U.S. Sustainable Large Cap Core

Letter to Shareholders

A talented and productive workforce is critical to maximizing corporate profitability in a globally competitive market. Companies focused on attracting, training and retaining the highest-quality talent become stronger competitors. However, this focus on labor has become more challenging as workers feel a growing pinch from years of inflation eating away at their real purchasing power.

After years of above-trend inflation, high prices are presenting a significant headwind, especially in the case of non-discretionary expenses like housing, food, interest, and health care, which are beginning to impact spending on discretionary purchases, such as travel.

Workers’ concerns about their income levels have increased dramatically, with the recent University of Michigan survey on U.S. Consumer Real Income Expectations near its lowest point in the last five decades. Higher inflation means companies must offer attractive compensation to compete for and retain talent or risk losing highly valuable employees.

As the Federal Reserve seeks to combat high inflation, businesses face higher labor costs and limited ways of passing along higher pricing. These challenges present headwinds for firms aiming to maintain or grow their profit margins and attract investors.

Those companies that are most proactive, looking out for the future of their workers, and providing career opportunities, training and competitive compensation, are likely better positioned to weather the bumpy road ahead. This is an important element we consider in identifying the ability to augment long-term value creation.

American Century’s Sustainable Research Team has identified five themes and subthemes to assess long-term sustainability-related risks and opportunities:

Importantly, these themes are not siloed—they impact each other. This framework helps us to identify these interrelationships and take a holistic view of sustainability.

We continue to be encouraged by the sustainability commitments many companies are making across our five themes, and we highlight several in this report. While sustainable investing and investors’ expectations evolve, our core beliefs remain:

• Companies that excel at managing business fundamentals and material sustainability issues will likely outperform their peers over time.

• Environmental, social and governance (ESG) analysis complements traditional financial analysis and results in a more comprehensive understanding of risks and opportunities.

• Integration, rather than exclusionary screening, improves diversification and produces a more robust opportunity set.