Income </B> — offers funds that emphasize both growth and
income provided by either dividend-paying equities or a combination of equity
and fixed-income securities.
<li><B>Growth </B> — offers funds with a focus on capital appreciation and
long-term growth, generally providing high return potential with corresponding
high price-fluctuation risk.</ul>
<p><b>Risk</b></p>
<p>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.</p>
<ul type="square"><li><B>Conservative</B> — these funds generally provide lower return
potential with either low or minimal price-fluctuation risk.
<li><B>Moderante </B> — these funds generally provide moderate return
potential with moderate price-fluctuation risk.
<li><B>Aggressive </B> — these funds generally provide high return potential
with corresponding high price-fluctuation risk.</ul>
INVESTMENT OBJECTIVE
- ----------------------------------------------------------------------------------------------
CAPITAL PRESERVATION INCOME
Taxable Tax-Free Taxable Bonds Tax-Free Bonds
Money Markets Money Markets
- ----------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
- ----------------------------------------------------------------------------------------------
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
- ----------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
- ----------------------------------------------------------------------------------------------
Long-Term Treasury CA Long-Term
Target 2005* Tax-Free
Bond Long-Term Tax-Free
Premium Bond CA Insured Tax-Free
- ----------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
- ----------------------------------------------------------------------------------------------
Premium FL Municipal Intermediate-Term Bond CA Intermediate-Term
Capital Reserve Money Market Intermediate-Term Tax-Free
Prime CA Municipal Treasury AZ Intermediate-Term
Money Market Money Market GNMA Municipal
Premium CA Tax-Free Inflation-Adjusted FL Intermediate-Term
Government Reserve Money Market Treasury Municipal
Government Agency Tax-Free Limited-Term Bond Intermediate-Term
Money Market Money Market Target 2000* Tax-Free
Capital Preservation Short-Term Government CA Limited-Term
Short-Term Treasury Tax-Free
Limited-Term
Tax-Free
- ----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME GROWTH
Asset Allocation/ Domestic Equity Specialty Domestic Equity Specialty International
Balanced
- -------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
- -------------------------------------------------------------------------------------------------------------------------
Small Cap Quantitative Veedot(2) Emerging Markets
Small Cap Value New Opportunities Global Gold International Discovery
Giftrust(R) International Growth
Vista Global Growth
Heritage
Growth
Ultra(R)
Select
- -------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
- -------------------------------------------------------------------------------------------------------------------------
Strategic Allocation: Equity Growth Utilities Global Natural
Aggressive Equity Index Real Estate Resources
Balanced Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
- -------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<p><font size="2"><I>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.
</I></font></p>
<p><font size="2"><i>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.</i></font></p>
<p><font size="2"><i>*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.</i></font></p>
<p><font size="2"><i>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.</i></font></p>
<p align="right">[AMERICAN CENTURY LOGO]</p>
<P>P.O. Box 419200<BR>
Kansas City, Missouri 64141-6200</P>
<P>www.americancentury.com</P>
<P><B>Investor Relations</B><BR>
1-800-345-2021 or 816-531-5575</P>
<P><B>Automated Information Line</B><BR>
1-800-345-8765</P>
<P><B>Fax:</B> 816-340-7962</P>
<P><B>Telecommunications Device for the Deaf </B><BR>
1-800-634-4113 or 816-444-3485 </P>
<P><B>Business, Not-For-Profit, Employer-Sponsored Retirement Plans </B><BR>
1-800-345-3533 </P>
<P><B>Banks and Trust Companies, Broker-Dealers,<BR>
Financial Advisors, Insurance Companies</B><BR>
1-800-345-6488 </P>
<P><B>American Century Capital Portfolios, Inc.</B></P>
<P><B>Investment Manager<BR>
American Century Investment Management, Inc.</B><BR>
Kansas City, Missouri</P>
<P>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. </P>
<P align="right">[GRAPHIC OMITTED]</P>
<P><FONT size=5><I>Who we are</I></FONT></P>
<P>American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.</P>
<P>For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.</P>
<P>In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: We succeed only if our investors succeed.</P>
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 American century
www.americancentury.com COMPANIES
0004 American Century Investment Services, Inc.
SH-ANN-20174 (C)2000 American Century Services Corporation
<p> </p>
<p> </p>
<p> </p>
<P><B>March 31, 2000</B></P>
<p><font size=6>A</font><font size=4>MERICAN</font><font size=6> C</font><font size=4>ENTURY<sup>®</sup></font></p>
<p><font size=6><i> Annual Report</i></font></p>
<p align="CENTER">[GRAPHIC OMITTED]</p>
<p><font size="4">Equity Index</font></p>
<p align="right">[AMERICAN CENTURY(R) LOGO]</p>
<p><b>Equity Index</b><BR>
(ACIVX)</p>
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<p><font size="5">Our Message to You</font></p>
<hr width="100%" size="1" noshade align="left">
<p>[PHOTO OMITTED]</p>
<p><font size="2"><i>James E. Stowers III, seated, with James E. Stowers, Jr.</i></font></p>
<p>The year ended March 31, 2000, rewarded investors in the broad stock market, as
represented by the Standard & Poor's 500 Index, with a double-digit gain.
Technology stocks led the market over the period and were responsible for the
lion's share of the S&P 500's increase. Your investment managers' detailed
review of the S&P 500's experience over the period begins on page 3.</p>
<p>Turning to corporate matters, the months covered in this report have been
important ones for American Century. Besides serving the nearly two million
investors who look to American Century for investment management, we also worked
hard to serve and support the 3,000 people who work on your behalf to create a
positive, safe, and productive work environment for American Century staff. This
commitment was recognized and rewarded in late 1999 when American Century ranked
in the top 40 of Fortune magazine's "100 Best Companies to Work For."</p>
<p>We do not take this recognition lightly; acknowledgements like this allow us to
recruit talented and dedicated people, from service representatives to
investment professionals. This intellectual capital is our most valuable
resource and is essential in our efforts to provide you with excellent
investment management and service.</p>
<p>As always, we appreciate your continued confidence in American Century.</p>
<p>Sincerely,</p>
<p>/s/ James E. Stowers</p>
<p>James E. Stowers, Jr.<br>
<i>Chairman and Founder</i></p>
<p>/s/ James E. Stowers III</p>
<p>James E. Stowers III<br>
<i>Vice Chairman and Chief Executive Officer</i></p>
<p><font size="5">Table of Contents</font></p>
<p> <a href="#EQUA">Report Highlights</a><br>
<a href="#EQUB">Market Perspective</a><br></p>
<p><a href="#EQUC"><B>Equity Index</B></a><br>
<a href="#EQUD">Performance Information</a><br>
<a href="#EQUE">Management Q&A</a><br>
<a href="#EQUF">Portfolio at a Glance</a><br>
<a href="#EQUG">Top Ten Holdings</a><br>
<a href="#EQUH">Top Five Industries</a><br>
<a href="#EQUI">Schedule of Investments</a><br></p>
<p><a href="#EQUJ"><B>Financial Statements</B></a><br>
<a href="#EQUK">Statement of Assets and Liabilities</a><br>
<a href="#EQUL">Statement of Operations</a><br>
<a href="#EQUM">Statements of Changes in Net Assets</a><br>
<a href="#EQUN">Notes to Financial Statements</a><br>
<a href="#EQUO">Financial Highlights</a><br>
<a href="#EQUP">Independent Auditors Report</a><br></p>
<p><a href="#EQUQ"><B>Other Information</B></a><br>
<a href="#EQUR">Share Class and Retirement Account Information</a><br>
<a href="#EQUS">Background Information</a><br>
<a href="#EQUT">Investment Philosophy and Policies</a><br>
<a href="#EQUU">Fund Management</a><br>
<a href="#EQUV">Comparative Indices</a><br>
<a href="#EQUW">Glossary</a><br></p>
<p><font size=5><A NAME="EQUA"></A>Report Highlights</font></p>
<hr width="100%" size="1" noshade align="left">
- ---------------------------------------
Equity Index(1)
(ACIVX)
- ---------------------------------------
Total Returns: AS OF 3/31/00
6 Months .......... 17.15%(2)
1 Year ............ 17.17%
Inception Date: ..... 2/26/99
- ---------------------------------------
Net Assets: $467.5 million(3)
- ---------------------------------------
<p><font size="2">(1) Investor Class.<BR>
(2) Not annualized.<BR>
(3) Includes Investor and Institutional classes.<BR><BR>
Investment terms are defined in the Glossary on pages 26-27.</font></p>
<p><b><font size="4"><a name="EQUB"></a>Market Perspective</font></b></p>
<ul type="square"><li>The year ended March 31, 2000, introduced investors to stocks of the "New
Economy" — stocks of companies involved in the Internet and other developing
technologies — which prospered mightily by enticing investors with remarkable
accelerating price momentum. Meanwhile, stocks of the "Old Economy"
companies — financial services, industrial and retail — commanded only
occasional investor interest.
<li>The stellar performance of a select few securities created an extremely
narrow market: just ten stocks created 75% of the S&P 500's return. Such
dominance came at the expense of Old Economy companies.
<li>The record-long economic expansion reached its 109th month in March, driving
speculation about the ability of the market to sustain such astounding growth.</ul>
<p><b><font size="4"><a name="EQUC"></a>Equity Index</font></b></p>
<ul type="square"><li>Equity Index posted a gain of 17.17% during its fiscal year. The S&P 500
gained 17.94%.
<li>Interest rates and the New Economy were pivotal issues in the market during
the fund's fiscal year. The continued strong economy led the Federal Reserve to
increase short-term interest rates five times during the period. Exponential
growth of the Internet drove performance for electrical equipment providers,
semiconductor firms, computer hardware and software providers, and wireless
telecommunications firms, which were the market's growth engines.
<li>The same companies drove fund performance during the period. Nine of the 10
top contributors to performance were technology or related firms.
<li>Equity Index's position in pharmaceutical companies was a drain on
performance. This group stumbled after years of solid market leadership.
Consumer products and food and beverage also detracted. The slower and steadier
earnings growth in these industries was outmatched by the dizzying returns
posted by technology firms.</ul>
<p><font size="5">Market Perspective from Mark Mallon</font></p>
<hr width="100%" size="1" noshade align="left">
<p>[PHOTO OMITTED]</p>
<p><font size="2"><i>Mark Mallon, head of specialty, asset allocation, and
growth and income equity funds at American Century</i></font></p>
<p>The Standard & Poor's 500 Index posted a return of 17.94% for the 12 months
ended March 31, 2000, with virtually all of its gain registered during the last
half of the period. While enroute, the index closed out the decade at a record
high — as did the Dow Jones Industrial Average and the Nasdaq
Composite — making 1999 its fifth consecutive year with a return of 20% or
more.</p>
<p>The period will also be remembered for adding a new phrase to the investment
lexicon: "New Economy" stocks — technology-oriented firms in areas such as
computers, software, electronic components, telecommunications equipment and
services, and nearly anything dealing with the Internet.</p>
<p>Investors sought those companies and little else, and at seemingly any cost
judging by the 85% return over the period for the technology-heavy Nasdaq
Composite Index. In fact, over Equity Index's fiscal year, the average science
and technology fund tracked by Lipper Inc., gained 137%. Even the large-company
tech stocks in the S&P 500 had an average gain of 77%. Tech stocks accounted
for 89% of the S&P 500's return, and an even larger percentage in small-cap
and mid-cap indices, such as the Russell 2000 and the Russell 2500 growth
indices. Not even <i>five</i> increases in short-term interest rates by the Federal
Reserve over the period, moves that normally pound high-priced (relative to
earnings) stocks, slowed the frenzy for New Economy stocks.</p>
<p><font size="4"><B>But a few stocks did the work</B></font></p>
<p>Those spectacular returns, however, masked what was really a very narrow equity
market. Ten stocks accounted for more than 75% of the S&P 500's return
during the period, and 20 stocks (or less than 4% of the 500 stocks that
contributed to the S&P's performance) accounted for the index's entire
return. In fact, over 50% of the stocks in the index had negative returns during
Equity Index's fiscal year.</p>
<p>Many languishing shares belonged to value-oriented companies (all of which were
"Old Economy" stocks) whose time in the sun was limited to the first and last
months of the period. March came in like a bull, but went out like a bear, as
even steel-nerved investors began to question soaring valuations of technology
stocks. Suddenly, underdog Old Economy stocks began posting gains — the
S&P 500 gained almost 9% in March alone, while the NASDAQ lost ground.</p>
<p><b><font size="4">The economy continues to grow, but will earnings?</font></b></p>
<p>March represented the 109th month in a record-long economic expansion, beating
the previous record set in the 1960s. But the heady market returns over the last
nine years have hidden the fact that corporate earnings growth averaged only
about 7% during the 1990s, even taking into account 1999's 15% clip. Most
analysts expect earnings growth in 2000 to slow, a situation generally not
consistent with accelerating stock prices. We can probably expect market
volatility to remain part of the picture, as well. Investors used to
double-digit annual returns will have little patience for companies whose
earnings come in below expectations.</p>
<p><i><font size="4">"March represented the 109th month in a record-long economic expansion,
beating the previous record set in the 1960s."</font></i></p>
<p><font size="4"><B>Market Returns</B></font></p>
<p><b>For the year ended March 31, 2000</b></p>
S&P 500 17.94%
----------
S&P MidCap 400 38.08%
----------
Russell 2000 37.29%
- --------------------------------
<p><font size="2">Source: Lipper Inc.</font></p>
<p><font size="2">These indices represent the performance of large-, medium-, and
small-capitalization stocks.</font></p>
<p><B><font size="4">Market Performance</font> (Growth of $1.00)</B></p>
<p><b>For the year ended March 31, 2000</b></p>
<p>[GRAPHIC OMITTED]</p>
<p>[The following table was depicted as a line graph in the printed material]</p>
Monthly Growth of $1 as of 3/31/2000
S&P 500 Index S&P 500 Index S&P Mid-Cap 400 S&P Mid-Cap 400 Russell 2000 Russell 2000
3/31/1999 $1.00 $1.00 $1.00
4/30/1999 3.87 $1.04 7.88 $1.08 8.96 $1.09
5/31/1999 -2.36 $1.01 0.44 $1.08 1.46 $1.11
6/30/1999 5.56 $1.07 5.34 $1.14 4.52 $1.16
7/31/1999 -3.13 $1.04 -2.12 $1.12 -2.74 $1.12
8/31/1999 -0.49 $1.03 -3.42 $1.08 -3.70 $1.08
9/30/1999 -2.74 $1.00 -3.09 $1.05 0.02 $1.08
10/31/1999 6.33 $1.07 5.10 $1.10 0.40 $1.09
11/30/1999 2.05 $1.09 5.25 $1.16 5.97 $1.15
12/31/1999 5.87 $1.15 5.94 $1.23 11.32 $1.28
1/31/2000 -5.02 $1.10 -2.82 $1.19 -1.61 $1.26
2/29/2000 -1.89 $1.07 7.00 $1.27 16.51 $1.47
3/31/2000 9.78 $1.18 8.37 $1.38 -6.59 $1.37
1 yr Rtns: 17.94 38.08 37.29
<p><font size=5><a name="EQUD"></a>Equity Index — Performance</font></p>
<hr width="100%" size="1" noshade align="left">
<p><b><font size="4">Total Returns as of March 31, 2000</font></b></p>
---------------------------------- ---------------------------------------
Investor Class (inception 2/26/99) Institutional Class (inception 2/26/99)
---------------------------------- ---------------------------------------
Equity Index S&P 500 Equity Index S&P 500
6 Months* ...................... 17.15% 17.51% 17.27% 17.51%
1 Year ......................... 17.17% 17.94% 17.43% 17.94%
- ---------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
- ---------------------------------------------------------------------------------------------------------
Life of Fund ................... 19.88% 22.66% 20.12% 22.66%
<p><font size="2">*Returns for periods less than one year are not
annualized.</font></p>
<p><font size="2">See pages 24-26 for information about share classes, the S&P
500 Index, and returns.</font></p>
<p><b><font size="4">Growth of $10,000 Over Life of Fund</font></b></p>
<p>[GRAPHIC OMITTED]</p>
<p>[The following table was depicted as a line graph in the printed material]</p>
$10,000
investment
made 2/26/99
Equity Index S&P 500 Index
Date Value Return Value Return
2/26/1999 $10,000 $10,000
3/31/1999 $10,400 4.00 $10,400 4.00
4/30/1999 $10,780 3.65 $10,802 3.87
5/31/1999 $10,520 -2.41 $10,548 -2.36
6/30/1999 $11,097 5.49 $11,134 5.56
7/31/1999 $10,757 -3.07 $10,785 -3.13
8/31/1999 $10,696 -0.56 $10,733 -0.49
9/30/1999 $10,402 -2.75 $10,439 -2.74
10/31/1999 $11,046 6.19 $11,099 6.33
11/30/1999 $11,267 2.00 $11,327 2.05
12/31/1999 $11,923 5.82 $11,992 5.87
1/31/2000 $11,314 -5.11 $11,390 -5.02
2/29/2000 $11,110 -1.80 $11,174 -1.89
3/31/2000 $12,186 9.69 $12,267 9.78
<p>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 graph is 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.</p>
<p><font size=5><a name="EQUE"></a>Equity Index — Q&A</font></p>
<hr width="100%" size="1" noshade align="left">
<p><i>An interview with Barclays Global Investors, the subadvisor on the Equity
Index Fund.</i></p>
<p><b><i>How did Equity Index Fund perform during the 12 months ended March 31,
2000?</i></b></p>
<p>Equity Index Fund returned 17.17% during its fiscal year, compared to 17.94% 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 — 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 liquid securities in order to fund
redemptions.</p>
<p><b><i>What was the stock market like over the past 12 months?</i></b></p>
<p>Two main factors influenced the market during the fund's fiscal year: interest
rates and the so-called "New Economy." On the interest rate front, continued
robust economic growth both domestically and abroad led the Federal Reserve
Board to raise key short-term interest rates five times over the course of the
year. By doing so, the Fed hoped to head off inflationary pressures that might
build due to strong growth and low unemployment. As it turned out, inflation
remained relatively subdued except for sharp rises in energy prices.</p>
<p>The explosive growth of the Internet and e-commerce, deregulation in the
telecommunications industry, and Corporate America's continuing drive to improve
productivity, spawned investors' insatiable appetite for technology stocks
participating in this "New Economy." Internet service providers, dot-com firms,
electrical equipment companies, wireless communications businesses,
semiconductor concerns and computer hardware and software providers all
participated in an incredible run-up in share prices. To illustrate, the
tech-heavy Nasdaq Composite Index returned an astounding 85.81% during the
12-month period.</p>
<p>On the other hand, more established "Old Economy" stocks providing stable, but
less appealing growth prospects, fell to very low valuations in spite of mostly
strong fundamentals driven by steady economic growth. In the end, the market
diverged sharply. High-growth technology firms — many of which offered little
or no earnings history — were rewarded with momentum-driven stock prices that
spiraled upward, while companies offering any hints of earnings disappointments
were punished by sell-offs driving their share prices lower and lower.</p>
<p><b><i>Can you highlight some of the industries and stocks that led the
market?</i></b></p>
<p>Not surprisingly, the top five performing industries in the S&P 500 Index
and the fund over the past year were, in order: electrical equipment providers,
semiconductor firms, computer hardware and business machine companies, computer
software providers and wireless telecommunications firms. And, as would be
expected, nine of the top 10 best-performing stocks were in the technology or
telecommunications sectors.</p>
<p>The top performer was Cisco Systems, an Internet infrastructure provider. Intel
and Texas Instruments rode to lofty heights on the strength of consistent demand
for computer chips, both domestically and from the newly awakened
emerging-market economies. Oracle Systems — the world's largest maker of
database management systems software that allows users to create and manage data
in computer-based files — saw its strategy of designing its products to work
through the Internet succeed, as many companies moved their systems online. Sun
Microsystems, a manufacturer of network-based computer systems and software for
both commercial and technical applications, enjoyed robust demand as
corporations around the world moved into company-wide networking and the
Internet.</p>
<p><font size="2">* All fund returns referenced in this interview are for Investor Class shares.</font></p>
<p><font size="4"><i>"Two main factors influenced the market during the fund's
fiscal year: interest rates and the so-called 'New Economy.'"</i></font></p>
<p><b><font size="4"><a name="EQUF"></a>Portfolio at a Glance</font></b></p>
- -----------------------------------------
3/31/00 3/31/99
- -----------------------------------------
No. of Companies 502 500
Median P/E Ratio 32.7 22.3
Median Market $7.61 $7.78
Capitalization billion billion
Portfolio Turnover 13% 0%(1)
Expense Ratio (for
Investor Class) 0.49% 0.49%(2)
<p><font size="2">(1) For the period from 2/26/99 (inception) to 3/31/99.<BR>
(2) Annualized.</font></p>
<p><font size="2">Investment terms are defined in the Glossary on pages
26-27.</font></p>
<p><b><font size="4"><a name="EQUG"></a>Top Ten Holdings</font></b></p>
- -------------------------------------------------
% of fund investments
- -------------------------------------------------
As of As of
3/31/00 9/30/99
Microsoft Corp. 4.2% 4.3%
Cisco Systems Inc. 4.0% 2.1%
General Electric
Co. (U.S.) 3.9% 3.6%
Intel Corp. 3.3% 2.3%
Exxon Mobil Corp. 2.0% 2.4%(1)
Wal-Mart Stores, Inc. 1.9% 2.0%
Oracle Corp. 1.7% 0.6%
International Business
Machines Corp. 1.6% 2.0%
Citigroup Inc. 1.5% 1.4%
Lucent Technologies
Inc 1.5% 1.8%
<p><font size="2">(1) Exxon Corp. and Mobil Corp. merged on 11/30/99. The 9/30/99
percentage represents both Exxon Corp. and Mobil Corp. shares owned by the
fund.</font></p>
<p><b><font size="4"><a name="EQUH"></a>Top Five Industries</font></b></p>
- -------------------------------------------------
% of fund investments
- -------------------------------------------------
As of As of
3/31/00 9/30/99
Electrical Equipment 9.3% 4.2%
Computer Software 8.9% 7.8%
Telephone 6.3% 7.5%
Financial Services 6.2% 6.4%
Banks 6.2% 7.2%
<p>Hewlett-Packard's printer business thrived. Its share price also rose because of
its association with a company it recently spun off, Agilent Technologies, a
test-equipment provider. Qualcomm — a manufacturer of handsets used for
wireless digital voice and data communications — performed well, as did
Nortel Networks, a leading supplier of equipment for telecommunications systems.
As of this writing, Microsoft proved resilient to the pressures brought on by
its ongoing antitrust suit, helped by a steady stream of new-product
introductions. The one member of the top 10 performers that fell outside of the
technology sector, General Electric, was rewarded for its ability to
consistently cut costs and post strong earnings growth.</p>
<p><b><i>Which parts of the market struggled over the course of the year?</i></b></p>
<p>Some of the steady-growth "Old Economy" industries and stocks suffered from
lackluster growth and negative returns. Pharmaceutical stocks, for example,
tumbled after providing fairly strong market leadership for the past couple of
years. Companies like Merck, Pfizer and Schering-Plough — among the market's
worst performers over the past year — suffered from the perception that they
wouldn't be able to sustain their earnings growth rates because the latest
new-product cycle looked to be coming to an end. In addition, fears of
legislation implementing prescription drug price caps hurt these companies.</p>
<p>Consumer products and food and beverage stocks were two other areas of the
market that hit the doldrums. These companies provide steady but unexciting
earnings growth, and are often seen as safe havens in times of economic
uncertainty. However, with the economy firing on all cylinders and technology
companies showing the potential for explosive growth, they stood little chance
to post share price gains. Among the consumer products stocks that tumbled was
Procter & Gamble, which was the worst performer during the period. The
company experienced a well-publicized earnings shortfall and was the prime
example of how the market punished companies that didn't meet earnings
expectations. Other consumer nondurable companies that struggled were Coca-Cola,
Johnson & Johnson and Philip Morris, the last of which encountered
continuing difficulties related to tobacco litigation.</p>
<p><b><i>Financial services and banks currently comprise two of the fund's top five
industries. How did these stocks fare?</i></b></p>
<p>One might expect these two parts of the broad finance sector to move in lock
step — especially within a rising interest-rate environment — but that
wasn't the case during the fund's fiscal year. Banks did suffer from the
negative effects of rising interest rates, as well as from company-specific
issues. Banc One, for example, stumbled due to an unexpected slowdown in one of
its credit card operations. Financial services stocks, on the other hand,
prospered during the period due to the vibrant health of the capital markets,
where trading activity reached record levels. For example, Citigroup performed
well on the strength of its Salomon Smith Barney brokerage and investment
banking franchise.</p>
<p><b><i>What about telephone companies, another of the fund's top five
industries?</i></b></p>
<p>These firms also provided mixed performance. They did quite well at the
beginning of 1999, but since then they moved up and down depending on how
investors felt about the potential success of each of the many mergers occurring
in the industry. Sprint is merging with MCI WorldCom, and both of these stocks
performed well. Interestingly, two parts of another merger provided divergent
performance. Bell Atlantic enjoyed positive performance largely because it won
approval to provide long-distance service in New York State. Its merger partner,
however, GTE, was one of the worst performers during the year ended March 31,
2000.</p>
<p><b><i>What is the outlook for the foreseeable future?</i></b></p>
<p>The main question is how long the new economy technology stocks can enjoy the
astronomical momentum-based run-up evident over the past several months. The
other side of that question is how long will it be before investors gravitate
back toward old economy stocks that offer solid fundamentals, but that have been
punished with depressed valuations because of investor neglect. Toward the end
of the period, signs began to emerge that investors were becoming less confident
that many of the high-flying technology stocks would be able to sustain the
substantial, long-term growth implicit in their extended valuations. As a
corollary, it appeared that more traditional, old economy blue-chip stocks might
be beginning to benefit from rekindled investor interest.</p>
<p>The outlook will likely be importantly impacted by how economic growth and
inflation data affect the Federal Reserve Board's monetary policy. As of the end
of the period covered by this report, market sentiment overwhelmingly reflected
the expectation that the Fed would continue to raise short-term rates over the
rest of the year to head off inflationary pressures that might be building.
Stocks, for the most part, have shrugged off the negative effects of rising
interest rates, including higher corporate borrowing costs and the increased
attractiveness of alternative asset classes offering higher fixed interest
rates. However, it remains to be seen whether or not the economy — and the
stock market — will continue to be immune to the effects of further Fed rate
hikes.</p>
<p><font size="4"><i>"The outlook will likely be importantly impacted by how
economic growth and inflation data affect the Federal Reserve Board's monetary
policy."</i></font></p>
<p><b><FONT size=4>Types of Investments in the Portfolio</FONT></b></p>
<P ALIGN="CENTER">[GRAPHIC OMITTED]</P>
<P ALIGN="CENTER">[The following tables were depicted as pie charts in the printed material.]</P>
- -----------------------------------------------------
As of March 31, 2000
- -----------------------------------------------------
Common Stocks & Futures 99.7%
Temporary Cash Investments 0.3%
- -----------------------------------------------------
As of September 30, 1999
- -----------------------------------------------------
Common Stocks & Futures 99.8%
Temporary Cash Investments 0.2%
<p><font size=5><a name="EQUI"></a>Equity Index — Schedule of Investments</font></p>
<hr width="100%" size="1" noshade align="left">
<p><b>MARCH 31, 2000</b></p>
Shares Value
- ---------------------------------------------------------------------------------------
COMMON STOCKS - 96.9%
- ---------------------------------------------------------------------------------------
AIRLINES - 0.2%
5,292 AMR Corp.(1) $ 168,682
4,593 Delta Air Lines Inc. 244,577
17,992 Southwest Airlines Co. 374,458
2,596 US Airways Group Inc.(1) 72,201
------------
859,918
------------
ALCOHOL - 0.3%
16,545 Anheuser-Busch Companies, Inc. 1,029,926
2,478 Brown-Forman Corp. Cl B 134,896
1,313 Coors (Adolph) Co. Cl B 62,778
------------
1,227,600
------------
APPAREL & TEXTILES - 0.3%
2,152 Liz Claiborne, Inc. 98,588
9,854 NIKE, Inc. 390,465
1,955 Reebok International Ltd.(1) 18,084
1,244 Russell Corp. 17,805
32,349 Sara Lee Corp. 582,282
677 Springs Industries, Inc. CI A 25,726
4,235 VF Corp. 101,905
------------
1,234,855
------------
BANKS - 6.2%
13,253 AmSouth Bancorporation 197,967
40,812 Banc One Corp. 1,402,912
60,694 Bank of America Corp. 3,182,642
26,184 Bank of New York Co., Inc. (The) 1,088,272
12,001 BB & T Corp. 336,778
29,315 Chase Manhattan Corp. 2,555,902
119,865 Citigroup Inc. 7,109,493
5,579 Comerica, Inc. 233,621
10,836 Fifth Third Bancorp 684,022
34,965 First Union Corp. 1,302,446
34,880 Firstar Corp. 800,060
32,596 Fleet Boston Financial Corp. 1,189,754
8,203 Huntington Bancshares Inc. 183,798
15,970 KeyCorp 303,430
18,114 Mellon Bank Corp. 534,363
6,146 Morgan (J.P.) & Co. 809,736
21,952 National City Corp. 452,760
7,908 Northern Trust Corp. 534,531
4,007 Old Kent Financial Corp. 129,476
10,487 PNC Bank Corp. 472,570
7,811 Regions Financial Corp. 178,433
6,013 SouthTrust Corp. 153,144
5,681 State Street Corp. 550,347
6,254 Summit Bancorp. 164,168
11,403 SunTrust Banks, Inc. 658,523
9,849 Synovus Financial Corp. 185,900
26,390 U.S. Bancorp 577,281
5,042 Union Planters Corp. 155,357
7,221 Wachovia Corp. 487,869
58,715 Wells Fargo & Co. 2,403,645
------------
29,019,200
------------
CHEMICALS - 1.8%
8,215 Air Products and Chemicals, Inc. 233,614
2,587 Ashland Inc. 86,503
4,002 Avery Dennison Corp. 244,372
7,796 Dow Chemical Co. 888,744
37,131 du Pont (E.I.) de Nemours & Co. 1,963,302
2,787 Eastman Chemical Co. 126,808
4,630 Ecolab Inc. 169,863
4,514 Engelhard Corp. 68,274
1,121 FMC Corp.(1) 63,336
5,609 Goodyear Tire & Rubber Co. (The) 130,760
2,598 Grace (W.R.) & Co. (Del.)(1) 32,962
2,082 Great Lakes Chemical Corp. 70,788
3,703 Hercules Inc. 59,711
14,215 Minnesota Mining & Manufacturing Co. 1,258,916
6,191 PPG Industries, Inc. 323,867
22,594 Pharmacia Corp. 1,163,591
5,668 Praxair, Inc. 235,930
7,812 Rohm and Haas Co. 348,610
3,014 Sealed Air Corp.(1) 163,698
5,951 Sherwin-Williams Co. 130,550
4,762 Union Carbide Corp. 277,684
3,326 Vulcan Materials Co. 152,372
------------
8,194,255
------------
CLOTHING STORES - 0.5%
30,268 Gap, Inc. (The) 1,507,725
7,680 Limited, Inc. (The) 323,520
4,825 Nordstrom, Inc. 142,338
11,064 TJX Companies, Inc. (The) 245,482
------------
2,219,065
------------
COMPUTER HARDWARE & BUSINESS MACHINES - 5.5%
3,475 Adaptec, Inc.(1) 134,113
5,739 Apple Computer, Inc.(1) 779,249
60,242 Compaq Computer Corp. 1,603,943
91,191 Dell Computer Corp.(1) 4,921,464
36,194 EMC Corp. (Mass.)(1) 4,524,250
11,282 Gateway Inc.(1) 597,946
35,747 Hewlett-Packard Co. 4,738,712
5,365 IKON Office Solutions Inc. 33,196
4,476 Lexmark International Group, Inc. CI A(1) 473,337
10,752 Network Appliances, Inc.(1) 889,392
9,440 Pitney Bowes Inc. 421,850
7,540 Seagate Technology, Inc.(1) 454,285
6,630 Silicon Graphics, Inc.(1) 70,029
56,094 Sun Microsystems, Inc.(1) 5,257,060
23,636 Xerox Corp. 614,536
------------
25,513,362
------------
COMPUTER SOFTWARE - 8.9%
4,249 Adobe Systems Inc. 472,834
2,180 Autodesk, Inc. 98,918
8,722 BMC Software, Inc.(1) 430,376
6,370 Citrix Systems, Inc.(1) 421,813
19,270 Computer Associates International, Inc. 1,140,543
12,874 Compuware Corp.(1) 270,756
2,721 Comverse Technology, Inc.(1) 514,184
64,074 International Business Machines Corp. 7,560,732
184,979 Microsoft Corp.(1) 19,706,051
3,196 NCR Corp.(1) 128,240
11,668 Novell, Inc.(1) 333,632
100,315 Oracle Corp.(1) 7,821,435
9,761 Parametric Technology Corp.(1) 205,896
9,132 PeopleSoft, Inc.(1) 183,496
4,629 Sabre Holdings Corp. 170,984
10,684 Unisys Corp.(1) 272,442
13,828 Veritas Software Corp.(1) 1,788,565
------------
41,520,897
------------
CONSTRUCTION & REAL PROPERTY - 0.1%
1,495 Armstrong World Industries, Inc. 26,723
2,188 Centex Corp. 52,102
2,748 Fluor Corp. 85,188
1,773 Kaufman & Broad Home Corp. 38,009
15,461 Masco Corp. 316,950
2,040 Owens Corning 39,525
1,577 Pulte Corp. 32,920
------------
591,417
------------
CONSUMER DURABLES - 0.1%
3,102 Black & Decker Corp. (The) 116,519
3,318 Grainger (W.W.), Inc. 180,002
6,455 Leggett & Platt, Inc. 138,782
3,023 Maytag Corp. 100,137
2,688 Whirlpool Corp. 157,584
------------
693,024
------------
DEFENSE/AEROSPACE - 0.9%
30,919 Boeing Co. 1,172,990
6,940 General Dynamics Corp. 345,265
3,566 Goodrich (B.F.) Company (The) 102,300
28,153 Honeywell Inc. 1,483,311
14,135 Lockheed Martin Corp. 288,884
2,510 Northrop Grumman Corp. 132,873
12,109 Raytheon Co. Cl B 214,935
4,366 TRW Inc. 255,411
------------
3,995,969
------------
DEPARTMENT STORES - 2.8%
15,835 Costco Companies, Inc.(1) 831,832
3,855 Dillard's Inc. CI A 63,367
8,980 Dollar General Corp. 241,338
7,492 Federated Department Stores, Inc.(1) 312,791
17,439 Kmart Corp.(1) 168,940
5,789 Kohl's Corp.(1) 593,372
11,876 May Department Stores Co. (The) 338,466
9,337 Penney (J.C.) Company, Inc. 138,888
13,481 Sears, Roebuck & Co. 416,226
15,575 Target Corp. 1,164,231
158,297 Wal-Mart Stores, Inc. 8,785,484
------------
13,054,935
------------
DRUGS - 6.2%
4,682 Allergan, Inc. 234,100
46,406 American Home Products Corp. 2,488,522
36,301 Amgen Inc.(1) 2,224,571
5,360 Biogen, Inc.(1) 374,195
70,509 Bristol-Myers Squibb Co. 4,071,895
9,973 Cardinal Health, Inc. 457,511
38,763 Lilly (Eli) & Co. 2,442,069
10,056 McKesson HBOC, Inc. 211,176
83,086 Merck & Co., Inc. 5,161,718
137,622 Pfizer, Inc. 5,031,804
18,434 Pharmacia & Upjohn Inc. 1,092,214
52,248 Schering-Plough Corp. 1,920,114
3,644 Sigma-Aldrich Corp. 97,932
30,526 Warner-Lambert Co. 2,976,285
3,443 Watson Pharmaceuticals, Inc.(1) 136,644
------------
28,920,750
------------
ELECTRICAL EQUIPMENT - 9.3%
12,202 3Com Corp.(1) 678,736
10,522 ADC Telecommunications, Inc.(1) 567,202
2,914 Andrew Corp.(1) 66,111
6,289 Cabletron Systems, Inc.(1) 184,346
243,178 Cisco Systems Inc.(1) 18,800,699
9,814 Corning Inc. 1,903,916
4,945 Danaher Corp. 252,195
2,606 Eaton Corp. 203,268
3,156 ITT Industries, Inc. 98,033
6,475 KLA-Tencor Corporation(1) 545,316
113,307 Lucent Technologies Inc. 6,883,400
1,634 Millipore Corp. 92,219
6,823 Molex Inc. 400,851
25,231 Motorola, Inc. 3,592,264
51,343 Nortel Networks Corp. 6,469,218
5,626 Scientific-Atlanta, Inc. 356,899
20,910 Solectron Corp.(1) 837,707
1,713 Tektronix, Inc. 95,928
14,243 Tellabs, Inc.(1) 896,864
6,081 Teradyne, Inc.(1) 500,162
5,661 Thermo Electron Corp.(1) 115,343
------------
43,540,677
------------
ELECTRICAL UTILITIES - 1.5%
7,236 AES Corp. (The)(1) 569,835
4,905 Ameren Corp. 151,748
6,945 American Electric Power Co., Inc. 207,048
5,610 Carolina Power & Light Co. 181,974
6,980 Central & South West Corp. 119,096
5,716 CINergy Corp. 122,894
4,224 CMS Energy Corp. 76,560
7,903 Consolidated Edison, Inc. 229,187
5,344 Constellation Energy Group 170,340
8,497 Dominion Resources, Inc. (Va.) 326,603
5,182 DTE Energy Company 150,278
13,045 Duke Energy Corp. 684,862
12,386 Edison International 205,143
8,835 Entergy Corp. 178,357
8,327 FIRSTENERGY CORP. 171,744
3,517 Florida Progress Corp. 161,342
6,390 FPL Group, Inc. 294,339
4,412 GPU Inc. 120,778
4,031 New Century Energies, Inc. 121,182
6,750 Niagara Mohawk Holdings Inc.(1) 91,125
4,982 Northern States Power Co. (Minn.) 99,017
6,659 PECO Energy Co. 245,551
13,693 PG&E Corp. 287,553
2,653 Pinnacle West Capital Corp. 74,781
5,158 PP&L Resources, Inc. 107,996
7,801 Public Service Enterprise Group Inc. 231,105
10,583 Reliant Energy, Inc. 248,039
7,310 Sempra Energy 122,442
23,966 Southern Co. 521,260
9,876 Texas Utilities Co. 293,194
7,754 Unicom Corp. 283,021
------------
6,848,394
------------
ENERGY RESERVES & PRODUCTION - 4.4%
3,223 Amerada Hess Corp. 208,286
4,553 Anadarko Petroleum Corp. 176,144
4,073 Apache Corp. 202,632
11,492 Atlantic Richfield Co. 976,820
7,438 Burlington Resources Inc. 275,206
23,349 Chevron Corp. 2,158,323
22,288 Conoco Inc. Cl B 571,130
122,733 Exxon Mobil Corp. 9,550,162
3,213 Kerr-McGee Corp. 185,551
12,693 Occidental Petroleum Corp. 263,380
9,040 Phillips Petroleum Co. 418,100
76,243 Royal Dutch Petroleum Co.
New York Shares 4,388,738
4,758 Tosco Corp. 144,822
9,085 Union Pacific Resources 131,732
8,638 Unocal Corp. 256,980
15,461 Williams Companies, Inc. (The) 679,318
------------
20,587,324
------------
ENTERTAINMENT - 0.1%
21,955 Carnival Corp. CI A 544,758
------------
ENVIRONMENTAL SERVICES - 0.1%
4,985 Allied Waste Industries, Inc.(1) 32,714
22,125 Waste Management, Inc. 302,836
------------
335,550
------------
FINANCIAL SERVICES - 6.2%
15,898 American Express Co. 2,367,808
9,153 Aon Corp. 295,184
25,937 Associates First Capital Corp. 556,024
3,512 Block (H & R), Inc. 157,162
7,028 Capital One Financial Corp. 336,905
25,168 Cendant Corp.(1) 465,608
4,063 Countrywide Credit Industries, Inc. 110,717
5,071 Equifax Inc. 128,043
36,428 Fannie Mae 2,055,905
24,713 Federal Home Loan Mortgage Corp. 1,092,006
116,609 General Electric Co. (U.S.) 18,096,259
16,730 Household International, Inc. 624,238
3,966 Kansas City Southern Industries, Inc. 340,828
9,493 Marsh & McLennan Companies, Inc. 1,047,197
28,545 MBNA Corp. 727,898
5,042 Providian Financial Corp. 436,763
5,681 SLM Holding Corp. 189,248
------------
29,027,793
------------
FOOD & BEVERAGE - 2.6%
21,711 Archer-Daniels-Midland Co. 225,252
9,940 Bestfoods 465,316
15,178 Campbell Soup Co. 466,724
87,823 Coca-Cola Company (The) 4,122,192
15,172 Coca-Cola Enterprises, Inc. 327,146
17,585 ConAgra, Inc. 318,728
10,753 General Mills, Inc. 389,124
12,617 Heinz (H.J.) Co. 440,018
4,965 Hershey Foods Corp. 242,044
14,440 Kellogg Co. 370,025
11,706 Nabisco Group Holdings Corp. 140,472
5,457 Owens-Illinois, Inc.(1) 92,087
51,779 PepsiCo, Inc. 1,789,612
4,756 Quaker Oats Co. (The) 288,332
15,410 Seagram Co. Ltd. (The) 916,895
4,383 Supervalu Inc. 83,003
11,787 SYSCO Corp. 420,649
20,340 Unilever N.V. New York Shares 978,862
4,109 Wrigley (Wm.) Jr. Company 315,623
------------
12,392,104
------------
FOREST PRODUCTS & PAPER - 0.8%
1,918 Bemis Co., Inc. 70,726
2,058 Boise Cascade Corp. 71,516
3,465 Champion International Corp. 184,511
7,767 Fort James Corp. 170,874
6,102 Georgia-Pacific Corp. 241,410
14,726 International Paper Co. 629,536
19,648 Kimberly-Clark Corp. 1,100,288
3,867 Louisiana-Pacific Corp. 53,655
3,703 Mead Corp. (The) 129,374
6,277 Pactiv Corp.(1) 54,924
1,037 Potlatch Corp. 44,591
2,030 Temple-Inland Inc. 101,119
3,590 Westvaco Corp. 119,816
8,204 Weyerhaeuser Co. 467,628
3,977 Willamette Industries, Inc. 159,577
------------
3,599,545
------------
GAS & WATER UTILITIES - 0.5%
2,930 Columbia Energy Group 173,602
825 Eastern Enterprises 49,397
7,863 El Paso Energy Corp. 317,469
25,425 Enron Corp. 1,903,697
1,730 NICOR Inc. 56,982
1,163 ONEOK, Inc. 29,075
1,301 People's Energy Corp. 35,696
------------
2,565,918
------------
GOLD - 0.1%
14,090 Barrick Gold Corp. 221,037
5,922 Freeport-McMoran Copper & Gold, Inc. Cl B(1) 71,434
9,525 Homestake Mining Co. 57,150
6,002 Newmont Mining Corp. 134,670
11,760 Placer Dome Inc. 95,550
------------
579,841
------------
GROCERY STORES - 0.4%
15,111 Albertson's, Inc. 468,441
1,380 Great Atlantic & Pacific Tea Co., Inc. (The) 26,910
29,708 Kroger Co. (The)(1) 521,747
18,110 Safeway Inc.(1) 819,478
5,227 Winn-Dixie Stores, Inc. 101,600
------------
1,938,176
------------
HEAVY ELECTRICAL EQUIPMENT - 0.4%
3,362 Cooper Industries, Inc. 117,670
1,517 Cummins Engine Company, Inc. 56,982
7,248 Dover Corp. 346,998
15,334 Emerson Electric Co. 810,785
6,769 Rockwell International Corp. 283,029
2,059 Thomas & Betts Corp. 58,167
------------
1,673,631
------------
HEAVY MACHINERY - 0.1%
8,333 Deere & Co. 316,654
180 NACCO Industries, Inc. CI A 8,629
------------
325,283
------------
HOME PRODUCTS - 1.4%
2,058 Alberto-Culver Company Cl B 49,006
8,661 Avon Products, Inc. 251,710
8,444 Clorox Co. (The) 274,430
20,732 Colgate-Palmolive Co. 1,168,766
5,877 Fortune Brands, Inc. 146,925
38,154 Gillette Company 1,437,929
3,758 International Flavors & Fragrances Inc. 131,765
10,087 Newell Co. 250,284
46,804 Procter & Gamble Co. (The) 2,632,725
10,795 Ralston Purina Co. 295,513
2,169 Tupperware Corp. 34,297
------------
6,673,350
------------
HOTELS - 0.1%
4,554 Harrah's Entertainment, Inc.(1) 84,534
11,702 Hilton Hotels Corp. 90,690
8,899 Marriott International, Inc. 280,318
6,900 Mirage Resorts, Inc.(1) 133,688
------------
589,230
------------
INDUSTRIAL PARTS - 0.7%
832 Briggs & Stratton Corp. 34,216
12,692 Caterpillar Inc. 500,541
2,376 Crane Co. 55,984
6,373 Genuine Parts Co. 152,155
10,561 Illinois Tool Works Inc. 583,495
5,836 Ingersoll-Rand Co. 258,243
1,271 Milacron Inc. 18,350
1,506 National Service Industries, Inc. 31,720
4,481 Pall Corp. 100,542
3,964 Parker-Hannifin Corp. 163,763
2,148 Snap-on Inc. 56,251
3,226 Stanley Works (The) 85,086
5,288 Textron Inc. 321,907
2,311 Timken Co. 37,554
16,895 United Technologies Corp. 1,067,553
------------
3,467,360
------------
INDUSTRIAL SERVICES(2)
2,323 Ryder System, Inc. 52,703
------------
INFORMATION SERVICES - 1.2%
22,386 Automatic Data Processing, Inc. 1,080,124
5,220 Ceridian Corp.(1) 100,159
5,836 Computer Sciences Corp.(1) 461,774
5,762 Dun & Bradstreet Corp. (The) 164,937
16,731 Electronic Data Systems Corp. 1,073,921
14,910 First Data Corp. 659,768
11,012 IMS Health Inc. 186,516
9,995 Interpublic Group of Companies, Inc. 472,264
6,308 Omnicom Group Inc. 589,404
8,785 Paychex, Inc. 459,840
4,122 Quintiles Transnational Corp.(1) 70,460
962 Shared Medical Systems Corp. 49,904
2,244 Young & Rubicam Inc. 105,468
------------
5,474,539
------------
INTERNET - 1.8%
81,092 America Online Inc.(1) 5,453,437
18,710 Yahoo! Inc.(1) 3,202,333
------------
8,655,770
------------
LEISURE - 0.3%
3,309 Brunswick Corp. 62,664
11,254 Eastman Kodak Co. 611,233
5,370 Harley-Davidson, Inc. 426,244
6,333 Hasbro, Inc. 104,494
12,101 Mattel, Inc. 126,304
1,636 Polaroid Corp. 38,855
------------
1,369,794
------------
LIFE & HEALTH INSURANCE - 0.5%
5,093 Aetna Inc. 283,616
9,491 AFLAC Inc. 432,434
8,806 American General Corp. 494,237
5,993 CIGNA Corp. 453,970
11,732 Conseco Inc. 134,185
6,980 Lincoln National Corp. 233,830
4,733 Torchmark Corp. 109,451
8,594 UNUM Corp. 146,098
------------
2,287,821
------------
MEDIA - 3.2%
27,102 CBS Corp.(1) 1,534,651
12,064 Clear Channel Communications, Inc.(1) 833,170
32,973 Comcast Corp. CI A(1) 1,429,173
73,574 Disney (Walt) Co. 3,044,124
21,783 MediaOne Group Inc.(1) 1,764,423
1,864 Meredith Corp. 51,610
45,759 Time Warner Inc. 4,575,900
8,479 Tribune Co. 310,013
24,773 Viacom, Inc. Cl B(1) 1,306,776
------------
14,849,840
------------
MEDICAL PRODUCTS & SUPPLIES - 2.3%
54,686 Abbott Laboratories 1,924,264
3,642 ALZA Corp.(1) 136,803
1,877 Bard (C.R.), Inc. 72,616
2,061 Bausch & Lomb Inc. CI A 107,558
10,420 Baxter International, Inc. 653,204
8,974 Becton, Dickinson and Co. 236,128
4,027 Biomet, Inc. 145,853
14,599 Boston Scientific Corp.(1) 311,141
10,950 Guidant Corp.(1) 643,997
49,451 Johnson & Johnson 3,464,661
2,465 Mallinckrodt Inc. 70,869
42,484 Medtronic, Inc. 2,185,271
7,260 PE Corp-PE Biosystems Group 700,590
3,023 St. Jude Medical, Inc.(1) 78,031
------------
10,730,986
------------
MEDICAL PROVIDERS & SERVICES - 0.3%
20,083 Columbia/HCA Healthcare Corp. 508,351
3,801 HCR Manor Care, Inc.(1) 51,314
13,974 HEALTHSOUTH Corp.(1) 77,730
6,055 Humana Inc.(1) 44,277
11,164 Tenet Healthcare Corp. 256,772
6,042 United HealthCare Corp. 360,254
2,300 Wellpoint Health Networks Inc.(1) 160,712
------------
1,459,410
------------
MINING & METALS - 0.4%
3,350 Allegheny Technologies, Inc. 67,209
7,809 Alcan Aluminium Ltd. 264,530
13,118 Alcoa Inc. 921,540
636 Arch Coal Inc. 4,452
1,103 Ball Corporation 38,122
4,685 Bethlehem Steel Corporation(1) 28,110
4,509 Crown Cork & Seal Co., Inc. 72,144
6,926 Inco Ltd.(1) 126,832
3,102 Nucor Corp. 155,100
2,682 Phelps Dodge Corp. 127,395
2,287 Reynolds Metals Co. 152,943
3,172 USX-U.S. Steel Group 79,300
3,315 Worthington Industries, Inc. 41,127
------------
2,078,804
------------
MOTOR VEHICLES & PARTS - 1.0%
2,749 Cooper Tire and Rubber Company 34,534
5,892 Dana Corp. 166,081
20,137 Delphi Automotive Systems Corp. 322,192
42,971 Ford Motor Co. 1,973,980
22,778 General Motors Corp. 1,886,303
3,081 Johnson Controls, Inc. 166,567
2,298 Navistar International Corp.(1) 92,207
2,833 PACCAR Inc. 141,296
------------
4,783,160
------------
MULTI-INDUSTRY - 0.6%
60,120 Tyco International Ltd. 2,998,485
------------
OIL REFINING - 0.4%
7,623 Coastal Corp. (The) 350,658
3,255 Sunoco, Inc. 89,106
19,690 Texaco Inc. 1,055,876
11,109 USX-Marathon Group 289,528
------------
1,785,168
------------
OIL SERVICES - 0.6%
11,730 Baker Hughes Inc. 354,832
15,716 Halliburton Co. 644,356
2,184 McDermott International, Inc. 20,066
3,025 Rowan Companies, Inc.(1) 89,048
19,551 Schlumberger Ltd. 1,495,652
7,220 Transocean Sedco Forex, Inc. 370,476
------------
2,974,430
------------
PROPERTY & CASUALTY INSURANCE - 2.0%
28,687 Allstate Corp. 683,109
55,048 American International Group, Inc. 6,027,756
6,091 Chubb Corp. (The) 411,523
5,890 Cincinnati Financial Corp. 221,795
7,902 Hartford Financial Services Group Inc. (The) 416,830
3,718 Jefferson-Pilot Corp. 247,479
3,546 Loews Corp. 177,300
3,544 MBIA Inc. 184,510
3,774 MGIC Investment Corp. 164,641
2,638 Progressive Corp. (Ohio) 200,653
4,667 SAFECO Corp. 124,113
8,126 St. Paul Companies, Inc. 277,300
------------
9,137,009
------------
PUBLISHING - 0.5%
2,401 American Greetings Corp. CI A 43,818
2,663 Deluxe Corp. 70,570
4,577 Donnelley (R.R.) & Sons Co. 95,831
3,230 Dow Jones & Co., Inc. 231,954
9,928 Gannett Co., Inc. 698,683
2,552 Harcourt General Inc. 95,062
1,244 Jostens, Inc. 30,322
2,872 Knight-Ridder, Inc. 146,292
6,982 McGraw-Hill Companies, Inc. (The) 317,681
6,109 New York Times Co. (The) CI A 262,305
2,159 Times Mirror Co. (New) CI A 200,652
------------
2,193,170
------------
RAILROADS - 0.2%
16,298 Burlington Northern Santa Fe Corp. 360,593
7,824 CSX Corp. 183,864
13,678 Norfolk Southern Corp. 196,621
8,862 Union Pacific Corp. 346,726
------------
1,087,804
------------
RESTAURANTS - 0.5%
4,607 Darden Restaurants, Inc. 82,062
48,147 McDonald's Corp. 1,808,522
5,392 Tricon Global Restaurants Inc.(1) 167,489
4,265 Wendy's International, Inc. 86,100
------------
2,144,173
------------
SECURITIES & ASSET MANAGEMENT - 1.6%
4,037 Bear Stearns Companies Inc. 184,188
8,891 Franklin Resources, Inc. 297,293
4,254 Lehman Brothers Holdings Inc. 412,638
13,202 Merrill Lynch & Co., Inc. 1,386,210
40,494 Morgan Stanley Dean Witter & Co. 3,302,792
5,125 Paine Webber Group, Inc. 225,500
3,974 Price (T. Rowe) Associates, Inc. 157,097
29,163 Schwab (Charles) Corp. 1,656,823
------------
7,622,541
------------
SEMICONDUCTOR - 6.1%
5,241 Advanced Micro Devices, Inc.(1) 299,065
12,460 Analog Devices, Inc.(1) 1,003,809
27,206 Applied Materials, Inc.(1) 2,565,016
7,530 Conexant Systems, Inc.(1) 540,513
118,751 Intel Corp. 15,652,866
11,050 Linear Technology Corp. 603,952
10,478 LSI Logic Corp.(1) 760,965
9,558 Micron Technology, Inc.(1) 1,204,308
6,098 National Semiconductor Corp.(1) 369,691
1,646 PerkinElmer, Inc. 109,459
28,924 Texas Instruments Inc. 4,627,840
11,324 Xilinx, Inc.(1) 937,415
------------
28,674,899
------------
SPECIALTY STORES - 2.1%
4,956 AutoZone, Inc.(1) 137,529
4,660 Bed Bath & Beyond Inc.(1) 183,488
7,268 Best Buy Co., Inc.(1) 625,048
7,248 Circuit City Stores-Circuit City Group 441,222
4,080 Consolidated Stores Corp.(1) 46,410
13,964 CVS Corp. 524,523
81,833 Home Depot, Inc. 5,278,228
1,437 Longs Drug Stores Corp. 32,692
13,617 Lowe's Companies, Inc. 794,892
11,802 Office Depot, Inc.(1) 136,461
9,556 Rite Aid Corp. 52,558
16,725 Staples, Inc.(1) 335,023
6,897 Tandy Corp. 350,023
8,628 Toys 'R' Us, Inc.(1) 127,802
35,805 Walgreen Co. 921,979
------------
9,987,878
------------
TELEPHONE - 6.3%
113,571 AT&T Corp. 6,388,369
55,220 Bell Atlantic Corp. 3,375,322
66,945 BellSouth Corp. 3,146,415
4,987 Century Telephone Enterprises, Inc. 185,142
27,731 Global Crossing Holdings Ltd.(1) 1,136,104
34,576 GTE Corp. 2,454,896
100,886 MCI WorldCom, Inc.(1) 4,580,855
121,289 SBC Communications Inc. 5,094,138
30,994 Sprint Corp. 1,952,622
17,968 U S WEST, Inc. 1,304,926
------------
29,618,789
------------
THRIFTS - 0.2%
5,779 Golden West Financial Corp. (Del.) 180,233
20,584 Washington Mutual, Inc. 545,476
------------
725,709
------------
TOBACCO - 0.4%
84,170 Philip Morris Companies Inc. 1,778,091
6,200 UST Inc. 96,875
------------
1,874,966
------------
TRUCKING, SHIPPING & AIR FREIGHT - 0.1%
10,357 FDX Corporation(1) 403,923
------------
WIRELESS TELECOMMUNICATIONS - 1.8%
11,057 ALLTEL Corp. 697,282
12,972 Nextel Communications, Inc.(1) 1,922,694
26,252 QUALCOMM Inc.(1) 3,916,470
30,656 Sprint PCS(1) 2,002,220
------------
8,538,666
------------
TOTAL COMMON STOCKS
(Cost $382,844,851) 453,244,618
------------
- ---------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 3.1%
- ---------------------------------------------------------------------------------------
$1,200,000 U.S. Treasury Bills, 5.72%, 6/22/00(3)(4) $ 1,184,827
Repurchase Agreement, Goldman Sachs & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 6.08%, dated 3/31/00,
due 4/3/00 (Delivery value $13,206,688) 13,200,000
------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $14,384,365) 14,384,827
------------
TOTAL INVESTMENT SECURITIES -- 100.0% $467,629,445
(Cost $397,229,216) ============
- ---------------------------------------------------------------------------------------
FUTURES CONTRACTS
- ---------------------------------------------------------------------------------------
Underlying Face Unrealized
Purchased Expiration Date Amount at Value Gain
- ---------------------------------------------------------------------------------------
34 S&P 500 June
Futures 2000 $ 12,903,000 $ 587,625
===================================
<p><b><font size="4">Notes to Schedule of Investments</font></b></p>
<P><FONT SIZE="2">(1) Non-income producing.<BR>
(2) Industry is less than 0.05% of total investment securities.<BR>
(3) The rate indicated is the yield to maturity at purchase.<BR>
(4) Security has been segregated with the broker as initial margin on futures
contracts.</FONT></P>
<p><font size=5><a name="EQUJ"></a><a name="EQUK"></a>Statement of Assets and Liabilities</font></p>
<p>This statement breaks down the fund's <B>assets</B> (such as securities, cash, and
other receivables) and <B>liabilities</B> (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 <B>net
assets</B>. For each class of shares, the net assets divided by shares outstanding
is the share price, or <B>net asset value per share</B>. This statement also breaks
down the fund's net assets into capital (shareholder investments) and
performance (investment income and gains/losses).</p>
<p><b>MARCH 31, 2000</b></p>
- ---------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------
Investment securities, at value (identified cost of $397,229,216) (Note 3) $467,629,445
Cash 762,388
Receivable for investments sold 2,174,483
Receivable for variation margin on futures contracts 93,015
Dividends and interest receivable 396,525
------------
471,055,856
------------
- ---------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------
Payable for investments purchased 2,487,062
Payable for capital shares redeemed 982,788
Payable for management fees (Note 2) 120,626
Payable for directors' fees and expenses 267
Accrued expenses and other liabilities 60
------------
3,590,803
------------
Net Assets $467,465,053
============
- ---------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $400,292,514
Undistributed net investment income 44,632
Accumulated net realized loss on investment transactions (3,859,947)
Net unrealized appreciation on investments (Note 3) 70,987,854
------------
$467,465,053
============
Investor Class, $0.01 Par Value
Net assets $68,905,196
Shares outstanding 11,511,711
Net asset value per share $5.99
Institutional Class, $0.01 Par Value
Net assets $398,559,857
Shares outstanding 66,552,959
Net asset value per share $5.99
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<p><font size=5><a name="EQUL"></a>Statement of Operations</font></p>
<p>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.</p>
<p><b>YEAR ENDED MARCH 31, 2000</b></p>
- ------------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $48,645) $4,892,305
Interest 960,978
-----------
5,853,283
Expenses (Note 2):
Management fees 1,283,921
Directors' fees and expenses 3,451
-----------
1,287,372
-----------
Net investment income 4,565,911
-----------
- ------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3)
- ------------------------------------------------------------------------------
Net realized loss on investments (1,209,726)
Change in net unrealized appreciation on investments 61,820,765
-----------
Net realized and unrealized gain on investments 60,611,039
-----------
Net Increase in Net Assets Resulting from Operations $65,176,950
===========
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<p><font size=5><a name="EQUM"></a>Statements of Changes in Net Assets</font></p>
<hr width="100%" size="1" noshade align="left">
<p>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.</p>
<p><b>YEAR ENDED MARCH 31, 2000 AND PERIOD ENDED MARCH 31, 1999</b></p>
Increase in Net Assets 2000 1999(1)
- ------------------------------------------------------------------------------------------------
OPERATIONS
- ------------------------------------------------------------------------------------------------
Net investment income $ 4,565,911 $ 323,966
Net realized gain (loss) on investments (1,209,726) 651,108
Change in net unrealized appreciation on investments 61,820,765 9,167,089
------------ ------------
Net increase in net assets resulting from operations 65,176,950 10,142,163
------------ ------------
- ------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------
From net investment income:
Investor Class (481,669) --
Institutional Class (4,363,580) --
In excess of net realized gains:
Investor Class (408,312) --
Institutional Class (2,893,013) --
------------ ------------
Decrease in net assets from distributions (8,146,574) --
------------ ------------
- ------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
- ------------------------------------------------------------------------------------------------
Net increase in net assets from capital share transactions 128,845,313 271,447,201
------------ ------------
Net increase in net assets 185,875,689 281,589,364
- ------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------
Beginning of period 281,589,364 --
------------ ------------
End of period $467,465,053 $281,589,364
============ ============
Undistributed net investment income $ 44,628 $ 323,966
============ ============
<p><font size="2">(1) February 26, 1999 (inception) through March 31, 1999.</font></p>
<P><FONT size=2>See Notes to Financial Statements</FONT></P>
<p><font size=5><a name="EQUN"></a>Notes to Financial Statements</font></p>
<hr width="100%" size="1" noshade align="left">
<p><b>MARCH 31, 2000</b></p>
<hr width="100%" size="1" noshade align="left">
<p><b><font size="4">1. Organization and Summary of Significant Accounting
Policies</font></b></p>
<p><B>Organization </B> — American Century Capital Portfolios, Inc. (the
corporation) is registered under the Investment Company Act of 1940 (the 1940
Act) 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 following significant accounting policies are
in accordance with generally accepted accounting principles; these policies may
require the use of estimates by fund management.</p>
<p><B>Multiple Class </B> — 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.</p>
<p><B>Security Valuations </B> — Portfolio securities traded primarily on a
principal securities exchange are valued at the last reported sales price, or at
the mean of the latest bid and asked prices where no last sales price is
available. When valuations are not readily available, securities are valued at
fair value as determined in accordance with procedures adopted by the Board of
Directors.</p>
<p><B>Security Transactions </B> — 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.</p>
<p><B>Investment Income </B> — 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.</p>
<p><B>Futures Contracts </B> — 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.</p>
<p><B>Repurchase Agreements </B> — 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.</p>
<p><B>Joint Trading Account </B> — 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.</p>
<p><B>Income Tax Status </B> — 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.</p>
<p><B>Distributions to Shareholders </B> — 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.</p>
<p>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.</p>
<p>For the five month period ended March 31, 2000, Equity Index incurred net
capital losses of $856,910. The fund has elected to treat such losses as having
been incurred in the following fiscal year.</p>
<p><B>Additional Information</B> — Funds Distributor, Inc. (FDI) is a
distributor of the corporation. Certain officers of FDI are also officers of the
corporation.</p>
<hr width="100%" size="1" noshade align="left">
<p><b><font size="4">2. Transactions with Related Parties</font></b></p>
<p>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 1940 Act (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.</p>
<p>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.</p>
<p>Effective March 13, 2000, American Century Investment Services, Inc. (ACIS),
became a distributor of the corporation.</p>
<p>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, a
distributor of the corporation, ACIS, and the corporation's transfer agent,
American Century Services Corporation.</p>
<hr width="100%" size="1" noshade align="left">
<p><b><font size="4">3. Investment Transactions</font></b></p>
<p>Purchases and sales of investment securities, excluding short-term investments,
for the year ended March 31, 2000, were $198,620,919 and $51,313,516,
respectively.</p>
<p>On March 31, 2000, accumulated net unrealized appreciation on investments was
$67,982,513, based on the aggregate cost of investments for federal income tax
purposes of $399,678,245, which consisted of unrealized appreciation of
$107,847,511 and unrealized depreciation of $39,864,998.</p>
<hr width="100%" size="1" noshade align="left">
<p><b><font size="4">4. Capital Share Transactions</font></b></p>
<p>Transactions in shares of the fund were as follows:</p>
--------------------------------
EQUITY INDEX
--------------------------------
Shares Amount
- ------------------------------------------------------------------------------------------
INVESTOR CLASS
- ------------------------------------------------------------------------------------------
Shares Authorized ....................................... 25,000,000
============
Year ended March 31, 2000
Sold .................................................... 14,625,346 $80,452,103
Issued in reinvestment of distributions ................. 152,909 853,014
Redeemed ................................................ (6,540,236) (36,337,553)
------------ -------------
Net increase ............................................ 8,238,019 $44,967,564
============ =============
February 26, 1999 (inception) through March 31, 1999
Sold .................................................... 3,412,730 $17,545,517
Redeemed ................................................ (139,038) (719,730)
------------ -------------
Net increase ............................................ 3,273,692 $16,825,787
============ =============
- ------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- ------------------------------------------------------------------------------------------
Shares Authorized ....................................... 100,000,000
============
Year ended March 31, 2000
Sold .................................................... 45,743,723 $250,635,461
Issued in reinvestment of distributions ................. 1,302,279 7,229,861
Redeemed ................................................ (31,407,870) (173,987,573)
------------ -------------
Net increase ............................................ 15,638,132 $83,877,749
============ =============
February 26, 1999 (inception) through March 31, 1999
Sold .................................................... 52,351,049 $262,087,610
Redeemed ................................................ (1,436,222) (7,466,196)
------------ -------------
Net increase ............................................ 50,914,827 $254,621,414
============ =============
<hr width="100%" size="1" noshade align="left">
<p><b><font size="4">5. Bank Loans</font></b></p>
<p>The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The funds may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended March 31, 2000.</p>
<p><font size=5><a name="EQUO"></a>Equity Index — Financial Highlights</font></p>
<p>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 <B>total return</B>, <B>income ratio</B> (net
income as a percentage of average net assets), <B>expense ratio</B> (operating expenses
as a percentage of average net assets), and <B>portfolio turnover</B> (a gauge of the
fund's trading activity).</p>
<p><b><i>For a Share Outstanding Throughout the Years Ended March 31 (except as
noted)</i></b></p>
-------------------------------
Investor Class
-------------------------------
2000 1999(1)
- -------------------------------------------------------------------------------------------
PER-SHARE DATA
- -------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ...................... $5.20 $5.00
----------- -----------
Income From Investment Operations
Net Investment Income(2) ................................ 0.05 0.01
Net Realized and Unrealized Gain on Investments ......... 0.83 0.19
----------- -----------
Total From Investment Operations ........................ 0.88 0.20
----------- -----------
Distributions
From Net Investment Income .............................. (0.05) --
In Excess of Net Realized Gains ......................... (0.04) --
----------- -----------
Total Distributions ..................................... (0.09) --
----------- -----------
Net Asset Value, End of Period ............................ $5.99 $5.20
=========== ===========
Total Return(3) ......................................... 17.17% 4.00%
- -------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets ......... 0.49% 0.49%(4)
Ratio of Net Investment Income to Average Net Assets ...... 0.94% 1.13%(4)
Portfolio Turnover Rate ................................... 13% 0%
Net Assets, End of Period (in thousands) .................. $68,905 $17,010
<P><FONT SIZE="2">(1) February 26, 1999 (inception) through March 31, 1999.<BR>
(2) Computed using average shares outstanding throughout the period.<BR>
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.<BR>
(4) Annualized.</FONT></P>
<p><b><i>For a Share Outstanding Throughout the Years Ended March 31 (except as
noted)</i></b></p>
--------------------------------
Institutional Class
--------------------------------
2000 1999(1)
- ---------------------------------------------------------------------------------------------
PER-SHARE DATA
- ---------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ....................... $5.20 $5.00
----------- -----------
Income From Investment Operations
Net Investment Income(2) ................................. 0.06 0.01
Net Realized and Unrealized Gain on Investments .......... 0.84 0.19
----------- -----------
Total From Investment Operations ......................... 0.90 0.20
----------- -----------
Distributions
From Net Investment Income ............................... (0.07) --
In Excess of Net Realized Gains .......................... (0.04) --
----------- -----------
Total Distributions ...................................... (0.11) --
----------- -----------
Net Asset Value, End of Period ............................. $5.99 $5.20
=========== ===========
Total Return(3) .......................................... 17.43% 4.00%
- ---------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets .......... 0.29% 0.29%(4)
Ratio of Net Investment Income to Average Net Assets ....... 1.14% 1.33%(4)
Portfolio Turnover Rate .................................... 13% 0%
Net Assets, End of Period (in thousands) ................... $398,560 $264,580
<P><FONT SIZE="2">(1) February 26, 1999 (inception) through March 31, 1999.<BR>
(2) Computed using average shares outstanding throughout the period.<BR>
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.<BR>
(4) Annualized.
</FONT></P>
<p><font size=5><a name="EQUP"></a>Independent Auditors' Report</font></p>
<hr width="100%" size="1" noshade align="left">
<p>The Board of Directors and Shareholders,<BR>
American Century Capital Portfolios, Inc.:</p>
<p>We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Equity Index Fund (the "Fund"), one of the funds
comprising American Century Capital Portfolios, Inc., as of March 31, 2000, and
the related statement of operations for the year then ended, the statements of
changes in net assets for the year then ended and for the period February 26,
1999 (inception) through March 31, 1999, and the financial highlights for the
year then ended and for the period February 26, 1999 (inception) through March
31, 1999. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.</p>
<p>We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at March 31, 2000, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.</p>
<p>In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Equity
Index Fund as of March 31, 2000, the results of its operations for the year then
ended, the changes in its net assets for the year then ended and for the period
February 26, 1999 (inception) through March 31, 1999, and the financial
highlights for the periods presented in conformity with accounting principles
generally accepted in the United States of America.</p>
<p>Deloitte & Touche LLP<BR>
Kansas City, Missouri<BR>
May 12, 2000</p>
<p><font size=5><a name="EQUQ"></a><a name="EQUR"></a>Share Class and Retirement Account Information</font></p>
<HR width="100%" size="1" noshade align="left">
<p><b><font size="4">Share Classes</font></b></p>
<p>Two classes of shares are authorized for sale by the fund: Investor Class and
Institutional Class.</p>
<p><B>Investor Class </B>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.</p>
<p><B>Institutional Class </B>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.</p>
<p>All classes of shares represent a pro rata interest in the funds and generally
have the same rights and preferences.</p>
<p><b><font size="4">Retirement Account Information</font></b></p>
<p>As required by law, any distributions you receive from an IRA and certain 403(b)
distributions [not eligible for rollover to an IRA or to another 403(b) account]
are subject to federal income tax withholding at the rate of 10% of the total
amount withdrawn, unless you elect not to have withholding apply. If you don't
want us to withhold on this amount, you may send us a written notice not to have
the federal income tax withheld. Your written notice is valid from the date of
receipt at American Century. Even if you plan to roll over the amount you
withdraw to another tax-deferred account, the withholding rate still applies to
the withdrawn amount unless we have received a written notice not to withhold
federal income tax prior to the withdrawal.</p>
<p>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.</p>
<p>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.</p>
<p><font size=5><a name="EQUS"></a>Background Information</font></p>
<HR width="100%" size="1" noshade align="left">
<p><b><font size="4"><a name="EQUT"></a>Investment Philosophy and Policies</font></b></p>
<p>American Century offers 15 growth and income funds including domestic equity,
balanced, asset allocation, and specialty.</p>
<p>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.</p>
<p>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.</p>
<p>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.</p>
<p><b><font size="4"><a name="EQUU"></a>Fund Management</font></b></p>
<p>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.</p>
<p>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.</p>
<p><b><font size="4"><a name="EQUV"></a>Comparative Indices</font></b></p>
<p>The following indices are used in the report for fund performance comparisons.
They are not investment products available for purchase.</p>
<p>The <B>S&P 500</B> is a capitalization-weighted index of the stocks of 500 publicly
traded U.S. companies that are considered to be leading firms in dominant
industries. Created by Standard & Poor's, it is considered to be a broad
measure of U.S. stock market performance.</p>
<p>The <B>S&P MidCap 400</B> is the medium capitalization sector of the U.S. market.
Created by Standard & Poor's, it is considered to represent the performance
of mid-cap stocks generally.</p>
<p>The <B>Russell 2000 Index</B> 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.</p>
<p><font size="2">"Standard & Poor's,<sup>®</sup>" "S&P
500,<sup>®</sup>" "S&P,<sup>®</sup>" and "S&P MidCap 400" 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.</font></p>
<p><font size=5><a name="EQUW"></a>Glossary</font></p>
<HR width="100%" size="1" noshade align="left">
<p><b><font size="4">Returns</font></b></p>
<ul type="square"><li><B>Total Return</B> 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.
<li><B>Average Annual Returns</B> 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 21-22.</ul>
<p><b><font size="4">Investment Terms</font></b></p>
<ul type="square"><li><B>Median Market Capitalization</B> — 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.
<li><B>Number of Companies</B> — the number of different companies held by a fund on a given date.
<li><B>Portfolio Turnover</B> — 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.
<li><B>Price/Book Ratio</B> — 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.)
<li><B>Price/Earnings (P/E) Ratio</B> — 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.)</ul>
<p><b><font size="4">Types of Stocks</font></b></p>
<ul type="square"><li><B>Blue Chip Stocks</B> — 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.
<li><B>Cyclical Stocks</B> — 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.
<li><B>Growth Stocks</B> — 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.
<li><B>Large-Capitalization ("Large-Cap") Stocks</B> —
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of more than $11.4 billion. This is Lipper's market
capitalization breakpoint as of March 31, 2000, although it may be subject to
change based on market fluctuations. The Dow Jones Industrial Average and the
S&P 500 Index generally consist of stocks in this range.
<li><B>Medium-Capitalization ("Mid-Cap") Stocks</B> —
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of between $2.4 billion and $11.4 billion. This is
Lipper's market capitalization breakpoint as of March 31, 2000, although it may
be subject to change based on market fluctuations. The S&P 400 Index and
Russell 2500 Index generally consist of stocks in this range.
<li><B>Small-Capitalization ("Small-Cap") Stocks</B> —
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of less than $2.4 billion. This is Lipper's market
capitalization breakpoint as of March 31, 2000, although it may be subject to
change based on market fluctuations. The S&P 600 Index and the Russell 2000
Index generally consist of stocks in this range.
<li><B>Value Stocks</B> — generally considered to be stocks that are purchased
because they are relatively inexpensive. These stocks are typically
characterized by low P/E ratios.
</ul>
<p><b><font size="4">Fund Classifications</font></b></p>
<p>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.</p>
<p><b>Investment Objective</b></p>
<p>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.</p>
<ul type="square"><li><B>Capital Preservation </B> — offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
<li><B>Income </B> — 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.
<li><B>Growth & Income </B> — offers funds that emphasize both growth and income
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
<li><B>Growth </B> — offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high
price-fluctuation risk.</ul>
<p><b>Risk</b></p>
<p>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.</p>
<ul type="square"><li><B>Conservative</B> — these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
<li><B>Moderate </B> — these funds generally provide moderate return potential with
moderate price-fluctuation risk.
<li><B>Aggressive </B> — these funds generally provide high return potential with
corresponding high price-fluctuation risk.</ul>
<P align="center"><B><FONT size=6>I</FONT><FONT size=4>NVESTMENT</FONT><FONT size=6> O</FONT><FONT size=4>BJECTIVE</FONT></B></P>
- ----------------------------------------------------------------------------------------------
CAPITAL PRESERVATION INCOME
Taxable Tax-Free Taxable Bonds Tax-Free Bonds
Money Markets Money Markets
- ----------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
- ----------------------------------------------------------------------------------------------
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
- ----------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
- ----------------------------------------------------------------------------------------------
Long-Term Treasury CA Long-Term
Target 2005* Tax-Free
Bond Long-Term Tax-Free
Premium Bond CA Insured Tax-Free
- ----------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
- ----------------------------------------------------------------------------------------------
Premium FL Municipal Intermediate-Term Bond CA Intermediate-Term
Capital Reserve Money Market Intermediate-Term Tax-Free
Prime CA Municipal Treasury AZ Intermediate-Term
Money Market Money Market GNMA Municipal
Premium CA Tax-Free Inflation-Adjusted FL Intermediate-Term
Government Reserve Money Market Treasury Municipal
Government Agency Tax-Free Limited-Term Bond Intermediate-Term
Money Market Money Market Target 2000* Tax-Free
Capital Preservation Short-Term Government CA Limited-Term
Short-Term Treasury Tax-Free
Limited-Term
Tax-Free
- ----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME GROWTH
Asset Allocation/ Domestic Equity Specialty Domestic Equity Specialty International
Balanced
- -------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
- -------------------------------------------------------------------------------------------------------------------------
Small Cap Quantitative Veedot(2) Emerging Markets
Small Cap Value New Opportunities Global Gold International Discovery
Giftrust(R) International Growth
Vista Global Growth
Heritage
Growth
Ultra(R)
Select
- -------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
- -------------------------------------------------------------------------------------------------------------------------
Strategic Allocation: Equity Growth Utilities Global Natural
Aggressive Equity Index Real Estate Resources
Balanced Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
- -------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<p><font size="2"><I>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.</I></font></p>
<p><font size="2"><I>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.</I></font></p>
<p><font size="2"><I>*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.</I></font></p>
<p><font size="2"><I>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.</I></font></p>
<p align="right">[AMERICAN CENTURY(R) LOGO]</p>
<p><b>P.O. Box 419200<BR>
Kansas City, Missouri 64141-6200</b></p>
<p><b>www.americancentury.com</b></p>
<P><B>Investor Relations</B><BR>
1-800-345-2021 or 816-531-5575</P>
<P><B>Automated Information Line</B><BR>
1-800-345-8765</P>
<P><B>Fax: </B>816-340-7962</P>
<P><B>Telecommunications Device for the Deaf</B><BR>
1-800-634-4113 or 816-444-3485</P>
<P><B>Business, Not-For-Profit, Employer-Sponsored Retirement Plans</B><BR>
1-800-345-3533</P>
<P><B>Banks and Trust Companies, Broker-Dealers,
Financial Advisors, Insurance Companies</B><BR>
1-800-345-6488</P>
<P><B>American Century Capital Portfolios, Inc.</B></P>
<P><B>Investment Manager<BR>
American Century Investment Management, Inc.</B><BR>
Kansas City, Missouri</P>
<P><font size="2">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.</font></P>
<P align="right">[GRAPHIC OMITTED]</P>
<p><font size=5><i>Who we are</i></font></p>
<P>American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.</P>
<P>For four decades, American Century has been a leader
in performance, service and innovation. From pioneering the use of computer
technology in investing to allowing investors to conduct transactions and
receive financial advice over the Internet, we have remained committed to
building long-term relationships and to helping investors achieve their dreams.</P>
<P>In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: We succeed only if our investors succeed.</P>
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0005 American Century Investment Services, Inc.
SH-ANN-20172 (C)2000 American Century Services Corporation
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