UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number | 811-07820 | |||||
AMERICAN CENTURY CAPITAL PORTFOLIOS, INC. | ||||||
(Exact name of registrant as specified in charter) | ||||||
4500 MAIN STREET, KANSAS CITY, MISSOURI | 64111 | |||||
(Address of principal executive offices) | (Zip Code) | |||||
CHARLES A. ETHERINGTON 4500 MAIN STREET, KANSAS CITY, MISSOURI 64111 | ||||||
(Name and address of agent for service) | ||||||
Registrant’s telephone number, including area code: | 816-531-5575 | |||||
Date of fiscal year end: | 03-31 | |||||
Date of reporting period: | 09-30-2016 |
ITEM 1. REPORTS TO STOCKHOLDERS.
Semiannual Report | |
September 30, 2016 | |
Equity Income Fund |
Table of Contents |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
Jonathan Thomas
Dear Investor:
Thank you for reviewing this semiannual report for the period ended September 30, 2016. It provides a macroeconomic and financial market overview (below), followed by a schedule of fund investments and other financial information. For additional commentary and information on fund performance, key factors that affected asset returns, and other insights regarding the investment markets, we encourage you to visit our website, americancentury.com.
Despite Brexit Shock, Markets Produced Positive, Central Bank-Boosted Returns
The reporting period was unusual in that virtually all mutual fund asset classes posted positive performance, led by gold, U.S. small-cap stocks, and emerging markets (EM) stocks. Even as those higher-risk/higher-volatility asset classes outperformed, government bonds also produced solid returns. Simultaneous positive performance across all asset classes is rare. How did it happen? Massive central bank stimulus—amplified in the wake of China- and energy market-related volatility in early 2016 and the unexpected U.K. vote to leave the European Union (Brexit) in June—helped boost most markets for the reporting period.
Continued central bank stimulus encouraged relatively aggressive investor behavior, including demand for equities and higher-yielding bond sectors, including high-yield corporates and EM debt. At the same time, central bank stimulus also included large volumes of bond purchases and low interest rate targets, which helped drive interest rates lower and government bond prices higher. Oil’s rebound from its January 2016 lows and stabilization of China’s economy also supported investor sentiment, as well as repeated decisions by the Federal Reserve (Fed) to keep its expected interest rate hikes on hold.
The reporting period featured many surprises, including weaker-than-expected global growth, Brexit, the quick market rebound from Brexit, the Republican nomination of Donald Trump, and concerns about the stability of major European banks. Central bank stimulus provided market support, but possible changes loom ahead—the Fed might raise rates as early as December, and other central banks might taper their bond purchases in future months. Meanwhile, the U.S. continues to be swayed by other global factors, including increasing populism and anti-globalization. We’re watching the aftermath of the U.S. elections and the Italian constitutional referendum to see if themes that Brexit spotlighted—nationalism/isolationism, anti-immigration, anti-trade agreements, distrust of career politicians—shape future U.S. and European government leadership. We appreciate your continued trust in us during this potentially turbulent period.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Fund Characteristics |
SEPTEMBER 30, 2016 | |
Top Ten Holdings | % of net assets |
iShares Russell 1000 Value ETF | 4.7% |
Johnson & Johnson | 3.8% |
SPDR S&P 500 ETF Trust | 3.7% |
Microchip Technology, Inc. (Convertible) | 3.6% |
Intel Corp. (Convertible) | 3.3% |
Schlumberger Ltd. | 2.8% |
General Mills, Inc. | 2.6% |
Exxon Mobil Corp. | 2.5% |
Bank of America Corp. (Convertible) | 2.5% |
TOTAL SA | 2.5% |
Top Five Industries | % of net assets |
Banks | 12.9% |
Oil, Gas and Consumable Fuels | 9.5% |
Semiconductors and Semiconductor Equipment | 9.1% |
Pharmaceuticals | 7.6% |
Food Products | 5.1% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 71.1% |
Convertible Bonds | 8.7% |
Exchange-Traded Funds | 8.4% |
Preferred Stocks | 4.5% |
Convertible Preferred Stocks | 4.2% |
Total Equity Exposure | 96.9% |
Temporary Cash Investments | 3.0% |
Other Assets and Liabilities | 0.1% |
3
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from April 1, 2016 to September 30, 2016.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
4
Beginning Account Value 4/1/16 | Ending Account Value 9/30/16 | Expenses Paid During Period(1) 4/1/16 - 9/30/16 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,081.10 | $4.80 | 0.92% |
Institutional Class | $1,000 | $1,082.10 | $3.76 | 0.72% |
A Class | $1,000 | $1,079.70 | $6.10 | 1.17% |
C Class | $1,000 | $1,075.50 | $9.99 | 1.92% |
R Class | $1,000 | $1,077.30 | $7.39 | 1.42% |
R6 Class | $1,000 | $1,084.10 | $2.98 | 0.57% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.46 | $4.66 | 0.92% |
Institutional Class | $1,000 | $1,021.46 | $3.65 | 0.72% |
A Class | $1,000 | $1,019.20 | $5.92 | 1.17% |
C Class | $1,000 | $1,015.44 | $9.70 | 1.92% |
R Class | $1,000 | $1,017.95 | $7.18 | 1.42% |
R6 Class | $1,000 | $1,022.21 | $2.89 | 0.57% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
5
Schedule of Investments |
SEPTEMBER 30, 2016 (UNAUDITED)
Shares/ Principal Amount | Value | |||||
COMMON STOCKS — 71.1% | ||||||
Air Freight and Logistics — 1.4% | ||||||
United Parcel Service, Inc., Class B | 1,498,318 | $ | 163,856,056 | |||
Auto Components — 0.2% | ||||||
Delphi Automotive plc | 322,300 | 22,986,436 | ||||
Banks — 8.3% | ||||||
Comerica, Inc. | 1,551,800 | 73,431,176 | ||||
Commerce Bancshares, Inc. | 1,894,572 | 93,326,617 | ||||
JPMorgan Chase & Co. | 526,897 | 35,086,071 | ||||
PNC Financial Services Group, Inc. (The) | 2,990,052 | 269,373,785 | ||||
SunTrust Banks, Inc. | 4,761,730 | 208,563,774 | ||||
U.S. Bancorp | 2,671,900 | 114,597,791 | ||||
UMB Financial Corp. | 155,600 | 9,250,420 | ||||
Wells Fargo & Co. | 3,495,500 | 154,780,740 | ||||
958,410,374 | ||||||
Beverages — 1.2% | ||||||
PepsiCo, Inc. | 1,278,199 | 139,029,705 | ||||
Capital Markets — 2.4% | ||||||
AllianceBernstein Holding LP | 1,827,878 | 41,675,618 | ||||
BlackRock, Inc. | 256,000 | 92,789,760 | ||||
Northern Trust Corp. | 2,098,940 | 142,706,931 | ||||
277,172,309 | ||||||
Chemicals — 1.6% | ||||||
Air Products & Chemicals, Inc.(1)(2) | 1,338,937 | 186,232,747 | ||||
Commercial Services and Supplies — 1.4% | ||||||
Republic Services, Inc. | 3,112,561 | 157,028,702 | ||||
Communications Equipment — 1.0% | ||||||
Cisco Systems, Inc. | 3,498,891 | 110,984,823 | ||||
Construction Materials — 0.5% | ||||||
Martin Marietta Materials, Inc. | 323,000 | 57,852,530 | ||||
Containers and Packaging — 0.7% | ||||||
Bemis Co., Inc. | 1,499,200 | 76,474,192 | ||||
Diversified Telecommunication Services — 1.2% | ||||||
Verizon Communications, Inc. | 2,697,437 | 140,212,775 | ||||
Electric Utilities — 1.6% | ||||||
Edison International | 558,699 | 40,366,003 | ||||
PG&E Corp. | 2,399,737 | 146,791,912 | ||||
187,157,915 | ||||||
Electrical Equipment — 0.9% | ||||||
Emerson Electric Co. | 409,000 | 22,294,590 | ||||
Rockwell Automation, Inc. | 699,400 | 85,564,596 | ||||
107,859,186 | ||||||
Energy Equipment and Services — 2.8% | ||||||
Schlumberger Ltd. | 4,096,831 | 322,174,790 | ||||
Equity Real Estate Investment Trusts (REITs) — 1.0% | ||||||
Host Hotels & Resorts, Inc. | 2,496,700 | 38,873,619 |
6
Shares/ Principal Amount | Value | |||||
Weyerhaeuser Co. | 2,299,800 | $ | 73,455,612 | |||
112,329,231 | ||||||
Food and Staples Retailing — 2.8% | ||||||
CVS Health Corp. | 698,133 | 62,126,856 | ||||
Wal-Mart Stores, Inc. | 3,637,283 | 262,320,850 | ||||
324,447,706 | ||||||
Food Products — 5.1% | ||||||
Archer-Daniels-Midland Co. | 1,115,700 | 47,049,069 | ||||
General Mills, Inc. | 4,698,168 | 300,118,972 | ||||
Mead Johnson Nutrition Co. | 2,998,371 | 236,901,293 | ||||
584,069,334 | ||||||
Gas Utilities — 3.0% | ||||||
Atmos Energy Corp. | 699,200 | 52,069,424 | ||||
ONE Gas, Inc.(3) | 3,367,938 | 208,273,286 | ||||
WGL Holdings, Inc. | 1,306,109 | 81,893,034 | ||||
342,235,744 | ||||||
Health Care Equipment and Supplies — 1.2% | ||||||
Medtronic plc | 1,626,503 | 140,529,859 | ||||
Health Care Providers and Services — 1.8% | ||||||
Cardinal Health, Inc. | 1,298,853 | 100,920,878 | ||||
Quest Diagnostics, Inc. | 1,340,858 | 113,476,813 | ||||
214,397,691 | ||||||
Household Durables — 0.3% | ||||||
Tupperware Brands Corp. | 478,019 | 31,248,102 | ||||
Household Products — 1.8% | ||||||
Procter & Gamble Co. (The) | 2,363,159 | 212,093,520 | ||||
Industrial Conglomerates — 2.0% | ||||||
3M Co. | 1,027,300 | 181,041,079 | ||||
General Electric Co. | 1,160,995 | 34,388,672 | ||||
Koninklijke Philips NV | 370,360 | 10,965,025 | ||||
226,394,776 | ||||||
Insurance — 3.1% | ||||||
Allstate Corp. (The) | 2,773,200 | 191,849,976 | ||||
Marsh & McLennan Cos., Inc. | 1,998,805 | 134,419,636 | ||||
MetLife, Inc. | 798,323 | 35,469,491 | ||||
361,739,103 | ||||||
Machinery — 0.8% | ||||||
Stanley Black & Decker, Inc. | 760,281 | 93,499,357 | ||||
Oil, Gas and Consumable Fuels — 9.5% | ||||||
Chevron Corp. | 275,916 | 28,397,275 | ||||
Enterprise Products Partners LP | 4,157,200 | 114,863,436 | ||||
EQT Midstream Partners LP | 310,218 | 23,635,509 | ||||
Exxon Mobil Corp. | 3,343,578 | 291,827,488 | ||||
Occidental Petroleum Corp. | 2,352,677 | 171,557,207 | ||||
Phillips 66 Partners LP | 799,630 | 38,862,018 | ||||
Shell Midstream Partners LP | 1,210,036 | 38,817,955 | ||||
Spectra Energy Partners LP | 2,429,069 | 106,126,025 | ||||
TOTAL SA | 6,023,874 | 285,514,331 | ||||
1,099,601,244 |
7
Shares/ Principal Amount | Value | |||||
Pharmaceuticals — 7.6% | ||||||
Johnson & Johnson | 3,698,841 | $ | 436,944,088 | |||
Merck & Co., Inc. | 2,885,522 | 180,085,428 | ||||
Pfizer, Inc. | 7,598,522 | 257,361,940 | ||||
874,391,456 | ||||||
Road and Rail — 0.3% | ||||||
Norfolk Southern Corp. | 359,586 | 34,901,417 | ||||
Semiconductors and Semiconductor Equipment — 2.2% | ||||||
Applied Materials, Inc. | 3,659,803 | 110,343,060 | ||||
Maxim Integrated Products, Inc. | 3,576,600 | 142,813,650 | ||||
253,156,710 | ||||||
Software — 1.7% | ||||||
Microsoft Corp. | 2,198,436 | 126,629,914 | ||||
Oracle Corp. | 1,869,676 | 73,440,873 | ||||
200,070,787 | ||||||
Technology Hardware, Storage and Peripherals — 0.2% | ||||||
Apple, Inc. | 182,900 | 20,676,845 | ||||
Thrifts and Mortgage Finance — 1.5% | ||||||
Capitol Federal Financial, Inc.(3) | 12,081,479 | 169,986,410 | ||||
TOTAL COMMON STOCKS (Cost $6,727,664,516) | 8,203,201,832 | |||||
CONVERTIBLE BONDS — 8.7% | ||||||
Auto Components — 0.1% | ||||||
Deutsche Bank AG, (convertible into Delphi Automotive plc), 6.50%, 12/22/16(4)(5) | $ | 161,100 | 11,292,143 | |||
Energy Equipment and Services — 0.2% | ||||||
Morgan Stanley B.V., (convertible into Schlumberger Ltd.), 3.23%, 2/23/17(4)(5) | 254,000 | 20,744,180 | ||||
Health Care Equipment and Supplies — 0.1% | ||||||
Credit Suisse AG, (convertible into Baxter International, Inc.), 3.54%, 10/20/16(4)(5) | 324,000 | 14,705,064 | ||||
Health Care Providers and Services — 0.3% | ||||||
Wells Fargo Bank N.A., (convertible into Cigna Corp.), 4.32%, 2/21/17(4)(5) | 213,300 | 28,172,877 | ||||
Multiline Retail — 0.1% | ||||||
Credit Suisse AG, (convertible into Target Corp.), 2.51%, 2/17/17(4)(5) | 71,900 | 5,128,699 | ||||
UBS AG, (convertible into Target Corp.), 2.20%, 2/23/17(4)(5) | 159,200 | 11,183,004 | ||||
16,311,703 | ||||||
Semiconductors and Semiconductor Equipment — 6.9% | ||||||
Intel Corp., 2.95%, 12/15/35 | 278,756,000 | 385,554,393 | ||||
Microchip Technology, Inc., 1.625%, 2/15/25 | 319,848,000 | 409,405,440 | ||||
794,959,833 | ||||||
Software — 0.3% | ||||||
Citigroup Global Markets Holdings, Inc., (convertible into Oracle Corp.), MTN, 1.60%, 12/7/16(4)(5) | 973,200 | 38,558,184 | ||||
Specialty Retail — 0.7% | ||||||
Merrill Lynch International & Co. CV, (convertible into Advance Auto Parts, Inc.), 4.85%, 11/16/16(4)(5) | 279,598 | 42,556,796 | ||||
UBS AG, (convertible into Advance Auto Parts, Inc.), 6.00%, 11/21/16(4)(5) | 165,000 | 24,908,400 |
8
Shares/ Principal Amount | Value | |||||
Wells Fargo Bank N.A., (convertible into Bed Bath & Beyond, Inc.), 4.37%, 3/1/17(4)(5) | $ | 251,200 | $ | 11,345,071 | ||
78,810,267 | ||||||
TOTAL CONVERTIBLE BONDS (Cost $857,116,372) | 1,003,554,251 | |||||
EXCHANGE-TRADED FUNDS — 8.4% | ||||||
iShares Russell 1000 Value ETF | 5,060,370 | 534,476,279 | ||||
SPDR S&P 500 ETF Trust | 1,978,100 | 427,863,030 | ||||
TOTAL EXCHANGE-TRADED FUNDS (Cost $896,563,244) | 962,339,309 | |||||
PREFERRED STOCKS — 4.5% | ||||||
Banks — 0.8% | ||||||
U.S. Bancorp, 6.00% | 3,499,182 | 89,789,010 | ||||
Capital Markets — 0.6% | ||||||
Goldman Sachs Group, Inc. (The), 5.30% | 72,203,000 | 74,188,582 | ||||
Diversified Financial Services — 0.9% | ||||||
Citigroup, Inc., 5.95% | 99,856,000 | 103,568,646 | ||||
Industrial Conglomerates — 2.2% | ||||||
General Electric Co., 5.00% | 239,966,000 | 255,479,802 | ||||
TOTAL PREFERRED STOCKS (Cost $494,279,043) | 523,026,040 | |||||
CONVERTIBLE PREFERRED STOCKS — 4.2% | ||||||
Banks — 3.8% | ||||||
Bank of America Corp., 7.25% | 236,969 | 289,301,234 | ||||
Wells Fargo & Co., 7.50% | 116,978 | 153,077,411 | ||||
442,378,645 | ||||||
Gas Utilities — 0.4% | ||||||
Spire, Inc., 6.75%, 4/1/17 | 799,497 | 45,881,534 | ||||
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $413,478,118) | 488,260,179 | |||||
TEMPORARY CASH INVESTMENTS — 3.0% | ||||||
Federal Home Loan Bank Discount Notes, 0.10%, 10/3/16(6) | $ | 150,326,000 | 150,326,000 | |||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/20, valued at $151,914,263), at 0.15%, dated 9/30/16, due 10/3/16 (Delivery value $148,928,862) | 148,927,000 | |||||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 43,631,527 | 43,631,527 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $342,883,692) | 342,884,527 | |||||
TOTAL INVESTMENT SECURITIES — 99.9% (Cost $9,731,984,985) | 11,523,266,138 | |||||
OTHER ASSETS AND LIABILITIES — 0.1% | 8,060,097 | |||||
TOTAL NET ASSETS — 100.0% | $ | 11,531,326,235 |
9
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
EUR | 8,752,777 | USD | 9,858,655 | UBS AG | 12/30/16 | $ | 14,030 | |||
USD | 234,947,872 | EUR | 208,983,733 | UBS AG | 12/30/16 | (775,116 | ) | |||
USD | 14,617,371 | EUR | 12,960,386 | UBS AG | 12/30/16 | (1,283 | ) | |||
$ | (762,369 | ) |
NOTES TO SCHEDULE OF INVESTMENTS | ||
EUR | - | Euro |
MTN | - | Medium Term Note |
USD | - | United States Dollar |
(1) | When-issued security. The issue price and yield are fixed on the date of the commitment, but payment and delivery are scheduled for a future date. |
(2) | Non-income producing. |
(3) | Affiliated Company: the fund’s holding represents ownership of 5% or more of the voting securities of the company; therefore, the company is affiliated as defined in the Investment Company Act of 1940. |
(4) | Equity-linked debt security. The aggregated value of these securities at the period end was $208,594,418, which represented 1.8% of total net assets. |
(5) | Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration, normally to qualified institutional investors. The aggregate value of these securities at the period end was $208,594,418, which represented 1.8% of total net assets. |
(6) | The rate indicated is the yield to maturity at purchase. |
See Notes to Financial Statements.
10
Statement of Assets and Liabilities |
SEPTEMBER 30, 2016 (UNAUDITED) | |||
Assets | |||
Investment securities - unaffiliated, at value (cost of $9,471,926,777) | $ | 11,145,006,442 | |
Investment securities - affiliated, at value (cost of $260,058,208) | 378,259,696 | ||
Total investment securities, at value (cost of $9,731,984,985) | 11,523,266,138 | ||
Foreign currency holdings, at value (cost of $690,875) | 690,755 | ||
Receivable for investments sold | 188,711,059 | ||
Receivable for capital shares sold | 20,316,747 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 14,030 | ||
Dividends and interest receivable | 34,597,258 | ||
11,767,595,987 | |||
Liabilities | |||
Payable for investments purchased | 207,920,705 | ||
Payable for capital shares redeemed | 18,311,798 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 776,399 | ||
Accrued management fees | 8,231,429 | ||
Distribution and service fees payable | 1,029,421 | ||
236,269,752 | |||
Net Assets | $ | 11,531,326,235 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 9,250,025,234 | |
Undistributed net investment income | 6,380,178 | ||
Undistributed net realized gain | 484,390,309 | ||
Net unrealized appreciation | 1,790,530,514 | ||
$ | 11,531,326,235 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Investor Class, $0.01 Par Value | $6,849,889,915 | 760,965,559 | $9.00 | |||
Institutional Class, $0.01 Par Value | $1,452,332,825 | 161,248,473 | $9.01 | |||
A Class, $0.01 Par Value | $2,097,931,721 | 233,065,142 | $9.00* | |||
C Class, $0.01 Par Value | $679,538,994 | 75,484,335 | $9.00 | |||
R Class, $0.01 Par Value | $116,789,246 | 13,013,676 | $8.97 | |||
R6 Class, $0.01 Par Value | $334,843,534 | 37,142,872 | $9.02 |
*Maximum offering price $9.55 (net asset value divided by 0.9425).
See Notes to Financial Statements.
11
Statement of Operations |
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (including $7,461,446 from affiliates and net of foreign taxes withheld of $1,188,528) | $ | 147,162,835 | |
Interest | 13,494,928 | ||
160,657,763 | |||
Expenses: | |||
Management fees | 46,967,586 | ||
Distribution and service fees: | |||
A Class | 2,538,095 | ||
C Class | 3,154,744 | ||
R Class | 279,648 | ||
Directors' fees and expenses | 177,374 | ||
Other expenses | 10,539 | ||
53,127,986 | |||
Net investment income (loss) | 107,529,777 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions (including $6,683,934 from affiliates) | 381,831,731 | ||
Foreign currency transactions | 275,766 | ||
382,107,497 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 305,713,850 | ||
Translation of assets and liabilities in foreign currencies | 2,508,214 | ||
308,222,064 | |||
Net realized and unrealized gain (loss) | 690,329,561 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 797,859,338 |
See Notes to Financial Statements.
12
Statement of Changes in Net Assets |
SIX MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) AND YEAR ENDED MARCH 31, 2016 | ||||||
Increase (Decrease) in Net Assets | September 30, 2016 | March 31, 2016 | ||||
Operations | ||||||
Net investment income (loss) | $ | 107,529,777 | $ | 213,315,706 | ||
Net realized gain (loss) | 382,107,497 | 491,680,139 | ||||
Change in net unrealized appreciation (depreciation) | 308,222,064 | (126,597,246 | ) | |||
Net increase (decrease) in net assets resulting from operations | 797,859,338 | 578,398,599 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (64,752,719 | ) | (123,019,058 | ) | ||
Institutional Class | (15,395,625 | ) | (30,526,067 | ) | ||
A Class | (17,928,111 | ) | (42,382,590 | ) | ||
B Class | — | (37,483 | ) | |||
C Class | (3,176,888 | ) | (7,534,907 | ) | ||
R Class | (849,523 | ) | (2,144,133 | ) | ||
R6 Class | (3,340,305 | ) | (4,870,941 | ) | ||
From net realized gains: | ||||||
Investor Class | — | (363,605,047 | ) | |||
Institutional Class | — | (77,411,532 | ) | |||
A Class | — | (139,778,814 | ) | |||
C Class | — | (38,422,267 | ) | |||
R Class | — | (7,738,439 | ) | |||
R6 Class | — | (15,271,252 | ) | |||
Decrease in net assets from distributions | (105,443,171 | ) | (852,742,530 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 1,360,251,234 | (995,331 | ) | |||
Net increase (decrease) in net assets | 2,052,667,401 | (275,339,262 | ) | |||
Net Assets | ||||||
Beginning of period | 9,478,658,834 | 9,753,998,096 | ||||
End of period | $ | 11,531,326,235 | $ | 9,478,658,834 | ||
Undistributed net investment income | $ | 6,380,178 | $ | 4,293,572 |
See Notes to Financial Statements.
13
Notes to Financial Statements |
SEPTEMBER 30, 2016 (UNAUDITED)
1. Organization
American Century Capital Portfolios, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Equity Income Fund (the fund) is one fund in a series issued by the corporation. The fund’s investment objective is to seek current income. Capital appreciation is a secondary objective.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class, the R Class and the R6 Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class and R6 Class shareholders do not require the same level of shareholder and administrative services from American Century Investment Management, Inc. (ACIM) (the investment advisor) as shareholders of other classes. In addition, financial intermediaries do not receive any service, distribution or administrative fees for the R6 Class. As a result, the Institutional Class and R6 Class are charged lower unified management fees. On October 16, 2015, all outstanding B Class shares were converted to A Class shares and the fund discontinued offering the B Class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Fixed income securities are valued at the evaluated mean as provided by independent pricing services or at the mean of the most recent bid and asked prices as provided by investment dealers. Corporate bonds, U.S. Treasury and Government Agency securities and convertible bonds are valued using market models that consider trade data, quotations from dealers and active market makers, relevant yield curve and spread data, creditworthiness, trade data or market information on comparable securities, and other relevant security specific information.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the
14
Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Equity-Linked Debt and Linked-Equity Securities — The fund may invest in hybrid equity securities, which usually convert into common stock at a date predetermined by the issuer. These securities generally offer a higher dividend yield than that of the common stock to which the security is linked. These instruments are issued by a company other than the one to which the security is linked and carry the credit of the issuer, not that of the underlying common stock. The securities’ appreciation is limited based on a predetermined final cap price at the date of the conversion. Risks of investing in these securities include, but are not limited to, a set time to capture the yield advantage, limited appreciation potential, decline in value of the underlying stock, and failure of the issuer to pay dividends or to deliver common stock at maturity.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, 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.
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover certain types of investments, including, but not limited to, futures contracts and when-issued securities. ACIM monitors, on a daily basis, the securities segregated to ensure the fund designates a
15
sufficient amount of liquid assets, marked-to-market daily. The fund may also receive assets or be required to pledge assets at the custodian bank or with a broker for margin requirements on futures contracts.
Income Tax Status — It is the fund’s policy to distribute substantially 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 income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net 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. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income, if any, are generally declared and paid quarterly. Distributions from net realized gains, if any, are generally declared and paid annually.
Indemnifications — Under the corporation’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc. (ACIS), and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
Management Fees — 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 (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The rate of the fee is determined by applying a fee rate calculation formula. This formula takes into account the fund’s assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The annual management fee schedule ranges from 0.80% to 1.00% for the Investor Class, A Class, C Class and R Class. The annual management fee schedule ranges from 0.60% to 0.80% for the Institutional Class and 0.45% to 0.65% for the R6 Class. The effective annual management fee for each class for the six months ended September 30, 2016 was 0.92% for the Investor Class, A Class, C Class and R Class, 0.72% for the Institutional Class and 0.57% for the R6 Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay ACIS an annual distribution and service fee of 0.25%. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the six months ended September 30, 2016 are detailed in the Statement of Operations.
16
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $57,264,594 and $20,545,268, respectively. The effect of interfund transactions on the Statement of Operations was $2,356,727 in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the six months ended September 30, 2016 were $5,438,937,070 and $4,175,861,877, respectively.
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5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Six months ended September 30, 2016 | Year ended March 31, 2016 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 3,690,000,000 | 3,690,000,000 | ||||||||
Sold | 180,499,900 | $ | 1,592,871,850 | 114,466,871 | $ | 941,691,955 | ||||
Issued in reinvestment of distributions | 6,950,702 | 61,356,762 | 56,859,660 | 457,471,867 | ||||||
Redeemed | (68,381,474 | ) | (604,510,550 | ) | (156,737,452 | ) | (1,310,805,748 | ) | ||
119,069,128 | 1,049,718,062 | 14,589,079 | 88,358,074 | |||||||
Institutional Class/Shares Authorized | 900,000,000 | 900,000,000 | ||||||||
Sold | 33,569,443 | 296,589,367 | 43,236,265 | 355,337,764 | ||||||
Issued in reinvestment of distributions | 1,562,938 | 13,803,423 | 12,080,239 | 97,419,785 | ||||||
Redeemed | (20,008,951 | ) | (178,004,211 | ) | (60,463,997 | ) | (509,934,591 | ) | ||
15,123,430 | 132,388,579 | (5,147,493 | ) | (57,177,042 | ) | |||||
A Class/Shares Authorized | 1,450,000,000 | 1,450,000,000 | ||||||||
Sold | 34,484,759 | 304,551,181 | 33,772,941 | 281,467,687 | ||||||
Issued in reinvestment of distributions | 1,971,560 | 17,397,213 | 22,158,796 | 178,188,273 | ||||||
Redeemed | (33,394,101 | ) | (294,650,752 | ) | (75,339,830 | ) | (629,711,265 | ) | ||
3,062,218 | 27,297,642 | (19,408,093 | ) | (170,055,305 | ) | |||||
B Class/Shares Authorized | N/A | N/A | ||||||||
Sold | 1,773 | 15,470 | ||||||||
Issued in reinvestment of distributions | 4,126 | 34,715 | ||||||||
Redeemed | (640,096 | ) | (5,462,542 | ) | ||||||
(634,197 | ) | (5,412,357 | ) | |||||||
C Class/Shares Authorized | 380,000,000 | 380,000,000 | ||||||||
Sold | 15,349,921 | 135,177,766 | 10,920,834 | 90,266,957 | ||||||
Issued in reinvestment of distributions | 307,659 | 2,712,883 | 4,821,802 | 38,594,526 | ||||||
Redeemed | (7,082,416 | ) | (62,493,647 | ) | (11,886,580 | ) | (99,349,090 | ) | ||
8,575,164 | 75,397,002 | 3,856,056 | 29,512,393 | |||||||
R Class/Shares Authorized | 70,000,000 | 70,000,000 | ||||||||
Sold | 2,230,149 | 19,629,485 | 1,999,195 | 16,610,134 | ||||||
Issued in reinvestment of distributions | 94,466 | 831,197 | 1,206,549 | 9,662,979 | ||||||
Redeemed | (1,886,512 | ) | (16,541,804 | ) | (5,355,482 | ) | (44,926,763 | ) | ||
438,103 | 3,918,878 | (2,149,738 | ) | (18,653,650 | ) | |||||
R6 Class/Shares Authorized | 180,000,000 | 180,000,000 | ||||||||
Sold | 18,156,814 | 162,553,432 | 19,314,185 | 162,369,985 | ||||||
Issued in reinvestment of distributions | 369,044 | 3,264,383 | 2,424,776 | 19,519,689 | ||||||
Redeemed | (10,601,337 | ) | (94,286,744 | ) | (6,008,060 | ) | (49,457,118 | ) | ||
7,924,521 | 71,531,071 | 15,730,901 | 132,432,556 | |||||||
Net increase (decrease) | 154,192,564 | $ | 1,360,251,234 | 6,836,515 | $ | (995,331 | ) |
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6. Affiliated Company Transactions
If a fund's holding represents ownership of 5% or more of the voting securities of a company, the company is affiliated as defined in the 1940 Act. A summary of transactions for each company which is or was an affiliate at or during the six months ended September 30, 2016 follows:
Company | Beginning Value | Purchase Cost | Sales Cost | Realized Gain (Loss) | Dividend Income | Ending Value | ||||||||||||
Capitol Federal Financial, Inc. | $ | 160,106,266 | $ | 99,573 | — | — | $ | 5,071,239 | $ | 169,986,410 | ||||||||
ONE Gas, Inc. | 218,755,902 | 5,254,404 | $ | 12,412,107 | $ | 6,683,934 | 2,390,207 | 208,273,286 | ||||||||||
$ | 378,862,168 | $ | 5,353,977 | $ | 12,412,107 | $ | 6,683,934 | $ | 7,461,446 | $ | 378,259,696 |
7. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 7,906,722,476 | $ | 296,479,356 | — | |||
Convertible Bonds | — | 1,003,554,251 | — | |||||
Exchange-Traded Funds | 962,339,309 | — | — | |||||
Preferred Stocks | 89,789,010 | 433,237,030 | — | |||||
Convertible Preferred Stocks | — | 488,260,179 | — | |||||
Temporary Cash Investments | 43,631,527 | 299,253,000 | — | |||||
$ | 9,002,482,322 | $ | 2,520,783,816 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 14,030 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 776,399 | — |
19
8. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $282,281,821.
The value of foreign currency risk derivative instruments as of September 30, 2016, is disclosed on the Statement of Assets and Liabilities as an asset of $14,030 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $776,399 in unrealized depreciation on forward foreign currency exchange contracts. For the six months ended September 30, 2016, the effect of foreign currency risk derivative instruments on the Statement of Operations was $80,267 in net realized gain (loss) on foreign currency transactions and $2,534,282 in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
9. Federal Tax Information
The book-basis 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 on the financial statements.
As of September 30, 2016, the components of investments for federal income tax purposes were as follows:
Federal tax cost of investments | $ | 9,902,775,101 | |
Gross tax appreciation of investments | $ | 1,649,028,001 | |
Gross tax depreciation of investments | (28,536,964 | ) | |
Net tax appreciation (depreciation) of investments | $ | 1,620,491,037 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
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Financial Highlights |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||||
2016(3) | $8.41 | 0.09 | 0.59 | 0.68 | (0.09) | — | (0.09) | $9.00 | 8.11% | 0.92%(4) | 2.09%(4) | 41% | $6,849,890 | ||
2016 | $8.71 | 0.21 | 0.32 | 0.53 | (0.20) | (0.63) | (0.83) | $8.41 | 6.78% | 0.94% | 2.44% | 88% | $5,399,702 | ||
2015 | $8.84 | 0.21 | 0.54 | 0.75 | (0.22) | (0.66) | (0.88) | $8.71 | 8.54% | 0.93% | 2.30% | 56% | $5,463,566 | ||
2014 | $8.47 | 0.20 | 0.92 | 1.12 | (0.20) | (0.55) | (0.75) | $8.84 | 13.64% | 0.93% | 2.31% | 57% | $5,406,362 | ||
2013 | $7.69 | 0.21 | 0.86 | 1.07 | (0.21) | (0.08) | (0.29) | $8.47 | 14.33% | 0.93% | 2.63% | 83% | $5,504,359 | ||
2012 | $7.43 | 0.20 | 0.25 | 0.45 | (0.19) | — | (0.19) | $7.69 | 6.24% | 0.95% | 2.69% | 115% | $5,363,783 | ||
Institutional Class | |||||||||||||||
2016(3) | $8.42 | 0.10 | 0.59 | 0.69 | (0.10) | — | (0.10) | $9.01 | 8.21% | 0.72%(4) | 2.29%(4) | 41% | $1,452,333 | ||
2016 | $8.71 | 0.22 | 0.34 | 0.56 | (0.22) | (0.63) | (0.85) | $8.42 | 7.11% | 0.74% | 2.64% | 88% | $1,229,940 | ||
2015 | $8.85 | 0.22 | 0.54 | 0.76 | (0.24) | (0.66) | (0.90) | $8.71 | 8.63% | 0.73% | 2.50% | 56% | $1,318,193 | ||
2014 | $8.47 | 0.22 | 0.92 | 1.14 | (0.21) | (0.55) | (0.76) | $8.85 | 13.85% | 0.73% | 2.51% | 57% | $1,422,725 | ||
2013 | $7.69 | 0.22 | 0.87 | 1.09 | (0.23) | (0.08) | (0.31) | $8.47 | 14.69% | 0.73% | 2.83% | 83% | $1,527,723 | ||
2012 | $7.44 | 0.21 | 0.24 | 0.45 | (0.20) | — | (0.20) | $7.69 | 6.31% | 0.75% | 2.89% | 115% | $1,316,758 |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
A Class | |||||||||||||||
2016(3) | $8.41 | 0.08 | 0.59 | 0.67 | (0.08) | — | (0.08) | $9.00 | 7.97% | 1.17%(4) | 1.84%(4) | 41% | $2,097,932 | ||
2016 | $8.71 | 0.18 | 0.33 | 0.51 | (0.18) | (0.63) | (0.81) | $8.41 | 6.51% | 1.19% | 2.19% | 88% | $1,934,681 | ||
2015 | $8.84 | 0.18 | 0.55 | 0.73 | (0.20) | (0.66) | (0.86) | $8.71 | 8.27% | 1.18% | 2.05% | 56% | $2,172,105 | ||
2014 | $8.47 | 0.18 | 0.91 | 1.09 | (0.17) | (0.55) | (0.72) | $8.84 | 13.36% | 1.18% | 2.06% | 57% | $2,722,731 | ||
2013 | $7.69 | 0.19 | 0.86 | 1.05 | (0.19) | (0.08) | (0.27) | $8.47 | 14.05% | 1.18% | 2.38% | 83% | $2,631,737 | ||
2012 | $7.43 | 0.18 | 0.25 | 0.43 | (0.17) | — | (0.17) | $7.69 | 5.98% | 1.20% | 2.44% | 115% | $2,512,840 | ||
C Class | |||||||||||||||
2016(3) | $8.41 | 0.05 | 0.58 | 0.63 | (0.04) | — | (0.04) | $9.00 | 7.55% | 1.92%(4) | 1.09%(4) | 41% | $679,539 | ||
2016 | $8.71 | 0.12 | 0.33 | 0.45 | (0.12) | (0.63) | (0.75) | $8.41 | 5.72% | 1.94% | 1.44% | 88% | $562,723 | ||
2015 | $8.84 | 0.12 | 0.54 | 0.66 | (0.13) | (0.66) | (0.79) | $8.71 | 7.47% | 1.93% | 1.30% | 56% | $549,088 | ||
2014 | $8.47 | 0.12 | 0.91 | 1.03 | (0.11) | (0.55) | (0.66) | $8.84 | 12.53% | 1.93% | 1.31% | 57% | $521,688 | ||
2013 | $7.69 | 0.13 | 0.86 | 0.99 | (0.13) | (0.08) | (0.21) | $8.47 | 13.21% | 1.93% | 1.63% | 83% | $467,913 | ||
2012 | $7.44 | 0.12 | 0.25 | 0.37 | (0.12) | — | (0.12) | $7.69 | 5.05% | 1.95% | 1.69% | 115% | $469,355 |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
R Class | |||||||||||||||
2016(3) | $8.39 | 0.07 | 0.58 | 0.65 | (0.07) | — | (0.07) | $8.97 | 7.73% | 1.42%(4) | 1.59%(4) | 41% | $116,789 | ||
2016 | $8.69 | 0.16 | 0.33 | 0.49 | (0.16) | (0.63) | (0.79) | $8.39 | 6.27% | 1.44% | 1.94% | 88% | $105,462 | ||
2015 | $8.82 | 0.16 | 0.54 | 0.70 | (0.17) | (0.66) | (0.83) | $8.69 | 8.03% | 1.43% | 1.80% | 56% | $127,897 | ||
2014 | $8.45 | 0.16 | 0.91 | 1.07 | (0.15) | (0.55) | (0.70) | $8.82 | 13.12% | 1.43% | 1.81% | 57% | $169,852 | ||
2013 | $7.67 | 0.17 | 0.86 | 1.03 | (0.17) | (0.08) | (0.25) | $8.45 | 13.81% | 1.43% | 2.13% | 83% | $179,855 | ||
2012 | $7.42 | 0.16 | 0.24 | 0.40 | (0.15) | — | (0.15) | $7.67 | 5.59% | 1.45% | 2.19% | 115% | $177,061 | ||
R6 Class | |||||||||||||||
2016(3) | $8.42 | 0.11 | 0.60 | 0.71 | (0.11) | — | (0.11) | $9.02 | 8.41% | 0.57%(4) | 2.44%(4) | 41% | $334,844 | ||
2016 | $8.72 | 0.24 | 0.32 | 0.56 | (0.23) | (0.63) | (0.86) | $8.42 | 7.14% | 0.59% | 2.79% | 88% | $246,151 | ||
2015 | $8.85 | 0.25 | 0.53 | 0.78 | (0.25) | (0.66) | (0.91) | $8.72 | 8.90% | 0.58% | 2.65% | 56% | $117,620 | ||
2014(5) | $8.94 | 0.17 | 0.46 | 0.63 | (0.17) | (0.55) | (0.72) | $8.85 | 7.41% | 0.58%(4) | 2.93%(4) | 57%(6) | $26,550 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | Six months ended September 30, 2016 (unaudited). |
(4) | Annualized. |
(5) | July 26, 2013 (commencement of sale) through March 31, 2014. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended March 31, 2014. |
See Notes to Financial Statements.
Approval of Management Agreement |
At a meeting held on June 29, 2016, the Fund’s Board of Directors (the "Board") unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments by the Fund and the Advisor to financial intermediaries and the nature of services provided; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors.
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In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment. The Board noted specifically the resources the Advisor has committed to enhancing cybersecurity protections for the benefit of shareholders.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance, and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, provides oversight of the investment performance process. It regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information provided by the Advisor during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the one- and ten-year periods and below its benchmark for the three- and five-year periods reviewed by the Board. During the management agreement approval process, the Board discussed the Fund's performance with the Advisor and was satisfied with the efforts being undertaken by the Advisor. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The
25
Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating the Advisor’s financial condition, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services. The Board also noted that economies of scale are shared with the Fund and its shareholders through management fee breakpoints that serve to reduce the effective management fee as the assets of the Fund grow.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pays the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, expenses attributable to short sales, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent Directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was below the median of the total expense ratios of the Fund’s peer expense universe and was within
26
the range of its peer expense group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Directors also requested and received information from the Advisor concerning the nature of the services, fees, costs, and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board received confirmation from the Advisor that all such payments by the Fund intended for distribution were made pursuant to the Fund's 12b-1 Plan. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor, as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
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Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Contact Us | americancentury.com | |
Automated Information Line | 1-800-345-8765 | |
Investor Services Representative | 1-800-345-2021 or 816-531-5575 | |
Investors Using Advisors | 1-800-378-9878 | |
Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 | |
Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 | |
Telecommunications Relay Service for the Deaf | 711 | |
American Century Capital Portfolios, Inc. | ||
Investment Advisor: American Century Investment Management, Inc. Kansas City, Missouri | ||
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. | ||
©2016 American Century Proprietary Holdings, Inc. All rights reserved. CL-SAN-90802 1611 |
Semiannual Report | |
September 30, 2016 | |
Large Company Value Fund |
Table of Contents |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
Jonathan Thomas
Dear Investor:
Thank you for reviewing this semiannual report for the period ended September 30, 2016. It provides a macroeconomic and financial market overview (below), followed by a schedule of fund investments and other financial information. For additional commentary and information on fund performance, key factors that affected asset returns, and other insights regarding the investment markets, we encourage you to visit our website, americancentury.com.
Despite Brexit Shock, Markets Produced Positive, Central Bank-Boosted Returns
The reporting period was unusual in that virtually all mutual fund asset classes posted positive performance, led by gold, U.S. small-cap stocks, and emerging markets (EM) stocks. Even as those higher-risk/higher-volatility asset classes outperformed, government bonds also produced solid returns. Simultaneous positive performance across all asset classes is rare. How did it happen? Massive central bank stimulus—amplified in the wake of China- and energy market-related volatility in early 2016 and the unexpected U.K. vote to leave the European Union (Brexit) in June—helped boost most markets for the reporting period.
Continued central bank stimulus encouraged relatively aggressive investor behavior, including demand for equities and higher-yielding bond sectors, including high-yield corporates and EM debt. At the same time, central bank stimulus also included large volumes of bond purchases and low interest rate targets, which helped drive interest rates lower and government bond prices higher. Oil’s rebound from its January 2016 lows and stabilization of China’s economy also supported investor sentiment, as well as repeated decisions by the Federal Reserve (Fed) to keep its expected interest rate hikes on hold.
The reporting period featured many surprises, including weaker-than-expected global growth, Brexit, the quick market rebound from Brexit, the Republican nomination of Donald Trump, and concerns about the stability of major European banks. Central bank stimulus provided market support, but possible changes loom ahead—the Fed might raise rates as early as December, and other central banks might taper their bond purchases in future months. Meanwhile, the U.S. continues to be swayed by other global factors, including increasing populism and anti-globalization. We’re watching the aftermath of the U.S. elections and the Italian constitutional referendum to see if themes that Brexit spotlighted—nationalism/isolationism, anti-immigration, anti-trade agreements, distrust of career politicians—shape future U.S. and European government leadership. We appreciate your continued trust in us during this potentially turbulent period.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Fund Characteristics |
SEPTEMBER 30, 2016 | |
Top Ten Holdings | % of net assets |
Pfizer, Inc. | 3.4% |
Schlumberger Ltd. | 3.4% |
Wells Fargo & Co. | 3.3% |
Procter & Gamble Co. (The) | 3.0% |
TOTAL SA ADR | 2.7% |
Johnson Controls International plc | 2.6% |
Oracle Corp. | 2.6% |
Cisco Systems, Inc. | 2.5% |
Chevron Corp. | 2.5% |
U.S. Bancorp | 2.2% |
Top Five Industries | % of net assets |
Banks | 13.1% |
Oil, Gas and Consumable Fuels | 12.2% |
Pharmaceuticals | 7.0% |
Capital Markets | 5.9% |
Insurance | 5.5% |
Types of Investments in Portfolio | % of net assets |
Domestic Common Stocks | 93.3% |
Foreign Common Stocks* | 6.3% |
Exchange-Traded Funds | 0.4% |
Total Equity Exposure | 100.0% |
Other Assets and Liabilities | —** |
*Includes depositary shares, dual listed securities and foreign ordinary shares.
**Category is less than 0.05% of total net assets.
3
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from April 1, 2016 to September 30, 2016.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
4
Beginning Account Value 4/1/16 | Ending Account Value 9/30/16 | Expenses Paid During Period(1) 4/1/16 - 9/30/16 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,078.20 | $4.32 | 0.83% |
Institutional Class | $1,000 | $1,080.50 | $3.29 | 0.63% |
A Class | $1,000 | $1,078.10 | $5.63 | 1.08% |
C Class | $1,000 | $1,073.90 | $9.51 | 1.83% |
R Class | $1,000 | $1,076.60 | $6.92 | 1.33% |
R6 Class | $1,000 | $1,081.30 | $2.50 | 0.48% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.91 | $4.20 | 0.83% |
Institutional Class | $1,000 | $1,021.91 | $3.19 | 0.63% |
A Class | $1,000 | $1,019.65 | $5.47 | 1.08% |
C Class | $1,000 | $1,015.89 | $9.25 | 1.83% |
R Class | $1,000 | $1,018.40 | $6.73 | 1.33% |
R6 Class | $1,000 | $1,022.66 | $2.43 | 0.48% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
5
Schedule of Investments |
SEPTEMBER 30, 2016 (UNAUDITED)
Shares | Value | |||
COMMON STOCKS — 99.6% | ||||
Aerospace and Defense — 3.6% | ||||
Huntington Ingalls Industries, Inc. | 36,400 | $ | 5,584,488 | |
Textron, Inc. | 200,300 | 7,961,925 | ||
United Technologies Corp. | 178,400 | 18,125,440 | ||
31,671,853 | ||||
Auto Components — 4.5% | ||||
BorgWarner, Inc. | 147,000 | 5,171,460 | ||
Delphi Automotive plc | 160,000 | 11,411,200 | ||
Johnson Controls International plc | 487,900 | 22,701,987 | ||
39,284,647 | ||||
Automobiles — 0.4% | ||||
Ford Motor Co. | 324,500 | 3,916,715 | ||
Banks — 13.1% | ||||
Bank of America Corp. | 1,144,900 | 17,917,685 | ||
BB&T Corp. | 376,300 | 14,194,036 | ||
JPMorgan Chase & Co. | 163,200 | 10,867,488 | ||
KeyCorp | 462,500 | 5,628,625 | ||
PNC Financial Services Group, Inc. (The) | 187,300 | 16,873,857 | ||
U.S. Bancorp | 447,300 | 19,184,697 | ||
Wells Fargo & Co. | 653,200 | 28,923,696 | ||
113,590,084 | ||||
Beverages — 0.8% | ||||
PepsiCo, Inc. | 65,000 | 7,070,050 | ||
Biotechnology — 0.7% | ||||
AbbVie, Inc. | 102,800 | 6,483,596 | ||
Capital Markets — 5.9% | ||||
Ameriprise Financial, Inc. | 104,400 | 10,415,988 | ||
Bank of New York Mellon Corp. (The) | 434,200 | 17,315,896 | ||
BlackRock, Inc. | 32,900 | 11,924,934 | ||
Invesco Ltd. | 357,400 | 11,175,898 | ||
50,832,716 | ||||
Chemicals — 1.0% | ||||
Dow Chemical Co. (The) | 167,700 | 8,691,891 | ||
Communications Equipment — 2.5% | ||||
Cisco Systems, Inc. | 681,400 | 21,614,008 | ||
Containers and Packaging — 0.6% | ||||
WestRock Co. | 100,300 | 4,862,544 | ||
Diversified Telecommunication Services — 1.1% | ||||
AT&T, Inc. | 230,600 | 9,364,666 | ||
Electric Utilities — 2.7% | ||||
Edison International | 132,500 | 9,573,125 | ||
PPL Corp. | 126,700 | 4,380,019 | ||
Xcel Energy, Inc. | 227,600 | 9,363,464 | ||
23,316,608 | ||||
Electrical Equipment — 1.0% | ||||
Rockwell Automation, Inc. | 72,000 | 8,808,480 |
6
Shares | Value | |||
Electronic Equipment, Instruments and Components — 1.3% | ||||
TE Connectivity Ltd. | 174,100 | $ | 11,208,558 | |
Energy Equipment and Services — 4.3% | ||||
Halliburton Co. | 171,100 | 7,678,968 | ||
Schlumberger Ltd. | 371,300 | 29,199,032 | ||
36,878,000 | ||||
Equity Real Estate Investment Trusts (REITs) — 0.9% | ||||
Boston Properties, Inc. | 55,400 | 7,550,466 | ||
Food and Staples Retailing — 3.3% | ||||
CVS Health Corp. | 147,900 | 13,161,621 | ||
Wal-Mart Stores, Inc. | 210,100 | 15,152,412 | ||
28,314,033 | ||||
Food Products — 1.0% | ||||
Mondelez International, Inc., Class A | 190,400 | 8,358,560 | ||
Health Care Equipment and Supplies — 5.1% | ||||
Abbott Laboratories | 330,900 | 13,993,761 | ||
Baxter International, Inc. | 127,400 | 6,064,240 | ||
Medtronic plc | 192,200 | 16,606,080 | ||
Zimmer Biomet Holdings, Inc. | 57,600 | 7,489,152 | ||
44,153,233 | ||||
Health Care Providers and Services — 2.6% | ||||
Anthem, Inc. | 67,800 | 8,496,018 | ||
HCA Holdings, Inc.(1) | 109,800 | 8,304,174 | ||
McKesson Corp. | 34,389 | 5,734,366 | ||
22,534,558 | ||||
Hotels, Restaurants and Leisure — 1.6% | ||||
Carnival Corp. | 174,200 | 8,504,444 | ||
Marriott International, Inc., Class A | 75,300 | 5,069,949 | ||
13,574,393 | ||||
Household Products — 3.0% | ||||
Procter & Gamble Co. (The) | 291,300 | 26,144,175 | ||
Industrial Conglomerates — 0.5% | ||||
Honeywell International, Inc. | 37,000 | 4,313,830 | ||
Insurance — 5.5% | ||||
Aflac, Inc. | 60,600 | 4,355,322 | ||
Allstate Corp. (The) | 105,600 | 7,305,408 | ||
American International Group, Inc. | 135,000 | 8,010,900 | ||
Chubb Ltd. | 144,200 | 18,118,730 | ||
MetLife, Inc. | 215,700 | 9,583,551 | ||
47,373,911 | ||||
Machinery — 2.2% | ||||
Ingersoll-Rand plc | 209,300 | 14,219,842 | ||
Stanley Black & Decker, Inc. | 36,900 | 4,537,962 | ||
18,757,804 | ||||
Media — 1.0% | ||||
Time Warner, Inc. | 113,300 | 9,019,813 | ||
Multiline Retail — 0.9% | ||||
Target Corp. | 113,000 | 7,760,840 | ||
Oil, Gas and Consumable Fuels — 12.2% | ||||
Anadarko Petroleum Corp. | 136,800 | 8,667,648 | ||
Chevron Corp. | 208,100 | 21,417,652 |
7
Shares | Value | |||
Exxon Mobil Corp. | 100,100 | $ | 8,736,728 | |
Imperial Oil Ltd. | 554,600 | 17,348,819 | ||
Occidental Petroleum Corp. | 233,800 | 17,048,696 | ||
Royal Dutch Shell plc ADR | 164,800 | 8,706,384 | ||
TOTAL SA ADR | 493,000 | 23,516,100 | ||
105,442,027 | ||||
Pharmaceuticals — 7.0% | ||||
Allergan plc(1) | 35,300 | 8,129,943 | ||
Johnson & Johnson | 87,100 | 10,289,123 | ||
Merck & Co., Inc. | 126,500 | 7,894,865 | ||
Pfizer, Inc. | 862,500 | 29,212,875 | ||
Teva Pharmaceutical Industries Ltd. ADR | 115,900 | 5,332,559 | ||
60,859,365 | ||||
Road and Rail — 1.0% | ||||
Union Pacific Corp. | 91,400 | 8,914,242 | ||
Semiconductors and Semiconductor Equipment — 2.9% | ||||
Applied Materials, Inc. | 416,800 | 12,566,520 | ||
Intel Corp. | 178,700 | 6,745,925 | ||
Lam Research Corp. | 59,800 | 5,663,658 | ||
24,976,103 | ||||
Software — 2.6% | ||||
Oracle Corp. | 565,800 | 22,224,624 | ||
Specialty Retail — 1.5% | ||||
Advance Auto Parts, Inc. | 58,200 | 8,678,784 | ||
Lowe's Cos., Inc. | 55,600 | 4,014,876 | ||
12,693,660 | ||||
Technology Hardware, Storage and Peripherals — 1.3% | ||||
Apple, Inc. | 100,500 | 11,361,525 | ||
TOTAL COMMON STOCKS (Cost $752,591,205) | 861,921,578 | |||
EXCHANGE-TRADED FUNDS — 0.4% | ||||
iShares Russell 1000 Value ETF (Cost $3,284,099) | 30,900 | 3,263,658 | ||
TOTAL INVESTMENT SECURITIES — 100.0% (Cost $755,875,304) | 865,185,236 | |||
OTHER ASSETS AND LIABILITIES† | 228,092 | |||
TOTAL NET ASSETS — 100.0% | $ | 865,413,328 |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
CAD | 504,257 | USD | 384,821 | Morgan Stanley | 12/30/16 | $ | (218 | ) | ||
USD | 14,753,724 | CAD | 19,532,898 | Morgan Stanley | 12/30/16 | (144,261 | ) | |||
USD | 426,079 | CAD | 558,445 | Morgan Stanley | 12/30/16 | 146 | ||||
USD | 19,921,601 | EUR | 17,720,061 | UBS AG | 12/30/16 | (65,723 | ) | |||
GBP | 130,393 | USD | 170,071 | Credit Suisse AG | 12/30/16 | (743 | ) | |||
USD | 7,332,453 | GBP | 5,631,901 | Credit Suisse AG | 12/30/16 | 18,862 | ||||
USD | 252,495 | GBP | 194,373 | Credit Suisse AG | 12/30/16 | 82 | ||||
$ | (191,855 | ) |
8
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
CAD | - | Canadian Dollar |
EUR | - | Euro |
GBP | - | British Pound |
USD | - | United States Dollar |
† | Category is less than 0.05% of total net assets. |
(1) | Non-income producing. |
See Notes to Financial Statements.
9
Statement of Assets and Liabilities |
SEPTEMBER 30, 2016 (UNAUDITED) | |||
Assets | |||
Investment securities, at value (cost of $755,875,304) | $ | 865,185,236 | |
Foreign currency holdings, at value (cost of $103,102) | 85,249 | ||
Receivable for investments sold | 36,413,463 | ||
Receivable for capital shares sold | 279,236 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 19,090 | ||
Dividends and interest receivable | 1,536,956 | ||
903,519,230 | |||
Liabilities | |||
Disbursements in excess of demand deposit cash | 758,951 | ||
Payable for investments purchased | 16,207,530 | ||
Payable for capital shares redeemed | 20,339,838 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 210,945 | ||
Accrued management fees | 567,622 | ||
Distribution and service fees payable | 21,016 | ||
38,105,902 | |||
Net Assets | $ | 865,413,328 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 845,595,749 | |
Undistributed net investment income | 251,328 | ||
Accumulated net realized loss | (89,535,867 | ) | |
Net unrealized appreciation | 109,102,118 | ||
$ | 865,413,328 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Investor Class, $0.01 Par Value | $645,848,765 | 70,399,950 | $9.17 | |||
Institutional Class, $0.01 Par Value | $34,051,690 | 3,710,283 | $9.18 | |||
A Class, $0.01 Par Value | $55,481,255 | 6,051,041 | $9.17* | |||
C Class, $0.01 Par Value | $9,055,658 | 987,638 | $9.17 | |||
R Class, $0.01 Par Value | $5,321,484 | 579,875 | $9.18 | |||
R6 Class, $0.01 Par Value | $115,654,476 | 12,602,277 | $9.18 |
*Maximum offering price $9.73 (net asset value divided by 0.9425).
See Notes to Financial Statements.
10
Statement of Operations |
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $130,707) | $ | 11,116,675 | |
Interest | 3,619 | ||
11,120,294 | |||
Expenses: | |||
Management fees | 3,489,320 | ||
Distribution and service fees: | |||
A Class | 73,532 | ||
C Class | 45,627 | ||
R Class | 12,944 | ||
Directors' fees and expenses | 15,155 | ||
Other expenses | 1,695 | ||
3,638,273 | |||
Net investment income (loss) | 7,482,021 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 80,171,615 | ||
Foreign currency transactions | 251,978 | ||
80,423,593 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | (19,967,486 | ) | |
Translation of assets and liabilities in foreign currencies | 316,768 | ||
(19,650,718 | ) | ||
Net realized and unrealized gain (loss) | 60,772,875 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 68,254,896 |
See Notes to Financial Statements.
11
Statement of Changes in Net Assets |
SIX MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) AND YEAR ENDED MARCH 31, 2016 | ||||||
Increase (Decrease) in Net Assets | September 30, 2016 | March 31, 2016 | ||||
Operations | ||||||
Net investment income (loss) | $ | 7,482,021 | $ | 11,149,564 | ||
Net realized gain (loss) | 80,423,593 | 41,963,691 | ||||
Change in net unrealized appreciation (depreciation) | (19,650,718 | ) | (82,761,717 | ) | ||
Net increase (decrease) in net assets resulting from operations | 68,254,896 | (29,648,462 | ) | |||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (5,820,811 | ) | (8,933,931 | ) | ||
Institutional Class | (483,388 | ) | (752,924 | ) | ||
A Class | (431,465 | ) | (750,479 | ) | ||
B Class | — | (512 | ) | |||
C Class | (32,648 | ) | (41,446 | ) | ||
R Class | (32,210 | ) | (46,400 | ) | ||
R6 Class | (1,176,683 | ) | (868,574 | ) | ||
Decrease in net assets from distributions | (7,977,205 | ) | (11,394,266 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | (65,347,566 | ) | 148,863,315 | |||
Net increase (decrease) in net assets | (5,069,875 | ) | 107,820,587 | |||
Net Assets | ||||||
Beginning of period | 870,483,203 | 762,662,616 | ||||
End of period | $ | 865,413,328 | $ | 870,483,203 | ||
Undistributed net investment income | $ | 251,328 | $ | 746,512 |
See Notes to Financial Statements.
12
Notes to Financial Statements |
SEPTEMBER 30, 2016 (UNAUDITED)
1. Organization
American Century Capital Portfolios, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Large Company Value Fund (the fund) is one fund in a series issued by the corporation. The fund’s investment objective is to seek long-term capital growth. Income is a secondary objective.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class, the R Class and the R6 Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class and R6 Class shareholders do not require the same level of shareholder and administrative services from American Century Investment Management, Inc. (ACIM) (the investment advisor) as shareholders of other classes. In addition, financial intermediaries do not receive any service, distribution or administrative fees for the R6 Class. As a result, the Institutional Class and R6 Class are charged lower unified management fees. On October 16, 2015, all outstanding B Class shares were converted to A Class shares and the fund discontinued offering the B Class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
13
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially 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 income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net 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. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income, if any, are generally declared and paid quarterly. Distributions from net realized gains, if any, are generally declared and paid annually.
14
Indemnifications — Under the corporation’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc. (ACIS), and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC. Various funds issued by American Century Asset Allocation Portfolios, Inc. and American Century Strategic Asset Allocations, Inc. own, in aggregate, 47% of the shares of the fund. Related parties do not invest in the fund for the purpose of exercising management or control.
Management Fees — 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 (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The rate of the fee is determined by applying a fee rate calculation formula. This formula takes into account the fund’s assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The strategy assets of the fund also include the assets of NT Large Company Value Fund, one fund in a series issued by the corporation. The annual management fee schedule ranges from 0.70% to 0.90% for the Investor Class, A Class, C Class and R Class. The annual management fee schedule ranges from 0.50% to 0.70% for the Institutional Class and 0.35% to 0.55% for the R6 Class. The effective annual management fee for each class for the six months ended September 30, 2016 was 0.83% for the Investor Class, A Class, C Class and R Class, 0.63% for the Institutional Class and 0.48% for the R6 Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay ACIS an annual distribution and service fee of 0.25%. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the six months ended September 30, 2016 are detailed in the Statement of Operations.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $6,761,628 and $3,379,468, respectively. The effect of interfund transactions on the Statement of Operations was $442,688 in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the six months ended September 30, 2016 were $294,286,855 and $354,228,715, respectively.
15
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Six months ended September 30, 2016 | Year ended March 31, 2016 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 500,000,000 | 500,000,000 | ||||||||
Sold | 2,124,400 | $ | 18,729,119 | 17,629,618 | $ | 155,559,656 | ||||
Issued in reinvestment of distributions | 639,011 | 5,724,650 | 1,007,564 | 8,744,859 | ||||||
Redeemed | (7,294,891 | ) | (66,106,144 | ) | (8,596,338 | ) | (74,429,878 | ) | ||
(4,531,480 | ) | (41,652,375 | ) | 10,040,844 | 89,874,637 | |||||
Institutional Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 291,632 | 2,626,402 | 1,827,487 | 15,883,636 | ||||||
Issued in reinvestment of distributions | 53,597 | 480,469 | 86,062 | 747,253 | ||||||
Redeemed | (2,285,694 | ) | (20,863,645 | ) | (1,509,620 | ) | (13,112,507 | ) | ||
(1,940,465 | ) | (17,756,774 | ) | 403,929 | 3,518,382 | |||||
A Class/Shares Authorized | 60,000,000 | 60,000,000 | ||||||||
Sold | 251,961 | 2,254,923 | 1,501,902 | 13,067,373 | ||||||
Issued in reinvestment of distributions | 46,539 | 416,580 | 83,694 | 727,057 | ||||||
Redeemed | (1,440,492 | ) | (12,843,007 | ) | (2,165,484 | ) | (18,766,444 | ) | ||
(1,141,992 | ) | (10,171,504 | ) | (579,888 | ) | (4,972,014 | ) | |||
B Class/Shares Authorized | N/A | N/A | ||||||||
Issued in reinvestment of distributions | 56 | 504 | ||||||||
Redeemed | (50,687 | ) | (452,583 | ) | ||||||
(50,631 | ) | (452,079 | ) | |||||||
C Class/Shares Authorized | 15,000,000 | 15,000,000 | ||||||||
Sold | 36,468 | 319,003 | 183,240 | 1,599,014 | ||||||
Issued in reinvestment of distributions | 2,067 | 18,506 | 2,879 | 25,036 | ||||||
Redeemed | (114,490 | ) | (1,017,334 | ) | (391,973 | ) | (3,347,446 | ) | ||
(75,955 | ) | (679,825 | ) | (205,854 | ) | (1,723,396 | ) | |||
R Class/Shares Authorized | 10,000,000 | 10,000,000 | ||||||||
Sold | 52,672 | 468,364 | 93,079 | 807,096 | ||||||
Issued in reinvestment of distributions | 3,495 | 31,325 | 5,204 | 45,261 | ||||||
Redeemed | (38,088 | ) | (343,984 | ) | (180,477 | ) | (1,559,711 | ) | ||
18,079 | 155,705 | (82,194 | ) | (707,354 | ) | |||||
R6 Class/Shares Authorized | 80,000,000 | 80,000,000 | ||||||||
Sold | 1,322,960 | 11,899,270 | 8,832,542 | 71,693,067 | ||||||
Issued in reinvestment of distributions | 131,225 | 1,176,683 | 100,724 | 868,574 | ||||||
Redeemed | (929,600 | ) | (8,318,746 | ) | (1,061,403 | ) | (9,236,502 | ) | ||
524,585 | 4,757,207 | 7,871,863 | 63,325,139 | |||||||
Net increase (decrease) | (7,147,228 | ) | $ | (65,347,566 | ) | 17,398,069 | $ | 148,863,315 |
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
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• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 844,572,759 | $ | 17,348,819 | — | |||
Exchange-Traded Funds | 3,263,658 | — | — | |||||
$ | 847,836,417 | $ | 17,348,819 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 19,090 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 210,945 | — |
7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $41,333,464.
The value of foreign currency risk derivative instruments as of September 30, 2016, is disclosed on the Statement of Assets and Liabilities as an asset of $19,090 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $210,945 in unrealized depreciation on forward foreign currency exchange contracts. For the six months ended September 30, 2016, the effect of foreign currency risk derivative instruments on the Statement of Operations was $248,001 in net realized gain (loss) on foreign currency transactions and $314,872 in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Risk Factors
There are certain risks involved in investing in foreign securities. These risks include those resulting from future adverse political, social and economic developments, fluctuations in currency exchange rates, the possible imposition of exchange controls, and other foreign laws or restrictions.
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9. Federal Tax Information
The book-basis 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 on the financial statements.
As of September 30, 2016, the components of investments for federal income tax purposes were as follows:
Federal tax cost of investments | $ | 761,302,226 | |
Gross tax appreciation of investments | $ | 121,867,269 | |
Gross tax depreciation of investments | (17,984,259 | ) | |
Net tax appreciation (depreciation) of investments | $ | 103,883,010 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
As of March 31, 2016, the fund had accumulated short-term capital losses of $(146,747,979), which represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers expire in 2018.
As of March 31, 2016, the fund had post-October capital loss deferrals of $(12,923,402), which represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
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Financial Highlights |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Investment Income | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||
2016(3) | $8.58 | 0.07 | 0.60 | 0.67 | (0.08) | $9.17 | 7.82% | 0.83%(4) | 1.64%(4) | 33% | $645,849 | ||
2016 | $9.07 | 0.12 | (0.49) | (0.37) | (0.12) | $8.58 | (4.06)% | 0.84% | 1.41% | 56% | $642,746 | ||
2015 | $8.28 | 0.12 | 0.78 | 0.90 | (0.11) | $9.07 | 10.92% | 0.84% | 1.36% | 56% | $588,608 | ||
2014 | $6.92 | 0.12 | 1.36 | 1.48 | (0.12) | $8.28 | 21.57% | 0.85% | 1.64% | 35% | $574,367 | ||
2013 | $6.09 | 0.12 | 0.83 | 0.95 | (0.12) | $6.92 | 15.85% | 0.87% | 1.87% | 33% | $487,161 | ||
2012 | $5.80 | 0.10 | 0.29 | 0.39 | (0.10) | $6.09 | 6.91% | 0.87% | 1.84% | 56% | $553,916 | ||
Institutional Class | |||||||||||||
2016(3) | $8.58 | 0.08 | 0.61 | 0.69 | (0.09) | $9.18 | 8.05% | 0.63%(4) | 1.84%(4) | 33% | $34,052 | ||
2016 | $9.08 | 0.14 | (0.50) | (0.36) | (0.14) | $8.58 | (3.97)% | 0.64% | 1.61% | 56% | $48,495 | ||
2015 | $8.29 | 0.13 | 0.79 | 0.92 | (0.13) | $9.08 | 11.14% | 0.64% | 1.56% | 56% | $47,616 | ||
2014 | $6.93 | 0.14 | 1.36 | 1.50 | (0.14) | $8.29 | 21.78% | 0.65% | 1.84% | 35% | $81,195 | ||
2013 | $6.10 | 0.13 | 0.83 | 0.96 | (0.13) | $6.93 | 16.05% | 0.67% | 2.07% | 33% | $57,325 | ||
2012 | $5.80 | 0.11 | 0.30 | 0.41 | (0.11) | $6.10 | 7.29% | 0.67% | 2.04% | 56% | $77,706 |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Investment Income | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
A Class | |||||||||||||
2016(3) | $8.57 | 0.06 | 0.61 | 0.67 | (0.07) | $9.17 | 7.81% | 1.08%(4) | 1.39%(4) | 33% | $55,481 | ||
2016 | $9.07 | 0.10 | (0.50) | (0.40) | (0.10) | $8.57 | (4.41)% | 1.09% | 1.16% | 56% | $61,663 | ||
2015 | $8.28 | 0.10 | 0.78 | 0.88 | (0.09) | $9.07 | 10.65% | 1.09% | 1.11% | 56% | $70,462 | ||
2014 | $6.92 | 0.11 | 1.35 | 1.46 | (0.10) | $8.28 | 21.27% | 1.10% | 1.39% | 35% | $74,863 | ||
2013 | $6.09 | 0.10 | 0.84 | 0.94 | (0.11) | $6.92 | 15.57% | 1.12% | 1.62% | 33% | $69,270 | ||
2012 | $5.79 | 0.09 | 0.30 | 0.39 | (0.09) | $6.09 | 6.83% | 1.12% | 1.59% | 56% | $75,521 | ||
C Class | |||||||||||||
2016(3) | $8.57 | 0.03 | 0.60 | 0.63 | (0.03) | $9.17 | 7.39% | 1.83%(4) | 0.64%(4) | 33% | $9,056 | ||
2016 | $9.06 | 0.03 | (0.49) | (0.46) | (0.03) | $8.57 | (5.03)% | 1.84% | 0.41% | 56% | $9,116 | ||
2015 | $8.28 | 0.03 | 0.78 | 0.81 | (0.03) | $9.06 | 9.77% | 1.84% | 0.36% | 56% | $11,505 | ||
2014 | $6.92 | 0.05 | 1.35 | 1.40 | (0.04) | $8.28 | 20.36% | 1.85% | 0.64% | 35% | $10,101 | ||
2013 | $6.09 | 0.05 | 0.84 | 0.89 | (0.06) | $6.92 | 14.72% | 1.87% | 0.87% | 33% | $8,961 | ||
2012 | $5.80 | 0.05 | 0.28 | 0.33 | (0.04) | $6.09 | 5.85% | 1.87% | 0.84% | 56% | $9,232 |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Investment Income | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
R Class | |||||||||||||
2016(3) | $8.58 | 0.05 | 0.61 | 0.66 | (0.06) | $9.18 | 7.66% | 1.33%(4) | 1.14%(4) | 33% | $5,321 | ||
2016 | $9.07 | 0.08 | (0.49) | (0.41) | (0.08) | $8.58 | (4.55)% | 1.34% | 0.91% | 56% | $4,820 | ||
2015 | $8.28 | 0.07 | 0.79 | 0.86 | (0.07) | $9.07 | 10.37% | 1.34% | 0.86% | 56% | $5,842 | ||
2014 | $6.92 | 0.09 | 1.35 | 1.44 | (0.08) | $8.28 | 20.96% | 1.35% | 1.14% | 35% | $6,135 | ||
2013 | $6.10 | 0.08 | 0.83 | 0.91 | (0.09) | $6.92 | 15.10% | 1.37% | 1.37% | 33% | $5,792 | ||
2012 | $5.80 | 0.07 | 0.30 | 0.37 | (0.07) | $6.10 | 6.55% | 1.37% | 1.34% | 56% | $6,454 | ||
R6 Class | |||||||||||||
2016(3) | $8.58 | 0.09 | 0.61 | 0.70 | (0.10) | $9.18 | 8.13% | 0.48%(4) | 1.99%(4) | 33% | $115,654 | ||
2016 | $9.08 | 0.16 | (0.51) | (0.35) | (0.15) | $8.58 | (3.83)% | 0.49% | 1.76% | 56% | $103,643 | ||
2015 | $8.29 | 0.17 | 0.76 | 0.93 | (0.14) | $9.08 | 11.30% | 0.49% | 1.71% | 56% | $38,170 | ||
2014(5) | $7.65 | 0.10 | 0.65 | 0.75 | (0.11) | $8.29 | 9.90% | 0.50%(4) | 1.98%(4) | 35%(6) | $27 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | Six months ended September 30, 2016 (unaudited). |
(4) | Annualized. |
(5) | July 26, 2013 (commencement of sale) through March 31, 2014. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended March 31, 2014. |
See Notes to Financial Statements.
Approval of Management Agreement |
At a meeting held on June 29, 2016, the Fund’s Board of Directors (the "Board") unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments by the Fund and the Advisor to financial intermediaries and the nature of services provided; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors.
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In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment. The Board noted specifically the resources the Advisor has committed to enhancing cybersecurity protections for the benefit of shareholders.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance, and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, provides oversight of the investment performance process. It regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information provided by the Advisor during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the one-, three-, five-, and ten-year periods reviewed by the Board. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to,
23
information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating the Advisor’s financial condition, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services. The Board also noted that economies of scale are shared with the Fund and its shareholders through management fee breakpoints that serve to reduce the effective management fee as the assets of the Fund grow.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pays the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, expenses attributable to short sales, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent Directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was below the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the
24
Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Directors also requested and received information from the Advisor concerning the nature of the services, fees, costs, and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board received confirmation from the Advisor that all such payments by the Fund intended for distribution were made pursuant to the Fund's 12b-1 Plan. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor, as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
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Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Notes |
27
Notes |
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Contact Us | americancentury.com | |
Automated Information Line | 1-800-345-8765 | |
Investor Services Representative | 1-800-345-2021 or 816-531-5575 | |
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©2016 American Century Proprietary Holdings, Inc. All rights reserved. CL-SAN-90803 1611 |
SEMIANNUAL REPORT | |
SEPTEMBER 30, 2016 | |
AC Alternatives® Market Neutral Value Fund
Table of Contents |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
Jonathan Thomas
Dear Investor:
Thank you for reviewing this semiannual report for the period ended September 30, 2016. It provides a macroeconomic and financial market overview (below), followed by a schedule of fund investments and other financial information. For additional commentary and information on fund performance, key factors that affected asset returns, and other insights regarding the investment markets, we encourage you to visit our website, americancentury.com.
Despite Brexit Shock, Markets Produced Positive, Central Bank-Boosted Returns
The reporting period was unusual in that virtually all mutual fund asset classes posted positive performance, led by gold, U.S. small-cap stocks, and emerging markets (EM) stocks. Even as those higher-risk/higher-volatility asset classes outperformed, government bonds also produced solid returns. Simultaneous positive performance across all asset classes is rare. How did it happen? Massive central bank stimulus—amplified in the wake of China- and energy market-related volatility in early 2016 and the unexpected U.K. vote to leave the European Union (Brexit) in June—helped boost most markets for the reporting period.
Continued central bank stimulus encouraged relatively aggressive investor behavior, including demand for equities and higher-yielding bond sectors, including high-yield corporates and EM debt. At the same time, central bank stimulus also included large volumes of bond purchases and low interest rate targets, which helped drive interest rates lower and government bond prices higher. Oil’s rebound from its January 2016 lows and stabilization of China’s economy also supported investor sentiment, as well as repeated decisions by the Federal Reserve (Fed) to keep its expected interest rate hikes on hold.
The reporting period featured many surprises, including weaker-than-expected global growth, Brexit, the quick market rebound from Brexit, the Republican nomination of Donald Trump, and concerns about the stability of major European banks. Central bank stimulus provided market support, but possible changes loom ahead—the Fed might raise rates as early as December, and other central banks might taper their bond purchases in future months. Meanwhile, the U.S. continues to be swayed by other global factors, including increasing populism and anti-globalization. We’re watching the aftermath of the U.S. elections and the Italian constitutional referendum to see if themes that Brexit spotlighted—nationalism/isolationism, anti-immigration, anti-trade agreements, distrust of career politicians—shape future U.S. and European government leadership. We appreciate your continued trust in us during this potentially turbulent period.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Fund Characteristics |
SEPTEMBER 30, 2016 | |
Top Ten Long Holdings | % of net assets |
Royal Dutch Shell plc, Class A ADR | 4.11% |
iShares Russell 1000 Value ETF | 3.93% |
Consumer Discretionary Select Sector SPDR Fund | 2.84% |
Intel Corp. (Convertible) | 2.26% |
Microchip Technology, Inc. (Convertible) | 1.89% |
MetLife, Inc. | 1.87% |
Janus Capital Group, Inc. (Convertible) | 1.69% |
Maxim Integrated Products, Inc. | 1.68% |
iShares U.S. Real Estate ETF | 1.63% |
Pfizer, Inc. | 1.56% |
Top Ten Short Holdings | % of net assets |
Royal Dutch Shell plc, Class B ADR | (4.10)% |
iShares Russell 1000 Growth ETF | (3.92)% |
Utilities Select Sector SPDR Fund | (3.40)% |
Kraft Heinz Co. (The) | (2.20)% |
Kinder Morgan, Inc. | (1.90)% |
Intel Corp. | (1.90)% |
Prudential Financial, Inc. | (1.86)% |
Microchip Technology, Inc. | (1.71)% |
Janus Capital Group, Inc. | (1.69)% |
Technology Select Sector SPDR Fund | (1.68)% |
Types of Investments in Portfolio | % of net assets |
Domestic Common Stocks | 62.2% |
Foreign Common Stocks* | 6.7% |
Exchange-Traded Funds | 8.4% |
Convertible Bonds | 5.9% |
Convertible Preferred Stocks | 1.1% |
Domestic Common Stocks Sold Short | (67.6)% |
Foreign Common Stocks Sold Short* | (4.6)% |
Exchange-Traded Funds Sold Short | (11.8)% |
Temporary Cash Investments | 18.2% |
Other Assets and Liabilities** | 81.5% |
*Includes depositary shares, dual listed securities and foreign ordinary shares.
**Amount relates primarily to deposits with broker for securities sold short at period end.
3
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from April 1, 2016 to September 30, 2016.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
4
Beginning Account Value 4/1/16 | Ending Account Value 9/30/16 | Expenses Paid During Period(1) 4/1/16 - 9/30/16 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class (after waiver) | $1,000 | $1,004.70 | $17.59 | 3.50% |
Investor Class (before waiver) | $1,000 | $1,004.70(2) | $19.00 | 3.78% |
Institutional Class (after waiver) | $1,000 | $1,005.50 | $16.59 | 3.30% |
Institutional Class (before waiver) | $1,000 | $1,005.50(2) | $18.00 | 3.58% |
A Class (after waiver) | $1,000 | $1,002.80 | $18.83 | 3.75% |
A Class (before waiver) | $1,000 | $1,002.80(2) | $20.23 | 4.03% |
C Class (after waiver) | $1,000 | $1,000.00 | $22.56 | 4.50% |
C Class (before waiver) | $1,000 | $1,000.00(2) | $23.97 | 4.78% |
R Class (after waiver) | $1,000 | $1,001.90 | $20.07 | 4.00% |
R Class (before waiver) | $1,000 | $1,001.90(2) | $21.48 | 4.28% |
Hypothetical | ||||
Investor Class (after waiver) | $1,000 | $1,007.52 | $17.61 | 3.50% |
Investor Class (before waiver) | $1,000 | $1,006.12 | $19.01 | 3.78% |
Institutional Class (after waiver) | $1,000 | $1,008.52 | $16.62 | 3.30% |
Institutional Class (before waiver) | $1,000 | $1,007.12 | $18.01 | 3.58% |
A Class (after waiver) | $1,000 | $1,006.27 | $18.86 | 3.75% |
A Class (before waiver) | $1,000 | $1,004.86 | $20.25 | 4.03% |
C Class (after waiver) | $1,000 | $1,002.51 | $22.59 | 4.50% |
C Class (before waiver) | $1,000 | $1,001.10 | $23.98 | 4.78% |
R Class (after waiver) | $1,000 | $1,005.01 | $20.11 | 4.00% |
R Class (before waiver) | $1,000 | $1,003.61 | $21.50 | 4.28% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
(2) | Ending account value assumes the return earned after waiver and would have been lower if a portion of the fees had not been waived. |
5
Schedule of Investments |
SEPTEMBER 30, 2016 (UNAUDITED)
Shares | Value | |||
COMMON STOCKS — 68.9% | ||||
Aerospace and Defense — 3.7% | ||||
Boeing Co. (The) | 21,820 | $ | 2,874,567 | |
HEICO Corp., Class A(1) | 184,370 | 11,156,229 | ||
L-3 Communications Holdings, Inc. | 31,620 | 4,766,082 | ||
Textron, Inc.(1) | 185,564 | 7,376,169 | ||
Vectrus, Inc.(1)(2) | 141,830 | 2,160,071 | ||
28,333,118 | ||||
Air Freight and Logistics — 0.7% | ||||
United Parcel Service, Inc., Class B(1) | 48,980 | 5,356,453 | ||
Airlines — 0.3% | ||||
Alaska Air Group, Inc. | 30,950 | 2,038,367 | ||
Auto Components — 1.0% | ||||
Delphi Automotive plc(1) | 105,240 | 7,505,717 | ||
Automobiles — 0.2% | ||||
Toyota Motor Corp. ADR(1) | 11,310 | 1,312,639 | ||
Banks — 4.3% | ||||
Comerica, Inc.(1) | 86,660 | 4,100,751 | ||
First Hawaiian, Inc.(1)(2) | 175,534 | 4,714,843 | ||
PNC Financial Services Group, Inc. (The)(1) | 108,928 | 9,813,324 | ||
SunTrust Banks, Inc.(1) | 121,660 | 5,328,708 | ||
U.S. Bancorp(1) | 68,370 | 2,932,389 | ||
UMB Financial Corp.(1) | 101,731 | 6,047,908 | ||
32,937,923 | ||||
Beverages — 1.7% | ||||
Brown-Forman Corp., Class B(1) | 239,038 | 11,339,963 | ||
PepsiCo, Inc.(1) | 15,769 | 1,715,194 | ||
13,055,157 | ||||
Biotechnology — 0.3% | ||||
Gilead Sciences, Inc. | 33,760 | 2,671,091 | ||
Capital Markets — 0.5% | ||||
Ameriprise Financial, Inc.(1) | 37,980 | 3,789,265 | ||
Commercial Services and Supplies — 1.2% | ||||
Republic Services, Inc.(1) | 65,335 | 3,296,151 | ||
UniFirst Corp.(1) | 46,750 | 6,164,455 | ||
9,460,606 | ||||
Communications Equipment — 0.7% | ||||
Harris Corp.(1) | 56,280 | 5,155,811 | ||
Consumer Finance — 0.5% | ||||
Discover Financial Services(1) | 64,470 | 3,645,778 | ||
Containers and Packaging — 1.0% | ||||
International Paper Co.(1) | 70,930 | 3,403,221 | ||
Packaging Corp. of America(1) | 48,150 | 3,912,669 | ||
7,315,890 | ||||
Diversified Telecommunication Services — 0.5% | ||||
AT&T, Inc.(1) | 99,180 | 4,027,700 |
6
Shares | Value | |||
Electric Utilities — 2.6% | ||||
Edison International(1) | 124,618 | $ | 9,003,650 | |
PG&E Corp.(1) | 183,886 | 11,248,307 | ||
20,251,957 | ||||
Electrical Equipment — 1.9% | ||||
Eaton Corp. plc(1) | 56,030 | 3,681,731 | ||
Hubbell, Inc.(1) | 22,325 | 2,405,296 | ||
Rockwell Automation, Inc.(1) | 68,239 | 8,348,359 | ||
14,435,386 | ||||
Electronic Equipment, Instruments and Components — 0.7% | ||||
TE Connectivity Ltd.(1) | 89,420 | 5,756,860 | ||
Energy Equipment and Services — 2.2% | ||||
Baker Hughes, Inc. | 45,410 | 2,291,843 | ||
Frank's International NV(1) | 438,553 | 5,701,189 | ||
Schlumberger Ltd.(1) | 116,847 | 9,188,848 | ||
17,181,880 | ||||
Equity Real Estate Investment Trusts (REITs) — 0.1% | ||||
Piedmont Office Realty Trust, Inc., Class A(1) | 47,761 | 1,039,757 | ||
Food and Staples Retailing — 2.6% | ||||
CVS Health Corp. | 43,250 | 3,848,817 | ||
US Foods Holding Corp.(1)(2) | 240,430 | 5,676,552 | ||
Wal-Mart Stores, Inc.(1) | 145,290 | 10,478,315 | ||
20,003,684 | ||||
Food Products — 2.2% | ||||
General Mills, Inc.(1) | 131,300 | 8,387,444 | ||
Mead Johnson Nutrition Co.(1) | 107,390 | 8,484,884 | ||
16,872,328 | ||||
Gas Utilities — 1.9% | ||||
Atmos Energy Corp.(1) | 102,540 | 7,636,154 | ||
ONE Gas, Inc.(1) | 64,057 | 3,961,285 | ||
Spire, Inc.(1) | 45,195 | 2,880,729 | ||
14,478,168 | ||||
Health Care Equipment and Supplies — 1.7% | ||||
Baxter International, Inc.(1) | 42,410 | 2,018,716 | ||
Medtronic plc(1) | 37,820 | 3,267,648 | ||
St. Jude Medical, Inc.(1) | 28,080 | 2,239,661 | ||
Zimmer Biomet Holdings, Inc.(1) | 40,497 | 5,265,420 | ||
12,791,445 | ||||
Health Care Providers and Services — 1.1% | ||||
Cardinal Health, Inc.(1) | 39,509 | 3,069,849 | ||
Cigna Corp. | 17,240 | 2,246,717 | ||
Quest Diagnostics, Inc.(1) | 34,367 | 2,908,479 | ||
8,225,045 | ||||
Hotels, Restaurants and Leisure — 0.2% | ||||
McDonald's Corp. | 13,020 | 1,501,987 | ||
Household Durables — 2.0% | ||||
Lennar Corp., Class B(1) | 114,114 | 3,830,807 | ||
PulteGroup, Inc.(1) | 401,910 | 8,054,277 | ||
Tupperware Brands Corp.(1) | 48,820 | 3,191,363 | ||
15,076,447 |
7
Shares | Value | |||
Industrial Conglomerates — 1.1% | ||||
3M Co.(1) | 13,520 | $ | 2,382,629 | |
Koninklijke Philips NV(1) | 71,000 | 2,100,890 | ||
Siemens AG | 33,340 | 3,902,879 | ||
8,386,398 | ||||
Insurance — 5.7% | ||||
Allstate Corp. (The)(1) | 37,990 | 2,628,148 | ||
Chubb Ltd.(1) | 78,020 | 9,803,213 | ||
EMC Insurance Group, Inc.(1) | 39,937 | 1,075,503 | ||
Marsh & McLennan Cos., Inc.(1) | 119,732 | 8,051,977 | ||
MetLife, Inc.(1) | 322,623 | 14,334,140 | ||
ProAssurance Corp.(1) | 92,429 | 4,850,674 | ||
Reinsurance Group of America, Inc.(1) | 30,904 | 3,335,778 | ||
44,079,433 | ||||
Internet Software and Services — 0.5% | ||||
Alphabet, Inc., Class C(2) | 4,830 | 3,754,311 | ||
Leisure Products — 0.2% | ||||
Mattel, Inc.(1) | 55,460 | 1,679,329 | ||
Life Sciences Tools and Services — 0.7% | ||||
Waters Corp.(1)(2) | 32,032 | 5,076,752 | ||
Machinery — 2.2% | ||||
Cummins, Inc.(1) | 66,170 | 8,479,685 | ||
Dover Corp.(1) | 74,500 | 5,486,180 | ||
Stanley Black & Decker, Inc.(1) | 24,400 | 3,000,712 | ||
16,966,577 | ||||
Media — 0.1% | ||||
Discovery Communications, Inc., Class C(1)(2) | 40,140 | 1,056,083 | ||
Multi-Utilities — 0.6% | ||||
Ameren Corp.(1) | 91,970 | 4,523,085 | ||
Oil, Gas and Consumable Fuels — 9.7% | ||||
Anadarko Petroleum Corp. | 71,080 | 4,503,629 | ||
Cimarex Energy Co. | 17,180 | 2,308,477 | ||
Enterprise Products Partners LP(1) | 246,670 | 6,815,492 | ||
EQT Corp.(1) | 34,046 | 2,472,420 | ||
EQT Midstream Partners LP(1) | 25,790 | 1,964,940 | ||
Noble Midstream Partners LP(1)(2) | 149,830 | 4,180,257 | ||
Phillips 66 Partners LP(1) | 73,383 | 3,566,414 | ||
Royal Dutch Shell plc, Class A ADR(1) | 629,630 | 31,525,574 | ||
Shell Midstream Partners LP(1) | 222,150 | 7,126,572 | ||
TOTAL SA ADR(1) | 201,930 | 9,632,061 | ||
74,095,836 | ||||
Pharmaceuticals — 1.9% | ||||
Pfizer, Inc.(1) | 352,218 | 11,929,624 | ||
Teva Pharmaceutical Industries Ltd. ADR(1) | 55,510 | 2,554,015 | ||
14,483,639 | ||||
Road and Rail — 0.6% | ||||
CSX Corp.(1) | 49,760 | 1,517,680 | ||
Norfolk Southern Corp.(1) | 35,950 | 3,489,307 | ||
5,006,987 | ||||
Semiconductors and Semiconductor Equipment — 3.0% | ||||
Applied Materials, Inc.(1) | 329,830 | 9,944,374 |
8
Shares/Principal Amount | Value | |||||
Maxim Integrated Products, Inc.(1) | 322,660 | $ | 12,883,814 | |||
22,828,188 | ||||||
Software — 1.8% | ||||||
Microsoft Corp.(1) | 162,480 | 9,358,848 | ||||
Oracle Corp.(1) | 114,500 | 4,497,560 | ||||
13,856,408 | ||||||
Specialty Retail — 2.9% | ||||||
Advance Auto Parts, Inc.(1) | 33,906 | 5,056,063 | ||||
Bed Bath & Beyond, Inc.(1) | 227,140 | 9,792,005 | ||||
L Brands, Inc.(1) | 47,300 | 3,347,421 | ||||
Lowe's Cos., Inc. | 52,900 | 3,819,909 | ||||
22,015,398 | ||||||
Technology Hardware, Storage and Peripherals — 0.3% | ||||||
Apple, Inc. | 20,530 | 2,320,916 | ||||
Textiles, Apparel and Luxury Goods — 1.2% | ||||||
Ralph Lauren Corp. | 19,340 | 1,956,048 | ||||
Under Armour, Inc., Class C(1)(2) | 111,913 | 3,789,374 | ||||
VF Corp.(1) | 67,200 | 3,766,560 | ||||
9,511,982 | ||||||
Thrifts and Mortgage Finance — 0.6% | ||||||
Capitol Federal Financial, Inc.(1) | 314,773 | 4,428,856 | ||||
Trading Companies and Distributors† | ||||||
Rush Enterprises, Inc., Class B(1)(2) | 11,560 | 281,024 | ||||
TOTAL COMMON STOCKS (Cost $487,411,439) | 528,571,661 | |||||
EXCHANGE-TRADED FUNDS — 8.4% | ||||||
Consumer Discretionary Select Sector SPDR Fund(1) | 272,310 | 21,795,692 | ||||
iShares Russell 1000 Value ETF(1) | 285,309 | 30,134,337 | ||||
iShares U.S. Real Estate ETF(1) | 155,430 | 12,533,875 | ||||
TOTAL EXCHANGE-TRADED FUNDS (Cost $61,254,199) | 64,463,904 | |||||
CONVERTIBLE BONDS — 5.9% | ||||||
Capital Markets — 1.7% | ||||||
Janus Capital Group, Inc., 0.75%, 7/15/18 | $ | 9,476,000 | 12,958,430 | |||
Semiconductors and Semiconductor Equipment — 4.2% | ||||||
Intel Corp., 2.95%, 12/15/35(1) | 12,544,000 | 17,349,920 | ||||
Microchip Technology, Inc., 1.625%, 2/15/25 | 11,303,000 | 14,467,840 | ||||
31,817,760 | ||||||
TOTAL CONVERTIBLE BONDS (Cost $40,409,129) | 44,776,190 | |||||
CONVERTIBLE PREFERRED STOCKS — 1.1% | ||||||
Electric Utilities — 0.7% | ||||||
NextEra Energy, Inc., 6.12%, 9/1/19(1) | 110,630 | 5,509,374 | ||||
Food Products — 0.4% | ||||||
Tyson Foods, Inc., 4.75%, 7/15/17(1) | 37,497 | 3,069,505 | ||||
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $7,409,728) | 8,578,879 | |||||
TEMPORARY CASH INVESTMENTS — 18.2% | ||||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/20, valued at $110,175,975), at 0.15%, dated 9/30/16, due 10/3/16 (Delivery value $108,009,350) | 108,008,000 |
9
Shares | Value | |||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 31,600,308 | $ | 31,600,308 | |
TOTAL TEMPORARY CASH INVESTMENTS (Cost $139,608,308) | 139,608,308 | |||
TOTAL INVESTMENT SECURITIES BEFORE SECURITIES SOLD SHORT — 102.5% (Cost $736,092,803) | 785,998,942 | |||
SECURITIES SOLD SHORT — (84.0)% | ||||
COMMON STOCKS SOLD SHORT — (72.2)% | ||||
Aerospace and Defense — (4.4)% | ||||
General Dynamics Corp. | (47,290) | (7,337,516) | ||
HEICO Corp. | (162,071) | (11,215,313) | ||
Northrop Grumman Corp. | (33,560) | (7,180,162) | ||
Raytheon Co. | (34,880) | (4,748,215) | ||
Spirit Aerosystems Holdings, Inc., Class A | (64,290) | (2,863,477) | ||
(33,344,683) | ||||
Air Freight and Logistics — (0.7)% | ||||
FedEx Corp. | (30,540) | (5,334,727) | ||
Airlines — (0.3)% | ||||
American Airlines Group, Inc. | (55,970) | (2,049,062) | ||
Auto Components — (0.4)% | ||||
BorgWarner, Inc. | (89,200) | (3,138,056) | ||
Automobiles — (0.8)% | ||||
Ford Motor Co. | (128,590) | (1,552,081) | ||
General Motors Co. | (87,510) | (2,780,193) | ||
Tesla Motors, Inc. | (6,800) | (1,387,404) | ||
(5,719,678) | ||||
Banks — (4.1)% | ||||
Bank of Hawaii Corp. | (64,480) | (4,682,538) | ||
Bank of Montreal | (58,630) | (3,844,369) | ||
JPMorgan Chase & Co. | (96,334) | (6,414,881) | ||
KeyCorp | (332,460) | (4,046,038) | ||
People's United Financial, Inc. | (616,621) | (9,754,944) | ||
Wells Fargo & Co. | (66,590) | (2,948,605) | ||
(31,691,375) | ||||
Beverages — (1.7)% | ||||
Brown-Forman Corp., Class A | (224,240) | (11,155,940) | ||
Coca-Cola Co. (The) | (40,818) | (1,727,418) | ||
(12,883,358) | ||||
Biotechnology — (0.7)% | ||||
Amgen, Inc. | (16,780) | (2,799,072) | ||
Biogen, Inc. | (8,490) | (2,657,625) | ||
(5,456,697) | ||||
Capital Markets — (1.7)% | ||||
Janus Capital Group, Inc. | (924,770) | (12,956,028) | ||
Commercial Services and Supplies — (1.2)% | ||||
Cintas Corp. | (54,995) | (6,192,437) | ||
Waste Management, Inc. | (52,346) | (3,337,581) | ||
(9,530,018) | ||||
Consumer Finance — (0.5)% | ||||
Capital One Financial Corp. | (51,240) | (3,680,569) |
10
Shares | Value | |||
Containers and Packaging — (0.9)% | ||||
Sealed Air Corp. | (157,620) | $ | (7,222,148 | ) |
Diversified Financial Services — (1.1)% | ||||
Berkshire Hathaway, Inc., Class B | (57,144) | (8,255,594) | ||
Diversified Telecommunication Services — (0.5)% | ||||
Verizon Communications, Inc. | (78,150) | (4,062,237) | ||
Electric Utilities — (1.7)% | ||||
American Electric Power Co., Inc. | (89,030) | (5,716,616) | ||
Great Plains Energy, Inc. | (165,870) | (4,526,593) | ||
Southern Co. (The) | (55,013) | (2,822,167) | ||
(13,065,376) | ||||
Electronic Equipment, Instruments and Components — (0.8)% | ||||
Amphenol Corp., Class A | (88,270) | (5,730,488) | ||
Energy Equipment and Services — (1.7)% | ||||
Halliburton Co. | (256,150) | (11,496,012) | ||
Helmerich & Payne, Inc. | (25,400) | (1,709,420) | ||
(13,205,432) | ||||
Equity Real Estate Investment Trusts (REITs) — (1.8)% | ||||
AvalonBay Communities, Inc. | (21,710) | (3,860,906) | ||
Boston Properties, Inc. | (7,490) | (1,020,812) | ||
Equity Residential | (29,150) | (1,875,220) | ||
Essex Property Trust, Inc. | (11,070) | (2,465,289) | ||
Simon Property Group, Inc. | (20,480) | (4,239,565) | ||
(13,461,792) | ||||
Food and Staples Retailing — (2.6)% | ||||
Costco Wholesale Corp. | (47,390) | (7,227,449) | ||
Kroger Co. (The) | (109,330) | (3,244,915) | ||
Performance Food Group Co. | (226,850) | (5,625,880) | ||
Walgreens Boots Alliance, Inc. | (47,360) | (3,818,163) | ||
(19,916,407) | ||||
Food Products — (2.6)% | ||||
Kraft Heinz Co. (The) | (188,514) | (16,873,888) | ||
Tyson Foods, Inc., Class A | (41,691) | (3,113,067) | ||
(19,986,955) | ||||
Health Care Equipment and Supplies — (1.7)% | ||||
Abbott Laboratories | (53,430) | (2,259,555) | ||
Becton Dickinson and Co. | (11,140) | (2,002,192) | ||
Stryker Corp. | (72,780) | (8,472,320) | ||
(12,734,067) | ||||
Health Care Providers and Services — (1.1)% | ||||
Laboratory Corp. of America Holdings | (21,079) | (2,897,941) | ||
McKesson Corp. | (18,010) | (3,003,167) | ||
UnitedHealth Group, Inc. | (15,760) | (2,206,400) | ||
(8,107,508) | ||||
Hotels, Restaurants and Leisure — (0.6)% | ||||
Chipotle Mexican Grill, Inc. | (11,250) | (4,764,375) | ||
Household Durables — (2.8)% | ||||
Lennar Corp., Class A | (89,770) | (3,800,861) | ||
Newell Brands, Inc. | (107,330) | (5,651,998) | ||
Toll Brothers, Inc. | (269,600) | (8,050,256) |
11
Shares | Value | |||
Whirlpool Corp. | (23,580) | $ | (3,823,733 | ) |
(21,326,848 | ) | |||
Industrial Conglomerates — (2.2)% | ||||
General Electric Co. | (430,200) | (12,742,524) | ||
Honeywell International, Inc. | (36,670) | (4,275,355) | ||
(17,017,879) | ||||
Insurance — (5.1)% | ||||
American International Group, Inc. | (36,940) | (2,192,020) | ||
Aon plc | (71,930) | (8,091,406) | ||
Principal Financial Group, Inc. | (72,730) | (3,746,322) | ||
Prudential Financial, Inc. | (174,943) | (14,284,096) | ||
Travelers Cos., Inc. (The) | (97,170) | (11,130,823) | ||
(39,444,667) | ||||
Internet and Direct Marketing Retail — (1.2)% | ||||
Amazon.com, Inc. | (10,740) | (8,992,709) | ||
IT Services — (0.9)% | ||||
International Business Machines Corp. | (42,900) | (6,814,665) | ||
Leisure Products — (0.2)% | ||||
Hasbro, Inc. | (20,870) | (1,655,617) | ||
Life Sciences Tools and Services — (0.7)% | ||||
Thermo Fisher Scientific, Inc. | (32,240) | (5,128,094) | ||
Machinery — (2.7)% | ||||
Caterpillar, Inc. | (78,660) | (6,982,648) | ||
Deere & Co. | (92,690) | (7,911,092) | ||
Middleby Corp. (The) | (21,170) | (2,617,035) | ||
Snap-on, Inc. | (20,050) | (3,046,798) | ||
(20,557,573) | ||||
Media — (0.1)% | ||||
Discovery Communications, Inc., Class A | (37,880) | (1,019,730) | ||
Multi-Utilities — (0.7)% | ||||
Dominion Resources, Inc. | (76,020) | (5,646,005) | ||
Multiline Retail — (1.3)% | ||||
JC Penney Co., Inc. | (361,740) | (3,335,243) | ||
Macy's, Inc. | (84,770) | (3,140,729) | ||
Nordstrom, Inc. | (60,540) | (3,140,815) | ||
(9,616,787) | ||||
Oil, Gas and Consumable Fuels — (7.9)% | ||||
Chevron Corp. | (69,940) | (7,198,225) | ||
EOG Resources, Inc. | (21,370) | (2,066,693) | ||
Exxon Mobil Corp. | (30,080) | (2,625,382) | ||
Kinder Morgan, Inc. | (630,772) | (14,589,756) | ||
Royal Dutch Shell plc, Class B ADR | (594,500) | (31,407,435) | ||
Williams Partners LP | (78,320) | (2,912,721) | ||
(60,800,212) | ||||
Personal Products — (0.4)% | ||||
Nu Skin Enterprises, Inc. | (50,410) | (3,265,560) | ||
Pharmaceuticals — (1.5)% | ||||
Merck & Co., Inc. | (145,880) | (9,104,371) | ||
Valeant Pharmaceuticals International, Inc. | (103,790) | (2,548,044) | ||
(11,652,415) |
12
Shares | Value | |||
Road and Rail — (1.2)% | ||||
Avis Budget Group, Inc. | (120,380) | $ | (4,118,200 | ) |
Union Pacific Corp. | (50,780) | (4,952,573) | ||
(9,070,773) | ||||
Semiconductors and Semiconductor Equipment — (4.9)% | ||||
Intel Corp. | (385,510) | (14,553,002) | ||
KLA-Tencor Corp. | (55,180) | (3,846,598) | ||
Lam Research Corp. | (62,830) | (5,950,629) | ||
Microchip Technology, Inc. | (210,920) | (13,106,569) | ||
(37,456,798) | ||||
Specialty Retail — (1.5)% | ||||
O'Reilly Automotive, Inc. | (17,850) | (4,999,964) | ||
Signet Jewelers Ltd. | (49,900) | (3,719,047) | ||
Tiffany & Co. | (39,800) | (2,890,674) | ||
(11,609,685) | ||||
Technology Hardware, Storage and Peripherals — (0.9)% | ||||
HP, Inc. | (454,070) | (7,051,707) | ||
Textiles, Apparel and Luxury Goods — (2.0)% | ||||
lululemon athletica, Inc. | (116,250) | (7,088,925) | ||
PVH Corp. | (39,730) | (4,390,165) | ||
Under Armour, Inc., Class A | (97,710) | (3,779,423) | ||
(15,258,513) | ||||
Thrifts and Mortgage Finance — (0.4)% | ||||
New York Community Bancorp, Inc. | (239,830) | (3,412,781) | ||
Trading Companies and Distributors† | ||||
Rush Enterprises, Inc., Class A | (11,277) | (276,061) | ||
TOTAL COMMON STOCKS SOLD SHORT (Proceeds $523,834,345) | (553,371,709) | |||
EXCHANGE-TRADED FUNDS SOLD SHORT — (11.8)% | ||||
Alerian MLP ETF | (482,760) | (6,126,224) | ||
Industrial Select Sector SPDR Fund | (36,900) | (2,154,222) | ||
iShares Russell 1000 Growth ETF | (288,610) | (30,064,504) | ||
iShares U.S. Oil & Gas Exploration & Production ETF | (39,830) | (2,449,943) | ||
SPDR S&P Oil & Gas Exploration & Production ETF | (124,240) | (4,778,270) | ||
SPDR S&P Regional Banking ETF | (52,520) | (2,220,021) | ||
Technology Select Sector SPDR Fund | (268,920) | (12,848,998) | ||
Utilities Select Sector SPDR Fund | (531,600) | (26,043,084) | ||
VanEck Vectors Oil Services ETF | (137,330) | (4,021,022) | ||
TOTAL EXCHANGE-TRADED FUNDS SOLD SHORT (Proceeds $87,162,677) | (90,706,288) | |||
TOTAL SECURITIES SOLD SHORT — (84.0)% (Proceeds $610,997,022) | (644,077,997) | |||
OTHER ASSETS AND LIABILITIES(3) — 81.5% | 624,928,445 | |||
TOTAL NET ASSETS — 100.0% | $ | 766,849,390 |
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FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
USD | 10,280,944 | EUR | 9,144,795 | UBS AG | 12/30/16 | $ | (33,918 | ) | ||
USD | 2,922,214 | EUR | 2,590,960 | UBS AG | 12/30/16 | (256 | ) | |||
USD | 4,798,739 | GBP | 3,685,809 | Credit Suisse AG | 12/30/16 | 12,344 | ||||
USD | 50,162 | GBP | 38,630 | Credit Suisse AG | 12/30/16 | (4 | ) | |||
USD | 18,303,890 | GBP | 14,090,484 | Credit Suisse AG | 12/30/16 | 5,976 | ||||
USD | 1,129,419 | JPY | 112,872,406 | Credit Suisse AG | 12/30/16 | 11,863 | ||||
$ | (3,995 | ) |
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
EUR | - | Euro |
GBP | - | British Pound |
JPY | - | Japanese Yen |
USD | - | United States Dollar |
† | Category is less than 0.05% of total net assets. |
(1) | Security, or a portion thereof, has been pledged at the custodian bank or with a broker for collateral requirements on securities sold short. At the period end, the aggregate value of securities pledged was $488,752,268. |
(2) | Non-income producing. |
(3) | Amount relates primarily to deposits with broker for securities sold short at period end. |
See Notes to Financial Statements.
14
Statement of Assets and Liabilities |
SEPTEMBER 30, 2016 (UNAUDITED) | |||
Assets | |||
Investment securities, at value (cost of $736,092,803) | $ | 785,998,942 | |
Deposits with broker for securities sold short | 624,561,541 | ||
Receivable for investments sold | 82,275,807 | ||
Receivable for capital shares sold | 1,654,117 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 30,183 | ||
Dividends and interest receivable | 952,306 | ||
1,495,472,896 | |||
Liabilities | |||
Securities sold short, at value (proceeds of $610,997,022) | 644,077,997 | ||
Payable for investments purchased | 82,216,279 | ||
Payable for capital shares redeemed | 518,677 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 34,178 | ||
Accrued management fees | 993,035 | ||
Distribution and service fees payable | 53,743 | ||
Dividend expense payable on securities sold short | 729,597 | ||
728,623,506 | |||
Net Assets | $ | 766,849,390 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 757,907,150 | |
Accumulated net investment loss | (5,630,890 | ) | |
Accumulated net realized loss | (2,247,993 | ) | |
Net unrealized appreciation | 16,821,123 | ||
$ | 766,849,390 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Investor Class, $0.01 Par Value | $416,852,894 | 38,673,793 | $10.78 | |||
Institutional Class, $0.01 Par Value | $187,237,406 | 17,185,741 | $10.89 | |||
A Class, $0.01 Par Value | $127,938,483 | 12,016,961 | $10.65* | |||
C Class, $0.01 Par Value | $34,707,910 | 3,389,304 | $10.24 | |||
R Class, $0.01 Par Value | $112,697 | 10,721 | $10.51 |
*Maximum offering price $11.30 (net asset value divided by 0.9425).
See Notes to Financial Statements.
15
Statement of Operations |
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $70,889) | $ | 5,623,016 | |
Interest | 395,302 | ||
6,018,318 | |||
Expenses: | |||
Dividend expense on securities sold short | 5,827,936 | ||
Broker fees and charges on securities sold short | 319,121 | ||
Management fees | 6,043,336 | ||
Distribution and service fees: | |||
A Class | 131,554 | ||
C Class | 148,005 | ||
R Class | 270 | ||
Directors' fees and expenses | 10,751 | ||
Other expenses | 132 | ||
12,481,105 | |||
Fees waived | (916,709 | ) | |
11,564,396 | |||
Net investment income (loss) | (5,546,078 | ) | |
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 20,737,298 | ||
Securities sold short transactions | (15,793,803 | ) | |
Foreign currency transactions | (167,888 | ) | |
4,775,607 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 19,460,430 | ||
Securities sold short | (17,693,085 | ) | |
Translation of assets and liabilities in foreign currencies | 75,346 | ||
1,842,691 | |||
Net realized and unrealized gain (loss) | 6,618,298 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 1,072,220 |
See Notes to Financial Statements.
16
Statement of Changes in Net Assets |
SIX MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) AND YEAR ENDED MARCH 31, 2016 | ||||||
Increase (Decrease) in Net Assets | September 30, 2016 | March 31, 2016 | ||||
Operations | ||||||
Net investment income (loss) | $ | (5,546,078 | ) | $ | (3,180,237 | ) |
Net realized gain (loss) | 4,775,607 | 1,664,775 | ||||
Change in net unrealized appreciation (depreciation) | 1,842,691 | 10,497,064 | ||||
Net increase (decrease) in net assets resulting from operations | 1,072,220 | 8,981,602 | ||||
Distributions to Shareholders | ||||||
From net realized gains: | ||||||
Investor Class | — | (1,774,577 | ) | |||
Institutional Class | — | (211,977 | ) | |||
A Class | — | (542,336 | ) | |||
C Class | — | (227,499 | ) | |||
R Class | — | (557 | ) | |||
Decrease in net assets from distributions | — | (2,756,946 | ) | |||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 290,035,559 | 396,333,523 | ||||
Net increase (decrease) in net assets | 291,107,779 | 402,558,179 | ||||
Net Assets | ||||||
Beginning of period | 475,741,611 | 73,183,432 | ||||
End of period | $ | 766,849,390 | $ | 475,741,611 | ||
Accumulated net investment loss | $ | (5,630,890 | ) | $ | (84,812 | ) |
See Notes to Financial Statements.
17
Notes to Financial Statements |
SEPTEMBER 30, 2016 (UNAUDITED)
1. Organization
American Century Capital Portfolios, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. AC Alternatives Market Neutral Value Fund (the fund) is one fund in a series issued by the corporation. The fund’s investment objective is to seek long-term capital growth, independent of equity market conditions.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Fixed income securities are valued at the evaluated mean as provided by independent pricing services or at the mean of the most recent bid and asked prices as provided by investment dealers. Corporate and convertible bonds are valued using market models that consider trade data, quotations from dealers and active market makers, relevant yield curve and spread data, creditworthiness, trade data or market information on comparable securities, and other relevant security specific information.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation
18
with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Securities Sold Short — The fund enters into short sales, which is selling securities it does not own, as part of its normal investment activities. Upon selling a security short, the fund will segregate cash, cash equivalents or other appropriate liquid securities in at least an amount equal to the current market value of the securities sold short until the fund replaces the borrowed security. Interest earned on segregated cash for securities sold short is reflected as interest income. The fund is required to pay any dividends or interest due on securities sold short. Such dividends and interest are recorded as an expense. The fund may pay fees or charges to the broker on the assets borrowed for securities sold short. These fees are calculated daily based upon the value of each security sold short and a rate that is dependent on the availability of such security. Liabilities for securities sold short are valued daily and changes in value are recorded as change in net unrealized appreciation (depreciation) on securities sold short. The fund records realized gain (loss) on a security sold short when it is terminated by the fund and includes as a component of net realized gain (loss) on securities sold short transactions.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively. Net realized and unrealized foreign currency exchange gains or losses related to securities sold short are a component of net realized gain (loss) on securities sold short transactions and change in net unrealized appreciation (depreciation) on securities sold short, respectively.
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover certain types of investments, including, but not limited to, futures contracts and short sales. American Century Investment Management, Inc. (ACIM) (the investment advisor) monitors, on a daily basis, the securities segregated to ensure the fund designates a sufficient amount of liquid assets, marked-to-market daily. The fund may also receive assets or be required to pledge assets at the custodian bank or with a broker for margin requirements on futures contracts and short sales.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. 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
19
interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially 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 income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net 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. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income, if any, are generally declared and paid quarterly. Distributions from net realized gains, if any, are generally declared and paid annually.
Indemnifications — Under the corporation’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc. (ACIS), and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
Management Fees — 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 (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, expenses on securities sold short, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The annual management fee is 1.90% for the Investor Class, A Class, C Class and R Class and 1.70% for the Institutional Class. From April 1, 2016 through July 31, 2016 the investment advisor agreed to waive 0.30% of the fund's management fee. Effective August 1, 2016, the investment advisor agreed to decrease the amount of the waiver from 0.30% to 0.25% of the fund's management fee. The investment advisor expects the fee waiver to continue through July 31, 2017, and cannot terminate it prior to such date without the approval of the Board of Directors. The total amount of the waiver for each class for the six months ended September 30, 2016 was $504,823, $222,347, $147,815, $41,571 and $153 for the Investor Class, Institutional Class, A Class, C Class and R Class, respectively. The effective annual management fee after waiver for each class for the six months ended September 30, 2016 was 1.62% for the Investor Class, A Class, C Class and R Class and 1.42% for the Institutional Class.
20
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay ACIS an annual distribution and service fee of 0.25%. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the six months ended September 30, 2016 are detailed in the Statement of Operations.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
Acquired Fund Fees and Expenses — The fund may invest in mutual funds, exchange-traded funds, and business development companies (the acquired funds). The fund will indirectly realize its pro rata share of the fees and expenses of the acquired funds in which it invests. These indirect fees and expenses are not paid out of the fund's assets but are reflected in the return realized by the fund on its investment in the acquired funds.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $5,939,554 and $6,518,145, respectively. The effect of interfund transactions on the Statement of Operations was $(22,255) in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities and securities sold short, excluding short-term investments, for the six months ended September 30, 2016 were $966,394,872 and $971,224,573, respectively.
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5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Six months ended September 30, 2016 | Year ended March 31, 2016 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 160,000,000 | 160,000,000 | ||||||||
Sold | 22,746,833 | $ | 245,965,732 | 23,436,964 | $ | 248,747,920 | ||||
Issued in reinvestment of distributions | — | — | 166,222 | 1,737,019 | ||||||
Redeemed | (7,734,359 | ) | (83,497,914 | ) | (4,678,769 | ) | (49,636,282 | ) | ||
15,012,474 | 162,467,818 | 18,924,417 | 200,848,657 | |||||||
Institutional Class/Shares Authorized | 60,000,000 | 60,000,000 | ||||||||
Sold | 8,257,816 | 90,173,865 | 11,252,623 | 120,520,975 | ||||||
Issued in reinvestment of distributions | — | — | 20,093 | 211,977 | ||||||
Redeemed | (2,539,683 | ) | (27,769,836 | ) | (376,564 | ) | (4,047,101 | ) | ||
5,718,133 | 62,404,029 | 10,896,152 | 116,685,851 | |||||||
A Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 6,723,985 | 71,822,684 | 7,508,437 | 78,853,456 | ||||||
Issued in reinvestment of distributions | — | — | 52,448 | 542,312 | ||||||
Redeemed | (1,928,758 | ) | (20,589,874 | ) | (1,238,311 | ) | (12,963,697 | ) | ||
4,795,227 | 51,232,810 | 6,322,574 | 66,432,071 | |||||||
C Class/Shares Authorized | 15,000,000 | 15,000,000 | ||||||||
Sold | 1,527,995 | 15,734,173 | 1,389,234 | 14,131,872 | ||||||
Issued in reinvestment of distributions | — | — | 22,694 | 227,167 | ||||||
Redeemed | (178,905 | ) | (1,839,871 | ) | (160,361 | ) | (1,619,700 | ) | ||
1,349,090 | 13,894,302 | 1,251,567 | 12,739,339 | |||||||
R Class/Shares Authorized | 10,000,000 | 10,000,000 | ||||||||
Sold | 4,340 | 45,614 | 4,187 | 43,480 | ||||||
Issued in reinvestment of distributions | — | — | 54 | 557 | ||||||
Redeemed | (854 | ) | (9,014 | ) | (40,548 | ) | (416,432 | ) | ||
3,486 | 36,600 | (36,307 | ) | (372,395 | ) | |||||
Net increase (decrease) | 26,878,410 | $ | 290,035,559 | 37,358,403 | $ | 396,333,523 |
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
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The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 524,668,782 | $ | 3,902,879 | — | |||
Exchange-Traded Funds | 64,463,904 | — | — | |||||
Convertible Bonds | — | 44,776,190 | — | |||||
Convertible Preferred Stocks | — | 8,578,879 | — | |||||
Temporary Cash Investments | 31,600,308 | 108,008,000 | — | |||||
$ | 620,732,994 | $ | 165,265,948 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 30,183 | — | ||||
Liabilities | ||||||||
Securities Sold Short | ||||||||
Common Stocks | $ | 553,371,709 | — | — | ||||
Exchange-Traded Funds | 90,706,288 | — | — | |||||
$ | 644,077,997 | — | — | |||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 34,178 | — |
7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $21,627,716.
The value of foreign currency risk derivative instruments as of September 30, 2016, is disclosed on the Statement of Assets and Liabilities as an asset of $30,183 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $34,178 in unrealized depreciation on forward foreign currency exchange contracts. For the six months ended September 30, 2016, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(165,645) in net realized gain (loss) on foreign currency transactions and $75,459 in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Risk Factors
The fund’s investment process may result in high portfolio turnover, which could mean high transaction costs, affecting both performance and capital gains tax liabilities to investors.
The fund is subject to short sales risk. If the market price of a security increases after the fund borrows the security, the fund may suffer a loss when it replaces the borrowed security at the higher price. Any loss will be
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increased by the amount of compensation, interest or dividends, and transaction costs the fund must pay to the lender of the borrowed security.
There are certain risks involved in investing in foreign securities. These risks include those resulting from future adverse political, social and economic developments, fluctuations in currency exchange rates, the possible imposition of exchange controls, and other foreign laws or restrictions.
9. Federal Tax Information
The book-basis 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 on the financial statements.
As of September 30, 2016, the components of investments for federal income tax purposes were as follows:
Federal tax cost of investments | $ | 743,495,315 | |
Gross tax appreciation of investments | $ | 47,209,007 | |
Gross tax depreciation of investments | (4,705,380 | ) | |
Net tax appreciation (depreciation) of investments | 42,503,627 | ||
Net tax appreciation (depreciation) on securities sold short | (45,099,070 | ) | |
Net tax appreciation (depreciation) | $ | (2,595,443 | ) |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
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Financial Highlights |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | ||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | |||||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | |||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Realized Gains | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Operating Expenses (excluding expenses on securities sold short) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | ||||||||||||||||
2016(3) | $10.73 | (0.09) | 0.14 | 0.05 | — | $10.78 | 0.47% | 3.50%(5) | 3.78%(5) | 1.62%(5) | (1.66)%(5) | (1.94)%(5) | 186% | $416,853 | ||
2016 | $10.44 | (0.19) | 0.65 | 0.46 | (0.17) | $10.73 | 4.42% | 3.78% | 4.08% | 1.61% | (1.82)% | (2.12)% | 679% | $253,885 | ||
2015 | $10.22 | (0.20) | 0.62 | 0.42 | (0.20) | $10.44 | 4.10% | 3.88% | 4.18% | 1.60% | (1.95)% | (2.25)% | 447% | $49,465 | ||
2014 | $10.25 | (0.04) | 0.21 | 0.17 | (0.20) | $10.22 | 1.69% | 4.09% | 4.39% | 1.60% | (0.35)% | (0.65)% | 521% | $49,665 | ||
2013 | $10.32 | (0.25) | 0.52 | 0.27 | (0.34) | $10.25 | 2.61% | 4.74% | 5.04% | 1.60% | (2.46)% | (2.76)% | 588% | $8,214 | ||
2012(4) | $10.00 | (0.11) | 0.43 | 0.32 | — | $10.32 | 3.20% | 4.92%(5) | 5.22%(5) | 1.61%(5) | (2.49)%(5) | (2.79)%(5) | 292% | $3,118 | ||
Institutional Class | ||||||||||||||||
2016(3) | $10.83 | (0.08) | 0.14 | 0.06 | — | $10.89 | 0.55% | 3.30%(5) | 3.58%(5) | 1.42%(5) | (1.46)%(5) | (1.74)%(5) | 186% | $187,237 | ||
2016 | $10.52 | (0.16) | 0.64 | 0.48 | (0.17) | $10.83 | 4.58% | 3.58% | 3.88% | 1.41% | (1.62)% | (1.92)% | 679% | $124,249 | ||
2015 | $10.28 | (0.18) | 0.62 | 0.44 | (0.20) | $10.52 | 4.28% | 3.68% | 3.98% | 1.40% | (1.75)% | (2.05)% | 447% | $6,013 | ||
2014 | $10.28 | 0.11 | 0.09 | 0.20 | (0.20) | $10.28 | 1.98% | 3.89% | 4.19% | 1.40% | (0.15)% | (0.45)% | 521% | $5,714 | ||
2013 | $10.33 | (0.24) | 0.53 | 0.29 | (0.34) | $10.28 | 2.81% | 4.54% | 4.84% | 1.40% | (2.26)% | (2.56)% | 588% | $425 | ||
2012(4) | $10.00 | (0.09) | 0.42 | 0.33 | — | $10.33 | 3.30% | 4.72%(5) | 5.02%(5) | 1.41%(5) | (2.29)%(5) | (2.59)%(5) | 292% | $413 |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | ||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | |||||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | |||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Realized Gains | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Operating Expenses (excluding expenses on securities sold short) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
A Class | ||||||||||||||||
2016(3) | $10.61 | (0.10) | 0.14 | 0.04 | — | $10.65 | 0.28% | 3.75%(5) | 4.03%(5) | 1.87%(5) | (1.91)%(5) | (2.19)%(5) | 186% | $127,938 | ||
2016 | $10.36 | (0.22) | 0.64 | 0.42 | (0.17) | $10.61 | 4.07% | 4.03% | 4.33% | 1.86% | (2.07)% | (2.37)% | 679% | $76,630 | ||
2015 | $10.16 | (0.23) | 0.63 | 0.40 | (0.20) | $10.36 | 3.93% | 4.13% | 4.43% | 1.85% | (2.20)% | (2.50)% | 447% | $9,311 | ||
2014 | $10.21 | (0.07) | 0.22 | 0.15 | (0.20) | $10.16 | 1.50% | 4.34% | 4.64% | 1.85% | (0.60)% | (0.90)% | 521% | $13,640 | ||
2013 | $10.31 | (0.28) | 0.52 | 0.24 | (0.34) | $10.21 | 2.32% | 4.99% | 5.29% | 1.85% | (2.71)% | (3.01)% | 588% | $2,265 | ||
2012(4) | $10.00 | (0.11) | 0.42 | 0.31 | — | $10.31 | 3.10% | 5.17%(5) | 5.47%(5) | 1.86%(5) | (2.74)%(5) | (3.04)%(5) | 292% | $432 | ||
C Class | ||||||||||||||||
2016(3) | $10.24 | (0.14) | 0.14 | — | — | $10.24 | 0.00% | 4.50%(5) | 4.78%(5) | 2.62%(5) | (2.66)%(5) | (2.94)%(5) | 186% | $34,708 | ||
2016 | $10.08 | (0.29) | 0.62 | 0.33 | (0.17) | $10.24 | 3.28% | 4.78% | 5.08% | 2.61% | (2.82)% | (3.12)% | 679% | $20,902 | ||
2015 | $9.97 | (0.30) | 0.61 | 0.31 | (0.20) | $10.08 | 3.10% | 4.88% | 5.18% | 2.60% | (2.95)% | (3.25)% | 447% | $7,948 | ||
2014 | $10.10 | (0.14) | 0.21 | 0.07 | (0.20) | $9.97 | 0.72% | 5.09% | 5.39% | 2.60% | (1.35)% | (1.65)% | 521% | $6,844 | ||
2013 | $10.28 | (0.35) | 0.51 | 0.16 | (0.34) | $10.10 | 1.54% | 5.74% | 6.04% | 2.60% | (3.46)% | (3.76)% | 588% | $1,111 | ||
2012(4) | $10.00 | (0.14) | 0.42 | 0.28 | — | $10.28 | 2.80% | 5.92%(5) | 6.22%(5) | 2.61%(5) | (3.49)%(5) | (3.79)%(5) | 292% | $411 |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | ||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | |||||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | |||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Realized Gains | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Operating Expenses (excluding expenses on securities sold short) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
R Class | ||||||||||||||||
2016(3) | $10.49 | (0.11) | 0.13 | 0.02 | — | $10.51 | 0.19% | 4.00%(5) | 4.28%(5) | 2.12%(5) | (2.16)%(5) | (2.44)%(5) | 186% | $113 | ||
2016 | $10.26 | (0.21) | 0.61 | 0.40 | (0.17) | $10.49 | 3.91% | 4.28% | 4.58% | 2.11% | (2.32)% | (2.62)% | 679% | $76 | ||
2015 | $10.10 | (0.25) | 0.61 | 0.36 | (0.20) | $10.26 | 3.56% | 4.38% | 4.68% | 2.10% | (2.45)% | (2.75)% | 447% | $447 | ||
2014 | $10.17 | (0.18) | 0.31 | 0.13 | (0.20) | $10.10 | 1.21% | 4.59% | 4.89% | 2.10% | (0.85)% | (1.15)% | 521% | $427 | ||
2013 | $10.30 | (0.31) | 0.52 | 0.21 | (0.34) | $10.17 | 2.13% | 5.24% | 5.54% | 2.10% | (2.96)% | (3.26)% | 588% | $421 | ||
2012(4) | $10.00 | (0.12) | 0.42 | 0.30 | — | $10.30 | 3.00% | 5.42%(5) | 5.72%(5) | 2.11%(5) | (2.99)%(5) | (3.29)%(5) | 292% | $412 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | Six months ended September 30, 2016 (unaudited). |
(4) | October 31, 2011 (fund inception) through March 31, 2012. |
(5) | Annualized. |
See Notes to Financial Statements.
Approval of Management Agreement |
At a meeting held on June 29, 2016, the Fund’s Board of Directors (the "Board") unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments by the Fund and the Advisor to financial intermediaries and the nature of services provided; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors.
28
In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment. The Board noted specifically the resources the Advisor has committed to enhancing cybersecurity protections for the benefit of shareholders.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance, and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, provides oversight of the investment performance process. It regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information provided by the Advisor during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the one- and three-year periods reviewed by the Board. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to,
29
information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating the Advisor’s financial condition, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pays the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, expenses attributable to short sales, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent Directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was above the median of the total expense ratios of the Fund’s peer expense universe. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
30
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Directors also requested and received information from the Advisor concerning the nature of the services, fees, costs, and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board received confirmation from the Advisor that all such payments by the Fund intended for distribution were made pursuant to the Fund's 12b-1 Plan. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor, as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
31
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
32
Contact Us | americancentury.com | |
Automated Information Line | 1-800-345-8765 | |
Investor Services Representative | 1-800-345-2021 or 816-531-5575 | |
Investors Using Advisors | 1-800-378-9878 | |
Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 | |
Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 | |
Telecommunications Relay Service for the Deaf | 711 | |
American Century Capital Portfolios, Inc. | ||
Investment Advisor: American Century Investment Management, Inc. Kansas City, Missouri | ||
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. | ||
©2016 American Century Proprietary Holdings, Inc. All rights reserved. CL-SAN-90804 1611 |
Semiannual Report | |
September 30, 2016 | |
Mid Cap Value Fund |
Table of Contents |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
Jonathan Thomas
Dear Investor:
Thank you for reviewing this semiannual report for the period ended September 30, 2016. It provides a macroeconomic and financial market overview (below), followed by a schedule of fund investments and other financial information. For additional commentary and information on fund performance, key factors that affected asset returns, and other insights regarding the investment markets, we encourage you to visit our website, americancentury.com.
Despite Brexit Shock, Markets Produced Positive, Central Bank-Boosted Returns
The reporting period was unusual in that virtually all mutual fund asset classes posted positive performance, led by gold, U.S. small-cap stocks, and emerging markets (EM) stocks. Even as those higher-risk/higher-volatility asset classes outperformed, government bonds also produced solid returns. Simultaneous positive performance across all asset classes is rare. How did it happen? Massive central bank stimulus—amplified in the wake of China- and energy market-related volatility in early 2016 and the unexpected U.K. vote to leave the European Union (Brexit) in June—helped boost most markets for the reporting period.
Continued central bank stimulus encouraged relatively aggressive investor behavior, including demand for equities and higher-yielding bond sectors, including high-yield corporates and EM debt. At the same time, central bank stimulus also included large volumes of bond purchases and low interest rate targets, which helped drive interest rates lower and government bond prices higher. Oil’s rebound from its January 2016 lows and stabilization of China’s economy also supported investor sentiment, as well as repeated decisions by the Federal Reserve (Fed) to keep its expected interest rate hikes on hold.
The reporting period featured many surprises, including weaker-than-expected global growth, Brexit, the quick market rebound from Brexit, the Republican nomination of Donald Trump, and concerns about the stability of major European banks. Central bank stimulus provided market support, but possible changes loom ahead—the Fed might raise rates as early as December, and other central banks might taper their bond purchases in future months. Meanwhile, the U.S. continues to be swayed by other global factors, including increasing populism and anti-globalization. We’re watching the aftermath of the U.S. elections and the Italian constitutional referendum to see if themes that Brexit spotlighted—nationalism/isolationism, anti-immigration, anti-trade agreements, distrust of career politicians—shape future U.S. and European government leadership. We appreciate your continued trust in us during this potentially turbulent period.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Fund Characteristics |
SEPTEMBER 30, 2016 | |
Top Ten Holdings | % of net assets |
Northern Trust Corp. | 3.1% |
Johnson Controls International plc | 2.8% |
iShares Russell Mid-Cap Value ETF | 2.4% |
Imperial Oil Ltd. | 2.3% |
EQT Corp. | 1.8% |
Zimmer Biomet Holdings, Inc. | 1.7% |
LifePoint Health, Inc. | 1.7% |
Weyerhaeuser Co. | 1.7% |
Edison International | 1.6% |
Applied Materials, Inc. | 1.5% |
Top Five Industries | % of net assets |
Oil, Gas and Consumable Fuels | 10.1% |
Banks | 7.7% |
Insurance | 6.8% |
Capital Markets | 6.3% |
Equity Real Estate Investment Trusts (REITs) | 5.6% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 95.2% |
Exchange-Traded Funds | 2.4% |
Total Equity Exposure | 97.6% |
Temporary Cash Investments | 2.6% |
Other Assets and Liabilities | (0.2)% |
3
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from April 1, 2016 to September 30, 2016.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
4
Beginning Account Value 4/1/16 | Ending Account Value 9/30/16 | Expenses Paid During Period(1) 4/1/16 - 9/30/16 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class (after waiver) | $1,000 | $1,088.00 | $5.13 | 0.98% |
Investor Class (before waiver) | $1,000 | $1,088.00(2) | $5.23 | 1.00% |
Institutional Class (after waiver) | $1,000 | $1,089.10 | $4.08 | 0.78% |
Institutional Class (before waiver) | $1,000 | $1,089.10(2) | $4.19 | 0.80% |
A Class (after waiver) | $1,000 | $1,086.10 | $6.43 | 1.23% |
A Class (before waiver) | $1,000 | $1,086.10(2) | $6.54 | 1.25% |
C Class (after waiver) | $1,000 | $1,082.50 | $10.34 | 1.98% |
C Class (before waiver) | $1,000 | $1,082.50(2) | $10.44 | 2.00% |
R Class (after waiver) | $1,000 | $1,084.90 | $7.74 | 1.48% |
R Class (before waiver) | $1,000 | $1,084.90(2) | $7.84 | 1.50% |
R6 Class (after waiver) | $1,000 | $1,089.90 | $3.30 | 0.63% |
R6 Class (before waiver) | $1,000 | $1,089.90(2) | $3.41 | 0.65% |
Hypothetical | ||||
Investor Class (after waiver) | $1,000 | $1,020.16 | $4.96 | 0.98% |
Investor Class (before waiver) | $1,000 | $1,020.06 | $5.06 | 1.00% |
Institutional Class (after waiver) | $1,000 | $1,021.16 | $3.95 | 0.78% |
Institutional Class (before waiver) | $1,000 | $1,021.06 | $4.05 | 0.80% |
A Class (after waiver) | $1,000 | $1,018.90 | $6.23 | 1.23% |
A Class (before waiver) | $1,000 | $1,018.80 | $6.33 | 1.25% |
C Class (after waiver) | $1,000 | $1,015.14 | $10.00 | 1.98% |
C Class (before waiver) | $1,000 | $1,015.04 | $10.10 | 2.00% |
R Class (after waiver) | $1,000 | $1,017.65 | $7.49 | 1.48% |
R Class (before waiver) | $1,000 | $1,017.55 | $7.59 | 1.50% |
R6 Class (after waiver) | $1,000 | $1,021.91 | $3.19 | 0.63% |
R6 Class (before waiver) | $1,000 | $1,021.81 | $3.29 | 0.65% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
(2) | Ending account value assumes the return earned after waiver and would have been lower if a portion of the fees had not been waived. |
5
Schedule of Investments |
SEPTEMBER 30, 2016 (UNAUDITED)
Shares | Value | |||
COMMON STOCKS — 95.2% | ||||
Aerospace and Defense — 0.9% | ||||
Textron, Inc. | 1,821,747 | $ | 72,414,443 | |
Auto Components — 3.4% | ||||
Delphi Automotive plc | 685,939 | 48,921,170 | ||
Johnson Controls International plc | 4,956,842 | 230,641,858 | ||
279,563,028 | ||||
Automobiles — 1.1% | ||||
Honda Motor Co. Ltd. ADR | 2,057,505 | 59,503,045 | ||
Thor Industries, Inc. | 343,473 | 29,092,163 | ||
88,595,208 | ||||
Banks — 7.7% | ||||
Bank of Hawaii Corp. | 793,647 | 57,634,645 | ||
BB&T Corp. | 2,496,902 | 94,183,144 | ||
Comerica, Inc. | 1,011,344 | 47,856,798 | ||
Commerce Bancshares, Inc. | 1,665,044 | 82,020,067 | ||
M&T Bank Corp. | 644,882 | 74,870,800 | ||
PNC Financial Services Group, Inc. (The) | 1,084,393 | 97,692,965 | ||
SunTrust Banks, Inc. | 1,083,326 | 47,449,679 | ||
UMB Financial Corp. | 939,124 | 55,830,922 | ||
Westamerica Bancorporation(1) | 1,497,468 | 76,191,172 | ||
633,730,192 | ||||
Capital Markets — 6.3% | ||||
Ameriprise Financial, Inc. | 626,117 | 62,467,693 | ||
Franklin Resources, Inc. | 114,943 | 4,088,523 | ||
Invesco Ltd. | 2,216,088 | 69,297,072 | ||
Northern Trust Corp. | 3,690,385 | 250,909,276 | ||
State Street Corp. | 1,145,789 | 79,781,288 | ||
T. Rowe Price Group, Inc. | 810,717 | 53,912,680 | ||
520,456,532 | ||||
Commercial Services and Supplies — 1.8% | ||||
Clean Harbors, Inc.(2) | 914,356 | 43,870,801 | ||
Republic Services, Inc. | 2,051,832 | 103,514,924 | ||
147,385,725 | ||||
Containers and Packaging — 2.4% | ||||
Bemis Co., Inc. | 437,380 | 22,310,754 | ||
Sonoco Products Co. | 1,085,035 | 57,322,399 | ||
WestRock Co. | 2,351,286 | 113,990,345 | ||
193,623,498 | ||||
Diversified Telecommunication Services — 0.9% | ||||
CenturyLink, Inc. | 1,325,215 | 36,350,648 | ||
Level 3 Communications, Inc.(2) | 793,282 | 36,792,419 | ||
73,143,067 | ||||
Electric Utilities — 4.9% | ||||
Edison International | 1,798,294 | 129,926,742 | ||
Eversource Energy | 677,741 | 36,720,007 | ||
PG&E Corp. | 2,006,695 | 122,749,533 |
6
Shares | Value | |||
Xcel Energy, Inc. | 2,825,821 | $ | 116,254,276 | |
405,650,558 | ||||
Electrical Equipment — 2.2% | ||||
Emerson Electric Co. | 901,060 | 49,116,781 | ||
Hubbell, Inc. | 810,879 | 87,364,103 | ||
Rockwell Automation, Inc. | 338,614 | 41,426,037 | ||
177,906,921 | ||||
Electronic Equipment, Instruments and Components — 2.1% | ||||
Keysight Technologies, Inc.(2) | 2,910,635 | 92,238,023 | ||
TE Connectivity Ltd. | 1,271,828 | 81,880,287 | ||
174,118,310 | ||||
Energy Equipment and Services — 3.5% | ||||
Baker Hughes, Inc. | 1,641,799 | 82,861,595 | ||
FMC Technologies, Inc.(2) | 561,355 | 16,655,403 | ||
Frank's International NV | 3,320,376 | 43,164,888 | ||
Halliburton Co. | 1,886,759 | 84,677,744 | ||
National Oilwell Varco, Inc. | 1,526,686 | 56,090,444 | ||
283,450,074 | ||||
Equity Real Estate Investment Trusts (REITs) — 5.6% | ||||
Boston Properties, Inc. | 291,793 | 39,768,468 | ||
Empire State Realty Trust, Inc. | 2,026,497 | 42,455,112 | ||
Host Hotels & Resorts, Inc. | 2,451,321 | 38,167,068 | ||
MGM Growth Properties LLC, Class A | 2,045,090 | 53,315,496 | ||
Piedmont Office Realty Trust, Inc., Class A | 3,651,774 | 79,499,120 | ||
Welltower, Inc. | 869,458 | 65,009,375 | ||
Weyerhaeuser Co. | 4,357,901 | 139,191,358 | ||
457,405,997 | ||||
Food and Staples Retailing — 0.9% | ||||
Sysco Corp. | 1,516,493 | 74,323,322 | ||
Food Products — 5.0% | ||||
ConAgra Foods, Inc. | 2,578,331 | 121,465,173 | ||
General Mills, Inc. | 954,459 | 60,970,841 | ||
J.M. Smucker Co. (The) | 450,205 | 61,020,786 | ||
Kellogg Co. | 628,877 | 48,719,101 | ||
Mead Johnson Nutrition Co. | 370,762 | 29,293,906 | ||
Mondelez International, Inc., Class A | 2,029,566 | 89,097,947 | ||
410,567,754 | ||||
Gas Utilities — 1.5% | ||||
Atmos Energy Corp. | 719,223 | 53,560,537 | ||
Spire, Inc. | 1,059,058 | 67,504,357 | ||
121,064,894 | ||||
Health Care Equipment and Supplies — 4.4% | ||||
Abbott Laboratories | 1,456,311 | 61,587,392 | ||
Baxter International, Inc. | 1,398,667 | 66,576,549 | ||
Becton Dickinson and Co. | 113,093 | 20,326,205 | ||
Boston Scientific Corp.(2) | 792,368 | 18,858,359 | ||
STERIS plc | 738,232 | 53,964,759 | ||
Zimmer Biomet Holdings, Inc. | 1,089,746 | 141,688,775 | ||
363,002,039 | ||||
Health Care Providers and Services — 3.1% | ||||
Cardinal Health, Inc. | 501,419 | 38,960,257 |
7
Shares | Value | |||
LifePoint Health, Inc.(1)(2) | 2,351,049 | $ | 139,252,632 | |
Quest Diagnostics, Inc. | 937,016 | 79,299,664 | ||
257,512,553 | ||||
Hotels, Restaurants and Leisure — 0.8% | ||||
Carnival Corp. | 1,263,980 | 61,707,504 | ||
Household Durables — 0.7% | ||||
PulteGroup, Inc. | 3,064,452 | 61,411,618 | ||
Industrial Conglomerates — 1.4% | ||||
Koninklijke Philips NV | 3,813,394 | 112,900,854 | ||
Insurance — 6.8% | ||||
Aflac, Inc. | 542,919 | 39,019,589 | ||
Allstate Corp. (The) | 577,973 | 39,984,172 | ||
Brown & Brown, Inc. | 1,684,240 | 63,512,690 | ||
Chubb Ltd. | 889,546 | 111,771,455 | ||
MetLife, Inc. | 1,270,819 | 56,462,488 | ||
ProAssurance Corp. | 816,934 | 42,872,696 | ||
Reinsurance Group of America, Inc. | 918,272 | 99,118,280 | ||
Torchmark Corp. | 464,189 | 29,657,035 | ||
Unum Group | 2,093,711 | 73,928,936 | ||
556,327,341 | ||||
Leisure Products — 0.8% | ||||
Mattel, Inc. | 504,792 | 15,285,102 | ||
Polaris Industries, Inc. | 614,002 | 47,548,315 | ||
62,833,417 | ||||
Machinery — 2.7% | ||||
Cummins, Inc. | 452,351 | 57,968,781 | ||
Ingersoll-Rand plc | 1,117,656 | 75,933,549 | ||
ITT, Inc. | 485,069 | 17,384,873 | ||
Oshkosh Corp. | 328,908 | 18,418,848 | ||
Parker-Hannifin Corp. | 417,486 | 52,407,017 | ||
222,113,068 | ||||
Metals and Mining — 0.2% | ||||
Nucor Corp. | 305,000 | 15,082,250 | ||
Multi-Utilities — 2.0% | ||||
Ameren Corp. | 1,216,276 | 59,816,454 | ||
Consolidated Edison, Inc. | 721,961 | 54,363,663 | ||
NorthWestern Corp. | 937,179 | 53,915,908 | ||
168,096,025 | ||||
Multiline Retail — 0.8% | ||||
Target Corp. | 979,944 | 67,302,554 | ||
Oil, Gas and Consumable Fuels — 10.1% | ||||
Anadarko Petroleum Corp. | 1,703,382 | 107,926,283 | ||
Cimarex Energy Co. | 294,119 | 39,520,770 | ||
Devon Energy Corp. | 2,463,823 | 108,679,233 | ||
EQT Corp. | 2,000,994 | 145,312,184 | ||
Imperial Oil Ltd. | 6,109,262 | 191,107,979 | ||
Noble Energy, Inc. | 3,115,613 | 111,352,009 | ||
Occidental Petroleum Corp. | 1,398,300 | 101,964,036 | ||
Spectra Energy Partners LP | 463,728 | 20,260,276 | ||
826,122,770 |
8
Shares/Principal Amount | Value | |||||
Professional Services — 0.3% | ||||||
IHS Markit Ltd.(2) | 732,279 | $ | 27,497,076 | |||
Road and Rail — 2.4% | ||||||
CSX Corp. | 3,633,295 | 110,815,497 | ||||
Heartland Express, Inc.(1) | 4,672,866 | 88,223,710 | ||||
199,039,207 | ||||||
Semiconductors and Semiconductor Equipment — 4.5% | ||||||
Applied Materials, Inc. | 4,174,844 | 125,871,547 | ||||
Lam Research Corp. | 558,623 | 52,907,184 | ||||
Maxim Integrated Products, Inc. | 2,530,399 | 101,038,832 | ||||
Teradyne, Inc. | 4,249,259 | 91,699,009 | ||||
371,516,572 | ||||||
Specialty Retail — 2.1% | ||||||
Advance Auto Parts, Inc. | 531,552 | 79,265,034 | ||||
CST Brands, Inc. | 1,851,281 | 89,028,103 | ||||
168,293,137 | ||||||
Technology Hardware, Storage and Peripherals — 0.5% | ||||||
NetApp, Inc. | 1,207,695 | 43,259,635 | ||||
Textiles, Apparel and Luxury Goods — 0.5% | ||||||
Ralph Lauren Corp. | 437,089 | 44,207,181 | ||||
Thrifts and Mortgage Finance — 0.9% | ||||||
Capitol Federal Financial, Inc. | 5,529,176 | 77,795,506 | ||||
TOTAL COMMON STOCKS (Cost $6,697,490,732) | 7,819,419,830 | |||||
EXCHANGE-TRADED FUNDS — 2.4% | ||||||
iShares Russell Mid-Cap Value ETF (Cost $173,613,668) | 2,589,789 | 198,818,101 | ||||
TEMPORARY CASH INVESTMENTS — 2.6% | ||||||
Federal Home Loan Bank Discount Notes, 0.10%, 10/3/16(3) | $ | 50,000,000 | 50,000,000 | |||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/20, valued at $128,403,844), at 0.15%, dated 9/30/16, due 10/3/16 (Delivery value $125,879,573) | 125,878,000 | |||||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 36,827,777 | 36,827,777 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $212,705,499) | 212,705,777 | |||||
TOTAL INVESTMENT SECURITIES — 100.2% (Cost $7,083,809,899) | 8,230,943,708 | |||||
OTHER ASSETS AND LIABILITIES — (0.2)% | (12,839,991) | |||||
TOTAL NET ASSETS — 100.0% | $ | 8,218,103,717 |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||
USD | 161,777,618 | CAD | 214,182,242 | Morgan Stanley | 12/30/16 | $ | (1,581,857 | ) |
USD | 95,639,262 | EUR | 85,070,147 | UBS AG | 12/30/16 | (315,524 | ) | |
USD | 35,468,639 | JPY | 3,544,682,627 | Credit Suisse AG | 12/30/16 | 372,566 | ||
$ | (1,524,815 | ) |
9
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
CAD | - | Canadian Dollar |
EUR | - | Euro |
JPY | - | Japanese Yen |
USD | - | United States Dollar |
(1) | Affiliated Company: the fund’s holding represents ownership of 5% or more of the voting securities of the company; therefore, the company is affiliated as defined in the Investment Company Act of 1940. |
(2) | Non-income producing. |
(3) | The rate indicated is the yield to maturity at purchase. |
See Notes to Financial Statements.
10
Statement of Assets and Liabilities |
SEPTEMBER 30, 2016 (UNAUDITED) | |||
Assets | |||
Investment securities - unaffiliated, at value (cost of $6,795,274,620) | $ | 7,927,276,194 | |
Investment securities - affiliated, at value (cost of $288,535,279) | 303,667,514 | ||
Total investment securities, at value (cost of $7,083,809,899) | 8,230,943,708 | ||
Foreign currency holdings, at value (cost of $516,229) | 428,368 | ||
Receivable for investments sold | 49,999,817 | ||
Receivable for capital shares sold | 36,622,195 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 372,566 | ||
Dividends and interest receivable | 12,696,727 | ||
8,331,063,381 | |||
Liabilities | |||
Payable for investments purchased | 69,833,411 | ||
Payable for capital shares redeemed | 34,783,065 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 1,897,381 | ||
Accrued management fees | 5,961,531 | ||
Distribution and service fees payable | 484,276 | ||
112,959,664 | |||
Net Assets | $ | 8,218,103,717 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 6,970,876,747 | |
Undistributed net investment income | 1,962,072 | ||
Undistributed net realized gain | 99,731,941 | ||
Net unrealized appreciation | 1,145,532,957 | ||
$ | 8,218,103,717 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | |||
Investor Class, $0.01 Par Value | $3,955,056,839 | 238,816,006 | $16.56 | ||
Institutional Class, $0.01 Par Value | $1,406,137,322 | 84,865,271 | $16.57 | ||
A Class, $0.01 Par Value | $1,518,031,267 | 91,812,482 | $16.53* | ||
C Class, $0.01 Par Value | $144,996,629 | 8,839,212 | $16.40 | ||
R Class, $0.01 Par Value | $141,048,728 | 8,550,494 | $16.50 | ||
R6 Class, $0.01 Par Value | $1,052,832,932 | 63,551,654 | $16.57 |
* Maximum offering price $17.54 (net asset value divided by 0.9425).
See Notes to Financial Statements.
11
Statement of Operations |
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (including $1,341,263 from affiliates and net of foreign taxes withheld of $349,468) | $ | 77,892,761 | |
Interest | 169,574 | ||
78,062,335 | |||
Expenses: | |||
Management fees | 35,260,453 | ||
Distribution and service fees: | |||
A Class | 1,798,900 | ||
C Class | 625,536 | ||
R Class | 335,509 | ||
Directors' fees and expenses | 126,601 | ||
Other expenses | 6,601 | ||
38,153,600 | |||
Fees waived | (762,504 | ) | |
37,391,096 | |||
Net investment income (loss) | 40,671,239 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions (including $(1,051,675) from affiliates) | 216,189,740 | ||
Foreign currency transactions | (484,890 | ) | |
215,704,850 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 369,898,104 | ||
Translation of assets and liabilities in foreign currencies | 1,139,420 | ||
371,037,524 | |||
Net realized and unrealized gain (loss) | 586,742,374 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 627,413,613 |
See Notes to Financial Statements.
12
Statement of Changes in Net Assets |
SIX MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) AND YEAR ENDED MARCH 31, 2016 | ||||||
Increase (Decrease) in Net Assets | September 30, 2016 | March 31, 2016 | ||||
Operations | ||||||
Net investment income (loss) | $ | 40,671,239 | $ | 75,479,093 | ||
Net realized gain (loss) | 215,704,850 | 254,112,847 | ||||
Change in net unrealized appreciation (depreciation) | 371,037,524 | (198,064,874 | ) | |||
Net increase (decrease) in net assets resulting from operations | 627,413,613 | 131,527,066 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (25,307,614 | ) | (42,456,054 | ) | ||
Institutional Class | (9,845,404 | ) | (14,873,131 | ) | ||
A Class | (7,546,269 | ) | (13,188,282 | ) | ||
C Class | (166,180 | ) | (261,415 | ) | ||
R Class | (536,625 | ) | (889,590 | ) | ||
R6 Class | (6,950,046 | ) | (5,941,406 | ) | ||
From net realized gains: | ||||||
Investor Class | — | (306,430,134 | ) | |||
Institutional Class | — | (94,557,760 | ) | |||
A Class | — | (119,189,154 | ) | |||
C Class | — | (7,803,773 | ) | |||
R Class | — | (10,991,672 | ) | |||
R6 Class | — | (33,322,014 | ) | |||
Decrease in net assets from distributions | (50,352,138 | ) | (649,904,385 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 797,457,133 | 678,685,550 | ||||
Net increase (decrease) in net assets | 1,374,518,608 | 160,308,231 | ||||
Net Assets | ||||||
Beginning of period | 6,843,585,109 | 6,683,276,878 | ||||
End of period | $ | 8,218,103,717 | $ | 6,843,585,109 | ||
Undistributed net investment income | $ | 1,962,072 | $ | 11,642,971 |
See Notes to Financial Statements.
13
Notes to Financial Statements |
SEPTEMBER 30, 2016 (UNAUDITED)
1. Organization
American Century Capital Portfolios, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Mid Cap Value Fund (the fund) is one fund in a series issued by the corporation. The fund’s investment objective is to seek long-term capital growth. Income is a secondary objective.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class, the R Class and the R6 Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class and R6 Class shareholders do not require the same level of shareholder and administrative services from American Century Investment Management, Inc. (ACIM) (the investment advisor) as shareholders of other classes. In addition, financial intermediaries do not receive any service, distribution or administrative fees for the R6 Class. As a result, the Institutional Class and R6 Class are charged lower unified management fees.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Fixed income securities are valued at the evaluated mean as provided by independent pricing services or at
the mean of the most recent bid and asked prices as provided by investment dealers. U.S. Treasury and
Government Agency securities are valued using market models that consider trade data, quotations from
dealers and active market makers, relevant yield curve and spread data, creditworthiness, trade data or
market information on comparable securities, and other relevant security specific information.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation
14
with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially 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 income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net 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. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
15
Distributions to Shareholders — Distributions from net investment income, if any, are generally declared and paid quarterly. Distributions from net realized gains, if any, are generally declared and paid annually.
Indemnifications — Under the corporation’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc. (ACIS), and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
Management Fees — 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 (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The annual management fee is 1.00% for the Investor Class, A Class, C Class and R Class, 0.80% for the Institutional Class and 0.65% for the R6 Class. From April 1, 2016 through July 31, 2016, the investment advisor agreed to waive 0.05% of the fund's management fee for assets over $7 billion. This fee waiver was determined by applying a formula that takes into account the fund's assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The strategy assets of the fund also include the assets of NT Mid Cap Value Fund, one fund in a series issued by the corporation. Effective August 1, 2016, the investment advisor agreed to waive 0.03% of the fund's management fee. The investment advisor expects this waiver to continue until July 31, 2017 and cannot terminate it prior to such date without the approval of the Board of Directors. The total amount of the waiver for each class for the six months ended September 30, 2016 was $384,669, $128,852, $144,175, $12,851, $13,379 and $78,578 for the Investor Class, Institutional Class, A Class, C Class, R Class and R6 Class, respectively. The effective annual management fee after waiver for each class for the six months ended September 30, 2016 was 0.98% for the Investor Class, A Class, C Class and R Class, 0.78% for the Institutional Class and 0.63% for the R6 Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay ACIS an annual distribution and service fee of 0.25%. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the six months ended September 30, 2016 are detailed in the Statement of Operations.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $17,464,551 and $13,882,221, respectively. The effect of interfund transactions on the Statement of Operations was $1,759,766 in net realized gain (loss) on investment transactions.
16
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the six months ended September 30, 2016 were $2,833,556,391 and $2,054,468,438, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Six months ended September 30, 2016 | Year ended March 31, 2016 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 1,355,000,000 | 1,355,000,000 | ||||||||
Sold | 39,033,940 | $ | 626,311,427 | 46,886,278 | $ | 726,588,711 | ||||
Issued in reinvestment of distributions | 1,517,819 | 24,431,593 | 22,803,942 | 338,309,767 | ||||||
Redeemed | (33,704,023 | ) | (544,497,812 | ) | (63,495,986 | ) | (995,699,429 | ) | ||
6,847,736 | 106,245,208 | 6,194,234 | 69,199,049 | |||||||
Institutional Class/Shares Authorized | 500,000,000 | 500,000,000 | ||||||||
Sold | 18,150,412 | 292,126,955 | 25,276,057 | 394,037,156 | ||||||
Issued in reinvestment of distributions | 481,201 | 7,749,961 | 5,835,014 | 86,628,472 | ||||||
Redeemed | (9,039,714 | ) | (144,818,807 | ) | (16,752,803 | ) | (263,051,652 | ) | ||
9,591,899 | 155,058,109 | 14,358,268 | 217,613,976 | |||||||
A Class/Shares Authorized | 575,000,000 | 575,000,000 | ||||||||
Sold | 21,412,591 | 343,932,150 | 25,452,354 | 397,016,320 | ||||||
Issued in reinvestment of distributions | 456,317 | 7,333,291 | 8,720,476 | 128,973,104 | ||||||
Redeemed | (19,026,370 | ) | (304,566,209 | ) | (33,009,047 | ) | (515,757,726 | ) | ||
2,842,538 | 46,699,232 | 1,163,783 | 10,231,698 | |||||||
C Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 2,726,588 | 43,390,753 | 2,576,346 | 39,427,299 | ||||||
Issued in reinvestment of distributions | 9,396 | 149,422 | 486,080 | 7,099,539 | ||||||
Redeemed | (678,735 | ) | (10,792,871 | ) | (1,077,300 | ) | (16,527,955 | ) | ||
2,057,249 | 32,747,304 | 1,985,126 | 29,998,883 | |||||||
R Class/Shares Authorized | 70,000,000 | 70,000,000 | ||||||||
Sold | 1,707,541 | 27,218,901 | 2,231,125 | 34,966,484 | ||||||
Issued in reinvestment of distributions | 33,151 | 531,359 | 798,168 | 11,757,959 | ||||||
Redeemed | (1,550,425 | ) | (24,605,739 | ) | (2,520,338 | ) | (39,520,721 | ) | ||
190,267 | 3,144,521 | 508,955 | 7,203,722 | |||||||
R6 Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||
Sold | 30,911,119 | 499,595,114 | 24,040,730 | 372,402,699 | ||||||
Issued in reinvestment of distributions | 431,527 | 6,950,046 | 2,643,832 | 39,261,659 | ||||||
Redeemed | (3,293,142 | ) | (52,982,401 | ) | (4,328,604 | ) | (67,226,136 | ) | ||
28,049,504 | 453,562,759 | 22,355,958 | 344,438,222 | |||||||
Net increase (decrease) | 49,579,193 | $ | 797,457,133 | 46,566,324 | $ | 678,685,550 |
17
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 7,515,410,997 | $ | 304,008,833 | — | |||
Exchange-Traded Funds | 198,818,101 | — | — | |||||
Temporary Cash Investments | 36,827,777 | 175,878,000 | — | |||||
$ | 7,751,056,875 | $ | 479,886,833 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 372,566 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 1,897,381 | — |
7. Affiliated Company Transactions
If a fund's holding represents ownership of 5% or more of the voting securities of a company, the company is affiliated as defined in the 1940 Act. A summary of transactions for each company which is or was an affiliate at or during the six months ended September 30, 2016 follows:
Company | Beginning Value | Purchase Cost | Sales Cost | Realized Gain (Loss) | Dividend Income | Ending Value | ||||||||||||
Westamerica Bancorporation | $ | 75,840,934 | $ | 3,078,157 | $ | 6,288,626 | $ | (107,173 | ) | $ | 1,162,933 | $ | 76,191,172 | |||||
LifePoint Health, Inc.(1) | 104,389,874 | 57,749,254 | 5,511,046 | 378,872 | — | 139,252,632 | ||||||||||||
Heartland Express, Inc. | 76,340,763 | 12,987,998 | 4,735,857 | (1,323,374 | ) | 178,330 | 88,223,710 | |||||||||||
$ | 256,571,571 | $ | 73,815,409 | $ | 16,535,529 | $ | (1,051,675 | ) | $ | 1,341,263 | $ | 303,667,514 |
(1) Non-income producing.
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8. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $281,963,510.
The value of foreign currency risk derivative instruments as of September 30, 2016, is disclosed on the Statement of Assets and Liabilities as an asset of $372,566 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $1,897,381 in unrealized depreciation on forward foreign currency exchange contracts. For the six months ended September 30, 2016, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(499,285) in net realized gain (loss) on foreign currency transactions and $1,178,889 in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
9. Federal Tax Information
The book-basis 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 on the financial statements.
As of September 30, 2016, the components of investments for federal income tax purposes were as follows:
Federal tax cost of investments | $ | 7,183,939,051 | |
Gross tax appreciation of investments | $ | 1,143,957,508 | |
Gross tax depreciation of investments | (96,952,851 | ) | |
Net tax appreciation (depreciation) of investments | $ | 1,047,004,657 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
As of March 31, 2016, the fund had post-October capital loss deferrals of $(27,067,310), which represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
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Financial Highlights |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||||||
2016(3) | $15.32 | 0.09 | 1.26 | 1.35 | (0.11) | — | (0.11) | $16.56 | 8.80% | 0.98%(4) | 1.00%(4) | 1.08%(4) | 1.06%(4) | 28% | $3,955,057 | ||
2016 | $16.70 | 0.19 | 0.06 | 0.25 | (0.19) | (1.44) | (1.63) | $15.32 | 1.94% | 1.00% | 1.01% | 1.19% | 1.18% | 66% | $3,554,131 | ||
2015 | $16.35 | 0.20 | 1.98 | 2.18 | (0.18) | (1.65) | (1.83) | $16.70 | 13.62% | 1.00% | 1.00% | 1.16% | 1.16% | 66% | $3,771,117 | ||
2014 | $14.53 | 0.21 | 2.77 | 2.98 | (0.20) | (0.96) | (1.16) | $16.35 | 21.02% | 1.00% | 1.00% | 1.34% | 1.34% | 67% | $3,252,177 | ||
2013 | $12.86 | 0.22 | 2.02 | 2.24 | (0.25) | (0.32) | (0.57) | $14.53 | 18.11% | 1.00% | 1.00% | 1.69% | 1.69% | 61% | $2,459,353 | ||
2012 | $13.13 | 0.22 | 0.28 | 0.50 | (0.16) | (0.61) | (0.77) | $12.86 | 4.48% | 1.01% | 1.01% | 1.80% | 1.80% | 82% | $1,615,365 | ||
Institutional Class | |||||||||||||||||
2016(3) | $15.33 | 0.10 | 1.26 | 1.36 | (0.12) | — | (0.12) | $16.57 | 8.91% | 0.78%(4) | 0.80%(4) | 1.28%(4) | 1.26%(4) | 28% | $1,406,137 | ||
2016 | $16.71 | 0.22 | 0.06 | 0.28 | (0.22) | (1.44) | (1.66) | $15.33 | 2.14% | 0.80% | 0.81% | 1.39% | 1.38% | 66% | $1,153,899 | ||
2015 | $16.36 | 0.23 | 1.99 | 2.22 | (0.22) | (1.65) | (1.87) | $16.71 | 13.83% | 0.80% | 0.80% | 1.36% | 1.36% | 66% | $1,017,915 | ||
2014 | $14.53 | 0.24 | 2.78 | 3.02 | (0.23) | (0.96) | (1.19) | $16.36 | 21.33% | 0.80% | 0.80% | 1.54% | 1.54% | 67% | $812,521 | ||
2013 | $12.86 | 0.25 | 2.02 | 2.27 | (0.28) | (0.32) | (0.60) | $14.53 | 18.34% | 0.80% | 0.80% | 1.89% | 1.89% | 61% | $421,877 | ||
2012 | $13.14 | 0.25 | 0.27 | 0.52 | (0.19) | (0.61) | (0.80) | $12.86 | 4.60% | 0.81% | 0.81% | 2.00% | 2.00% | 82% | $262,032 |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
A Class | |||||||||||||||||
2016(3) | $15.30 | 0.07 | 1.24 | 1.31 | (0.08) | — | (0.08) | $16.53 | 8.61% | 1.23%(4) | 1.25%(4) | 0.83%(4) | 0.81%(4) | 28% | $1,518,031 | ||
2016 | $16.68 | 0.15 | 0.06 | 0.21 | (0.15) | (1.44) | (1.59) | $15.30 | 1.69% | 1.25% | 1.26% | 0.94% | 0.93% | 66% | $1,360,886 | ||
2015 | $16.33 | 0.15 | 2.00 | 2.15 | (0.15) | (1.65) | (1.80) | $16.68 | 13.40% | 1.25% | 1.25% | 0.91% | 0.91% | 66% | $1,464,424 | ||
2014 | $14.52 | 0.17 | 2.76 | 2.93 | (0.16) | (0.96) | (1.12) | $16.33 | 20.71% | 1.25% | 1.25% | 1.09% | 1.09% | 67% | $802,480 | ||
2013 | $12.86 | 0.19 | 2.01 | 2.20 | (0.22) | (0.32) | (0.54) | $14.52 | 17.83% | 1.25% | 1.25% | 1.44% | 1.44% | 61% | $488,491 | ||
2012 | $13.13 | 0.19 | 0.29 | 0.48 | (0.14) | (0.61) | (0.75) | $12.86 | 4.19% | 1.26% | 1.26% | 1.55% | 1.55% | 82% | $316,497 | ||
C Class | |||||||||||||||||
2016(3) | $15.17 | 0.01 | 1.24 | 1.25 | (0.02) | — | (0.02) | $16.40 | 8.25% | 1.98%(4) | 2.00%(4) | 0.08%(4) | 0.06%(4) | 28% | $144,997 | ||
2016 | $16.57 | 0.03 | 0.06 | 0.09 | (0.05) | (1.44) | (1.49) | $15.17 | 0.90% | 2.00% | 2.01% | 0.19% | 0.18% | 66% | $102,906 | ||
2015 | $16.26 | 0.03 | 1.97 | 2.00 | (0.04) | (1.65) | (1.69) | $16.57 | 12.53% | 2.00% | 2.00% | 0.16% | 0.16% | 66% | $79,490 | ||
2014 | $14.49 | 0.05 | 2.75 | 2.80 | (0.07) | (0.96) | (1.03) | $16.26 | 19.75% | 2.00% | 2.00% | 0.34% | 0.34% | 67% | $60,443 | ||
2013 | $12.84 | 0.09 | 2.02 | 2.11 | (0.14) | (0.32) | (0.46) | $14.49 | 16.96% | 2.00% | 2.00% | 0.69% | 0.69% | 61% | $31,407 | ||
2012 | $13.14 | 0.11 | 0.27 | 0.38 | (0.07) | (0.61) | (0.68) | $12.84 | 3.41% | 2.01% | 2.01% | 0.80% | 0.80% | 82% | $15,242 |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
R Class | |||||||||||||||||
2016(3) | $15.26 | 0.05 | 1.25 | 1.30 | (0.06) | — | (0.06) | $16.50 | 8.49% | 1.48%(4) | 1.50%(4) | 0.58%(4) | 0.56%(4) | 28% | $141,049 | ||
2016 | $16.64 | 0.11 | 0.06 | 0.17 | (0.11) | (1.44) | (1.55) | $15.26 | 1.43% | 1.50% | 1.51% | 0.69% | 0.68% | 66% | $127,581 | ||
2015 | $16.31 | 0.11 | 1.98 | 2.09 | (0.11) | (1.65) | (1.76) | $16.64 | 13.07% | 1.50% | 1.50% | 0.66% | 0.66% | 66% | $130,669 | ||
2014 | $14.51 | 0.13 | 2.76 | 2.89 | (0.13) | (0.96) | (1.09) | $16.31 | 20.41% | 1.50% | 1.50% | 0.84% | 0.84% | 67% | $110,440 | ||
2013 | $12.85 | 0.15 | 2.02 | 2.17 | (0.19) | (0.32) | (0.51) | $14.51 | 17.49% | 1.50% | 1.50% | 1.19% | 1.19% | 61% | $73,023 | ||
2012 | $13.14 | 0.16 | 0.28 | 0.44 | (0.12) | (0.61) | (0.73) | $12.85 | 3.91% | 1.51% | 1.51% | 1.30% | 1.30% | 82% | $50,444 | ||
R6 Class | |||||||||||||||||
2016(3) | $15.33 | 0.12 | 1.25 | 1.37 | (0.13) | — | (0.13) | $16.57 | 8.99% | 0.63%(4) | 0.65%(4) | 1.43%(4) | 1.41%(4) | 28% | $1,052,833 | ||
2016 | $16.71 | 0.25 | 0.05 | 0.30 | (0.24) | (1.44) | (1.68) | $15.33 | 2.29% | 0.65% | 0.66% | 1.54% | 1.53% | 66% | $544,182 | ||
2015 | $16.35 | 0.26 | 1.99 | 2.25 | (0.24) | (1.65) | (1.89) | $16.71 | 14.07% | 0.65% | 0.65% | 1.51% | 1.51% | 66% | $219,661 | ||
2014(5) | $15.66 | 0.20 | 1.61 | 1.81 | (0.16) | (0.96) | (1.12) | $16.35 | 12.01% | 0.65%(4) | 0.65%(4) | 1.83%(4) | 1.83%(4) | 67%(6) | $74,570 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | Six months ended September 30, 2016 (unaudited). |
(4) | Annualized. |
(5) | July 26, 2013 (commencement of sale) through March 31, 2014. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended March 31, 2014. |
See Notes to Financial Statements.
Approval of Management Agreement |
At a meeting held on June 29, 2016, the Fund’s Board of Directors (the "Board") unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments by the Fund and the Advisor to financial intermediaries and the nature of services provided; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors.
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In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment. The Board noted specifically the resources the Advisor has committed to enhancing cybersecurity protections for the benefit of shareholders.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance, and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, provides oversight of the investment performance process. It regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information provided by the Advisor during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the one-, three-, five-, and ten-year periods reviewed by the Board. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to,
25
information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating the Advisor’s financial condition, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pays the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, expenses attributable to short sales, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent Directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was below the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
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Comparison to Fees and Services Provided to Other Clients of the Advisor. The Directors also requested and received information from the Advisor concerning the nature of the services, fees, costs, and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board received confirmation from the Advisor that all such payments by the Fund intended for distribution were made pursuant to the Fund's 12b-1 Plan. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor, as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
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Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Contact Us | americancentury.com | |
Automated Information Line | 1-800-345-8765 | |
Investor Services Representative | 1-800-345-2021 or 816-531-5575 | |
Investors Using Advisors | 1-800-378-9878 | |
Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 | |
Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 | |
Telecommunications Relay Service for the Deaf | 711 | |
American Century Capital Portfolios, Inc. | ||
Investment Advisor: American Century Investment Management, Inc. Kansas City, Missouri | ||
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. | ||
©2016 American Century Proprietary Holdings, Inc. All rights reserved. CL-SAN-90805 1611 |
Semiannual Report | |
September 30, 2016 | |
NT Large Company Value Fund |
Table of Contents |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
Fund Characteristics |
SEPTEMBER 30, 2016 | |
Top Ten Holdings | % of net assets |
Schlumberger Ltd. | 3.4% |
Pfizer, Inc. | 3.3% |
Wells Fargo & Co. | 3.3% |
Procter & Gamble Co. (The) | 3.0% |
TOTAL SA ADR | 2.7% |
Johnson Controls International plc | 2.6% |
Oracle Corp. | 2.6% |
Cisco Systems, Inc. | 2.5% |
Chevron Corp. | 2.5% |
U.S. Bancorp | 2.2% |
Top Five Industries | % of net assets |
Banks | 13.0% |
Oil, Gas and Consumable Fuels | 12.1% |
Pharmaceuticals | 6.9% |
Capital Markets | 5.9% |
Insurance | 5.4% |
Types of Investments in Portfolio | % of net assets |
Domestic Common Stocks | 92.3% |
Foreign Common Stocks* | 6.2% |
Exchange-Traded Funds | 0.4% |
Total Equity Exposure | 98.9% |
Temporary Cash Investments | 1.3% |
Other Assets and Liabilities | (0.2)% |
*Includes depositary shares, dual listed securities and foreign ordinary shares.
2
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from April 1, 2016 to September 30, 2016.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value 4/1/16 | Ending Account Value 9/30/16 | Expenses Paid During Period(1) 4/1/16 - 9/30/16 | Annualized Expense Ratio(1) | |
Actual | ||||
Institutional Class | $1,000 | $1,080.30 | $3.29 | 0.63% |
R6 Class | $1,000 | $1,080.10 | $2.50 | 0.48% |
Hypothetical | ||||
Institutional Class | $1,000 | $1,021.91 | $3.19 | 0.63% |
R6 Class | $1,000 | $1,022.66 | $2.43 | 0.48% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
3
Schedule of Investments |
SEPTEMBER 30, 2016 (UNAUDITED)
Shares | Value | |||
COMMON STOCKS — 98.5% | ||||
Aerospace and Defense — 3.6% | ||||
Huntington Ingalls Industries, Inc. | 74,300 | $ | 11,399,106 | |
Textron, Inc. | 409,500 | 16,277,625 | ||
United Technologies Corp. | 370,200 | 37,612,320 | ||
65,289,051 | ||||
Auto Components — 4.4% | ||||
BorgWarner, Inc. | 298,600 | 10,504,748 | ||
Delphi Automotive plc | 327,200 | 23,335,904 | ||
Johnson Controls International plc | 992,400 | 46,176,372 | ||
80,017,024 | ||||
Automobiles — 0.5% | ||||
Ford Motor Co. | 718,400 | 8,671,088 | ||
Banks — 13.0% | ||||
Bank of America Corp. | 2,363,800 | 36,993,470 | ||
BB&T Corp. | 781,100 | 29,463,092 | ||
JPMorgan Chase & Co. | 338,700 | 22,554,033 | ||
KeyCorp | 945,500 | 11,506,735 | ||
PNC Financial Services Group, Inc. (The) | 388,700 | 35,017,983 | ||
U.S. Bancorp | 928,400 | 39,819,076 | ||
Wells Fargo & Co. | 1,328,700 | 58,834,836 | ||
234,189,225 | ||||
Beverages — 0.8% | ||||
PepsiCo, Inc. | 132,800 | 14,444,656 | ||
Biotechnology — 0.7% | ||||
AbbVie, Inc. | 208,400 | 13,143,788 | ||
Capital Markets — 5.9% | ||||
Ameriprise Financial, Inc. | 219,400 | 21,889,538 | ||
Bank of New York Mellon Corp. (The) | 901,300 | 35,943,844 | ||
BlackRock, Inc. | 68,300 | 24,756,018 | ||
Invesco Ltd. | 741,800 | 23,196,086 | ||
105,785,486 | ||||
Chemicals — 1.0% | ||||
Dow Chemical Co. (The) | 348,000 | 18,036,840 | ||
Communications Equipment — 2.5% | ||||
Cisco Systems, Inc. | 1,410,500 | 44,741,060 | ||
Containers and Packaging — 0.5% | ||||
WestRock Co. | 202,200 | 9,802,656 | ||
Diversified Telecommunication Services — 1.1% | ||||
AT&T, Inc. | 471,400 | 19,143,554 | ||
Electric Utilities — 2.7% | ||||
Edison International | 270,900 | 19,572,525 | ||
PPL Corp. | 259,000 | 8,953,630 | ||
Xcel Energy, Inc. | 472,300 | 19,430,422 | ||
47,956,577 | ||||
Electrical Equipment — 1.0% | ||||
Rockwell Automation, Inc. | 148,200 | 18,130,788 |
4
Shares | Value | |||
Electronic Equipment, Instruments and Components — 1.3% | ||||
TE Connectivity Ltd. | 353,500 | $ | 22,758,330 | |
Energy Equipment and Services — 4.2% | ||||
Halliburton Co. | 349,800 | 15,699,024 | ||
Schlumberger Ltd. | 770,700 | 60,607,848 | ||
76,306,872 | ||||
Equity Real Estate Investment Trusts (REITs) — 0.9% | ||||
Boston Properties, Inc. | 114,900 | 15,659,721 | ||
Food and Staples Retailing — 3.2% | ||||
CVS Health Corp. | 306,900 | 27,311,031 | ||
Wal-Mart Stores, Inc. | 422,600 | 30,477,912 | ||
57,788,943 | ||||
Food Products — 0.9% | ||||
Mondelez International, Inc., Class A | 389,300 | 17,090,270 | ||
Health Care Equipment and Supplies — 5.0% | ||||
Abbott Laboratories | 665,600 | 28,148,224 | ||
Baxter International, Inc. | 267,900 | 12,752,040 | ||
Medtronic plc | 398,900 | 34,464,960 | ||
Zimmer Biomet Holdings, Inc. | 117,800 | 15,316,356 | ||
90,681,580 | ||||
Health Care Providers and Services — 2.5% | ||||
Anthem, Inc. | 138,600 | 17,367,966 | ||
HCA Holdings, Inc.(1) | 224,400 | 16,971,372 | ||
McKesson Corp. | 69,175 | 11,534,931 | ||
45,874,269 | ||||
Hotels, Restaurants and Leisure — 1.6% | ||||
Carnival Corp. | 371,100 | 18,117,102 | ||
Marriott International, Inc., Class A | 153,900 | 10,362,087 | ||
28,479,189 | ||||
Household Products — 3.0% | ||||
Procter & Gamble Co. (The) | 603,100 | 54,128,225 | ||
Industrial Conglomerates — 0.5% | ||||
Honeywell International, Inc. | 76,900 | 8,965,771 | ||
Insurance — 5.4% | ||||
Aflac, Inc. | 121,700 | 8,746,579 | ||
Allstate Corp. (The) | 214,200 | 14,818,356 | ||
American International Group, Inc. | 280,300 | 16,633,002 | ||
Chubb Ltd. | 299,400 | 37,619,610 | ||
MetLife, Inc. | 449,200 | 19,957,956 | ||
97,775,503 | ||||
Machinery — 2.1% | ||||
Ingersoll-Rand plc | 434,500 | 29,519,930 | ||
Stanley Black & Decker, Inc. | 75,000 | 9,223,500 | ||
38,743,430 | ||||
Media — 1.0% | ||||
Time Warner, Inc. | 235,100 | 18,716,311 | ||
Multiline Retail — 0.9% | ||||
Target Corp. | 231,000 | 15,865,080 | ||
Oil, Gas and Consumable Fuels — 12.1% | ||||
Anadarko Petroleum Corp. | 285,000 | 18,057,600 | ||
Chevron Corp. | 432,000 | 44,461,440 |
5
Shares | Value | |||
Exxon Mobil Corp. | 204,600 | $ | 17,857,488 | |
Imperial Oil Ltd. | 1,122,900 | 35,126,199 | ||
Occidental Petroleum Corp. | 485,300 | 35,388,076 | ||
Royal Dutch Shell plc ADR | 337,000 | 17,803,710 | ||
TOTAL SA ADR | 1,023,300 | 48,811,410 | ||
217,505,923 | ||||
Pharmaceuticals — 6.9% | ||||
Allergan plc(1) | 71,800 | 16,536,258 | ||
Johnson & Johnson | 178,100 | 21,038,953 | ||
Merck & Co., Inc. | 258,700 | 16,145,467 | ||
Pfizer, Inc. | 1,754,400 | 59,421,528 | ||
Teva Pharmaceutical Industries Ltd. ADR | 235,300 | 10,826,153 | ||
123,968,359 | ||||
Road and Rail — 1.1% | ||||
Union Pacific Corp. | 199,300 | 19,437,729 | ||
Semiconductors and Semiconductor Equipment — 2.9% | ||||
Applied Materials, Inc. | 862,200 | 25,995,330 | ||
Intel Corp. | 365,500 | 13,797,625 | ||
Lam Research Corp. | 132,000 | 12,501,720 | ||
52,294,675 | ||||
Software — 2.6% | ||||
Oracle Corp. | 1,174,500 | 46,134,360 | ||
Specialty Retail — 1.4% | ||||
Advance Auto Parts, Inc. | 119,000 | 17,745,280 | ||
Lowe's Cos., Inc. | 110,700 | 7,993,647 | ||
25,738,927 | ||||
Technology Hardware, Storage and Peripherals — 1.3% | ||||
Apple, Inc. | 205,600 | 23,243,080 | ||
TOTAL COMMON STOCKS (Cost $1,524,675,378) | 1,776,508,340 | |||
EXCHANGE-TRADED FUNDS — 0.4% | ||||
iShares Russell 1000 Value ETF (Cost $7,254,273) | 71,600 | 7,562,392 | ||
TEMPORARY CASH INVESTMENTS — 1.3% | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/20, valued at $18,591,300), at 0.15%, dated 9/30/16, due 10/3/16 (Delivery value $18,224,228) | 18,224,000 | |||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 5,332,040 | 5,332,040 | ||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $23,556,040) | 23,556,040 | |||
TOTAL INVESTMENT SECURITIES — 100.2% (Cost $1,555,485,691) | 1,807,626,772 | |||
OTHER ASSETS AND LIABILITIES — (0.2)% | (4,423,745) | |||
TOTAL NET ASSETS — 100.0% | $ | 1,803,203,027 |
6
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
USD | 29,560,839 | CAD | 39,136,482 | Morgan Stanley | 12/30/16 | $ | (289,045 | ) | ||
USD | 1,227,253 | EUR | 1,090,869 | UBS AG | 12/30/16 | (3,192 | ) | |||
USD | 39,914,479 | EUR | 35,503,521 | UBS AG | 12/30/16 | (131,682 | ) | |||
GBP | 261,251 | USD | 340,750 | Credit Suisse AG | 12/30/16 | (1,489 | ) | |||
USD | 523,023 | GBP | 402,790 | Credit Suisse AG | 12/30/16 | (41 | ) | |||
USD | 14,691,063 | GBP | 11,283,892 | Credit Suisse AG | 12/30/16 | 37,791 | ||||
$ | (387,658 | ) |
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
CAD | - | Canadian Dollar |
EUR | - | Euro |
GBP | - | British Pound |
USD | - | United States Dollar |
(1) | Non-income producing. |
See Notes to Financial Statements.
7
Statement of Assets and Liabilities |
SEPTEMBER 30, 2016 (UNAUDITED) | |||
Assets | |||
Investment securities, at value (cost of $1,555,485,691) | $ | 1,807,626,772 | |
Foreign currency holdings, at value (cost of $54,393) | 54,531 | ||
Receivable for investments sold | 7,546,260 | ||
Receivable for capital shares sold | 667,645 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 37,791 | ||
Dividends and interest receivable | 3,044,590 | ||
1,818,977,589 | |||
Liabilities | |||
Payable for investments purchased | 13,480,811 | ||
Payable for capital shares redeemed | 968,419 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 425,449 | ||
Accrued management fees | 899,883 | ||
15,774,562 | |||
Net Assets | $ | 1,803,203,027 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 1,522,116,679 | |
Undistributed net investment income | 636,540 | ||
Undistributed net realized gain | 28,692,994 | ||
Net unrealized appreciation | 251,756,814 | ||
$ | 1,803,203,027 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Institutional Class, $0.01 Par Value | $1,648,304,971 | 145,642,536 | $11.32 | |||
R6 Class, $0.01 Par Value | $154,898,056 | 13,683,369 | $11.32 |
See Notes to Financial Statements.
8
Statement of Operations |
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $252,202) | $ | 21,370,306 | |
Interest | 11,113 | ||
21,381,419 | |||
Expenses: | |||
Management fees | 5,359,461 | ||
Directors' fees and expenses | 29,065 | ||
Other expenses | 9,696 | ||
5,398,222 | |||
Net investment income (loss) | 15,983,197 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 52,840,106 | ||
Foreign currency transactions | 502,067 | ||
53,342,173 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 63,551,713 | ||
Translation of assets and liabilities in foreign currencies | 572,522 | ||
64,124,235 | |||
Net realized and unrealized gain (loss) | 117,466,408 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 133,449,605 |
See Notes to Financial Statements.
9
Statement of Changes in Net Assets |
SIX MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) AND YEAR ENDED MARCH 31, 2016 | ||||||
Increase (Decrease) in Net Assets | September 30, 2016 | March 31, 2016 | ||||
Operations | ||||||
Net investment income (loss) | $ | 15,983,197 | $ | 24,357,040 | ||
Net realized gain (loss) | 53,342,173 | 39,945,638 | ||||
Change in net unrealized appreciation (depreciation) | 64,124,235 | (128,616,091 | ) | |||
Net increase (decrease) in net assets resulting from operations | 133,449,605 | (64,313,413 | ) | |||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Institutional Class | (15,378,212 | ) | (23,279,786 | ) | ||
R6 Class | (1,469,654 | ) | (1,507,570 | ) | ||
From net realized gains: | ||||||
Institutional Class | — | (127,658,246 | ) | |||
R6 Class | — | (7,624,442 | ) | |||
Decrease in net assets from distributions | (16,847,866 | ) | (160,070,044 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 46,395,804 | 412,457,708 | ||||
Net increase (decrease) in net assets | 162,997,543 | 188,074,251 | ||||
Net Assets | ||||||
Beginning of period | 1,640,205,484 | 1,452,131,233 | ||||
End of period | $ | 1,803,203,027 | $ | 1,640,205,484 | ||
Undistributed net investment income | $ | 636,540 | $ | 1,501,209 |
See Notes to Financial Statements.
10
Notes to Financial Statements |
SEPTEMBER 30, 2016 (UNAUDITED)
1. Organization
American Century Capital Portfolios, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. NT Large Company Value Fund (the fund) is one fund in a series issued by the corporation. The fund’s investment objective is to seek long-term capital growth. Income is a secondary objective. The fund is not permitted to invest in securities issued by companies assigned the Global Industry Classification Standard for the tobacco industry.
The fund offers the Institutional Class and the R6 Class, which have different fees and expenses. The difference in the fee structures between the classes is the result of their separate arrangements for shareholder and distribution services, which may be provided indirectly through another American Century Investment mutual fund. As a result, the investment advisor is able to charge the R6 Class a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
11
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially 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 income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net 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. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income, if any, are generally declared and paid quarterly. Distributions from net realized gains, if any, are generally declared and paid annually.
12
Indemnifications — Under the corporation’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc., and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC. Various funds issued by American Century Asset Allocation Portfolios, Inc. own, in aggregate, 100% of the shares of the fund. Related parties do not invest in the fund for the purpose of exercising management or control.
Management Fees — 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 (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class's daily net assets and paid monthly in arrears. The rate of the fee is determined by applying a fee rate calculation formula. This formula takes into account the fund’s assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The strategy assets of the fund also include the assets of Large Company Value Fund, one fund in a series issued by the corporation. The annual management fee schedule ranges from 0.50% to 0.70% for the Institutional Class and 0.35% to 0.55% for the R6 Class. The effective annual management fee for each class for the six months ended September 30, 2016 was 0.63% for the Institutional Class and 0.48% for the R6 Class.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $13,471,614 and $6,430,916, respectively. The effect of interfund transactions on the Statement of Operations was $648,470 in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the six months ended September 30, 2016 were $660,376,284 and $623,046,160, respectively.
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5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Six months ended September 30, 2016 | Year ended March 31, 2016 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Institutional Class/Shares Authorized | 800,000,000 | 800,000,000 | ||||||||
Sold | 7,963,445 | $ | 87,605,563 | 33,650,369 | $ | 369,443,947 | ||||
Issued in reinvestment of distributions | 1,391,143 | 15,378,212 | 13,963,872 | 150,938,032 | ||||||
Redeemed | (8,409,719 | ) | (94,237,669 | ) | (15,352,282 | ) | (168,885,765 | ) | ||
944,869 | 8,746,106 | 32,261,959 | 351,496,214 | |||||||
R6 Class/Shares Authorized | 70,000,000 | 70,000,000 | ||||||||
Sold | 3,992,758 | 44,346,131 | 5,636,253 | 63,970,354 | ||||||
Issued in reinvestment of distributions | 132,835 | 1,469,654 | 845,032 | 9,132,012 | ||||||
Redeemed | (730,961 | ) | (8,166,087 | ) | (1,071,142 | ) | (12,140,872 | ) | ||
3,394,632 | 37,649,698 | 5,410,143 | 60,961,494 | |||||||
Net increase (decrease) | 4,339,501 | $ | 46,395,804 | 37,672,102 | $ | 412,457,708 |
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 1,741,382,141 | $ | 35,126,199 | — | |||
Exchange-Traded Funds | 7,562,392 | — | — | |||||
Temporary Cash Investments | 5,332,040 | 18,224,000 | — | |||||
$ | 1,754,276,573 | $ | 53,350,199 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 37,791 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 425,449 | — |
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7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $79,642,004.
The value of foreign currency risk derivative instruments as of September 30, 2016, is disclosed on the Statement of Assets and Liabilities as an asset of $37,791 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $425,449 in unrealized depreciation on forward foreign currency exchange contracts. For the six months ended September 30, 2016, the effect of foreign currency risk derivative instruments on the Statement of Operations was $492,191 in net realized gain (loss) on foreign currency transactions and $566,163 in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Risk Factors
There are certain risks involved in investing in foreign securities. These risks include those resulting from future adverse political, social and economic developments, fluctuations in currency exchange rates, the possible imposition of exchange controls, and other foreign laws or restrictions.
9. Federal Tax Information
The book-basis 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 on the financial statements.
As of September 30, 2016, the components of investments for federal income tax purposes were as follows:
Federal tax cost of investments | $ | 1,581,722,586 | |
Gross tax appreciation of investments | $ | 242,631,354 | |
Gross tax depreciation of investments | (16,727,168 | ) | |
Net tax appreciation (depreciation) of investments | $ | 225,904,186 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
As of March 31, 2016, the fund had post-October capital loss deferrals of $(6,074,456), which represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
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Financial Highlights |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Institutional Class | |||||||||||||||
2016(3) | $10.58 | 0.10 | 0.75 | 0.85 | (0.11) | — | (0.11) | $11.32 | 8.03% | 0.63%(4) | 1.83%(4) | 36% | $1,648,305 | ||
2016 | $12.38 | 0.18 | (0.78) | (0.60) | (0.18) | (1.02) | (1.20) | $10.58 | (4.92)% | 0.64% | 1.57% | 61% | $1,531,294 | ||
2015 | $12.18 | 0.19 | 1.14 | 1.33 | (0.18) | (0.95) | (1.13) | $12.38 | 11.01% | 0.64% | 1.52% | 68% | $1,391,730 | ||
2014 | $10.45 | 0.21 | 2.03 | 2.24 | (0.20) | (0.31) | (0.51) | $12.18 | 21.75% | 0.65% | 1.81% | 35% | $1,324,951 | ||
2013 | $9.31 | 0.19 | 1.25 | 1.44 | (0.19) | (0.11) | (0.30) | $10.45 | 15.87% | 0.67% | 2.03% | 37% | $941,901 | ||
2012 | $8.86 | 0.17 | 0.44 | 0.61 | (0.16) | — | (0.16) | $9.31 | 7.07% | 0.67% | 2.02% | 47% | $668,644 | ||
R6 Class | |||||||||||||||
2016(3) | $10.59 | 0.11 | 0.74 | 0.85 | (0.12) | — | (0.12) | $11.32 | 8.01% | 0.48%(4) | 1.98%(4) | 36% | $154,898 | ||
2016 | $12.38 | 0.20 | (0.77) | (0.57) | (0.20) | (1.02) | (1.22) | $10.59 | (4.70)% | 0.49% | 1.72% | 61% | $108,912 | ||
2015 | $12.18 | 0.21 | 1.14 | 1.35 | (0.20) | (0.95) | (1.15) | $12.38 | 11.17% | 0.49% | 1.67% | 68% | $60,401 | ||
2014(5) | $11.54 | 0.15 | 0.96 | 1.11 | (0.16) | (0.31) | (0.47) | $12.18 | 9.83% | 0.50%(4) | 1.93%(4) | 35%(6) | $16,772 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day. Total returns for periods less than one year are not annualized. |
(3) | Six months ended September 30, 2016 (unaudited). |
(4) | Annualized. |
(5) | July 26, 2013 (commencement of sale) through March 31, 2014. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended March 31, 2014. |
See Notes to Financial Statements.
Approval of Management Agreement |
At a meeting held on June 29, 2016, the Fund’s Board of Directors (the "Board") unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments by the Fund and the Advisor to financial intermediaries and the nature of services provided; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors.
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In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment. The Board noted specifically the resources the Advisor has committed to enhancing cybersecurity protections for the benefit of shareholders.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance, and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, provides oversight of the investment performance process. It regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information provided by the Advisor during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the one-, three-, and five-year periods reviewed by the Board. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to,
19
information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating the Advisor’s financial condition, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services. The Board also noted that economies of scale are shared with the Fund and its shareholders through management fee breakpoints that serve to reduce the effective management fee as the assets of the Fund grow.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pays the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, expenses attributable to short sales, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent Directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was below the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the
20
Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Directors also requested and received information from the Advisor concerning the nature of the services, fees, costs, and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board received confirmation from the Advisor that all such payments by the Fund intended for distribution were made pursuant to the Fund's 12b-1 Plan. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor, as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
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Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Notes |
23
Notes |
24
Contact Us | americancentury.com | |
Automated Information Line | 1-800-345-8765 | |
Investor Services Representative | 1-800-345-2021 or 816-531-5575 | |
Investors Using Advisors | 1-800-378-9878 | |
Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 | |
Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 | |
Telecommunications Relay Service for the Deaf | 711 | |
American Century Capital Portfolios, Inc. | ||
Investment Advisor: American Century Investment Management, Inc. Kansas City, Missouri | ||
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. | ||
©2016 American Century Proprietary Holdings, Inc. All rights reserved. CL-SAN-90824 1611 |
Semiannual Report | |
September 30, 2016 | |
NT Mid Cap Value Fund |
Table of Contents |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
Fund Characteristics |
SEPTEMBER 30, 2016 | |
Top Ten Holdings | % of net assets |
Northern Trust Corp. | 3.0% |
Johnson Controls International plc | 2.8% |
iShares Russell Mid-Cap Value ETF | 2.4% |
Imperial Oil Ltd. | 2.3% |
EQT Corp. | 1.8% |
Zimmer Biomet Holdings, Inc. | 1.7% |
LifePoint Health, Inc. | 1.7% |
Weyerhaeuser Co. | 1.7% |
Edison International | 1.6% |
PG&E Corp. | 1.5% |
Top Five Industries | % of net assets |
Oil, Gas and Consumable Fuels | 10.0% |
Banks | 7.8% |
Insurance | 6.9% |
Capital Markets | 6.3% |
Equity Real Estate Investment Trusts (REITs) | 5.7% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 95.9% |
Exchange-Traded Funds | 2.4% |
Total Equity Exposure | 98.3% |
Temporary Cash Investments | 1.9% |
Other Assets and Liabilities | (0.2)% |
2
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from April 1, 2016 to September 30, 2016.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value 4/1/16 | Ending Account Value 9/30/16 | Expenses Paid During Period(1) 4/1/16 - 9/30/16 | Annualized Expense Ratio(1) | |
Actual | ||||
Institutional Class (after waiver) | $1,000 | $1,089.50 | $4.09 | 0.78% |
Institutional Class (before waiver) | $1,000 | $1,089.50(2) | $4.19 | 0.80% |
R6 Class (after waiver) | $1,000 | $1,090.30 | $3.30 | 0.63% |
R6 Class (before waiver) | $1,000 | $1,090.30(2) | $3.41 | 0.65% |
Hypothetical | ||||
Institutional Class (after waiver) | $1,000 | $1,021.16 | $3.95 | 0.78% |
Institutional Class (before waiver) | $1,000 | $1,021.06 | $4.05 | 0.80% |
R6 Class (after waiver) | $1,000 | $1,021.91 | $3.19 | 0.63% |
R6 Class (before waiver) | $1,000 | $1,021.81 | $3.29 | 0.65% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
(2) | Ending account value assumes the return earned after waiver and would have been lower if a portion of the fees had not been waived. |
3
Schedule of Investments |
SEPTEMBER 30, 2016 (UNAUDITED)
Shares | Value | |||
COMMON STOCKS — 95.9% | ||||
Aerospace and Defense — 0.9% | ||||
Textron, Inc. | 219,511 | $ | 8,725,562 | |
Auto Components — 3.4% | ||||
Delphi Automotive plc | 82,921 | 5,913,926 | ||
Johnson Controls International plc | 598,405 | 27,843,784 | ||
33,757,710 | ||||
Automobiles — 1.1% | ||||
Honda Motor Co. Ltd. ADR | 245,170 | 7,090,316 | ||
Thor Industries, Inc. | 42,358 | 3,587,723 | ||
10,678,039 | ||||
Banks — 7.8% | ||||
Bank of Hawaii Corp. | 98,168 | 7,128,960 | ||
BB&T Corp. | 301,761 | 11,382,425 | ||
Comerica, Inc. | 126,694 | 5,995,160 | ||
Commerce Bancshares, Inc. | 203,542 | 10,026,479 | ||
M&T Bank Corp. | 81,499 | 9,462,034 | ||
PNC Financial Services Group, Inc. (The) | 131,117 | 11,812,331 | ||
SunTrust Banks, Inc. | 130,925 | 5,734,515 | ||
UMB Financial Corp. | 114,327 | 6,796,740 | ||
Westamerica Bancorporation | 185,210 | 9,423,485 | ||
77,762,129 | ||||
Capital Markets — 6.3% | ||||
Ameriprise Financial, Inc. | 75,705 | 7,553,088 | ||
Franklin Resources, Inc. | 13,895 | 494,245 | ||
Invesco Ltd. | 267,319 | 8,359,065 | ||
Northern Trust Corp. | 443,074 | 30,124,601 | ||
State Street Corp. | 138,252 | 9,626,487 | ||
T. Rowe Price Group, Inc. | 99,692 | 6,629,518 | ||
62,787,004 | ||||
Commercial Services and Supplies — 1.8% | ||||
Clean Harbors, Inc.(1) | 112,886 | 5,416,270 | ||
Republic Services, Inc. | 246,717 | 12,446,873 | ||
17,863,143 | ||||
Containers and Packaging — 2.4% | ||||
Bemis Co., Inc. | 52,489 | 2,677,464 | ||
Sonoco Products Co. | 140,762 | 7,436,457 | ||
WestRock Co. | 285,190 | 13,826,011 | ||
23,939,932 | ||||
Diversified Telecommunication Services — 0.9% | ||||
CenturyLink, Inc. | 162,736 | 4,463,848 | ||
Level 3 Communications, Inc.(1) | 93,805 | 4,350,676 | ||
8,814,524 | ||||
Electric Utilities — 5.0% | ||||
Edison International | 224,840 | 16,244,690 | ||
Eversource Energy | 82,406 | 4,464,757 | ||
PG&E Corp. | 247,101 | 15,115,168 |
4
Shares | Value | |||
Xcel Energy, Inc. | 345,388 | $ | 14,209,263 | |
50,033,878 | ||||
Electrical Equipment — 2.2% | ||||
Emerson Electric Co. | 112,602 | 6,137,935 | ||
Hubbell, Inc. | 97,841 | 10,541,390 | ||
Rockwell Automation, Inc. | 41,851 | 5,120,051 | ||
21,799,376 | ||||
Electronic Equipment, Instruments and Components — 2.1% | ||||
Keysight Technologies, Inc.(1) | 349,120 | 11,063,613 | ||
TE Connectivity Ltd. | 154,938 | 9,974,908 | ||
21,038,521 | ||||
Energy Equipment and Services — 3.5% | ||||
Baker Hughes, Inc. | 198,203 | 10,003,306 | ||
FMC Technologies, Inc.(1) | 71,297 | 2,115,382 | ||
Frank's International NV | 411,068 | 5,343,884 | ||
Halliburton Co. | 228,133 | 10,238,609 | ||
National Oilwell Varco, Inc. | 184,557 | 6,780,624 | ||
34,481,805 | ||||
Equity Real Estate Investment Trusts (REITs) — 5.7% | ||||
Boston Properties, Inc. | 35,246 | 4,803,677 | ||
Empire State Realty Trust, Inc. | 254,040 | 5,322,138 | ||
Host Hotels & Resorts, Inc. | 296,396 | 4,614,886 | ||
MGM Growth Properties LLC, Class A | 241,542 | 6,297,000 | ||
Piedmont Office Realty Trust, Inc., Class A | 482,471 | 10,503,394 | ||
Welltower, Inc. | 104,964 | 7,848,158 | ||
Weyerhaeuser Co. | 526,671 | 16,821,872 | ||
56,211,125 | ||||
Food and Staples Retailing — 0.9% | ||||
Sysco Corp. | 181,843 | 8,912,125 | ||
Food Products — 5.0% | ||||
ConAgra Foods, Inc. | 309,418 | 14,576,682 | ||
General Mills, Inc. | 117,368 | 7,497,468 | ||
J.M. Smucker Co. (The) | 53,895 | 7,304,928 | ||
Kellogg Co. | 77,789 | 6,026,314 | ||
Mead Johnson Nutrition Co. | 44,788 | 3,538,700 | ||
Mondelez International, Inc., Class A | 242,594 | 10,649,876 | ||
49,593,968 | ||||
Gas Utilities — 1.5% | ||||
Atmos Energy Corp. | 89,924 | 6,696,640 | ||
Spire, Inc. | 127,205 | 8,108,047 | ||
14,804,687 | ||||
Health Care Equipment and Supplies — 4.5% | ||||
Abbott Laboratories | 174,953 | 7,398,762 | ||
Baxter International, Inc. | 172,978 | 8,233,753 | ||
Becton Dickinson and Co. | 14,473 | 2,601,232 | ||
Boston Scientific Corp.(1) | 98,887 | 2,353,511 | ||
STERIS plc | 88,522 | 6,470,958 | ||
Zimmer Biomet Holdings, Inc. | 131,641 | 17,115,963 | ||
44,174,179 | ||||
Health Care Providers and Services — 3.1% | ||||
Cardinal Health, Inc. | 61,000 | 4,739,700 |
5
Shares | Value | |||
LifePoint Health, Inc.(1) | 284,271 | $ | 16,837,372 | |
Quest Diagnostics, Inc. | 112,448 | 9,516,474 | ||
31,093,546 | ||||
Hotels, Restaurants and Leisure — 0.8% | ||||
Carnival Corp. | 154,519 | 7,543,618 | ||
Household Durables — 0.7% | ||||
PulteGroup, Inc. | 369,761 | 7,410,010 | ||
Industrial Conglomerates — 1.4% | ||||
Koninklijke Philips NV | 460,353 | 13,629,393 | ||
Insurance — 6.9% | ||||
Aflac, Inc. | 67,218 | 4,830,958 | ||
Allstate Corp. (The) | 71,085 | 4,917,660 | ||
Brown & Brown, Inc. | 202,031 | 7,618,589 | ||
Chubb Ltd. | 107,258 | 13,476,968 | ||
MetLife, Inc. | 154,943 | 6,884,117 | ||
ProAssurance Corp. | 102,813 | 5,395,626 | ||
Reinsurance Group of America, Inc. | 117,227 | 12,653,482 | ||
Torchmark Corp. | 55,681 | 3,557,459 | ||
Unum Group | 261,776 | 9,243,311 | ||
68,578,170 | ||||
Leisure Products — 0.8% | ||||
Mattel, Inc. | 62,321 | 1,887,080 | ||
Polaris Industries, Inc. | 74,241 | 5,749,223 | ||
7,636,303 | ||||
Machinery — 2.7% | ||||
Cummins, Inc. | 54,635 | 7,001,475 | ||
Ingersoll-Rand plc | 134,907 | 9,165,582 | ||
ITT, Inc. | 61,329 | 2,198,031 | ||
Oshkosh Corp. | 39,750 | 2,226,000 | ||
Parker-Hannifin Corp. | 50,469 | 6,335,374 | ||
26,926,462 | ||||
Metals and Mining — 0.2% | ||||
Nucor Corp. | 38,062 | 1,882,166 | ||
Multi-Utilities — 2.1% | ||||
Ameren Corp. | 147,679 | 7,262,853 | ||
Consolidated Edison, Inc. | 90,549 | 6,818,340 | ||
NorthWestern Corp. | 115,874 | 6,666,231 | ||
20,747,424 | ||||
Multiline Retail — 0.8% | ||||
Target Corp. | 117,865 | 8,094,968 | ||
Oil, Gas and Consumable Fuels — 10.0% | ||||
Anadarko Petroleum Corp. | 205,861 | 13,043,353 | ||
Cimarex Energy Co. | 35,298 | 4,742,992 | ||
Devon Energy Corp. | 297,944 | 13,142,310 | ||
EQT Corp. | 240,133 | 17,438,459 | ||
Imperial Oil Ltd. | 738,533 | 23,102,553 | ||
Noble Energy, Inc. | 376,488 | 13,455,681 | ||
Occidental Petroleum Corp. | 167,670 | 12,226,496 | ||
Spectra Energy Partners LP | 55,699 | 2,433,489 | ||
99,585,333 |
6
Shares | Value | |||
Professional Services — 0.3% | ||||
IHS Markit Ltd.(1) | 91,354 | $ | 3,430,343 | |
Road and Rail — 2.5% | ||||
CSX Corp. | 438,765 | 13,382,333 | ||
Heartland Express, Inc. | 576,573 | 10,885,698 | ||
24,268,031 | ||||
Semiconductors and Semiconductor Equipment — 4.5% | ||||
Applied Materials, Inc. | 497,821 | 15,009,303 | ||
Lam Research Corp. | 67,545 | 6,397,187 | ||
Maxim Integrated Products, Inc. | 310,544 | 12,400,022 | ||
Teradyne, Inc. | 513,682 | 11,085,258 | ||
44,891,770 | ||||
Specialty Retail — 2.0% | ||||
Advance Auto Parts, Inc. | 63,829 | 9,518,180 | ||
CST Brands, Inc. | 221,988 | 10,675,403 | ||
20,193,583 | ||||
Technology Hardware, Storage and Peripherals — 0.5% | ||||
NetApp, Inc. | 143,121 | 5,126,594 | ||
Textiles, Apparel and Luxury Goods — 0.6% | ||||
Ralph Lauren Corp. | 53,963 | 5,457,818 | ||
Thrifts and Mortgage Finance — 1.0% | ||||
Capitol Federal Financial, Inc. | 685,680 | 9,647,518 | ||
TOTAL COMMON STOCKS (Cost $805,547,441) | 951,520,757 | |||
EXCHANGE-TRADED FUNDS — 2.4% | ||||
iShares Russell Mid-Cap Value ETF (Cost $20,788,905) | 313,073 | 24,034,614 | ||
TEMPORARY CASH INVESTMENTS — 1.9% | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/20, valued at $14,603,794), at 0.15%, dated 9/30/16, due 10/3/16 (Delivery value $14,317,179) | 14,317,000 | |||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 4,189,337 | 4,189,337 | ||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $18,506,337) | 18,506,337 | |||
TOTAL INVESTMENT SECURITIES — 100.2% (Cost $844,842,683) | 994,061,708 | |||
OTHER ASSETS AND LIABILITIES — (0.2)% | (2,470,016) | |||
TOTAL NET ASSETS — 100.0% | $ | 991,591,692 |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||
USD | 19,539,697 | CAD | 25,869,191 | Morgan Stanley | 12/30/16 | $ | (191,059 | ) |
USD | 11,545,574 | EUR | 10,269,670 | UBS AG | 12/30/16 | (38,090) | ||
USD | 4,284,322 | JPY | 428,168,755 | Credit Suisse AG | 12/30/16 | 45,003 | ||
$ | (184,146 | ) |
7
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
CAD | - | Canadian Dollar |
EUR | - | Euro |
JPY | - | Japanese Yen |
USD | - | United States Dollar |
(1) | Non-income producing. |
See Notes to Financial Statements.
8
Statement of Assets and Liabilities |
SEPTEMBER 30, 2016 (UNAUDITED) | |||
Assets | |||
Investment securities, at value (cost of $844,842,683) | $ | 994,061,708 | |
Foreign currency holdings, at value (cost of $24,452) | 20,288 | ||
Receivable for investments sold | 6,545,944 | ||
Receivable for capital shares sold | 152,919 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 45,003 | ||
Dividends and interest receivable | 1,553,800 | ||
1,002,379,662 | |||
Liabilities | |||
Payable for investments purchased | 8,209,167 | ||
Payable for capital shares redeemed | 1,742,339 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 229,149 | ||
Accrued management fees | 607,315 | ||
10,787,970 | |||
Net Assets | $ | 991,591,692 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 829,926,015 | |
Undistributed net investment income | 267,341 | ||
Undistributed net realized gain | 12,366,343 | ||
Net unrealized appreciation | 149,031,993 | ||
$ | 991,591,692 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | |||
Institutional Class, $0.01 Par Value | $906,239,405 | 70,006,908 | $12.94 | ||
R6 Class, $0.01 Par Value | $85,352,287 | 6,594,891 | $12.94 |
See Notes to Financial Statements.
9
Statement of Operations |
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $43,912) | $ | 9,844,281 | |
Interest | 9,183 | ||
9,853,464 | |||
Expenses: | |||
Management fees | 3,743,643 | ||
Directors' fees and expenses | 15,940 | ||
Other expenses | 1,472 | ||
3,761,055 | |||
Fees waived | (94,689 | ) | |
3,666,366 | |||
Net investment income (loss) | 6,187,098 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 32,201,427 | ||
Foreign currency transactions | (98,442 | ) | |
32,102,985 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 42,818,619 | ||
Translation of assets and liabilities in foreign currencies | 174,264 | ||
42,992,883 | |||
Net realized and unrealized gain (loss) | 75,095,868 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 81,282,966 |
See Notes to Financial Statements.
10
Statement of Changes in Net Assets |
SIX MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) AND YEAR ENDED MARCH 31, 2016 | ||||||
Increase (Decrease) in Net Assets | September 30, 2016 | March 31, 2016 | ||||
Operations | ||||||
Net investment income (loss) | $ | 6,187,098 | $ | 11,860,679 | ||
Net realized gain (loss) | 32,102,985 | 20,654,863 | ||||
Change in net unrealized appreciation (depreciation) | 42,992,883 | (7,764,105) | ||||
Net increase (decrease) in net assets resulting from operations | 81,282,966 | 24,751,437 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Institutional Class | (6,824,723) | (11,382,727) | ||||
R6 Class | (659,095) | (740,342) | ||||
From net realized gains: | ||||||
Institutional Class | — | (57,865,146) | ||||
R6 Class | — | (3,471,435) | ||||
Decrease in net assets from distributions | (7,483,818) | (73,459,650) | ||||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 15,401,354 | 155,738,979 | ||||
Net increase (decrease) in net assets | 89,200,502 | 107,030,766 | ||||
Net Assets | ||||||
Beginning of period | 902,391,190 | 795,360,424 | ||||
End of period | $ | 991,591,692 | $ | 902,391,190 | ||
Undistributed net investment income | $ | 267,341 | $ | 1,564,061 |
See Notes to Financial Statements.
11
Notes to Financial Statements |
SEPTEMBER 30, 2016 (UNAUDITED)
1. Organization
American Century Capital Portfolios, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. NT Mid Cap Value Fund (the fund) is one fund in a series issued by the corporation. The fund’s investment objective is to seek long-term capital growth. Income is a secondary objective. The fund is not permitted to invest in securities issued by companies assigned the Global Industry Classification Standard for the tobacco industry.
The fund offers the Institutional Class and the R6 Class, which have different fees and expenses. The difference in the fee structures between the classes is the result of their separate arrangements for shareholder and distribution services, which may be provided indirectly through another American Century Investments mutual fund. As a result, the investment advisor is able to charge the R6 Class a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
12
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially 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 income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net 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. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income, if any, are generally declared and paid quarterly. Distributions from net realized gains, if any, are generally declared and paid annually.
13
Indemnifications — Under the corporation’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc., and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC. Various funds issued by American Century Asset Allocation Portfolios, Inc. own, in aggregate, 100% of the shares of the fund. Related parties do not invest in the fund for the purpose of exercising management or control.
Management Fees — 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 (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class's daily net assets and paid monthly in arrears. The annual management fee is 0.80% for the Institutional Class and 0.65% for the R6 Class. From April 1, 2016 through July 31, 2016, the investment advisor agreed to waive 0.05% of the fund's management fee for assets over $7 billion. This fee waiver was determined by applying a formula that takes into account the fund's assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The strategy assets of the fund also include the assets of Mid Cap Value Fund, one fund in a series issued by the corporation. Effective August 1, 2016, the investment advisor agreed to waive 0.03% of the fund's management fee. The investment advisor expects this waiver to continue until July 31, 2017 and cannot terminate it prior to such date without approval of the Board of Directors. The total amount of the waiver for each class for the six months ended September 30, 2016 was $87,280 for the Institutional Class and $7,409 for the R6 Class. The effective annual management fee after waiver for each class for the six months ended September 30, 2016 was 0.78% for the Institutional Class and 0.63% for the R6 Class.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $1,878,544 and $1,867,019, respectively. The effect of interfund transactions on the Statement of Operations was $270,172 in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the six months ended September 30, 2016 were $305,554,082 and $290,232,760, respectively.
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5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Six months ended September 30, 2016 | Year ended March 31, 2016 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Institutional Class/Shares Authorized | 525,000,000 | 525,000,000 | ||||||||
Sold | 1,657,123 | $ | 20,813,872 | 12,938,971 | $ | 153,080,761 | ||||
Issued in reinvestment of distributions | 542,452 | 6,824,723 | 5,979,048 | 69,247,873 | ||||||
Redeemed | (2,574,835 | ) | (32,456,544 | ) | (8,002,791 | ) | (95,399,767 | ) | ||
(375,260 | ) | (4,817,949 | ) | 10,915,228 | 126,928,867 | |||||
R6 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 1,751,781 | 22,085,981 | 2,538,193 | 30,609,522 | ||||||
Issued in reinvestment of distributions | 52,397 | 659,095 | 363,563 | 4,211,777 | ||||||
Redeemed | (198,188 | ) | (2,525,773 | ) | (499,932 | ) | (6,011,187 | ) | ||
1,605,990 | 20,219,303 | 2,401,824 | 28,810,112 | |||||||
Net increase (decrease) | 1,230,730 | $ | 15,401,354 | 13,317,052 | $ | 155,738,979 |
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 914,788,811 | $ | 36,731,946 | — | |||
Exchange-Traded Funds | 24,034,614 | — | — | |||||
Temporary Cash Investments | 4,189,337 | 14,317,000 | — | |||||
$ | 943,012,762 | $ | 51,048,946 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 45,003 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 229,149 | — |
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7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $36,372,964.
The value of foreign currency risk derivative instruments as of September 30, 2016, is disclosed on the Statement of Assets and Liabilities as an asset of $45,003 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $229,149 in unrealized depreciation on forward foreign currency exchange contracts. For the six months ended September 30, 2016, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(99,275) in net realized gain (loss) on foreign currency transactions and $176,733 in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Federal Tax Information
The book-basis 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 on the financial statements.
As of September 30, 2016, the components of investments for federal income tax purposes were as follows:
Federal tax cost of investments | $ | 860,305,239 | |
Gross tax appreciation of investments | $ | 143,579,819 | |
Gross tax depreciation of investments | (9,823,350 | ) | |
Net tax appreciation (depreciation) of investments | $ | 133,756,469 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
As of March 31, 2016, the fund had post-October capital loss deferrals of $(4,781,535), which represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
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Financial Highlights |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Institutional Class | |||||||||||||||||
2016(3) | $11.97 | 0.08 | 0.99 | 1.07 | (0.10) | — | (0.10) | $12.94 | 8.95% | 0.78%(4) | 0.80%(4) | 1.29%(4) | 1.27%(4) | 31% | $906,239 | ||
2016 | $12.82 | 0.17 | 0.05 | 0.22 | (0.17) | (0.90) | (1.07) | $11.97 | 2.13% | 0.80% | 0.81% | 1.39% | 1.38% | 67% | $842,671 | ||
2015 | $12.62 | 0.18 | 1.56 | 1.74 | (0.17) | (1.37) | (1.54) | $12.82 | 14.05% | 0.80% | 0.80% | 1.37% | 1.37% | 67% | $762,209 | ||
2014 | $11.41 | 0.19 | 2.15 | 2.34 | (0.18) | (0.95) | (1.13) | $12.62 | 21.19% | 0.80% | 0.80% | 1.55% | 1.55% | 69% | $596,655 | ||
2013 | $10.16 | 0.19 | 1.59 | 1.78 | (0.22) | (0.31) | (0.53) | $11.41 | 18.32% | 0.80% | 0.80% | 1.89% | 1.89% | 71% | $423,477 | ||
2012 | $10.70 | 0.20 | 0.22 | 0.42 | (0.14) | (0.82) | (0.96) | $10.16 | 4.93% | 0.81% | 0.81% | 2.01% | 2.01% | 82% | $301,868 | ||
R6 Class | |||||||||||||||||
2016(3) | $11.97 | 0.09 | 0.99 | 1.08 | (0.11) | — | (0.11) | $12.94 | 9.03% | 0.63%(4) | 0.65%(4) | 1.44%(4) | 1.42%(4) | 31% | $85,352 | ||
2016 | $12.81 | 0.19 | 0.06 | 0.25 | (0.19) | (0.90) | (1.09) | $11.97 | 2.36% | 0.65% | 0.66% | 1.54% | 1.53% | 67% | $59,721 | ||
2015 | $12.62 | 0.20 | 1.55 | 1.75 | (0.19) | (1.37) | (1.56) | $12.81 | 14.14% | 0.65% | 0.65% | 1.52% | 1.52% | 67% | $33,151 | ||
2014(5) | $12.30 | 0.14 | 1.26 | 1.40 | (0.13) | (0.95) | (1.08) | $12.62 | 11.89% | 0.65%(4) | 0.65%(4) | 1.70%(4) | 1.70%(4) | 69%(6) | $7,546 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day. Total returns for periods less than one year are not annualized. |
(3) | Six months ended September 30, 2016 (unaudited). |
(4) | Annualized. |
(5) | July 26, 2013 (commencement of sale) through March 31, 2014. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended March 31, 2014. |
See Notes to Financial Statements.
Approval of Management Agreement |
At a meeting held on June 29, 2016, the Fund’s Board of Directors (the "Board") unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments by the Fund and the Advisor to financial intermediaries and the nature of services provided; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors.
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In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment. The Board noted specifically the resources the Advisor has committed to enhancing cybersecurity protections for the benefit of shareholders.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance, and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, provides oversight of the investment performance process. It regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information provided by the Advisor during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the one-, three-, and five-year periods reviewed by the Board. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to,
20
information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating the Advisor’s financial condition, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pays the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, expenses attributable to short sales, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent Directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was below the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
21
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Directors also requested and received information from the Advisor concerning the nature of the services, fees, costs, and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board received confirmation from the Advisor that all such payments by the Fund intended for distribution were made pursuant to the Fund's 12b-1 Plan. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor, as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
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Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
23
Notes |
24
Contact Us | americancentury.com | |
Automated Information Line | 1-800-345-8765 | |
Investor Services Representative | 1-800-345-2021 or 816-531-5575 | |
Investors Using Advisors | 1-800-378-9878 | |
Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 | |
Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 | |
Telecommunications Relay Service for the Deaf | 711 | |
American Century Capital Portfolios, Inc. | ||
Investment Advisor: American Century Investment Management, Inc. Kansas City, Missouri | ||
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. | ||
©2016 American Century Proprietary Holdings, Inc. All rights reserved. CL-SAN-90825 1611 |
Semiannual Report | |
September 30, 2016 | |
Small Cap Value Fund |
Table of Contents |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
Jonathan Thomas
Dear Investor:
Thank you for reviewing this semiannual report for the period ended September 30, 2016. It provides a macroeconomic and financial market overview (below), followed by a schedule of fund investments and other financial information. For additional commentary and information on fund performance, key factors that affected asset returns, and other insights regarding the investment markets, we encourage you to visit our website, americancentury.com.
Despite Brexit Shock, Markets Produced Positive, Central Bank-Boosted Returns
The reporting period was unusual in that virtually all mutual fund asset classes posted positive performance, led by gold, U.S. small-cap stocks, and emerging markets (EM) stocks. Even as those higher-risk/higher-volatility asset classes outperformed, government bonds also produced solid returns. Simultaneous positive performance across all asset classes is rare. How did it happen? Massive central bank stimulus—amplified in the wake of China- and energy market-related volatility in early 2016 and the unexpected U.K. vote to leave the European Union (Brexit) in June—helped boost most markets for the reporting period.
Continued central bank stimulus encouraged relatively aggressive investor behavior, including demand for equities and higher-yielding bond sectors, including high-yield corporates and EM debt. At the same time, central bank stimulus also included large volumes of bond purchases and low interest rate targets, which helped drive interest rates lower and government bond prices higher. Oil’s rebound from its January 2016 lows and stabilization of China’s economy also supported investor sentiment, as well as repeated decisions by the Federal Reserve (Fed) to keep its expected interest rate hikes on hold.
The reporting period featured many surprises, including weaker-than-expected global growth, Brexit, the quick market rebound from Brexit, the Republican nomination of Donald Trump, and concerns about the stability of major European banks. Central bank stimulus provided market support, but possible changes loom ahead—the Fed might raise rates as early as December, and other central banks might taper their bond purchases in future months. Meanwhile, the U.S. continues to be swayed by other global factors, including increasing populism and anti-globalization. We’re watching the aftermath of the U.S. elections and the Italian constitutional referendum to see if themes that Brexit spotlighted—nationalism/isolationism, anti-immigration, anti-trade agreements, distrust of career politicians—shape future U.S. and European government leadership. We appreciate your continued trust in us during this potentially turbulent period.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Fund Characteristics |
SEPTEMBER 30, 2016 | |
Top Ten Holdings | % of net assets |
Multi Packaging Solutions International Ltd. | 2.1% |
Capital Bank Financial Corp., Class A | 2.0% |
Allied World Assurance Co. Holdings AG | 2.0% |
Graphic Packaging Holding Co. | 1.9% |
Bank of the Ozarks, Inc. | 1.9% |
Entravision Communications Corp., Class A | 1.9% |
UMB Financial Corp. | 1.8% |
BankUnited, Inc. | 1.7% |
VeriFone Systems, Inc. | 1.7% |
Endurance Specialty Holdings Ltd. | 1.6% |
�� | |
Top Five Industries | % of net assets |
Banks | 16.7% |
Equity Real Estate Investment Trusts (REITs) | 9.3% |
Insurance | 7.4% |
Health Care Providers and Services | 6.0% |
Containers and Packaging | 4.7% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 98.2% |
Exchange-Traded Funds | 0.7% |
Total Equity Exposure | 98.9% |
Temporary Cash Investments | 3.2% |
Other Assets and Liabilities | (2.1)% |
3
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from April 1, 2016 to September 30, 2016.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
4
Beginning Account Value 4/1/16 | Ending Account Value 9/30/16 | Expenses Paid During Period(1) 4/1/16 - 9/30/16 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,113.10 | $6.62 | 1.25% |
Institutional Class | $1,000 | $1,113.90 | $5.56 | 1.05% |
A Class | $1,000 | $1,110.70 | $7.94 | 1.50% |
C Class | $1,000 | $1,106.70 | $11.88 | 2.25% |
R Class | $1,000 | $1,109.40 | $9.25 | 1.75% |
R6 Class | $1,000 | $1,113.60 | $4.77 | 0.90% |
Hypothetical | ||||
Investor Class | $1,000 | $1,018.80 | $6.33 | 1.25% |
Institutional Class | $1,000 | $1,019.80 | $5.32 | 1.05% |
A Class | $1,000 | $1,017.55 | $7.59 | 1.50% |
C Class | $1,000 | $1,013.79 | $11.36 | 2.25% |
R Class | $1,000 | $1,016.30 | $8.85 | 1.75% |
R6 Class | $1,000 | $1,020.56 | $4.56 | 0.90% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
5
Schedule of Investments |
SEPTEMBER 30, 2016 (UNAUDITED)
Shares | Value | |||
COMMON STOCKS — 98.2% | ||||
Aerospace and Defense — 0.6% | ||||
Hexcel Corp. | 177,070 | $ | 7,844,201 | |
Auto Components — 0.5% | ||||
Cooper Tire & Rubber Co. | 62,214 | 2,365,376 | ||
Tenneco, Inc.(1) | 62,214 | 3,625,210 | ||
5,990,586 | ||||
Banks — 16.7% | ||||
Bank of the Ozarks, Inc. | 679,563 | 26,095,219 | ||
BankUnited, Inc. | 770,490 | 23,268,798 | ||
Boston Private Financial Holdings, Inc. | 990,630 | 12,709,783 | ||
Capital Bank Financial Corp., Class A | 851,846 | 27,352,775 | ||
F.N.B. Corp. | 1,004,987 | 12,361,340 | ||
FCB Financial Holdings, Inc., Class A(1) | 229,712 | 8,827,832 | ||
First Financial Bankshares, Inc. | 320,639 | 11,684,085 | ||
First Hawaiian, Inc.(1) | 454,637 | 12,211,550 | ||
LegacyTexas Financial Group, Inc. | 569,493 | 18,013,064 | ||
PacWest Bancorp | 258,426 | 11,089,060 | ||
Prosperity Bancshares, Inc. | 181,855 | 9,982,021 | ||
Southside Bancshares, Inc. | 279,872 | 9,006,281 | ||
Texas Capital Bancshares, Inc.(1) | 325,425 | 17,872,341 | ||
UMB Financial Corp. | 416,352 | 24,752,126 | ||
225,226,275 | ||||
Building Products — 3.4% | ||||
Apogee Enterprises, Inc. | 311,068 | 13,901,629 | ||
Continental Building Products, Inc.(1) | 354,139 | 7,433,378 | ||
CSW Industrials, Inc.(1) | 483,351 | 15,655,739 | ||
NCI Building Systems, Inc.(1) | 349,353 | 5,097,060 | ||
PGT, Inc.(1) | 296,711 | 3,165,906 | ||
45,253,712 | ||||
Capital Markets — 0.9% | ||||
Ares Management LP | 669,991 | 11,664,543 | ||
Chemicals — 3.9% | ||||
Chase Corp. | 62,214 | 4,300,232 | ||
Innophos Holdings, Inc. | 253,640 | 9,899,569 | ||
Innospec, Inc. | 311,068 | 18,916,045 | ||
Minerals Technologies, Inc. | 248,854 | 17,591,489 | ||
Valvoline, Inc.(1) | 65,729 | 1,543,974 | ||
52,251,309 | ||||
Commercial Services and Supplies — 3.3% | ||||
Brink's Co. (The) | 306,282 | 11,356,937 | ||
Deluxe Corp. | 47,857 | 3,197,805 | ||
InnerWorkings, Inc.(1) | 1,193,488 | 11,242,657 | ||
Interface, Inc. | 488,137 | 8,147,006 | ||
Multi-Color Corp. | 167,498 | 11,054,868 | ||
44,999,273 |
6
Shares | Value | |||
Communications Equipment — 1.4% | ||||
NetScout Systems, Inc.(1) | 631,706 | $ | 18,477,401 | |
Construction and Engineering — 0.8% | ||||
Valmont Industries, Inc. | 80,740 | 10,865,182 | ||
Containers and Packaging — 4.7% | ||||
Berry Plastics Group, Inc.(1) | 200,998 | 8,813,762 | ||
Graphic Packaging Holding Co. | 1,871,189 | 26,177,934 | ||
Multi Packaging Solutions International Ltd.(1) | 2,000,416 | 28,825,995 | ||
63,817,691 | ||||
Diversified Financial Services — 1.1% | ||||
Compass Diversified Holdings | 866,203 | 15,054,608 | ||
Electric Utilities — 0.9% | ||||
ALLETE, Inc. | 143,570 | 8,559,644 | ||
El Paso Electric Co. | 86,142 | 4,028,861 | ||
12,588,505 | ||||
Electronic Equipment, Instruments and Components — 4.1% | ||||
Ingram Micro, Inc., Class A | 215,355 | 7,679,559 | ||
IPG Photonics Corp.(1) | 90,928 | 7,487,921 | ||
OSI Systems, Inc.(1) | 272,782 | 17,834,487 | ||
VeriFone Systems, Inc.(1) | 1,440,481 | 22,673,171 | ||
55,675,138 | ||||
Energy Equipment and Services — 1.8% | ||||
Dril-Quip, Inc.(1) | 239,283 | 13,337,634 | ||
Forum Energy Technologies, Inc.(1) | 157,927 | 3,136,430 | ||
Matrix Service Co.(1) | 430,709 | 8,080,101 | ||
24,554,165 | ||||
Equity Real Estate Investment Trusts (REITs) — 9.3% | ||||
Armada Hoffler Properties, Inc. | 545,564 | 7,310,558 | ||
CareTrust REIT, Inc. | 502,494 | 7,426,861 | ||
CBL & Associates Properties, Inc. | 363,710 | 4,415,439 | ||
Chatham Lodging Trust | 277,568 | 5,343,184 | ||
Community Healthcare Trust, Inc. | 205,783 | 4,510,763 | ||
DiamondRock Hospitality Co. | 387,638 | 3,527,506 | ||
Easterly Government Properties, Inc. | 177,128 | 3,379,602 | ||
EPR Properties | 38,286 | 3,014,640 | ||
First Industrial Realty Trust, Inc. | 143,570 | 4,051,545 | ||
Kite Realty Group Trust | 655,634 | 18,174,175 | ||
Lexington Realty Trust | 909,274 | 9,365,522 | ||
MedEquities Realty Trust, Inc.(1) | 450,000 | 5,287,500 | ||
Medical Properties Trust, Inc. | 445,066 | 6,573,625 | ||
Outfront Media, Inc. | 430,709 | 10,186,268 | ||
RLJ Lodging Trust | 205,781 | 4,327,574 | ||
Sabra Health Care REIT, Inc. | 373,281 | 9,399,216 | ||
Summit Hotel Properties, Inc. | 602,992 | 7,935,375 | ||
Sunstone Hotel Investors, Inc. | 220,140 | 2,815,591 | ||
Urstadt Biddle Properties, Inc., Class A | 301,496 | 6,699,241 | ||
Washington Real Estate Investment Trust | 67,000 | 2,085,040 | ||
125,829,225 | ||||
Food Products — 0.3% | ||||
Inventure Foods, Inc.(1) | 382,852 | 3,598,809 |
7
Shares | Value | |||
Gas Utilities — 0.1% | ||||
Southwest Gas Corp. | 19,143 | $ | 1,337,330 | |
Health Care Equipment and Supplies — 0.6% | ||||
Utah Medical Products, Inc. | 131,249 | 7,848,690 | ||
Health Care Providers and Services — 6.0% | ||||
AMN Healthcare Services, Inc.(1) | 430,709 | 13,726,696 | ||
LifePoint Health, Inc.(1) | 363,710 | 21,542,543 | ||
Owens & Minor, Inc. | 287,139 | 9,972,338 | ||
PharMerica Corp.(1) | 679,563 | 19,075,333 | ||
Providence Service Corp. (The)(1) | 330,210 | 16,058,112 | ||
80,375,022 | ||||
Hotels, Restaurants and Leisure — 2.6% | ||||
ClubCorp Holdings, Inc. | 1,244,269 | 18,004,573 | ||
Peak Resorts, Inc. | 421,138 | 2,143,592 | ||
Red Robin Gourmet Burgers, Inc.(1) | 334,996 | 15,054,720 | ||
35,202,885 | ||||
Household Durables — 0.8% | ||||
Cavco Industries, Inc.(1) | 57,428 | 5,688,244 | ||
Century Communities, Inc.(1) | 258,426 | 5,558,743 | ||
11,246,987 | ||||
Industrial Conglomerates — 0.5% | ||||
Raven Industries, Inc. | 258,426 | 5,951,551 | ||
Insurance — 7.4% | ||||
Allied World Assurance Co. Holdings AG | 665,206 | 26,887,627 | ||
Atlas Financial Holdings, Inc.(1) | 311,068 | 4,905,542 | ||
Endurance Specialty Holdings Ltd. | 330,210 | 21,612,245 | ||
Hanover Insurance Group, Inc. (The) | 244,069 | 18,407,684 | ||
Infinity Property & Casualty Corp. | 100,499 | 8,304,232 | ||
James River Group Holdings Ltd. | 71,785 | 2,598,617 | ||
Kinsale Capital Group, Inc. | 200,998 | 4,421,956 | ||
Validus Holdings Ltd. | 253,640 | 12,636,345 | ||
99,774,248 | ||||
IT Services — 2.8% | ||||
CSRA, Inc. | 684,348 | 18,408,961 | ||
EVERTEC, Inc. | 1,148,556 | 19,272,770 | ||
37,681,731 | ||||
Leisure Products — 1.1% | ||||
Malibu Boats, Inc.(1) | 468,994 | 6,988,011 | ||
MCBC Holdings, Inc. | 660,420 | 7,528,788 | ||
14,516,799 | ||||
Machinery — 2.8% | ||||
Albany International Corp., Class A | 210,569 | 8,923,914 | ||
EnPro Industries, Inc. | 210,569 | 11,964,531 | ||
Global Brass & Copper Holdings, Inc. | 172,284 | 4,977,285 | ||
Graham Corp. | 435,495 | 8,317,954 | ||
Harsco Corp. | 354,139 | 3,516,600 | ||
37,700,284 | ||||
Media — 3.1% | ||||
Entercom Communications Corp., Class A | 157,927 | 2,043,575 | ||
Entravision Communications Corp., Class A | 3,397,811 | 25,925,298 | ||
Gray Television, Inc.(1) | 1,038,486 | 10,758,715 |
8
Shares | Value | |||
Townsquare Media, Inc.(1) | 310,471 | $ | 2,899,799 | |
41,627,387 | ||||
Metals and Mining — 0.3% | ||||
Compass Minerals International, Inc. | 62,214 | 4,585,172 | ||
Mortgage Real Estate Investment Trusts (REITs) — 1.8% | ||||
Apollo Commercial Real Estate Finance, Inc. | 167,498 | 2,741,942 | ||
Blackstone Mortgage Trust, Inc., Class A | 224,926 | 6,624,071 | ||
MFA Financial, Inc. | 358,924 | 2,684,752 | ||
New Residential Investment Corp. | 205,783 | 2,841,863 | ||
Two Harbors Investment Corp. | 1,057,629 | 9,021,575 | ||
23,914,203 | ||||
Oil, Gas and Consumable Fuels — 2.9% | ||||
Aegean Marine Petroleum Network, Inc. | 440,280 | 4,402,800 | ||
Ardmore Shipping Corp. | 1,110,271 | 7,816,308 | ||
Contango Oil & Gas Co.(1) | 497,708 | 5,086,576 | ||
Delek US Holdings, Inc. | 114,856 | 1,985,860 | ||
Earthstone Energy, Inc.(1) | 301,496 | 2,592,866 | ||
Euronav NV(1) | 330,210 | 2,519,502 | ||
PDC Energy, Inc.(1) | 19,143 | 1,283,729 | ||
Scorpio Tankers, Inc. | 1,526,622 | 7,068,260 | ||
Synergy Resources Corp.(1) | 981,058 | 6,798,732 | ||
39,554,633 | ||||
Paper and Forest Products — 1.2% | ||||
KapStone Paper and Packaging Corp. | 880,560 | 16,660,195 | ||
Professional Services — 1.4% | ||||
Korn/Ferry International | 445,066 | 9,346,386 | ||
On Assignment, Inc.(1) | 258,426 | 9,378,280 | ||
18,724,666 | ||||
Semiconductors and Semiconductor Equipment — 3.5% | ||||
Cypress Semiconductor Corp. | 1,215,555 | 14,781,149 | ||
Exar Corp.(1) | 1,622,335 | 15,103,939 | ||
Kulicke & Soffa Industries, Inc.(1) | 1,014,558 | 13,118,235 | ||
Semtech Corp.(1) | 129,213 | 3,583,076 | ||
46,586,399 | ||||
Software — 1.5% | ||||
BroadSoft, Inc.(1) | 71,785 | 3,341,592 | ||
Mentor Graphics Corp. | 636,492 | 16,828,848 | ||
20,170,440 | ||||
Specialty Retail — 1.5% | ||||
Destination Maternity Corp. | 475,094 | 3,363,666 | ||
MarineMax, Inc.(1) | 196,212 | 4,110,641 | ||
Penske Automotive Group, Inc. | 267,997 | 12,912,095 | ||
20,386,402 | ||||
Technology Hardware, Storage and Peripherals — 0.6% | ||||
Cray, Inc.(1) | 358,924 | 8,449,071 | ||
Textiles, Apparel and Luxury Goods — 0.4% | ||||
Culp, Inc. | 196,212 | 5,841,231 | ||
Trading Companies and Distributors — 1.6% | ||||
DXP Enterprises, Inc.(1) | 325,425 | 9,173,731 | ||
9
Shares | Value | |||
GMS, Inc.(1) | 521,636 | $ | 11,595,968 | |
20,769,699 | ||||
TOTAL COMMON STOCKS (Cost $1,158,241,691) | 1,322,595,648 | |||
EXCHANGE-TRADED FUNDS — 0.7% | ||||
iShares Russell 2000 Value ETF (Cost $9,928,879) | 95,000 | 9,951,250 | ||
TEMPORARY CASH INVESTMENTS — 3.2% | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 0.125%, 4/15/17, valued at $33,930,938), at 0.15%, dated 9/30/16, due 10/3/16 (Delivery value $33,265,416) | 33,265,000 | |||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 9,733,190 | 9,733,190 | ||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $42,998,190) | 42,998,190 | |||
TOTAL INVESTMENT SECURITIES — 102.1% (Cost $1,211,168,760) | 1,375,545,088 | |||
OTHER ASSETS AND LIABILITIES — (2.1)% | (28,538,283) | |||
TOTAL NET ASSETS — 100.0% | $ | 1,347,006,805 |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
EUR | 108,435 | USD | 122,298 | UBS AG | 12/30/16 | $ | 11 | |||
USD | 2,305,396 | EUR | 2,050,626 | UBS AG | 12/30/16 | (7,606 | ) | |||
$ | (7,595 | ) |
NOTES TO SCHEDULE OF INVESTMENTS | ||
EUR | - | Euro |
USD | - | United States Dollar |
(1) | Non-income producing. |
See Notes to Financial Statements.
10
Statement of Assets and Liabilities |
SEPTEMBER 30, 2016 (UNAUDITED) | |||
Assets | |||
Investment securities, at value (cost of $1,211,168,760) | $ | 1,375,545,088 | |
Receivable for investments sold | 80,720,540 | ||
Receivable for capital shares sold | 475,373 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 11 | ||
Dividends and interest receivable | 2,328,151 | ||
1,459,069,163 | |||
Liabilities | |||
Payable for investments purchased | 23,481,566 | ||
Payable for capital shares redeemed | 87,198,693 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 7,606 | ||
Accrued management fees | 1,344,385 | ||
Distribution and service fees payable | 30,108 | ||
112,062,358 | |||
Net Assets | $ | 1,347,006,805 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 1,161,223,907 | |
Undistributed net investment income | 1,013,746 | ||
Undistributed net realized gain | 20,400,419 | ||
Net unrealized appreciation | 164,368,733 | ||
$ | 1,347,006,805 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||
Investor Class, $0.01 Par Value | $662,451,614 | 79,347,354 | $8.35 | |
Institutional Class, $0.01 Par Value | $445,526,948 | 52,963,340 | $8.41 | |
A Class, $0.01 Par Value | $140,134,931 | 16,918,513 | $8.28* | |
C Class, $0.01 Par Value | $374,793 | 46,478 | $8.06 | |
R Class, $0.01 Par Value | $2,623,132 | 317,182 | $8.27 | |
R6 Class, $0.01 Par Value | $95,895,387 | 11,399,294 | $8.41 |
*Maximum offering price $8.79 (net asset value divided by 0.9425).
See Notes to Financial Statements.
11
Statement of Operations |
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (including $74,491 from affiliates and net of foreign taxes withheld of $64,133) | $ | 14,536,131 | |
Interest | 23,826 | ||
14,559,957 | |||
Expenses: | |||
Management fees | 8,059,540 | ||
Distribution and service fees: | |||
A Class | 175,004 | ||
C Class | 1,523 | ||
R Class | 5,977 | ||
Directors' fees and expenses | 23,562 | ||
8,265,606 | |||
Net investment income (loss) | 6,294,351 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions (including $1,248,995 from affiliates) | 68,111,746 | ||
Foreign currency transactions | (171 | ) | |
68,111,575 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 75,943,931 | ||
Translation of assets and liabilities in foreign currencies | 45,321 | ||
75,989,252 | |||
Net realized and unrealized gain (loss) | 144,100,827 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 150,395,178 |
See Notes to Financial Statements.
12
Statement of Changes in Net Assets |
SIX MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) AND YEAR ENDED MARCH 31, 2016 | ||||||
Increase (Decrease) in Net Assets | September 30, 2016 | March 31, 2016 | ||||
Operations | ||||||
Net investment income (loss) | $ | 6,294,351 | $ | 7,445,362 | ||
Net realized gain (loss) | 68,111,575 | 82,139,164 | ||||
Change in net unrealized appreciation (depreciation) | 75,989,252 | (185,593,408 | ) | |||
Net increase (decrease) in net assets resulting from operations | 150,395,178 | (96,008,882 | ) | |||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (4,247,647 | ) | (2,857,830 | ) | ||
Institutional Class | (3,599,566 | ) | (3,361,155 | ) | ||
A Class | (651,385 | ) | (266,966 | ) | ||
C Class | (285 | ) | — | |||
R Class | (7,918 | ) | — | |||
R6 Class | (1,208,896 | ) | (302,203 | ) | ||
From net realized gains: | ||||||
Investor Class | — | (83,866,802 | ) | |||
Institutional Class | — | (66,712,537 | ) | |||
A Class | — | (19,047,040 | ) | |||
C Class | — | (22,931 | ) | |||
R Class | — | (281,269 | ) | |||
R6 Class | — | (4,897,236 | ) | |||
Decrease in net assets from distributions | (9,715,697 | ) | (181,615,969 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | (180,245,751 | ) | (177,847,308 | ) | ||
Net increase (decrease) in net assets | (39,566,270 | ) | (455,472,159 | ) | ||
Net Assets | ||||||
Beginning of period | 1,386,573,075 | 1,842,045,234 | ||||
End of period | $ | 1,347,006,805 | $ | 1,386,573,075 | ||
Undistributed net investment income | $ | 1,013,746 | $ | 4,435,092 |
See Notes to Financial Statements.
13
Notes to Financial Statements |
SEPTEMBER 30, 2016 (UNAUDITED)
1. Organization
American Century Capital Portfolios, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Small Cap Value Fund (the fund) is one fund in a series issued by the corporation. The fund’s investment objective is to seek long-term capital growth. Income is a secondary objective.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class, the R Class and the R6 Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class and R6 Class shareholders do not require the same level of shareholder and administrative services from American Century Investment Management, Inc. (ACIM) (the investment advisor) as shareholders of other classes. In addition, financial intermediaries do not receive any service, distribution or administrative fees for the R6 Class. As a result, the Institutional Class and R6 Class are charged lower unified management fees.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
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The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially 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 income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net 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. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income, if any, are generally declared and paid quarterly. Distributions from net realized gains, if any, are generally declared and paid annually.
Indemnifications — Under the corporation’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in
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the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc. (ACIS), and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
Management Fees — 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 (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The rate of the fee is determined by applying a fee rate calculation formula. This formula takes into account the fund’s assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The annual management fee schedule ranges from 1.00% to 1.25% for the Investor Class, A Class, C Class and R Class. The annual management fee schedule ranges from 0.80% to 1.05% for the Institutional Class and 0.65% to 0.90% for the R6 Class. The effective annual management fee for each class for the six months ended September 30, 2016 was 1.25% for the Investor Class, A Class, C Class, and R Class, 1.05% for the Institutional Class and 0.90% for the R6 Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay ACIS an annual distribution and service fee of 0.25%. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the six months ended September 30, 2016 are detailed in the Statement of Operations.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $6,378,817 and $7,104,711, respectively. The effect of interfund transactions on the Statement of Operations was $640,732 in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the six months ended September 30, 2016 were $564,070,785 and $659,051,481, respectively.
For the six months ended September 30, 2016, the fund incurred net realized gains of $7,101,002 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.
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5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Six months ended September 30, 2016 | Year ended March 31, 2016 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 575,000,000 | 575,000,000 | ||||||||
Sold | 4,728,794 | $ | 37,577,917 | 9,679,279 | $ | 78,890,541 | ||||
Issued in reinvestment of distributions | 524,820 | 4,096,906 | 10,696,743 | 83,310,607 | ||||||
Redeemed | (12,897,012 | ) | (101,907,418 | ) | (22,354,962 | ) | (185,299,956 | ) | ||
(7,643,398 | ) | (60,232,595 | ) | (1,978,940 | ) | (23,098,808 | ) | |||
Institutional Class/Shares Authorized | 400,000,000 | 400,000,000 | ||||||||
Sold | 3,896,814 | 31,184,743 | 11,252,060 | 95,032,219 | ||||||
Issued in reinvestment of distributions | 406,475 | 3,201,303 | 8,044,956 | 63,217,519 | ||||||
Redeemed | (19,289,240 | ) | (153,049,122 | ) | (16,381,374 | ) | (133,800,195 | ) | ||
(14,985,951 | ) | (118,663,076 | ) | 2,915,642 | 24,449,543 | |||||
A Class/Shares Authorized | 160,000,000 | 160,000,000 | ||||||||
Sold | 1,017,657 | 7,971,127 | 2,683,728 | 22,168,790 | ||||||
Issued in reinvestment of distributions | 82,662 | 636,621 | 2,445,852 | 18,848,115 | ||||||
Redeemed | (3,219,781 | ) | (25,194,912 | ) | (28,416,675 | ) | (254,844,402 | ) | ||
(2,119,462 | ) | (16,587,164 | ) | (23,287,095 | ) | (213,827,497 | ) | |||
C Class/Shares Authorized | 10,000,000 | 10,000,000 | ||||||||
Sold | 11,032 | 86,817 | 25,211 | 200,917 | ||||||
Issued in reinvestment of distributions | 38 | 285 | 3,053 | 22,931 | ||||||
Redeemed | (945 | ) | (7,296 | ) | (7,353 | ) | (66,205 | ) | ||
10,125 | 79,806 | 20,911 | 157,643 | |||||||
R Class/Shares Authorized | 10,000,000 | 10,000,000 | ||||||||
Sold | 40,520 | 318,274 | 73,749 | 617,605 | ||||||
Issued in reinvestment of distributions | 1,030 | 7,918 | 36,576 | 281,269 | ||||||
Redeemed | (38,216 | ) | (289,929 | ) | (31,723 | ) | (249,247 | ) | ||
3,334 | 36,263 | 78,602 | 649,627 | |||||||
R6 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 11,479,620 | 89,369,960 | 5,001,989 | 38,087,944 | ||||||
Issued in reinvestment of distributions | 153,119 | 1,208,896 | 661,127 | 5,199,439 | ||||||
Redeemed | (9,053,406 | ) | (75,457,841 | ) | (1,166,051 | ) | (9,465,199 | ) | ||
2,579,333 | 15,121,015 | 4,497,065 | 33,822,184 | |||||||
Net increase (decrease) | (22,156,019 | ) | $ | (180,245,751 | ) | (17,753,815 | ) | $ | (177,847,308 | ) |
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6. Affiliated Company Transactions
If a fund's holding represents ownership of 5% or more of the voting securities of a company, the company is affiliated as defined in the 1940 Act. A summary of transactions for each company which is or was an affiliate at or during the six months ended September 30, 2016 follows:
Company | Beginning Value | Purchase Cost | Sales Cost | Realized Gain (Loss) | Dividend Income | Ending Value | ||||||||||
Utah Medical Products, Inc.(1) | $ | 11,882,600 | $ | 36,509 | $ | 2,639,838 | $ | 1,248,995 | $ | 74,491 | (1) |
(1) Company was not an affiliate at September 30, 2016.
7. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 1,322,595,648 | — | — | ||||
Exchange-Traded Funds | 9,951,250 | — | — | |||||
Temporary Cash Investments | 9,733,190 | $ | 33,265,000 | — | ||||
$ | 1,342,280,088 | $ | 33,265,000 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 11 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 7,606 | — |
8. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange
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rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $3,527,050.
The value of foreign currency risk derivative instruments as of September 30, 2016, is disclosed on the Statement of Assets and Liabilities as an asset of $11 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $7,606 in unrealized depreciation on forward foreign currency exchange contracts. For the six months ended September 30, 2016, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(171) in net realized gain (loss) on foreign currency transactions and $45,321 in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
9. Risk Factors
The fund invests in common stocks of small companies. Because of this, the fund may be subject to greater risk and market fluctuations than a fund investing in larger, more established companies.
10. Federal Tax Information
The book-basis 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 on the financial statements.
As of September 30, 2016, the components of investments for federal income tax purposes were as follows:
Federal tax cost of investments | $ | 1,250,428,588 | |
Gross tax appreciation of investments | $ | 170,337,396 | |
Gross tax depreciation of investments | (45,220,896 | ) | |
Net tax appreciation (depreciation) of investments | $ | 125,116,500 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
As of March 31, 2016, the fund had post-October capital loss deferrals of $(10,543,816), which represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
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Financial Highlights |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||||
2016(3) | $7.55 | 0.03 | 0.82 | 0.85 | (0.05) | — | (0.05) | $8.35 | 11.31% | 1.25%(4) | 0.82%(4) | 41% | $662,452 | ||
2016 | $9.16 | 0.04 | (0.59) | (0.55) | (0.03) | (1.03) | (1.06) | $7.55 | (6.25)% | 1.26% | 0.43% | 95% | $656,974 | ||
2015 | $9.88 | 0.06 | 0.48 | 0.54 | (0.05) | (1.21) | (1.26) | $9.16 | 6.18% | 1.24% | 0.66% | 78% | $815,048 | ||
2014 | $9.45 | 0.06 | 2.04 | 2.10 | (0.08) | (1.59) | (1.67) | $9.88 | 23.27% | 1.22% | 0.62% | 111% | $948,338 | ||
2013 | $8.61 | 0.10 | 1.25 | 1.35 | (0.12) | (0.39) | (0.51) | $9.45 | 16.58% | 1.25% | 1.17% | 126% | $894,194 | ||
2012 | $9.48 | 0.10 | (0.30) | (0.20) | (0.07) | (0.60) | (0.67) | $8.61 | (1.39)% | 1.24% | 1.14% | 120% | $880,194 | ||
Institutional Class | |||||||||||||||
2016(3) | $7.61 | 0.04 | 0.82 | 0.86 | (0.06) | — | (0.06) | $8.41 | 11.39% | 1.05%(4) | 1.02%(4) | 41% | $445,527 | ||
2016 | $9.22 | 0.05 | (0.58) | (0.53) | (0.05) | (1.03) | (1.08) | $7.61 | (6.02)% | 1.06% | 0.63% | 95% | $517,247 | ||
2015 | $9.94 | 0.08 | 0.48 | 0.56 | (0.07) | (1.21) | (1.28) | $9.22 | 6.35% | 1.04% | 0.86% | 78% | $599,932 | ||
2014 | $9.50 | 0.08 | 2.05 | 2.13 | (0.10) | (1.59) | (1.69) | $9.94 | 23.45% | 1.02% | 0.82% | 111% | $874,415 | ||
2013 | $8.65 | 0.12 | 1.26 | 1.38 | (0.14) | (0.39) | (0.53) | $9.50 | 16.89% | 1.05% | 1.37% | 126% | $721,572 | ||
2012 | $9.52 | 0.11 | (0.30) | (0.19) | (0.08) | (0.60) | (0.68) | $8.65 | (1.20)% | 1.04% | 1.34% | 120% | $742,867 |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
A Class | |||||||||||||||
2016(3) | $7.49 | 0.02 | 0.81 | 0.83 | (0.04) | — | (0.04) | $8.28 | 11.07% | 1.50%(4) | 0.57%(4) | 41% | $140,135 | ||
2016 | $9.09 | 0.01 | (0.57) | (0.56) | (0.01) | (1.03) | (1.04) | $7.49 | (6.41)% | 1.51% | 0.18% | 95% | $142,568 | ||
2015 | $9.81 | 0.04 | 0.48 | 0.52 | (0.03) | (1.21) | (1.24) | $9.09 | 5.96% | 1.49% | 0.41% | 78% | $384,891 | ||
2014 | $9.40 | 0.04 | 2.02 | 2.06 | (0.06) | (1.59) | (1.65) | $9.81 | 22.92% | 1.47% | 0.37% | 111% | $433,905 | ||
2013 | $8.57 | 0.08 | 1.24 | 1.32 | (0.10) | (0.39) | (0.49) | $9.40 | 16.19% | 1.50% | 0.92% | 126% | $401,510 | ||
2012 | $9.44 | 0.08 | (0.30) | (0.22) | (0.05) | (0.60) | (0.65) | $8.57 | (1.56)% | 1.49% | 0.89% | 120% | $432,711 | ||
C Class | |||||||||||||||
2016(3) | $7.29 | (0.01) | 0.79 | 0.78 | (0.01) | — | (0.01) | $8.06 | 10.67% | 2.25%(4) | (0.18)%(4) | 41% | $375 | ||
2016 | $8.93 | (0.04) | (0.57) | (0.61) | — | (1.03) | (1.03) | $7.29 | (7.13)% | 2.26% | (0.57)% | 95% | $265 | ||
2015 | $9.71 | (0.03) | 0.47 | 0.44 | (0.01) | (1.21) | (1.22) | $8.93 | 5.14% | 2.24% | (0.34)% | 78% | $138 | ||
2014 | $9.35 | (0.04) | 2.01 | 1.97 | (0.02) | (1.59) | (1.61) | $9.71 | 21.94% | 2.22% | (0.38)% | 111% | $114 | ||
2013 | $8.53 | 0.01 | 1.24 | 1.25 | (0.04) | (0.39) | (0.43) | $9.35 | 15.35% | 2.25% | 0.17% | 126% | $80 | ||
2012 | $9.43 | 0.02 | (0.30) | (0.28) | (0.02) | (0.60) | (0.62) | $8.53 | (2.30)% | 2.24% | 0.14% | 120% | $77 | ||
R Class | |||||||||||||||
2016(3) | $7.48 | 0.01 | 0.81 | 0.82 | (0.03) | — | (0.03) | $8.27 | 10.94% | 1.75%(4) | 0.32%(4) | 41% | $2,623 | ||
2016 | $9.09 | —(5) | (0.58) | (0.58) | — | (1.03) | (1.03) | $7.48 | (6.65)% | 1.76% | (0.07)% | 95% | $2,346 | ||
2015 | $9.83 | 0.02 | 0.47 | 0.49 | (0.02) | (1.21) | (1.23) | $9.09 | 5.65% | 1.74% | 0.16% | 78% | $2,138 | ||
2014 | $9.42 | 0.01 | 2.03 | 2.04 | (0.04) | (1.59) | (1.63) | $9.83 | 22.64% | 1.72% | 0.12% | 111% | $4,517 | ||
2013 | $8.58 | 0.06 | 1.25 | 1.31 | (0.08) | (0.39) | (0.47) | $9.42 | 15.98% | 1.75% | 0.67% | 126% | $3,516 | ||
2012 | $9.46 | 0.05 | (0.29) | (0.24) | (0.04) | (0.60) | (0.64) | $8.58 | (1.80)% | 1.74% | 0.64% | 120% | $3,245 |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
R6 Class | |||||||||||||||
2016(3) | $7.62 | 0.05 | 0.81 | 0.86 | (0.07) | — | (0.07) | $8.41 | 11.36% | 0.90%(4) | 1.17%(4) | 41% | $95,895 | ||
2016 | $9.23 | 0.07 | (0.59) | (0.52) | (0.06) | (1.03) | (1.09) | $7.62 | (5.86)% | 0.91% | 0.78% | 95% | $67,173 | ||
2015 | $9.94 | 0.11 | 0.48 | 0.59 | (0.09) | (1.21) | (1.30) | $9.23 | 6.62% | 0.89% | 1.01% | 78% | $39,898 | ||
2014(6) | $10.38 | 0.07 | 1.14 | 1.21 | (0.06) | (1.59) | (1.65) | $9.94 | 12.46% | 0.87%(4) | 1.06%(4) | 111%(7) | $13,430 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | Six months ended September 30, 2016 (unaudited). |
(4) | Annualized. |
(5) | Per share amount was less than $0.005. |
(6) | July 26, 2013 (commencement of sale) through March 31, 2014. |
(7) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended March 31, 2014. |
See Notes to Financial Statements.
Approval of Management Agreement |
At a meeting held on June 29, 2016, the Fund’s Board of Directors (the "Board") unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments by the Fund and the Advisor to financial intermediaries and the nature of services provided; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors.
23
In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment. The Board noted specifically the resources the Advisor has committed to enhancing cybersecurity protections for the benefit of shareholders.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance, and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, provides oversight of the investment performance process. It regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information provided by the Advisor during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the one-, three-, five-, and ten-year periods reviewed by the Board. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to,
24
information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating the Advisor’s financial condition, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services. The Board also noted that economies of scale are shared with the Fund and its shareholders through management fee breakpoints that serve to reduce the effective management fee as the assets of the Fund grow.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pays the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, expenses attributable to short sales, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent Directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was above the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the
25
Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Directors also requested and received information from the Advisor concerning the nature of the services, fees, costs, and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board received confirmation from the Advisor that all such payments by the Fund intended for distribution were made pursuant to the Fund's 12b-1 Plan. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor, as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
26
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
27
Notes |
28
Contact Us | americancentury.com | |
Automated Information Line | 1-800-345-8765 | |
Investor Services Representative | 1-800-345-2021 or 816-531-5575 | |
Investors Using Advisors | 1-800-378-9878 | |
Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 | |
Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 | |
Telecommunications Relay Service for the Deaf | 711 | |
American Century Capital Portfolios, Inc. | ||
Investment Advisor: American Century Investment Management, Inc. Kansas City, Missouri | ||
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. | ||
©2016 American Century Proprietary Holdings, Inc. All rights reserved. CL-SAN-90806 1611 |
Semiannual Report | |
September 30, 2016 | |
Value Fund |
Table of Contents |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
Jonathan Thomas
Dear Investor:
Thank you for reviewing this semiannual report for the period ended September 30, 2016. It provides a macroeconomic and financial market overview (below), followed by a schedule of fund investments and other financial information. For additional commentary and information on fund performance, key factors that affected asset returns, and other insights regarding the investment markets, we encourage you to visit our website, americancentury.com.
Despite Brexit Shock, Markets Produced Positive, Central Bank-Boosted Returns
The reporting period was unusual in that virtually all mutual fund asset classes posted positive performance, led by gold, U.S. small-cap stocks, and emerging markets (EM) stocks. Even as those higher-risk/higher-volatility asset classes outperformed, government bonds also produced solid returns. Simultaneous positive performance across all asset classes is rare. How did it happen? Massive central bank stimulus—amplified in the wake of China- and energy market-related volatility in early 2016 and the unexpected U.K. vote to leave the European Union (Brexit) in June—helped boost most markets for the reporting period.
Continued central bank stimulus encouraged relatively aggressive investor behavior, including demand for equities and higher-yielding bond sectors, including high-yield corporates and EM debt. At the same time, central bank stimulus also included large volumes of bond purchases and low interest rate targets, which helped drive interest rates lower and government bond prices higher. Oil’s rebound from its January 2016 lows and stabilization of China’s economy also supported investor sentiment, as well as repeated decisions by the Federal Reserve (Fed) to keep its expected interest rate hikes on hold.
The reporting period featured many surprises, including weaker-than-expected global growth, Brexit, the quick market rebound from Brexit, the Republican nomination of Donald Trump, and concerns about the stability of major European banks. Central bank stimulus provided market support, but possible changes loom ahead—the Fed might raise rates as early as December, and other central banks might taper their bond purchases in future months. Meanwhile, the U.S. continues to be swayed by other global factors, including increasing populism and anti-globalization. We’re watching the aftermath of the U.S. elections and the Italian constitutional referendum to see if themes that Brexit spotlighted—nationalism/isolationism, anti-immigration, anti-trade agreements, distrust of career politicians—shape future U.S. and European government leadership. We appreciate your continued trust in us during this potentially turbulent period.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Fund Characteristics |
SEPTEMBER 30, 2016 | |
Top Ten Holdings | % of net assets |
General Electric Co. | 3.2% |
Procter & Gamble Co. (The) | 2.8% |
JPMorgan Chase & Co. | 2.7% |
Pfizer, Inc. | 2.6% |
Chevron Corp. | 2.5% |
Wells Fargo & Co. | 2.4% |
Johnson & Johnson | 2.3% |
Merck & Co., Inc. | 2.1% |
Bank of America Corp. | 1.9% |
Intel Corp. | 1.9% |
Top Five Industries | % of net assets |
Oil, Gas and Consumable Fuels | 15.3% |
Banks | 13.1% |
Pharmaceuticals | 8.3% |
Health Care Equipment and Supplies | 4.4% |
Capital Markets | 3.7% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 97.6% |
Exchange-Traded Funds | 0.4% |
Total Equity Exposure | 98.0% |
Temporary Cash Investments | 2.0% |
Other Assets and Liabilities | —* |
*Category is less than 0.05% of total net assets.
3
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from April 1, 2016 to September 30, 2016.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
4
Beginning Account Value 4/1/16 | Ending Account Value 9/30/16 | Expenses Paid During Period(1) 4/1/16 - 9/30/16 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,094.50 | $5.15 | 0.98% |
Institutional Class | $1,000 | $1,095.40 | $4.10 | 0.78% |
A Class | $1,000 | $1,093.10 | $6.45 | 1.23% |
C Class | $1,000 | $1,088.80 | $10.37 | 1.98% |
R Class | $1,000 | $1,091.70 | $7.76 | 1.48% |
R6 Class | $1,000 | $1,096.20 | $3.31 | 0.63% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.16 | $4.96 | 0.98% |
Institutional Class | $1,000 | $1,021.16 | $3.95 | 0.78% |
A Class | $1,000 | $1,018.90 | $6.23 | 1.23% |
C Class | $1,000 | $1,015.14 | $10.00 | 1.98% |
R Class | $1,000 | $1,017.65 | $7.49 | 1.48% |
R6 Class | $1,000 | $1,021.91 | $3.19 | 0.63% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
5
Schedule of Investments |
SEPTEMBER 30, 2016 (UNAUDITED)
Shares | Value | |||
COMMON STOCKS — 97.6% | ||||
Aerospace and Defense — 1.1% | ||||
Textron, Inc. | 392,611 | $ | 15,606,287 | |
United Technologies Corp. | 158,840 | 16,138,144 | ||
31,744,431 | ||||
Auto Components — 1.0% | ||||
Johnson Controls International plc | 615,679 | 28,647,544 | ||
Automobiles — 1.4% | ||||
General Motors Co. | 863,199 | 27,423,832 | ||
Honda Motor Co. Ltd. | 453,600 | 13,059,171 | ||
40,483,003 | ||||
Banks — 13.1% | ||||
Bank of America Corp. | 3,691,990 | 57,779,644 | ||
BB&T Corp. | 688,540 | 25,971,729 | ||
BOK Financial Corp. | 111,460 | 7,687,396 | ||
Comerica, Inc. | 306,170 | 14,487,964 | ||
Commerce Bancshares, Inc. | 240,165 | 11,830,528 | ||
Cullen/Frost Bankers, Inc. | 103,580 | 7,451,545 | ||
JPMorgan Chase & Co. | 1,201,491 | 80,007,286 | ||
M&T Bank Corp. | 116,890 | 13,570,929 | ||
PNC Financial Services Group, Inc. (The) | 414,003 | 37,297,530 | ||
U.S. Bancorp | 1,217,742 | 52,228,954 | ||
UMB Financial Corp. | 180,750 | 10,745,588 | ||
Wells Fargo & Co. | 1,627,928 | 72,084,652 | ||
391,143,745 | ||||
Beverages — 0.2% | ||||
PepsiCo, Inc. | 49,060 | 5,336,256 | ||
Biotechnology — 0.3% | ||||
AbbVie, Inc. | 151,990 | 9,586,009 | ||
Capital Markets — 3.7% | ||||
Charles Schwab Corp. (The) | 187,570 | 5,921,585 | ||
Franklin Resources, Inc. | 407,360 | 14,489,795 | ||
Goldman Sachs Group, Inc. (The) | 153,104 | 24,691,082 | ||
Northern Trust Corp. | 548,107 | 37,265,795 | ||
State Street Corp. | 425,635 | 29,636,965 | ||
112,005,222 | ||||
Commercial Services and Supplies — 0.7% | ||||
Republic Services, Inc. | 387,925 | 19,570,816 | ||
Communications Equipment — 1.8% | ||||
Cisco Systems, Inc. | 1,737,919 | 55,126,791 | ||
Containers and Packaging — 0.2% | ||||
Sonoco Products Co. | 130,970 | 6,919,145 | ||
Diversified Financial Services — 1.6% | ||||
Berkshire Hathaway, Inc., Class A(1) | 149 | 32,216,780 | ||
Berkshire Hathaway, Inc., Class B(1) | 111,540 | 16,114,184 | ||
48,330,964 |
6
Shares | Value | |||
Diversified Telecommunication Services — 2.1% | ||||
AT&T, Inc. | 1,149,150 | $ | 46,666,982 | |
CenturyLink, Inc. | 563,959 | 15,469,395 | ||
62,136,377 | ||||
Electric Utilities — 1.7% | ||||
Edison International | 371,153 | 26,815,804 | ||
PG&E Corp. | 374,326 | 22,897,522 | ||
49,713,326 | ||||
Electrical Equipment — 1.3% | ||||
Emerson Electric Co. | 564,310 | 30,760,538 | ||
Hubbell, Inc. | 62,560 | 6,740,214 | ||
37,500,752 | ||||
Electronic Equipment, Instruments and Components — 1.8% | ||||
Keysight Technologies, Inc.(1) | 741,748 | 23,505,994 | ||
TE Connectivity Ltd. | 473,279 | 30,469,702 | ||
53,975,696 | ||||
Energy Equipment and Services — 3.5% | ||||
Baker Hughes, Inc. | 175,860 | 8,875,654 | ||
FMC Technologies, Inc.(1) | 479,500 | 14,226,765 | ||
Halliburton Co. | 404,273 | 18,143,773 | ||
Helmerich & Payne, Inc. | 172,513 | 11,610,125 | ||
National Oilwell Varco, Inc. | 211,900 | 7,785,206 | ||
Schlumberger Ltd. | 565,830 | 44,496,871 | ||
105,138,394 | ||||
Equity Real Estate Investment Trusts (REITs) — 0.6% | ||||
Corrections Corp. of America | 487,769 | 6,765,356 | ||
Weyerhaeuser Co. | 350,670 | 11,200,400 | ||
17,965,756 | ||||
Food and Staples Retailing — 1.9% | ||||
Sysco Corp. | 311,812 | 15,281,906 | ||
Wal-Mart Stores, Inc. | 593,241 | 42,784,541 | ||
58,066,447 | ||||
Food Products — 2.4% | ||||
ConAgra Foods, Inc. | 387,495 | 18,254,890 | ||
Kellogg Co. | 193,796 | 15,013,376 | ||
Mondelez International, Inc., Class A | 858,716 | 37,697,632 | ||
70,965,898 | ||||
Health Care Equipment and Supplies — 4.4% | ||||
Abbott Laboratories | 644,040 | 27,236,451 | ||
Boston Scientific Corp.(1) | 448,485 | 10,673,943 | ||
Medtronic plc | 474,460 | 40,993,344 | ||
STERIS plc | 173,361 | 12,672,689 | ||
Zimmer Biomet Holdings, Inc. | 302,231 | 39,296,075 | ||
130,872,502 | ||||
Health Care Providers and Services — 2.7% | ||||
Cardinal Health, Inc. | 110,490 | 8,585,073 | ||
Cigna Corp. | 90,700 | 11,820,024 | ||
Express Scripts Holding Co.(1) | 227,289 | 16,030,693 | ||
Humana, Inc. | 65,490 | 11,584,526 | ||
LifePoint Health, Inc.(1) | 553,229 | 32,767,754 | ||
80,788,070 |
7
Shares | Value | |||
Hotels, Restaurants and Leisure — 0.5% | ||||
Carnival Corp. | 320,157 | $ | 15,630,065 | |
Household Products — 2.8% | ||||
Procter & Gamble Co. (The) | 930,394 | 83,502,861 | ||
Industrial Conglomerates — 3.5% | ||||
General Electric Co. | 3,182,334 | 94,260,733 | ||
Koninklijke Philips NV | 391,583 | 11,593,362 | ||
105,854,095 | ||||
Insurance — 3.7% | ||||
Aflac, Inc. | 190,543 | 13,694,325 | ||
Chubb Ltd. | 210,483 | 26,447,189 | ||
MetLife, Inc. | 658,128 | 29,240,627 | ||
Reinsurance Group of America, Inc. | 210,929 | 22,767,676 | ||
Unum Group | 495,770 | 17,505,639 | ||
109,655,456 | ||||
Leisure Products — 0.7% | ||||
Mattel, Inc. | 306,312 | 9,275,127 | ||
Polaris Industries, Inc. | 139,835 | 10,828,823 | ||
20,103,950 | ||||
Machinery — 0.3% | ||||
Cummins, Inc. | 68,710 | 8,805,186 | ||
Media — 0.4% | ||||
Discovery Communications, Inc., Class A(1) | 431,593 | 11,618,484 | ||
Metals and Mining — 0.4% | ||||
BHP Billiton Ltd. | 752,100 | 13,011,371 | ||
Mortgage Real Estate Investment Trusts (REITs) — 0.3% | ||||
Annaly Capital Management, Inc. | 871,718 | 9,153,039 | ||
Multi-Utilities — 0.4% | ||||
Ameren Corp. | 265,800 | 13,072,044 | ||
Multiline Retail — 0.7% | ||||
Target Corp. | 319,864 | 21,968,260 | ||
Oil, Gas and Consumable Fuels — 15.3% | ||||
Anadarko Petroleum Corp. | 478,440 | 30,313,958 | ||
Apache Corp. | 140,795 | 8,992,577 | ||
Chevron Corp. | 721,047 | 74,210,157 | ||
Cimarex Energy Co. | 133,507 | 17,939,336 | ||
ConocoPhillips | 758,100 | 32,954,607 | ||
Devon Energy Corp. | 610,245 | 26,917,907 | ||
EOG Resources, Inc. | 215,920 | 20,881,623 | ||
EQT Corp. | 421,798 | 30,630,971 | ||
Exxon Mobil Corp. | 633,199 | 55,265,609 | ||
Imperial Oil Ltd. | 428,426 | 13,401,885 | ||
Noble Energy, Inc. | 1,080,610 | 38,621,001 | ||
Occidental Petroleum Corp. | 612,913 | 44,693,616 | ||
Royal Dutch Shell plc, B Shares | 406,430 | 10,545,272 | ||
TOTAL SA | 1,122,904 | 53,222,425 | ||
458,590,944 | ||||
Pharmaceuticals — 8.3% | ||||
Allergan plc(1) | 102,250 | 23,549,197 | ||
Johnson & Johnson | 573,609 | 67,760,431 | ||
Merck & Co., Inc. | 995,777 | 62,146,443 |
8
Shares | Value | |||
Pfizer, Inc. | 2,293,873 | $ | 77,693,479 | |
Teva Pharmaceutical Industries Ltd. ADR | 359,520 | 16,541,515 | ||
247,691,065 | ||||
Road and Rail — 2.1% | ||||
CSX Corp. | 377,482 | 11,513,201 | ||
Heartland Express, Inc. | 1,368,021 | 25,828,236 | ||
Norfolk Southern Corp. | 119,680 | 11,616,141 | ||
Werner Enterprises, Inc. | 568,840 | 13,236,907 | ||
62,194,485 | ||||
Semiconductors and Semiconductor Equipment — 3.7% | ||||
Applied Materials, Inc. | 552,354 | 16,653,473 | ||
Intel Corp. | 1,468,907 | 55,451,240 | ||
QUALCOMM, Inc. | 370,170 | 25,356,645 | ||
Teradyne, Inc. | 603,109 | 13,015,092 | ||
110,476,450 | ||||
Software — 2.8% | ||||
Dell Technologies, Inc. - VMware, Inc., Class V(1) | 163,098 | 7,796,084 | ||
Microsoft Corp. | 638,902 | 36,800,755 | ||
Oracle Corp. | 1,023,459 | 40,201,470 | ||
84,798,309 | ||||
Specialty Retail — 2.4% | ||||
Advance Auto Parts, Inc. | 184,290 | 27,481,325 | ||
CST Brands, Inc. | 672,170 | 32,324,655 | ||
Lowe's Cos., Inc. | 162,534 | 11,736,580 | ||
71,542,560 | ||||
Technology Hardware, Storage and Peripherals — 0.9% | ||||
Apple, Inc. | 95,170 | 10,758,968 | ||
Hewlett Packard Enterprise Co. | 451,225 | 10,265,369 | ||
HP, Inc. | 451,225 | 7,007,524 | ||
28,031,861 | ||||
Textiles, Apparel and Luxury Goods — 0.9% | ||||
Coach, Inc. | 421,598 | 15,413,623 | ||
Ralph Lauren Corp. | 118,100 | 11,944,634 | ||
27,358,257 | ||||
TOTAL COMMON STOCKS (Cost $2,276,654,810) | 2,919,075,886 | |||
EXCHANGE-TRADED FUNDS — 0.4% | ||||
iShares Russell 1000 Value ETF (Cost $12,113,182) | 115,780 | 12,228,684 | ||
TEMPORARY CASH INVESTMENTS — 2.0% | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/20, valued at $48,459,206), at 0.15%, dated 9/30/16, due 10/3/16 (Delivery value $47,509,594) | 47,509,000 | |||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 13,900,265 | 13,900,265 | ||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $61,409,265) | 61,409,265 | |||
TOTAL INVESTMENT SECURITIES — 100.0% (Cost $2,350,177,257) | 2,992,713,835 | |||
OTHER ASSETS AND LIABILITIES† | (791,307) | |||
TOTAL NET ASSETS — 100.0% | $ | 2,991,922,528 |
9
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
USD | 9,291,602 | AUD | 12,155,816 | Credit Suisse AG | 12/30/16 | $ | 6,231 | |||
USD | 366,262 | AUD | 479,464 | Credit Suisse AG | 12/30/16 | 18 | ||||
USD | 9,678,927 | CAD | 12,814,222 | Morgan Stanley | 12/30/16 | (94,640 | ) | |||
USD | 409,415 | CAD | 536,604 | Morgan Stanley | 12/30/16 | 141 | ||||
USD | 48,175,831 | EUR | 42,851,910 | UBS AG | 12/30/16 | (158,937 | ) | |||
USD | 7,639,625 | GBP | 5,867,833 | Credit Suisse AG | 12/30/16 | 19,652 | ||||
USD | 384,093 | GBP | 295,678 | Credit Suisse AG | 12/30/16 | 125 | ||||
USD | 10,016,545 | JPY | 1,001,038,500 | Credit Suisse AG | 12/30/16 | 105,215 | ||||
$ | (122,195 | ) |
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
AUD | - | Australian Dollar |
CAD | - | Canadian Dollar |
EUR | - | Euro |
GBP | - | British Pound |
JPY | - | Japanese Yen |
USD | - | United States Dollar |
† | Category is less than 0.05% of total net assets. |
(1) | Non-income producing. |
See Notes to Financial Statements.
10
Statement of Assets and Liabilities |
SEPTEMBER 30, 2016 (UNAUDITED) | |||
Assets | |||
Investment securities, at value (cost of $2,350,177,257) | $ | 2,992,713,835 | |
Foreign currency holdings, at value (cost of $609,705) | 618,074 | ||
Receivable for investments sold | 40,243,386 | ||
Receivable for capital shares sold | 2,278,803 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 131,382 | ||
Dividends and interest receivable | 5,661,749 | ||
3,041,647,229 | |||
Liabilities | |||
Payable for investments purchased | 23,878,219 | ||
Payable for capital shares redeemed | 23,154,689 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 253,577 | ||
Accrued management fees | 2,352,007 | ||
Distribution and service fees payable | 86,209 | ||
49,724,701 | |||
Net Assets | $ | 2,991,922,528 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 2,402,748,829 | |
Undistributed net investment income | 2,460,581 | ||
Accumulated net realized loss | (55,711,253 | ) | |
Net unrealized appreciation | 642,424,371 | ||
$ | 2,991,922,528 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Investor Class, $0.01 Par Value | $2,196,578,679 | 261,381,889 | $8.40 | |||
Institutional Class, $0.01 Par Value | $484,746,526 | 57,576,060 | $8.42 | |||
A Class, $0.01 Par Value | $137,235,242 | 16,339,590 | $8.40* | |||
C Class, $0.01 Par Value | $28,200,989 | 3,406,636 | $8.28 | |||
R Class, $0.01 Par Value | $88,163,059 | 10,491,641 | $8.40 | |||
R6 Class, $0.01 Par Value | $56,998,033 | 6,769,787 | $8.42 |
*Maximum offering price $8.91 (net asset value divided by 0.9425).
See Notes to Financial Statements.
11
Statement of Operations |
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $298,862) | $ | 36,859,603 | |
Interest | 55,758 | ||
36,915,361 | |||
Expenses: | |||
Management fees | 13,976,676 | ||
Distribution and service fees: | |||
A Class | 171,914 | ||
C Class | 138,693 | ||
R Class | 195,552 | ||
Directors' fees and expenses | 50,244 | ||
Other expenses | 5,006 | ||
14,538,085 | |||
Net investment income (loss) | 22,377,276 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 82,053,059 | ||
Foreign currency transactions | (816,726 | ) | |
81,236,333 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 161,146,301 | ||
Translation of assets and liabilities in foreign currencies | 1,009,082 | ||
162,155,383 | |||
Net realized and unrealized gain (loss) | 243,391,716 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 265,768,992 |
See Notes to Financial Statements.
12
Statement of Changes in Net Assets |
SIX MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) AND YEAR ENDED MARCH 31, 2016 | ||||||
Increase (Decrease) in Net Assets | September 30, 2016 | March 31, 2016 | ||||
Operations | ||||||
Net investment income (loss) | $ | 22,377,276 | $ | 58,033,174 | ||
Net realized gain (loss) | 81,236,333 | 26,255,755 | ||||
Change in net unrealized appreciation (depreciation) | 162,155,383 | (199,639,837 | ) | |||
Net increase (decrease) in net assets resulting from operations | 265,768,992 | (115,350,908 | ) | |||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (15,246,422 | ) | (38,434,549 | ) | ||
Institutional Class | (4,745,639 | ) | (22,028,604 | ) | ||
A Class | (789,184 | ) | (3,279,088 | ) | ||
B Class | — | (1,850 | ) | |||
C Class | (56,268 | ) | (257,509 | ) | ||
R Class | (368,837 | ) | (867,360 | ) | ||
R6 Class | (475,787 | ) | (911,760 | ) | ||
From net realized gains: | ||||||
Investor Class | — | (128,627,017 | ) | |||
Institutional Class | — | (77,316,275 | ) | |||
A Class | — | (9,475,685 | ) | |||
C Class | — | (1,775,006 | ) | |||
R Class | — | (3,945,923 | ) | |||
R6 Class | — | (2,424,164 | ) | |||
Decrease in net assets from distributions | (21,682,137 | ) | (289,344,790 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | (87,765,377 | ) | (460,591,463 | ) | ||
Net increase (decrease) in net assets | 156,321,478 | (865,287,161 | ) | |||
Net Assets | ||||||
Beginning of period | 2,835,601,050 | 3,700,888,211 | ||||
End of period | $ | 2,991,922,528 | $ | 2,835,601,050 | ||
Undistributed net investment income | $ | 2,460,581 | $ | 1,765,442 |
See Notes to Financial Statements.
13
Notes to Financial Statements |
SEPTEMBER 30, 2016 (UNAUDITED)
1. Organization
American Century Capital Portfolios, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Value Fund (the fund) is one fund in a series issued by the corporation. The fund’s investment objective is to seek long-term capital growth. Income is a secondary objective.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class, the R Class and the R6 Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class and R6 Class shareholders do not require the same level of shareholder and administrative services from American Century Investment Management, Inc. (ACIM) (the investment advisor) as shareholders of other classes. In addition, financial intermediaries do not receive any service, distribution or administrative fees for the R6 Class. As a result, the Institutional Class and R6 Class are charged lower unified management fees. On October 16, 2015, all outstanding B Class shares were converted to A Class shares and the fund discontinued offering the B Class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
14
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially 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 income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net 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. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income, if any, are generally declared and paid quarterly. Distributions from net realized gains, if any, are generally declared and paid annually.
15
Indemnifications — Under the corporation’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc. (ACIS), and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
Management Fees — 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 (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The rate of the fee is determined by applying a fee rate calculation formula. This formula takes into account the fund’s assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The annual management fee schedule ranges from 0.85% to 1.00% for the Investor Class, A Class, C Class and R Class. The annual management fee schedule ranges from 0.65% to 0.80% for the Institutional Class and 0.50% to 0.65% for the R6 Class. The effective annual management fee for each class for the six months ended September 30, 2016 was 0.98% for the Investor Class, A Class, C Class and R Class, 0.78% for the Institutional Class and 0.63% for the R6 Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay ACIS an annual distribution and service fee of 0.25%. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the six months ended September 30, 2016 are detailed in the Statement of Operations.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $2,518,205 and $21,532,042, respectively. The effect of interfund transactions on the Statement of Operations was $824,763 in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the six months ended September 30, 2016 were $770,879,213 and $812,345,551, respectively.
16
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Six months ended September 30, 2016 | Year ended March 31, 2016 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 1,640,000,000 | 1,640,000,000 | ||||||||
Sold | 18,921,947 | $ | 154,658,758 | 49,698,842 | $ | 414,603,180 | ||||
Issued in reinvestment of distributions | 1,832,916 | 14,974,408 | 21,246,508 | 163,891,656 | ||||||
Redeemed | (19,188,259 | ) | (156,527,961 | ) | (45,592,208 | ) | (367,931,510 | ) | ||
1,566,604 | 13,105,205 | 25,353,142 | 210,563,326 | |||||||
Institutional Class/Shares Authorized | 575,000,000 | 575,000,000 | ||||||||
Sold | 6,220,017 | 51,100,004 | 35,462,533 | 287,367,186 | ||||||
Issued in reinvestment of distributions | 578,727 | 4,740,062 | 12,822,540 | 99,258,046 | ||||||
Redeemed | (19,801,017 | ) | (163,212,931 | ) | (119,633,526 | ) | (879,664,359 | ) | ||
(13,002,273 | ) | (107,372,865 | ) | (71,348,453 | ) | (493,039,127 | ) | |||
A Class/Shares Authorized | 160,000,000 | 160,000,000 | ||||||||
Sold | 1,852,738 | 15,100,471 | 3,376,686 | 27,391,309 | ||||||
Issued in reinvestment of distributions | 86,991 | 710,549 | 1,505,916 | 11,683,162 | ||||||
Redeemed | (3,560,994 | ) | (28,961,027 | ) | (29,658,294 | ) | (253,070,357 | ) | ||
(1,621,265 | ) | (13,150,007 | ) | (24,775,692 | ) | (213,995,886 | ) | |||
B Class/Shares Authorized | N/A | N/A | ||||||||
Sold | 8,094 | 67,339 | ||||||||
Issued in reinvestment of distributions | 224 | 1,850 | ||||||||
Redeemed | (75,381 | ) | (624,208 | ) | ||||||
(67,063 | ) | (555,019 | ) | |||||||
C Class/Shares Authorized | 30,000,000 | 30,000,000 | ||||||||
Sold | 227,203 | 1,817,875 | 435,724 | 3,461,527 | ||||||
Issued in reinvestment of distributions | 6,202 | 49,910 | 238,694 | 1,805,011 | ||||||
Redeemed | (311,731 | ) | (2,505,309 | ) | (686,599 | ) | (5,377,801 | ) | ||
(78,326 | ) | (637,524 | ) | (12,181 | ) | (111,263 | ) | |||
R Class/Shares Authorized | 70,000,000 | 70,000,000 | ||||||||
Sold | 1,991,980 | 16,250,578 | 2,953,704 | 23,796,785 | ||||||
Issued in reinvestment of distributions | 45,142 | 368,837 | 625,876 | 4,813,283 | ||||||
Redeemed | (402,455 | ) | (3,281,632 | ) | (880,314 | ) | (7,079,398 | ) | ||
1,634,667 | 13,337,783 | 2,699,266 | 21,530,670 | |||||||
R6 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 1,310,089 | 10,810,224 | 2,569,061 | 20,065,724 | ||||||
Issued in reinvestment of distributions | 58,075 | 475,787 | 430,900 | 3,335,924 | ||||||
Redeemed | (530,591 | ) | (4,333,980 | ) | (1,052,801 | ) | (8,385,812 | ) | ||
837,573 | 6,952,031 | 1,947,160 | 15,015,836 | |||||||
Net increase (decrease) | (10,663,020 | ) | $ | (87,765,377 | ) | (66,203,821 | ) | $ | (460,591,463 | ) |
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6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 2,804,242,400 | $ | 114,833,486 | — | |||
Exchange-Traded Funds | 12,228,684 | — | — | |||||
Temporary Cash Investments | 13,900,265 | 47,509,000 | — | |||||
$ | 2,830,371,349 | $ | 162,342,486 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 131,382 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 253,577 | — |
7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $91,718,019.
The value of foreign currency risk derivative instruments as of September 30, 2016, is disclosed on the Statement of Assets and Liabilities as an asset of $131,382 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $253,577 in unrealized depreciation on forward foreign currency exchange contracts. For the six months ended September 30, 2016, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(777,775) in net realized gain (loss) on foreign currency transactions and $974,123 in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
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8. Federal Tax Information
The book-basis 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 on the financial statements.
As of September 30, 2016, the components of investments for federal income tax purposes were as follows:
Federal tax cost of investments | $ | 2,444,778,570 | |
Gross tax appreciation of investments | $ | 584,673,755 | |
Gross tax depreciation of investments | (36,738,490 | ) | |
Net tax appreciation (depreciation) of investments | $ | 547,935,265 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
As of March 31, 2016, the fund had post-October capital loss deferrals of $(51,353,529), which represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
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Financial Highlights |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||||
2016(3) | $7.73 | 0.06 | 0.67 | 0.73 | (0.06) | — | (0.06) | $8.40 | 9.45% | 0.98%(4) | 1.48%(4) | 26% | $2,196,579 | ||
2016 | $8.55 | 0.13 | (0.28) | (0.15) | (0.15) | (0.52) | (0.67) | $7.73 | (1.53)% | 0.98% | 1.65% | 48% | $2,009,044 | ||
2015 | $8.46 | 0.13 | 0.62 | 0.75 | (0.13) | (0.53) | (0.66) | $8.55 | 8.91% | 0.97% | 1.54% | 45% | $2,003,967 | ||
2014 | $7.11 | 0.13 | 1.34 | 1.47 | (0.12) | — | (0.12) | $8.46 | 20.82% | 0.98% | 1.60% | 49% | $2,406,139 | ||
2013 | $6.23 | 0.10 | 0.89 | 0.99 | (0.11) | — | (0.11) | $7.11 | 16.08% | 1.00% | 1.65% | 48% | $1,955,536 | ||
2012 | $5.97 | 0.10 | 0.26 | 0.36 | (0.10) | — | (0.10) | $6.23 | 6.22% | 1.01% | 1.70% | 62% | $1,811,710 | ||
Institutional Class | |||||||||||||||
2016(3) | $7.75 | 0.07 | 0.67 | 0.74 | (0.07) | — | (0.07) | $8.42 | 9.54% | 0.78%(4) | 1.68%(4) | 26% | $484,747 | ||
2016 | $8.56 | 0.15 | (0.27) | (0.12) | (0.17) | (0.52) | (0.69) | $7.75 | (1.21)% | 0.78% | 1.85% | 48% | $546,782 | ||
2015 | $8.47 | 0.15 | 0.62 | 0.77 | (0.15) | (0.53) | (0.68) | $8.56 | 9.10% | 0.77% | 1.74% | 45% | $1,215,076 | ||
2014 | $7.12 | 0.14 | 1.34 | 1.48 | (0.13) | — | (0.13) | $8.47 | 21.03% | 0.78% | 1.80% | 49% | $749,868 | ||
2013 | $6.24 | 0.12 | 0.88 | 1.00 | (0.12) | — | (0.12) | $7.12 | 16.29% | 0.80% | 1.85% | 48% | $172,891 | ||
2012 | $5.98 | 0.11 | 0.26 | 0.37 | (0.11) | — | (0.11) | $6.24 | 6.42% | 0.81% | 1.90% | 62% | $126,086 |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
A Class | |||||||||||||||
2016(3) | $7.73 | 0.05 | 0.67 | 0.72 | (0.05) | — | (0.05) | $8.40 | 9.31% | 1.23%(4) | 1.23%(4) | 26% | $137,235 | ||
2016 | $8.54 | 0.11 | (0.27) | (0.16) | (0.13) | (0.52) | (0.65) | $7.73 | (1.65)% | 1.23% | 1.40% | 48% | $138,798 | ||
2015 | $8.45 | 0.11 | 0.62 | 0.73 | (0.11) | (0.53) | (0.64) | $8.54 | 8.64% | 1.22% | 1.29% | 45% | $365,063 | ||
2014 | $7.10 | 0.11 | 1.34 | 1.45 | (0.10) | — | (0.10) | $8.45 | 20.55% | 1.23% | 1.35% | 49% | $362,439 | ||
2013 | $6.23 | 0.09 | 0.87 | 0.96 | (0.09) | — | (0.09) | $7.10 | 15.64% | 1.25% | 1.40% | 48% | $295,085 | ||
2012 | $5.97 | 0.08 | 0.27 | 0.35 | (0.09) | — | (0.09) | $6.23 | 5.95% | 1.26% | 1.45% | 62% | $255,777 | ||
C Class | |||||||||||||||
2016(3) | $7.62 | 0.02 | 0.66 | 0.68 | (0.02) | — | (0.02) | $8.28 | 8.88% | 1.98%(4) | 0.48%(4) | 26% | $28,201 | ||
2016 | $8.43 | 0.05 | (0.27) | (0.22) | (0.07) | (0.52) | (0.59) | $7.62 | (2.42)% | 1.98% | 0.65% | 48% | $26,542 | ||
2015 | $8.36 | 0.05 | 0.60 | 0.65 | (0.05) | (0.53) | (0.58) | $8.43 | 7.77% | 1.97% | 0.54% | 45% | $29,473 | ||
2014 | $7.03 | 0.05 | 1.33 | 1.38 | (0.05) | — | (0.05) | $8.36 | 19.64% | 1.98% | 0.60% | 49% | $25,869 | ||
2013 | $6.16 | 0.04 | 0.88 | 0.92 | (0.05) | — | (0.05) | $7.03 | 14.98% | 2.00% | 0.65% | 48% | $16,761 | ||
2012 | $5.92 | 0.04 | 0.25 | 0.29 | (0.05) | — | (0.05) | $6.16 | 5.01% | 2.01% | 0.70% | 62% | $11,194 | ||
R Class | |||||||||||||||
2016(3) | $7.73 | 0.04 | 0.67 | 0.71 | (0.04) | — | (0.04) | $8.40 | 9.17% | 1.48%(4) | 0.98%(4) | 26% | $88,163 | ||
2016 | $8.55 | 0.09 | (0.28) | (0.19) | (0.11) | (0.52) | (0.63) | $7.73 | (2.02)% | 1.48% | 1.15% | 48% | $68,477 | ||
2015 | $8.46 | 0.09 | 0.62 | 0.71 | (0.09) | (0.53) | (0.62) | $8.55 | 8.37% | 1.47% | 1.04% | 45% | $52,623 | ||
2014 | $7.10 | 0.09 | 1.35 | 1.44 | (0.08) | — | (0.08) | $8.46 | 20.39% | 1.48% | 1.10% | 49% | $37,076 | ||
2013 | $6.23 | 0.07 | 0.88 | 0.95 | (0.08) | — | (0.08) | $7.10 | 15.35% | 1.50% | 1.15% | 48% | $30,293 | ||
2012 | $5.97 | 0.07 | 0.26 | 0.33 | (0.07) | — | (0.07) | $6.23 | 5.72% | 1.51% | 1.20% | 62% | $21,241 |
For a Share Outstanding Throughout the Years Ended March 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
R6 Class | |||||||||||||||
2016(3) | $7.75 | 0.08 | 0.66 | 0.74 | (0.07) | — | (0.07) | $8.42 | 9.62% | 0.63%(4) | 1.83%(4) | 26% | $56,998 | ||
2016 | $8.56 | 0.16 | (0.27) | (0.11) | (0.18) | (0.52) | (0.70) | $7.75 | (1.06)% | 0.63% | 2.00% | 48% | $45,959 | ||
2015 | $8.47 | 0.17 | 0.61 | 0.78 | (0.16) | (0.53) | (0.69) | $8.56 | 9.27% | 0.62% | 1.89% | 45% | $34,116 | ||
2014(5) | $7.77 | 0.14 | 0.66 | 0.80 | (0.10) | — | (0.10) | $8.47 | 10.41% | 0.62%(4) | 2.58%(4) | 49%(6) | $3,140 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | Six months ended September 30, 2016 (unaudited). |
(4) | Annualized. |
(5) | July 26, 2013 (commencement of sale) through March 31, 2014. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended March 31, 2014. |
See Notes to Financial Statements.
Approval of Management Agreement |
At a meeting held on June 29, 2016, the Fund’s Board of Directors (the "Board") unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments by the Fund and the Advisor to financial intermediaries and the nature of services provided; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors.
23
In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment. The Board noted specifically the resources the Advisor has committed to enhancing cybersecurity protections for the benefit of shareholders.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance, and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, provides oversight of the investment performance process. It regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information provided by the Advisor during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the one-, three-, five-, and ten-year periods reviewed by the Board. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to,
24
information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating the Advisor’s financial condition, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services. The Board also noted that economies of scale are shared with the Fund and its shareholders through management fee breakpoints that serve to reduce the effective management fee as the assets of the Fund grow.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pays the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, expenses attributable to short sales, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent Directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was below the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the
25
Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Directors also requested and received information from the Advisor concerning the nature of the services, fees, costs, and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board received confirmation from the Advisor that all such payments by the Fund intended for distribution were made pursuant to the Fund's 12b-1 Plan. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor, as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
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Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
27
Notes |
28
Contact Us | americancentury.com | |
Automated Information Line | 1-800-345-8765 | |
Investor Services Representative | 1-800-345-2021 or 816-531-5575 | |
Investors Using Advisors | 1-800-378-9878 | |
Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 | |
Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 | |
Telecommunications Relay Service for the Deaf | 711 | |
American Century Capital Portfolios, Inc. | ||
Investment Advisor: American Century Investment Management, Inc. Kansas City, Missouri | ||
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. | ||
©2016 American Century Proprietary Holdings, Inc. All rights reserved. CL-SAN-90807 1611 |
ITEM 2. CODE OF ETHICS.
Not applicable for semiannual report filings.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semiannual report filings.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semiannual report filings.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
(a) | The schedule of investments is included as part of the report to stockholders filed under Item 1 of this Form. |
(b) | Not applicable. |
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the reporting period, there were no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board.
ITEM 11. CONTROLS AND PROCEDURES.
(a) | The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report. |
(b) | There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant's second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. |
ITEM 12. EXHIBITS.
(a)(1) | Not applicable for semiannual report filings. |
(a)(2) | Separate certifications by the registrant’s principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are filed and attached hereto as EX-99.CERT. |
(a)(3) | Not applicable. |
(b) | A certification by the registrant’s chief executive officer and chief financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is furnished and attached hereto as EX- 99.906CERT. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: | American Century Capital Portfolios, Inc. | ||
By: | /s/ Jonathan S. Thomas | ||
Name: | Jonathan S. Thomas | ||
Title: | President | ||
Date: | November 23, 2016 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Jonathan S. Thomas | |
Name: | Jonathan S. Thomas | |
Title: | President | |
(principal executive officer) | ||
Date: | November 23, 2016 |
By: | /s/ C. Jean Wade | |
Name: | C. Jean Wade | |
Title: | Vice President, Treasurer, and | |
Chief Financial Officer | ||
(principal financial officer) | ||
Date: | November 23, 2016 |