TWENTIETH CENTURY
Growth Funds
Annual Report
OCTOBER 31,
1996
Select
Heritage
Growth
TWENTIETH CENTURY INVESTORS, INC.
[front cover]
========================================================================
TABLE OF CONTENTS
Our Message to You ....................................1
Background Information ................................2
Period Overview .......................................3
Investment Review
Select Investors .................................4
Heritage Investors ...............................7
Growth Investors ................................10
Schedules of Investments
Select Investors ................................13
Heritage Investors ..............................15
Growth Investors ................................17
Statements of Assets and Liabilities .................19
Statements of Operations .............................20
Statements of Changes in Net Assets ..................21
Notes to Financial Statements ........................22
Financial Highlights .................................26
Independent Accountants' Report ......................29
Twentieth Century Mutual Funds and The Benham Group are registered service
marks of Twentieth Century Services, Inc. and Benham Management Corporation,
respectively. American Century is a service mark of Twentieth Century
Services, Inc.
October 31, 1996
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OUR MESSAGE TO YOU
The 12 months ended October 31, 1996, was a landmark period for the U.S. stock
market and for Twentieth Century. The stock market rallied to all-time highs in
late spring and from late summer into fall. The Dow Jones Industrial Average
surpassed 6000 for the first time and the S&P 500 broke through the 700 level.
Specific stock sector performance varied widely in the volatile market
environment. In the following pages, our investment management team discusses
the extent to which Select, Heritage and Growth participated in the 1996 rally.
[photo of James E. Stowers and James E. Stowers III]
On the corporate front, we completed the operational integration of Twentieth
Century and The Benham Group in September. As a result, you now have direct
access to a broader spectrum of funds and services, including the Benham family
of U.S. Treasury, government and municipal funds. Another integration landmark
is the new Twentieth Century Web site. If you use a personal computer and have
Internet access, we've made it easier for you to download information about
Twentieth Century and Benham funds and, with your personal access code, to
access your fund accounts. You can view account balances, exchange money between
existing accounts and make additional investments. The Web site address is:
www.twentieth-century.com. We are one of the first fund companies to offer
direct on-line transactions via the Internet.
In October we announced the new name for our recently integrated company.
Beginning January 1, 1997, we will serve you under the name American Century
Investments, which reflects our expanded identity, the spirit of independence
common to Twentieth Century and Benham, and our optimism for a new century of
continued American prosperity. American Century's fund family will be divided
into three groups -- the Benham Group, the American Century Group and the
Twentieth Century Group. Select, Heritage and Growth will remain in the
Twentieth Century Group, reflecting their continued adherence to the growth
style of investing that we have practiced over the years.
You may have noticed that this annual report covers only three funds, whereas in
the past it covered six. This new focused format allows us to give you better
information by tailoring the report specifically to the issues that are most
relevant to Select, Heritage and Growth investors.
We continue to work to provide information and services we think are useful and
convenient. Thank you for investing with us.
Sincerely,
/S/James E. Stowers /S/James E. Stowers III
James E. Stowers James E. Stowers III
Chairman of the Board and Founder President and Chief Executive Officer
1
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BACKGROUND INFORMATION
INVESTMENT PHILOSOPHY
The philosophy behind Twentieth Century's growth funds focuses on three
important principles. Chiefly, the funds seek to own successful companies, which
we define as those whose earnings and revenues are growing at accelerating
rates. We attempt to keep the funds fully invested, regardless of short-term
market activity. Experience has shown that market gains can occur in
unpredictable spurts and that missing those opportunities can significantly
limit potential for gain. Finally, Twentieth Century funds are managed by teams,
rather than by one "star." We believe this allows us to make better, more
consistent management decisions.
In addition to these principles, each fund has its own policies:
SELECT INVESTORS seeks large, established companies that show accelerating
growth rates; also, at least 80% of the fund's assets must be invested in stocks
or securities that pay regular dividends or otherwise produce income. These
dividends, and the established nature of the companies in which Select invests,
help lessen the fund's short-term price fluctuations.
HERITAGE INVESTORS seeks firms showing accelerating growth rates, and at least
80% of its assets must be in stocks or securities paying regular dividends or
otherwise producing income. This fund generally owns smaller and mid-sized
stocks. While Heritage's dividend requirement should make the fund less volatile
than funds without dividends, it should also display somewhat more price
variability -- and greater long-term growth potential -- than Select.
GROWTH INVESTORS invests in larger, more established firms that exhibit
accelerating growth. Because the value of established firms tends to change
relatively slowly, Growth can ordinarily be expected to show more moderate price
fluctuations than the funds that invest in smaller or mid-sized firms.
INDICES USED FOR PERFORMANCE COMPARISON - None are investment products
available for purchase
THE S&P 500 INDEX is an index created by Standard & Poor's Corporation that is
considered to represent the performance of the U.S. stock market generally. The
index, however, has a large capitalization bias, which is why mutual funds that
invest in middle capitalization or small capitalization stocks may choose to use
smaller capitalization indices as benchmarks.
THE S&P 400 INDEX is an index created by Standard & Poor's Corporation of the
400 largest companies not included in the S&P 500. It is considered to represent
the performance of mid-capitalization stocks generally. The index was created in
March 1994. Data presented for prior periods have been provided by S&P.
NASDAQ COMPOSITE INDEX is a market capitalization price-only index that reflects
the aggregate performance of domestic common stocks traded on the regular Nasdaq
market, as well as national market system-traded foreign common stocks and
American Depositary Receipts. It is considered to represent the performance of
smaller-capitalization and growth-oriented U.S. stocks generally.
2
October 31, 1996
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PERIOD OVERVIEW
U.S. ECONOMIC ENVIRONMENT
The watchword in the U.S. economy in 1996 year to date (as of October 31) was
uncertainty. Mixed economic signals led to widely varying expectations about the
Federal Reserve's interest rate policy which, in turn, produced considerable
volatility in the U.S. capital markets. The year began with recessionary
expectations that caused the Federal Reserve to cut short-term interest rates in
January to boost the economy. Concerns about a slowdown gave way to fears about
higher interest rates and inflation as the economy grew at a
stronger-than-expected 2.2% annual growth rate in the first quarter, then heated
up in the second quarter, expanding at a 4.7% annual rate. Yet these fears
proved premature and inflation anxiety subsided as third quarter economic growth
fell to a 2.0% annual rate.
Despite the growth spurt in the second quarter, inflation has remained tame
throughout the year. For the first 10 months of 1996, inflation (as measured by
the consumer price index) rose at an annualized rate of 3.3%. A strong
correlation has historically existed between low inflation and strong stock
market performance, and that correlation has continued so far in 1996.
U.S. STOCK MARKET ENVIRONMENT
When discussing the U.S. stock market's 1996 performance year to date (as of
October 31), some market analysts have used the terms "risk-averse,"
"fear-driven" and "rotational." Those descriptions are best understood by
examining stock investors' general reactions to the market's strong performance
in 1995 and the uncertain economic environment in 1996. U.S. stock market
returns in 1995 were exceptional. The major U.S. stock market indices (the Dow
Jones Industrial Average, the S&P 500 and the Nasdaq Composite Index) each
returned over 30% for the year. After such strong results, many investors feared
weaker performance in 1996. These bearish expectations were fueled further by
predictions of economic weakness and slower earnings growth. Then, strong second
quarter economic growth made many stock investors nervous about higher interest
rates and inflation, which can also hurt stock performance.
What we have seen, as a result, is conservative investment behavior in 1996 --
what analysts refer to as a "flight to quality." Although most investors have
continued to show a willingness to invest in the equity markets, their
nervousness has caused many of them to focus on the largest, most liquid
companies in each stock sector. Market analysts are calling these stocks the new
"Nifty 50," comparing them to the original Nifty 50 (including IBM, General
Motors and AT&T) that existed in the early 1970s. The new Nifty 50 includes S&P
500 companies such as General Electric, Coca-Cola, Gillette, Colgate-Palmolive
and Citibank, as well as Nasdaq companies such as Microsoft and Intel.
The flight to quality has boosted the performance of these stocks and the
indices of which they are part. Both the S&P 500 and the Nasdaq Composite Index
were up over 16% as of October 31. But the new Nifty 50 stocks have been among
the biggest beneficiaries of this unexpectedly strong performance. The returns
for the shares of medium-sized and small companies have been lower. As of
October 31, the S&P 400 index of medium-sized companies had returned 13% year to
date, and the Russell 2000 Index of U.S. small company stocks was up just 9%.
3
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SELECT INVESTORS
MANAGEMENT Q & A
An interview with Chuck Duboc, a portfolio manager on the Select Investors
management team.
Q. HOW DID THE FUND PERFORM FOR THE YEAR ENDED OCTOBER 31, 1996?
A. During the one-year period, Select achieved a total return of 19.76%.
During that same period, the total return of the S&P 500 was 24.03%. In
1996 to date, however, the fund's total return was 16.56%, slightly ahead
of the S&P 500's 16.42% total return. We noted in Select's semiannual
report that performance had improved since we began to incorporate
nondividend-paying stocks. That trend has continued.
AVERAGE ANNUAL TOTAL RETURNS (as of October 31, 1996)
SELECT INVESTORS S&P 500
6 Months* 8.63% 9.03%
1 Year 19.76% 24.03%
5 Years 9.67% 15.50%
10 Years 11.27% 14.62%
20 Years 19.34% 14.50%
*Actual cumulative return
QUICK FUND FACTS
SELECT INVESTORS
STRATEGY:
Growth over time
through investments
in larger companies,
80% of which pay
dividends or produce
income.
INCEPTION DATE:
October 31, 1958
SIZE:
$4.0 billion
(as of October 31, 1996)
INVESTMENT APPROACH:
Growth
TICKER:
TWCIX
$10,000 OVER A 20-YEAR PERIOD (as of October 31, 1996)
[mountain graph - data below]
Value on 10/31/96:
$343,877 SELECT INVESTORS
$150,228 S&P 500
$10,000 investment made 10/31/76
SELECT S&P 500
DATE ACCT VALUE ACCT VALUE
10/31/76 $10,000 $10,000
10/31/77 $12,491 $9,382
10/31/78 $16,979 $9,972
10/31/79 $22,417 $11,499
10/31/80 $40,482 $15,191
10/31/81 $42,404 $15,274
10/31/82 $54,056 $17,769
10/31/83 $79,138 $22,723
10/31/84 $71,803 $24,155
10/31/85 $86,855 $28,828
10/31/86 $118,238 $38,383
10/31/87 $122,345 $40,817
10/31/88 $131,299 $46,872
10/31/89 $174,099 $59,186
10/31/90 $170,555 $54,737
10/31/91 $216,706 $73,073
10/31/92 $220,535 $80,330
10/31/93 $269,515 $92,288
10/31/94 $249,650 $95,859
10/31/95 $287,147 $121,125
10/31/96 $343,877 $150,228
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
4
October 31, 1996
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SELECT INVESTORS
Q. WHAT ACCOUNTED FOR THE FUND'S PERFORMANCE COMPARED WITH ITS BENCHMARK?
A. The fund underperformed its benchmark for the year because of weak relative
performance in November and December 1995. As we discussed six months ago
in the semiannual report, this weakness was due primarily to a severe
correction in several technology sectors, especially semiconductors. We had
concentrated nearly 20% of the fund's assets in technology, which kept us
well behind the S&P 500 until the end of 1995.
Q. WHAT CONTRIBUTED TO THE FUND'S IMPROVEMENT IN 1996?
A. Select benefited from its holdings in energy, financials, aerospace and
pharmaceutical companies, as well as rebounding technology companies in the
computer software and networking sectors. Each of these broad sectors
performed well. Energy stocks, for example, were aided by rising oil
prices, while many technology companies continued to report strong demand
for their products. Importantly, we maintained big positions in some of the
largest and best-known companies in these sectors. For much of 1996, we saw
very strong earnings growth among large, established firms. Cisco Systems,
for example, is a network equipment company that we think dominates its
industry. In its latest quarterly report to shareholders, the company
showed earnings growth of nearly 70%. Over the long-term, high earnings
growth generally correlates with stock-price gains, and this was borne out
in many cases in 1996.
Q. WHY DID LARGE COMPANIES SHOW STRONG GROWTH?
A. In part, many industry leaders have asserted their dominance by expanding
globally and by introducing new, high-quality products faster than their
competition. In addition, large companies in many industries have grown by
cutting costs and operating more efficiently.
Q. WHAT DECISIONS HURT FUND PERFORMANCE DURING THE PERIOD?
A. Although most pharmaceutical companies performed well during 1996, generic
drug manufacturers struggled as their market became glutted with products
and their competition increased. We owned a modest position in the generic
drug makers, and the fund suffered from declines in stocks like Ivax. There
continues to be long-term potential in this industry, but it may take some
time for existing problems to be resolved.
Q. WHAT TYPES OF NONDIVIDEND-PAYING STOCKS DOES THE FUND OWN?
A. At the end of the period, Select had a 19.3% position in nondividend paying
stocks. We devoted a large percentage of this stake to several mid-sized
oil services companies, such as drilling companies and equipment providers,
which benefited greatly from recent expansion by the well known oil pro-
TOP FIVE INDUSTRIES (as of October 31, 1996)
% of fund
investments in
% of fund these industries
investments one year ago
Aerospace & Defense 10.9% 4.7%
Energy (Services) 9.5% 3.0%
Computer Software & Services 9.5% 6.0%
Pharmaceuticals 8.6% 6.7%
Banking 6.9% 2.1%
5
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SELECT INVESTORS
ducers. Companies like Diamond Offshore are showing outstanding earnings
growth, and Select reaped the resulting gains in their stock prices. In
addition, the fund owned numerous large technology companies that don't pay
dividends, such as Microsoft, because their growth is very strong and
because there is a limited number of attractive dividend-paying companies
in the high-growth technology fields. Many of the fund's nondividend-paying
holdings contributed to its gains this period. The 1995 change to Select's
fundamental policies, which allows us to invest up to 20% of assets in
nondividend-paying stocks, has had a significant positive impact on
performance.
Q. WHAT IS YOUR OUTLOOK FOR SELECT?
A. Many observers are confident that the pace of U.S. corporate profit growth
will slow in the next 12 to 24 months. If they are right, earnings growth
will be more difficult to find. In this environment, companies that have
cut internal costs or that have expanded globally may show attractive
earnings growth. To take advantage, we recently increased the fund's
position in consumer nondurables stocks that have these characteristics. In
keeping with our discipline, we also intend to keep a critical eye on the
fund's holdings to be confident that their current strong fundamentals will
be sustainable into the future.
Q. HAVE THERE BEEN ANY CHANGES TO THE MANAGEMENT OR STRUCTURE OF THE FUND?
A. In mid-1996, we chose to add new resources to Select's management team.
Currently, Jim Stowers III, president of the combined companies and lead
manager of Twentieth Century Ultra, is assisting in the management of this
fund. He will continue in this capacity until a full-time manager is added
to Select's team in January 1997.
TOP TEN HOLDINGS (as of October 31, 1996)
% of fund
investments in
% of fund these holdings
investments one year ago
Tyco International, Ltd. 3.3% 2.0%
Intel Corp. 3.2% 3.8%
Cisco Systems Inc. 3.1% 0.7%
NIKE, Inc. 2.8% 1.4%
General Electric Co. 2.6% --
Chase Manhattan Corp. 2.4% --
Boeing Co. 2.4% --
United Technologies Corp. 2.2% 1.4%
Microsoft Corp. 2.1% 1.4%
Pfizer, Inc. 2.0% 1.2%
Select Investors' schedule of investments begins on page 13.
6
October 31, 1996
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HERITAGE INVESTORS
MANAGEMENT Q & A
An interview with Nancy Prial and Kevin Lewis, portfolio managers on the
Heritage Investors management team.
Q. HOW DID HERITAGE PERFORM?
A. Heritage posted a 10.44% total return during the one-year period ended
October 31, 1996, compared with a 24.03% total return for the S&P 500. The
S&P 500 is a broad market index and is a standard measure of comparison for
many equity funds. In this report, we are also including a
mid-capitalization stock index, the S&P 400, which resembles more closely
the type of companies Heritage owns. For the one-year period, the S&P 400's
total return was 17.35%. Although Heritage underperformed the S&P 400 for
the period as a whole, the fund outperformed that index since the end of
March.
AVERAGE ANNUAL TOTAL RETURNS (as of October 31, 1996)
HERITAGE INVESTORS S&P 500 S&P 400+
6 Months* 1.16% 9.03% 3.04%
1 Year 10.44% 24.03% 17.35%
5 Years 13.27% 15.50% 14.09%
Inception (11/10/87 to 10/31/96) 15.57% 16.30% 18.56%++
*Actual cumulative return
QUICK FUND FACTS
HERITAGE INVESTORS
STRATEGY:
Growth over time
through investments in
smaller and mid-sized
companies, 80% of which
pay dividends or
produce income.
INCEPTION DATE:
November 10, 1987
SIZE:
$1.1 billion
(as of October 31, 1996)
INVESTMENT APPROACH:
Growth
TICKER:
TWHIX
$10,000 OVER LIFE OF FUND (as of October 31, 1996)
[mountain graph - data below]
Value on 10/31/96:
$37,081 HERITAGE INVESTORS
$40,239 S&P 500
$45,619 S&P 400
$10,000 investment made 11/30/87++
HERITAGE S&P 500 S&P 400
DATE ACCT VALUE ACCT VALUE ACCT VALUE
11/10/87 $10,000 $10,000 $10,000
10/31/88 $12,576 $12,098 $12,765
10/31/89 $16,684 $15,276 $16,672
10/31/90 $14,744 $14,128 $14,439
10/31/91 $19,648 $18,860 $23,600
10/31/92 $21,544 $20,733 $25,776
10/31/93 $27,717 $23,820 $31,326
10/31/94 $27,403 $24,742 $32,071
10/31/95 $33,168 $31,263 $38,874
10/31/96 $36,632 $38,774 $45,619
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
+Lipper Analytical Services, Inc.
++November 30, 1987 is the date
closest to inception for which comparable performance data exists. The fund's
actual inception date is 11/10/87.
7
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HERITAGE INVESTORS
Q. WHY DID THE FUND UNDERPERFORM THE INDICES?
A. There were two main reasons. First, as is discussed in the Period Overview
on page 3, many investors favored very large companies with consistent, if
modest, earnings during the period. As a result, smaller and mid-sized
companies considerably underperformed larger companies during the first 10
months of 1996. This was especially true over the last six months of the
period, when the S&P 400's total return was 3.04%, while the S&P 500 had a
9.03% total return. Heritage's six-month total return was 1.16%. On
average, the companies in Heritage's portfolio are smaller than those in
either index, which is an important reason why the fund's return was lower
than the indices.
In addition, the fund entered the period significantly overweighted in
technology stocks compared with the indices, with its greatest
concentration in semiconductor firms. That affected the fund's performance
when technology stocks experienced significant declines from November to
January and again in June. Several of our worst-performing stocks over the
period were in the technology category. Mylex Corporation, for example,
makes a disc drive that generated strong demand in 1995. However, the firm
is not well diversified, and when its largest buyer cut back its orders,
Mylex's earnings and stock price sank. It helped performance considerably,
however, when we cut back on semiconductor stocks and redeployed the assets
into other technology-related companies with accelerating growth, such as
telecommunications equipment firms.
Q. WHAT OTHER FACTORS HAD A FAVORABLE IMPACT ON THE FUND'S PERFORMANCE?
A. Toward the end of the period, Heritage's discipline of owning high-growth
companies aided performance significantly. The market corrections last
winter and this past summer were especially hard on high-growth stocks.
However, we did not sell the stocks that declined during that period. In
fact, in keeping with our discipline, we increased our exposure to
companies with strong earnings acceleration. When it became clear in
mid-July that second quarter earnings were better than some investors had
anticipated, high-growth stocks rebounded. In particular,
nondividend-paying shares contributed strongly during this period, as well
as some financial services companies. From July 16 to October 31, the fund
posted a total return of 14.82%, as compared with the S&P 500's 12.87%
return and the S&P 400's 12.61%.
Q. WHAT SIGNIFICANT CHANGES, IF ANY, DID YOU MAKE TO THE PORTFOLIO SINCE THE
SEMIANNUAL REPORT?
A. Although we made modest shifts in some segments of the portfolio, our
general positioning has not greatly changed. For example, we maintained
TOP TEN HOLDINGS (as of October 31, 1996)
% of fund
investments in
% of fund these holdings
investments one year ago
Conseco Inc. 3.2% --
Reynolds & Reynolds Co. 2.8% --
Perkin-Elmer Corp. 2.4% 1.7%
Lowe's Companies, Inc. 2.3% 0.5%
Sunamerica, Inc. 2.2% 1.4%
Technology Solutions Co. 2.0% --
State Street Boston Corp. 2.0% 0.8%
Tellabs, Inc. 2.0% --
Fila Holding S.p.A. ADR 2.0% --
Nokia Corp. ADR 1.9% 1.1%
8
October 31, 1996
- --------------------------------------------------------------------------------
HERITAGE INVESTORS
large positions in high-growth sectors -- such as telecommunications,
business services and specialty retail firms -- because we think companies
with superior growth characteristics will outperform given an environment
of generally slow economic growth.
There were two shifts worth noting during the period. In the technology
sector, we began to favor telecommunications equipment and computer
software and services companies over semiconductor firms. Also, when the
fund's medical-devices holdings showed earnings deceleration, we trimmed
those positions and increased holdings in financial and financial services
firms. Among these were companies like State Street Boston, which provides
financial accounting and processing services for many firms in the
fast-growing mutual fund industry.
Q. WHAT TYPES OF NONDIVIDEND-PAYING STOCKS DOES HERITAGE OWN?
A. Since a 1995 change in fundamental policy allowed the fund to invest up to
20% of assets in nondividend paying stocks, we have primarily purchased
technology firms with very high growth rates that rarely pay dividends.
Telecommunications equipment companies, for example, have had these
characteristics. However, not all of our nondividend stocks come from the
technology sector. We also bought several business services company stocks
to take advantage of the continuing trend toward corporate outsourcing.
Q. WHAT IS HERITAGE'S CURRENT INVESTMENT STRATEGY?
A. We expect to continue to seek accelerating growth characteristics from
mid-sized, dividend- and nondividend-paying stocks. Because companies that
appeared as if they wouldn't meet their earnings estimates have performed
poorly during the past six months, we also shifted some assets toward firms
with a history of more-predictable earnings growth. We believe companies
that show sustainable earnings growth will outperform in an environment of
slow economic growth. BDM International, for example, provides information
technology services to businesses. The company is therefore benefiting from
two trends -- growth in demand for better information technology, and a
growing trend toward outsourcing.
TOP FIVE INDUSTRIES (as of October 31, 1996)
% of fund
investments in
% of fund these industries
investments one year ago
Communications Equipment 9.6% 6.4%
Business Services & Supplies 8.0% 3.9%
Computer Software & Services 7.2% 7.5%
Retail (Specialty) 7.1% 3.6%
Insurance 5.4% 2.6%
Heritage Investors' schedule of investments begins on page 15.
9
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Growth Investors
- ------------------------------------------------------------------------
Management Q & A
An interview with Chris Boyd, a portfolio manager on the Growth Investors
management team.
Q. HOW DID GROWTH PERFORM OVER THE YEAR ENDED OCTOBER 31, 1996?
A. Growth's total return for the year was 8.18%, while its benchmark index,
the S&P 500, posted a 24.03% total return. In May and June, however, the
fund made some modifications to its strategy. Since July 16, when the fund
began to rebound from a sharp summer correction, Growth outpaced its
benchmark with a total return of 18.45%, compared with the S&P's 12.87%
total return.
AVERAGE ANNUAL TOTAL RETURNS (as of October 31, 1996)
Growth Investors S&P 500
6 Months* 7.76% 9.03%
1 Year 8.18% 24.03%
5 Years 9.32% 15.50%
10 Years 13.56% 14.62%
20 Years 19.98% 14.50%
*Actual cumulative return
QUICK FUND FACTS
GROWTH INVESTORS
STRATEGY:
Growth over time
through investments
in larger companies
regardless of dividend
potential.
INCEPTION DATE:
October 31, 1958
SIZE:
$4.8 billion
(as of October 31, 1996)
INVESTMENT APPROACH:
Growth
TICKER:
TWCGX
$10,000 OVER A 20-YEAR PERIOD (as of October 31, 1996)
[mountain graph - data below]
Value on 10/31/96:
$382,823 GROWTH INVESTORS
$150,228 S&P 500
$10,000 investment made 10/31/76
GROWTH INVESTORS S&P 500
DATE ACCT VALUE ACCT VALUE
10/31/76 $10,000 $10,000
10/31/77 $11,394 $9,382
10/31/78 $15,839 $9,972
10/31/79 $24,920 $11,499
10/31/80 $51,526 $15,191
10/31/81 $57,068 $15,274
10/31/82 $55,479 $17,769
10/31/83 $74,853 $22,723
10/31/84 $66,170 $24,155
10/31/85 $77,189 $28,828
10/31/86 $107,371 $38,383
10/31/87 $117,382 $40,817
10/31/88 $121,119 $46,872
10/31/89 $172,890 $59,186
10/31/90 $152,619 $54,737
10/31/91 $245,173 $73,073
10/31/92 $259,809 $80,330
10/31/93 $281,850 $92,288
10/31/94 $289,334 $95,859
10/31/95 $353,883 $121,125
10/31/96 $382,823 $150,228
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
10
October 31, 1996
- ------------------------------------------------------------------------
Growth Investors
Q. WHY DID THE FUND UNDERPERFORM THE BENCHMARK FOR THE ONE-YEAR PERIOD?
A. Because the large-capitalization stocks in the S&P 500 outperformed the
growth stocks in the fund. For most of the period, high-growth company
stocks lagged far behind those of slower -- but steadier -- earning
companies. Last winter, for example, weakness in semiconductor earnings led
to significant losses in many of Growth's technology holdings. At the same
time, large gains in the S&P 500's many large-cap, slower-growth companies
led to a sharp rise for the index.
Q. CAN YOU GIVE AN EXAMPLE OF A STOCK THAT HURT FUND PERFORMANCE?
A. I would point to our ownership of Micron Technology early in the period. We
owned Micron because demand for its semiconductors was very high, and its
growth showed strong acceleration for many quarters. A company like Micron,
though, relies on continually growing demand. At one point early in the
period, Micron's earnings were still very strong but demand for its product
seemed to be slipping a bit. Eventually, demand slipped further and
investors began selling off shares of Micron, hurting the price of those
shares and fund performance.
Q. WHY HAS THE FUND PERFORMED BETTER SINCE THE END OF THE EARLY SUMMER
STOCK-MARKET CORRECTION?
A. Primarily because some of our high-growth choices bounced back sharply
after July by releasing better-than-expected earnings. One example is
Newbridge Networks. It declined precipitously in July and August, but
rebounded after an excellent second quarter earnings report. Ultimately,
Newbridge was one of our best-performing holdings for the one-year period.
Also, large-sized companies generally performed better than smaller firms
in the last three months of the period because their steadier earnings
appeared attractive to investors frustrated with the market decline. The
fact that Growth owns many large-sized companies put it on similar footing
with the index. Finally, beginning in May 1996, we adjusted some of the
fund's management techniques to improve our stock selection.
Q. WHAT ADJUSTMENTS DID YOU MAKE?
A. The most important change we made was to significantly reduce the number of
holdings in the fund's portfolio. We trimmed the number of portfolio
holdings almost in half. Our primary goal was to focus Growth's assets on
leaders -- companies that display the best earnings growth or the strongest
competitive positions in their industries. In the database software sector,
for example, there are several competing firms, but we believe that Oracle
Systems is the largest and fastest growing among them. At the end of the
period, Growth had a more than 2% weighting in Oracle. Overall, Growth's
top-10 holdings as of April 30, 1996, comprised 20.6% of the fund. On
October 31, 1996, the top-10 stocks accounted for 33% of assets.
TOP TEN HOLDINGS (as of October 31, 1996)
% of fund
investments in
% of fund these holdings
investments one year ago
Tellabs, Inc. 4.9% --
Newbridge Networks Corp. ADR 4.5% --
Cisco Systems Inc. 3.9% 3.5%
Philip Morris Companies Inc. 3.4% --
ADC Telecommunications, Inc. 3.1% 1.5%
Citicorp 3.0% 1.9%
Home Depot, Inc. 2.9% --
First Data Corp. 2.6% 0.3%
MFS Communications, Inc. 2.4% --
Intel Corp. 2.3% 3.2%
11
- ------------------------------------------------------------------------
Growth Investors
We believe the adjustments have significantly helped performance. Particularly
in the second half of the period, many industry-leading firms posted strong and
consistent earnings, which attracted many investors. Also, by limiting our
holdings to what we think are better quality companies, we were able to avoid
some "blow-ups" among firms with lesser fundamentals. That was especially true
in the health care sector.
Q. HAVE YOU MADE ANY OTHER SIGNIFICANT CHANGES TO GROWTH'S MANAGEMENT?
A. In addition to the portfolio changes mentioned above, we have refocused our
investment teams to provide additional management resources to the fund. In
the past six months, I have become the lead manager of a dedicated group of
managers and analysts that will devote its time to Growth almost
exclusively.
Q. What is your current investment strategy for Growth?
A. Because U.S. corporate profit growth has been relatively moderate for the
past year, we think it could be very profitable to maintain our discipline
of seeking companies with accelerating growth rates. For example, the fund
owns a significant position in telecommunications equipment companies and
networking firms. These companies should be well positioned to take
advantage of growing business and consumer demand for distributing voice,
video and data over the telecommunications infrastructure.
We expect that continued low interest rates and moderate growth will also
benefit banking and insurance stocks. Our positions in these types of
companies have grown for reasons specific to their sectors as well. In the
insurance industry, for example, the states of California and Florida
recently set up natural- disaster relief funds that may, for the first time
in years, make it profitable to sell policies in those states.
TOP FIVE INDUSTRIES (as of October 31, 1996)
% of fund
investments in
% of fund these industries
investments one year ago
Communications Equipment 15.4% 7.6%
Computer Software & Services 12.8% 7.0%
Pharmaceuticals 6.7% 1.7%
Banking 6.1% 4.5%
Computer Peripherals 5.9% 7.1%
Growth Investors' schedule of investments begins on page 17.
12
- ------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS October 31, 1996
SELECT INVESTORS
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS
AEROSPACE & DEFENSE--10.9%
750,000 AlliedSignal Inc. $ 49,125
1,000,000 Boeing Co. 95,375
700,000 Lockheed Martin Corp. 62,738
600,000 McDonnell-Douglas Corp. 32,700
525,000 Northrop Grumman Corp. 42,394
775,000 Textron Inc. 68,781
700,000 United Technologies Corp. 90,125
------
441,238
-------
BANKING--6.9%
2,000,000 Bank of New York Co., Inc. 66,250
600,000 BankAmerica Corp. 54,900
1,150,000 Chase Manhattan Corp. 98,613
850,000 Northern Trust Corp. 59,075
------
278,838
-------
CHEMICALS & RESINS--3.7%
40,000 Ciba-Geigy AG ORD 49,122
1,450,000 Monsanto Co. 57,456
900,000 Sherwin-Williams Co. 45,112
------
151,690
-------
COMMUNICATIONS EQUIPMENT--2.0%
900,000 Cascade Communications Corp.(1++) 65,419
350,000 Premisys Communications, Inc.(1) 17,456
------
82,875
------
COMMUNICATIONS SERVICES--2.2%
650,000 Compania De Telefonia
Espana SA ADR 39,163
1,044,200 Lucent Technologies, Inc. 49,077
------
88,240
------
COMPUTER PERIPHERALS--3.1%
2,025,000 Cisco Systems Inc.(1) 125,170
-------
COMPUTER SOFTWARE & SERVICES--9.5%
800,000 American Management
System, Inc.(1) 25,400
786,000 Automatic Data Processing, Inc. 32,717
700,000 BMC Software, Inc.(1++) 58,013
800,000 Computer Associates
International, Inc. 47,300
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
150,000 Electronic Data Systems Corp. $ 6,750
927,939 First Data Corp. 74,003
625,000 Microsoft Corp.(1) 85,820
1,300,000 Oracle Systems Corp.(1) 55,006
------
385,009
-------
COMPUTER SYSTEMS--1.1%
250,000 Compaq Computer Corp.(1) 17,406
444,200 Sun Microsystems, Inc.(1++) 27,068
------
44,474
------
CONSUMER PRODUCTS--4.0%
800,000 Black & Decker Corp. 29,900
475,000 Clorox Company 51,834
900,000 Gillette Company 67,275
450,000 Newell Company 12,769
------
161,778
-------
DIVERSIFIED COMPANIES--6.6%
1,100,000 General Electric Co. 106,425
355,000 Minnesota Mining &
Manufacturing Co. 27,202
2,700,000 Tyco International, Ltd. 133,987
-------
267,614
-------
ELECTRICAL & ELECTRONIC COMPONENTS--3.2%
1,200,000 Intel Corp. 131,775
-------
ENERGY (PRODUCTION & MARKETING)--6.1%
1,150,000 Apache Corp. 40,825
650,000 Enron Corp. 30,225
490,800 Enron Oil & Gas Co. 12,638
600,000 Ente Nazionale Idrocarburi
SpA ADR 28,500
500,000 Louisiana Land & Exploration Co. 28,438
750,000 Sonat Inc. 36,937
675,000 Texaco Inc. 68,597
------
246,160
-------
ENERGY (SERVICES)--9.5%
950,000 BJ Services Co.(1) 42,631
1,500,000 Baker Hughes Inc. 53,438
700,000 Diamond Offshore Drilling(1) 42,612
1,350,000 Halliburton Co. 76,444
2,500,000 Reading & Bates Corp.(1) 71,875
900,000 Rowan Companies, Inc.(1) 20,137
250,000 Schlumberger Ltd. 24,781
775,000 Western Atlas Inc.(1) 53,766
------
385,684
-------
See Notes to Financial Statements
13
- ------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued) October 31, 1996
SELECT INVESTORS (continued)
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
FOOD & BEVERAGE--3.5%
1,400,000 Anheuser-Busch Companies, Inc. $ 53,900
900,000 Coca-Cola Company 45,450
600,000 Hershey Foods Corp. 29,025
400,000 Sysco Corp. 13,600
------
141,975
-------
HEALTH CARE--2.5%
865,000 Cardinal Health, Inc. 67,903
975,000 Columbia/HCA Healthcare Corp. 34,856
------
102,759
-------
INSURANCE--0.6%
425,000 Allstate Corp. 23,853
------
LEISURE--1.5%
850,000 Carnival Corp. 25,606
450,000 Eastman Kodak Co. 35,888
------
61,494
------
MEDICAL EQUIPMENT & SUPPLIES--0.1%
141,040 Allegiance Corporation(1) 2,645
-----
OFFICE EQUIPMENT--1.0%
700,000 Pitney Bowes, Inc. 39,113
------
PHARMACEUTICALS--8.6%
230,000 Elan Corp., plc ADR(1) 6,382
1,150,000 Johnson & Johnson 56,638
975,000 Lilly (Eli) & Co. 68,737
1,000,000 Pfizer, Inc. 82,750
1,025,000 SmithKline Beecham plc ADR 64,191
1,100,000 Warner-Lambert Co. 69,988
------
348,686
-------
RETAIL (APPAREL)--2.8%
1,900,000 NIKE, Inc. 111,863
-------
RETAIL (GENERAL MERCHANDISE)--3.2%
1,000,000 Sears, Roebuck & Co. 48,375
3,000,000 Wal-Mart Stores, Inc. 79,875
------
128,250
-------
RETAIL (SPECIALTY)--4.0%
600,000 Home Depot, Inc. 32,850
1,650,000 TJX Companies, Inc. 66,000
1,875,000 Toys "R" Us, Inc.(1) 63,516
------
162,366
-------
- --------------------------------------------------------------------------------
Shares/Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
TOBACCO--0.5%
200,000 Philip Morris Companies Inc. $ 18,525
-----------
TOTAL COMMON STOCKS--97.1% 3,932,074
---------
(Cost $3,067,879)
PREFERRED Stocks
COMPUTER SOFTWARE & SERVICES--0.4%
128,800 SAP AG Preferred ORD 17,298
------
(Cost $22,594)
TEMPORARY CASH INVESTMENTS*
$23,433 par value FHLMC Discount Note,
5.195%, 11-13-96 23,392
$30,000 par value FNMA Discount Notes,
5.15%-5.21%, 11-8-96 through 11-29-96 29,940
Repurchase Agreement, J. P. Morgan
Securities, Inc., (U.S. Treasury
obligations), in a joint trading account
at 5.52%, dated 10-31-96, due 11-1-96
(Delivery value $4,601) 4,600
Repurchase Agreement, Goldman Sachs
& Co., Inc., (U.S. Treasury
obligations), in a joint trading account
at 5.45%, dated 10-31-96, due 11-1-96
(Delivery value $14,902) 14,900
Repurchase Agreement, Merrill Lynch &
Co., Inc., (U.S. Treasury
obligations), in a joint trading account
at 5.50%, dated 10-31-96, due 11-1-96
(Delivery value $29,505) 29,500
------
TOTAL TEMPORARY CASH INVESTMENTS--2.5% 102,332
-------
(Cost $102,332)
TOTAL INVESTMENT
SECURITIES--100.0% $4,051,704
===== ==========
(Cost $3,192,805)
FORWARD FOREIGN CURRENCY CONTRACTS
Contracts Settlement Unrealized
to Sell Dates Value Gain
-------------- ---------- ------- ----------
24,770,048 CHF 11-29-96 $19,583 $271
22,847,382 DEM 11-29-96 15,079 88
------ --
$34,662 $359
======= ====
(Value on Settlement Date $35,021)
14
HERITAGE INVESTORS
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS
AEROSPACE & DEFENSE--3.3%
425,000 BE Aerospace, Inc.(1) $ 9,191
275,000 Precision Castparts Corp. 12,856
350,000 Sundstrand Corporation 14,087
------
36,134
------
BANKING--3.5%
250,000 Cole Taylor Financial Group, Inc. 7,531
330,000 North Fork Bancorporation, Inc. 10,436
480,000 Washington Mutual, Inc. 20,220
------
38,187
------
BIOTECHNOLOGY--0.7%
115,000 Agouron Pharmaceuticals, Inc.(1) 6,569
80,000 Isis Pharmaceuticals, Inc.(1) 1,285
-----
7,854
-----
BUILDING & HOME IMPROVEMENTS--1.3%
140,000 Apogee Enterprises, Inc. 5,372
524,100 Interface, Inc. 8,779
-----
14,151
------
BUSINESS SERVICES & SUPPLIES--8.0%
350,000 National Computer Systems, Inc. 7,481
570,000 Norrell Corp. 14,250
200,000 Paychex, Inc. 11,375
350,000 Pittston Brink's Group 9,975
1,160,000 Reynolds & Reynolds Co. 30,595
690,000 SITEL Corp.(1) 13,584
------
87,260
------
COMMUNICATIONS EQUIPMENT--9.6%
275,000 ADC Telecommunications, Inc.(1) 18,820
300,000 ECI Telecom Ltd. ADR 6,019
475,000 Ericsson (L.M.) Telephone Co. ADR 13,092
395,000 First Chicago Nextel DECS 6,419
400,000 Newbridge Networks Corp. ADR(1++) 12,650
440,000 Nokia Corp. ADR 20,405
260,000 Tellabs, Inc.(1) 22,132
455,500 Wireless Telecom Group 4,726
-----
104,263
-------
COMMUNICATIONS SERVICES--1.7%
365,000 Cincinnati Bell Inc. 18,022
------
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
COMPUTER PERIPHERALS--4.2%
670,000 BMC Industries, Inc. $ 19,849
60,000 Raychem Corp. 4,688
325,000 SCI Systems, Inc.(1++) 16,148
300,000 Zero Corp. 5,512
-----
46,197
------
COMPUTER SOFTWARE & SERVICES--7.2%
265,000 BDM International Inc.(1) 13,184
91,850 Cap Volmac Group N.V. ORD 2,502
640,000 Getronics Geveke N.V. ORD 15,699
300,000 HBO & Co.(++) 18,075
38,100 Henry (Jack) & Associates, Inc. 1,548
300,000 Ines Corp. ORD 5,134
575,000 Technology Solutions Co.(1) 22,281
------
78,423
------
CONSUMER PRODUCTS--5.1%
80,000 Adidas AG ORD 6,843
299,300 Fila Holding S.p.A. ADR 21,550
370,000 Harley-Davidson, Inc. 16,696
550,000 Herbalife International, Inc. 11,000
------
56,089
------
CONTROL & MEASUREMENT--2.9%
485,000 Perkin-Elmer Corp. 26,008
150,000 Tektronix, Inc. 5,869
-----
31,877
------
ELECTRICAL & ELECTRONIC COMPONENTS--2.7%
300,000 Augat Inc. 8,250
110,000 Micron Technology, Inc. 2,791
150,000 Park Electrochemical Corp. 3,075
375,000 Pioneer Standard Electronics, Inc. 4,031
175,000 STB Systems, Inc.(1) 3,642
250,000 Wyle Electronics 7,469
-----
29,258
------
ENERGY (PRODUCTION & MARKETING)--5.4%
385,000 Camco International, Inc. 14,919
335,000 Newpark Resources, Inc.(1) 12,563
260,000 Pennzoil Co. 13,260
315,000 Tosco Corp. 17,679
------
58,421
------
FINANCIAL SERVICES--5.2%
225,000 Associates First Capital Corp. 9,759
470,000 Credit Saison Co., Ltd. ORD 10,847
See Notes to Financial Statements
15
- ------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) October 31, 1996
HERITAGE INVESTORS (CONTINUED)
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
200,000 Franklin Resources, Inc. $ 14,100
350,000 State Street Boston Corp. 22,181
------
56,887
------
FOOD & BEVERAGE--4.1%
50,000 Coca-Cola Enterprises, Inc. 2,131
390,000 DEKALB Genetics Corp.(++) 15,356
150,000 Earthgrains Company 7,950
802,500 Richfood Holdings, Inc. 19,511
------
44,948
------
INSURANCE--5.4%
650,000 Conseco Inc.(++) 34,775
650,000 Sunamerica, Inc. 24,375
------
59,150
------
MEDICAL EQUIPMENT & SUPPLIES--5.1%
600,000 ADAC Laboratories 12,225
375,000 Advanced Technology
Laboratories, Inc.(1) 11,391
350,000 AmeriSource Health Corp.(1) 14,831
150,000 Guidant Corp. 6,919
80,000 Hologic, Inc.(1++) 1,835
250,000 Kinetic Concepts, Inc. 3,281
184,500 Omnicare, Inc. 5,028
-----
55,510
------
OFFICE EQUIPMENT & SUPPLIES--2.7%
150,000 Avery Dennison Corp. 9,881
50,000 HON INDUSTRIES Inc. 1,769
170,384 Oce-Van der Grinten N.V. ORD 18,141
------
29,791
------
PRINTING & PUBLISHING--1.7%
350,000 Deluxe Corp. 11,419
150,000 Houghton Mifflin Co. 7,444
-----
18,863
------
RETAIL (APPAREL)--3.7%
240,000 Gucci Group ADR 16,560
285,000 Liz Claiborne, Inc. 12,041
245,000 St. John Knits, Inc. 11,209
------
39,810
------
RETAIL (SPECIALTY)--7.1%
500,000 Brown Group, Inc. 10,313
580,000 Eagle Hardware & Garden, Inc.(1) 16,494
- --------------------------------------------------------------------------------
Shares/Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
1,060,100 Food Lion, Inc. $ 9,044
505,000 Inacom Corp.(1) 16,002
630,000 Lowe's Companies, Inc. 25,436
------
77,289
------
TOBACCO--0.5%
300,000 DiMon Inc. 5,700
-----
TRANSPORTATION--0.7%
185,000 Expeditors International of
Washington, Inc. 7,770
-----
MISCELLANEOUS--3.5%
262,600 Hanna (M.A.) Co. 5,580
165,000 Loews Corp. 13,633
100,000 Miller Industries1 2,338
225,000 Timken Co. 10,041
200,000 Valmont Industries, Inc. 6,850
-----
38,442
------
TOTAL COMMON STOCKS--95.3% 1,040,296
---------
(Cost $823,968)
CONVERTIBLE PREFERRED STOCKS
COMPUTER SOFTWARE & SERVICES--1.0%
200,000 Vanstar Financing Trust (Acquired
9-27-96 through 10-24-96)(+) 10,400
------
(Cost $10,274)
CONVERTIBLE BONDS
ELECTRICAL & ELECTRONIC COMPONENTS--1.0%
$6,500 C-Cube Microsystems, Inc.,
5.875%, 11-1-05 8,621
3,000 Xilinx, Inc., 5.25%, 11-1-02 (Acquired
1-10-96, Cost $2,676)(+) 2,835
-----
TOTAL CONVERTIBLE BONDS 11,456
------
(Cost $11,287)
TEMPORARY CASH INVESTMENTS--2.7%
Repurchase Agreement, J.P. Morgan
Securities, Inc., (U.S. Treasury
obligations), in a joint trading account
at 5.52%, dated 10-31-96, due 11-1-96
(Delivery value $29,405) 29,400
------
(Cost $29,400)
TOTAL INVESTMENT
SECURITIES--100.0% $ 1,091,552
===========
(Cost $874,929)
See Notes to Financial Statements
16
HERITAGE INVESTORS (CONTINUED)
FORWARD FOREIGN CURRENCY CONTRACTS
Contracts Settlement Unrealized
to Sell Dates Value Gain(Loss)
------- ----- ----- ----------
7,559,812 DEM 11-29-96 $ 4,990 $ 26
1,132,805,090 JPY 11-29-96 9,974 (12)
43,223,087 NLG 11-29-96 25,467 120
------ ---
$40,431 $134
======= ====
(Amount on Settlement Date $40,565)
GROWTH INVESTORS
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS
AEROSPACE & DEFENSE--1.8%
900,000 Boeing Co. $ 85,838
----------
BANKING--6.1%
1,475,000 Citicorp 146,025
3,500,000 Standard Chartered plc ORD 37,760
410,000 Wells Fargo & Co. 109,521
-------
293,306
-------
BIOTECHNOLOGY--1.2%
950,000 Amgen Inc.(1) 58,247
------
COMMUNICATIONS EQUIPMENT--15.4%
2,200,000 ADC Telecommunications, Inc.(1) 150,562
1,800,000 Ericsson (L.M.) Telephone Co. ADR 49,612
6,800,000 Newbridge Networks Corp. ADR(1++) 215,050
1,400,000 Nokia Corp. ADR 64,925
1,600,000 Octel Communications Corp.(1) 25,500
2,750,000 Tellabs, Inc.(1) 234,094
-------
739,743
-------
COMMUNICATIONS SERVICES--5.3%
1,195,000 Lucent Technologies, Inc. 56,165
2,325,000 MFS Communications, Inc.(1) 116,686
875,000 SBC Communications Inc. 42,547
1,600,000 Worldcom Inc.(1) 39,100
------
254,498
-------
COMPUTER PERIPHERALS--5.9%
3,050,000 Cisco Systems Inc.(1) 188,528
2,285,500 Xylan Corp.(1) 91,991
------
280,519
-------
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICES--12.8%
1,139,400 Cambridge Technology
Partners, Inc.(1) $ 37,458
1,500,000 Computer Associates
International, Inc. 88,687
1,620,000 Compuware Corp.(1) 85,860
1,910,900 Concord EFS, Inc.(1) 55,177
1,550,000 First Data Corp. 123,613
600,000 Microsoft Corp.(1) 82,388
2,500,000 Oracle Systems Corp.(1) 105,781
787,600 SunGard Data Systems Inc.(1) 33,424
------
612,388
-------
COMPUTER SYSTEMS--1.7%
1,325,000 Sun Microsystems, Inc.(1++) 80,742
------
CONSUMER PRODUCTS--2.9%
875,000 Colgate-Palmolive Co., Inc. 80,500
750,000 Gillette Company 56,063
------
136,563
-------
DIVERSIFIED COMPANIES--3.3%
1,000,000 General Electric Co. 96,750
1,687,500 Thermo Electron Corp.(1) 61,594
------
158,344
-------
ELECTRICAL & ELECTRONIC COMPONENTS--2.3%
1,000,000 Intel Corp. 109,813
-------
ENERGY (PRODUCTION & MARKETING)--1.9%
779,700 Chevron Corp. 51,265
403,400 Texaco Inc. 40,996
------
92,261
------
ENERGY (SERVICES)--1.4%
1,275,000 ENSCO International
Incorporated1 55,144
350,000 Input/Output, Inc.(1) 10,412
------
65,556
------
FINANCIAL SERVICES--5.7%
1,370,000 Federal National Mortgage
Association 53,601
1,325,400 First USA, Inc. 76,210
1,598,100 Money Store, Inc. (The) 41,551
1,880,000 Travelers Group, Inc. 101,990
-------
273,352
-------
See Notes to Financial Statements
17
- ------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) October 31, 1996
GROWTH INVESTORS (CONTINUED)
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
FOOD & BEVERAGE--1.0%
1,300,000 Anheuser-Busch Companies, Inc. $ 50,050
------
INSURANCE--4.9%
775,000 Ace, Ltd. ADR 42,431
1,075,000 Allstate Corp. 60,334
475,000 American International Group, Inc. 51,597
1,547,900 Conseco Inc.(++) 82,813
------
237,175
-------
LEISURE--2.9%
935,000 HFS, Inc.(1) 68,489
3,300,000 International Game Technology 69,712
------
138,201
-------
MEDICAL EQUIPMENT & SUPPLIES--2.3%
980,000 Boston Scientific Corp.(1) 53,288
1,330,800 US Surgical Corp. 55,727
------
109,015
-------
PHARMACEUTICALS--6.7%
900,000 Abbott Laboratories 45,562
1,200,000 American Home Products Corp. 73,500
500,000 Johnson & Johnson 24,625
1,145,000 Lilly (Eli) & Co. 80,723
900,000 Merck & Co., Inc. 66,713
900,000 Pharmacia & Upjohn, Inc. 32,400
------
323,523
-------
RESTAURANTS--1.0%
1,350,000 Boston Chicken, Inc.(1++) 49,021
------
RETAIL (APPAREL)--1.6%
300,000 Gap, Inc. 8,700
143,950 Footstar, Inc.(1) 3,167
850,000 Melville Corp. 31,663
1,075,000 Nautica Enterprises Inc.(1) 32,921
------
76,451
------
RETAIL (SPECIALTY)--5.2%
1,415,000 Avon Products, Inc. 76,764
200,000 Borders Group, Inc.(1) 6,300
2,570,200 Home Depot, Inc. 140,718
1,000,000 Tech Data Corp.(1) 25,688
------
249,470
-------
TOBACCO--3.4%
1,771,200 Philip Morris Companies Inc. 164,057
-------
- --------------------------------------------------------------------------------
Shares/Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Total Common Stocks--96.7% $4,638,133
----------
(Cost $3,518,789)
TEMPORARY CASH INVESTMENTS*
$50,000 par value FHLMC Discount Notes,
5.21%-5.22%, 11-7-96 through 11-19-96 49,914
$103,230 par value FNMA Discount Notes,
5.15%-5.18%, 11-1-96 through 11-15-96 103,103
Repurchase Agreement, Goldman Sachs
& Co., Inc., (U.S. Treasury obligations),
in joint trading account at 5.45%,
dated 10-31-96, due 11-1-96
(Delivery value $6,401) 6,400
-----
TOTAL TEMPORARY CASH INVESTMENTS--3.3% 159,417
-------
(Cost $159,417)
TOTAL INVESTMENT
SECURITIES--100.0% $4,797,550
==========
(Cost $3,678,206)
NOTES TO SCHEDULES OF INVESTMENTS
ADR = American Depositary Receipt
CHF = Swiss Franc
DEM = German Mark
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
JPY = Japanese Yen
NLG = Netherlands Guilder
ORD = Foreign Ordinary Share
1 Non-income producing
+ Security was purchased under Rule 144A of the Securities Act of 1933 and,
unless registered under the Act or exempted from registration, may only be sold
to qualified institutional investors. The aggregate value of restricted
securities at October 31, 1996, was $13,235,000, which represented 1.2% of the
net assets of Heritage.
++ Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as defined in the
Investment Company Act of 1940. See Note 4 in Notes to Financial Statements for
a summary of transactions for each issuer who is or was an affiliate at or
during the year ended October 31, 1996.
* The rates for U.S. Government Agency discount notes are the yield to maturity
at purchase.
See Notes to Financial Statements
18
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
SELECT HERITAGE GROWTH
October 31, 1996 INVESTORS INVESTORS INVESTORS
($ In Thousands, Except Per-Share Amounts)
<S> <C> <C> <C>
ASSETS
Investment securities, at value (identified
cost of $3,192,805, $874,929 and $3,678,206,
respectively) (Notes 3 and 4) ......................$4,051,704 $1,091,552 $4,797,550
Cash ................................................... 1,540 1,219 --
Receivable for forward foreign
currency exchange contracts ........................ 359 134 --
Receivable for investments sold ........................ 51,707 5,472 25,037
Receivable for capital shares sold ..................... 202 39 32
Dividends and interest receivable ...................... 2,753 891 3,761
----- --- -----
4,108,265 1,099,307 4,826,380
--------- --------- ---------
LIABILITIES
Disbursements in excess of demand deposit cash ......... 6,566 1,785 10,340
Payable for investments purchased ...................... 58,595 13,011 29,978
Payable for capital shares redeemed .................... 995 421 16,545
Accrued management fees (Note 2) ....................... 3,428 938 4,089
Other liabilities ...................................... 2 1 4
- - -
69,586 16,156 60,956
------ ------ ------
NET ASSETS APPLICABLE
TO OUTSTANDING SHARES ..................................$4,038,679 $1,083,151 $4,765,424
========== ========== ==========
CAPITAL SHARES, $.01 PAR VALUE
(In thousands)
Authorized ............................................. 250,000 250,000 500,000
======= ======= =======
Outstanding ............................................ 97,279 88,484 214,526
====== ====== =======
NET ASSET VALUE PER SHARE .............................. $ 41.52 $ 12.24 $ 22.21
======== ======== ========
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ................$2,800,260 $ 798,691 $3,567,004
Undistributed net investment income ................... 28,576 7,938 38,410
Accumulated undistributed net realized
gain from investment and foreign
currency transactions .............................. 350,596 59,758 40,665
Net unrealized appreciation on investments
and translation of assets and liabilities
in foreign currencies (Note 3) ..................... 859,247 216,764 1,119,345
------- ------- ---------
$4,038,679 $1,083,151 $4,765,424
========== ========== ==========
See Notes to Financial Statements
19
- ------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
SELECT HERITAGE GROWTH
Year Ended October 31, 1996 INVESTORS INVESTORS INVESTORS
($ In Thousands)
INVESTMENT INCOME (LOSS)
Income:
Dividends (net of foreign taxes withheld
of $1,515, $192, and $675, respectively) ........$ 54,279 $ 8,549 $ 37,661
Interest .......................................... 6,113 1,910 6,859
----- ----- -----
60,392 10,459 44,520
------ ------ ------
Expenses:
Management fees (Note 2) .......................... 39,305 10,573 47,633
Directors' fees and expenses ...................... 42 11 50
-- -- --
39,347 10,584 47,683
------ ------ ------
NET INVESTMENT INCOME (LOSS) .......................... 21,045 (125) (3,163)
------ ---- ------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY (Note 3) Net
realized gain during the year on:
Investments ....................................... 351,383 61,054 59,974
Foreign currency transactions ..................... 13,569 8,490 44,606
------ ----- ------
364,952 69,544 104,580
------- ------ -------
Change in net unrealized appreciation during the year on:
Investments ....................................... 324,920 34,966 256,589
Translation of assets and liabilities in
foreign currencies .............................. (487) (238) (2,967)
---- ---- ------
324,433 34,728 253,622
------- ------ -------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY ...................... 689,385 104,272 358,202
------- ------- -------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............................. $710,430 $104,147 $355,039
======== ======== ========
</TABLE>
See Notes to Financial Statements
20
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended October 31, 1996
and October 31, 1995 SELECT INVESTORS HERITAGE INVESTORS GROWTH INVESTORS
($ In Thousands)
INCREASE (DECREASE) IN NET ASSETS 1996 1995 1996 1995 1996 1995
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) .....................$ 21,045 $ 37,201 $ (125) $ 4,026 $ (3,163) $ 17,621
Net realized gain on investments
and foreign currency transactions ............. 364,952 455,886 69,544 53,285 104,580 642,082
Change in net unrealized appreciation
on investments and translation
of assets and liabilities
in foreign currencies ......................... 324,433 76,341 34,728 110,287 253,622 276,216
------- ------ ------ ------- ------- -------
Net increase in net assets resulting
from operations 710,430 569,428 104,147 167,598 355,039 935,919
................................................. ------- ------- ------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ....................... (26,725) (31,233) (4,182) (2,831) (14,900) (9,560)
From net realized gains
from investment transactions .................. (462,881) (305,635) (53,228) (43,922) (642,609) (602,573)
In excess of net realized gains
from investment transactions .................. -- (13,877) -- (2,558) (16,441) (7,489)
------- ------- ------ ------ ------- ------
Decrease in net assets from
distributions ................................. (489,606) (350,745) (57,410) (49,311) (673,950) (619,622)
-------- -------- ------- ------- -------- --------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ........................ 416,837 388,235 266,770 257,588 721,179 734,417
Proceeds from reinvestment of distributions ...... 471,136 339,791 56,471 48,601 659,172 607,262
Payments for shares redeemed ....................(1,078,556) (1,216,114) (295,150) (312,916) (1,425,910) (891,558)
---------- ---------- -------- -------- ---------- --------
Net increase (decrease) in net assets from
capital share transactions ................... (190,583) (488,088) 28,091 (6,727) (45,559) 450,121
-------- -------- ------ ------ ------- -------
NET INCREASE (DECREASE) IN NET ASSETS ........... 30,241 (269,405) 74,828 111,560 (364,470) 766,418
NET ASSETS
Beginning of year ............................... 4,008,438 4,277,843 1,008,323 896,763 5,129,894 4,363,476
--------- --------- --------- ------- --------- ---------
End of year .....................................$4,038,679 $4,008,438 $1,083,151 $1,008,323 $4,765,424 $5,129,894
========== ========== ========== ========== ========== ==========
Undistributed net investment
income ...................................... $ 28,576 $ 20,688 $ 7,938 $ 3,755 $ 38,410 $ 11,867
========= ========= ======== ========= ========== =========
TRANSACTIONS IN SHARES OF THE FUNDS:
(In thousands)
Sold ............................................ 10,936 10,704 22,820 23,942 34,900 34,079
Issued in reinvestment of distributions ......... 13,373 10,375 5,129 5,317 34,403 32,932
Redeemed ........................................ (28,464) (33,197) (25,302) (30,345) (69,582) (42,012)
------- ------- ------- ------- ------- -------
Net increase (decrease) ......................... (4,155) (12,118) 2,647 (1,086) (279) 24,999
====== ======= ===== ====== ==== ======
</TABLE>
See Notes to Financial Statements
21
NOTES TO FINANCIAL STATEMENTS October 31, 1996
1. Organization and Summary of Significant Accounting Policies
Organization--
Twentieth Century Investors, Inc. (the Corporation) is registered under the
Investment Company Act of 1940 as an open-end diversified management investment
company. Growth, Select and Heritage (the Funds) are three of the sixteen series
of funds issued by the Corporation. The Funds' investment objective is to seek
capital growth by investing primarily in equity securities. As a matter of
fundamental policy, 80% of the assets of Select and Heritage must be invested in
securities of companies that have a record of paying dividends or have committed
themselves to the payment of regular dividends, or otherwise produce income. On
September 3, 1996, the Funds implemented a multiple class structure whereby each
Fund is authorized to issue four classes of shares: the Investor Class, the
Institutional Class, the Service Class and the Advisor Class. The shares
outstanding prior to September 3, 1996, were designated as Investor Class
shares. The four classes of shares differ principally in their respective
shareholder servicing and distribution expenses and arrangements. All shares of
each Fund represent an equal pro rata interest in the assets of the class to
which such shares belong, and have identical voting, dividend, liquidation and
other rights and the same terms and conditions, except for class specific
expenses and exclusive rights to vote on matters affecting only individual
classes. Sale of the Institutional, Service and Advisor classes had not
commenced as of the report date. The following significant accounting policies,
related to all classes of the Funds, are in accordance with accounting policies
generally accepted in the investment company industry.
Security Valuations--
Portfolio securities traded primarily on a principal securities exchange are
valued at the last reported sales price, or the mean of the latest bid and asked
prices where no last sales price is available. Securities traded
over-the-counter are valued at the mean of the latest bid and asked prices or,
in the case of certain foreign securities, at the last reported sales price.
Debt securities not traded on a principal securities exchange are valued through
valuations obtained from a commercial pricing service or at the mean of the most
recent bid and asked prices. When valuations are not readily available,
securities are valued at fair value as determined in accordance with procedures
adopted by the board of directors.
Security Transactions--
Security transactions are accounted for on the date purchased or sold. Net
realized gains and losses are determined on the identified cost basis, which is
also used for federal income tax purposes.
Investment Income--
Dividend income less foreign taxes withheld (if any) is recorded as of the
ex-dividend date. Interest income is recognized on the accrual basis and
includes amortization of discounts and premiums.
Foreign Currency Transactions--
The accounting records of the Funds are maintained in U.S. dollars. All assets
and liabilities initially expressed in foreign currencies are converted into
U.S. dollars at prevailing exchange rates. Purchases and sales of investment
securities, dividend and interest income, and certain expenses are translated at
the rates of exchange prevailing on the respective dates of such transactions.
The Funds do not isolate that portion of the results of operations resulting
from changes in the foreign exchange rates on investments from the fluctuations
arising from changes in the market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss on investments.
Net realized foreign currency exchange gains or losses arise from sales of
foreign currencies and the difference between asset and liability amounts
initially stated in foreign currencies and the U.S. dollar value of the amounts
actually received or paid. Net unrealized foreign currency exchange gains or
losses arise from changes in the value of assets and liabilities other than
portfolio securities at the end of the reporting period, resulting from changes
in the exchange rates.
22
Forward Foreign Currency Exchange Contracts--
The Funds may enter into forward foreign currency exchange contracts for the
purpose of settling specific purchases or sales of securities denominated in a
foreign currency or to hedge the Funds' exposure to foreign currency exchange
rate fluctuations. When required, the Funds will segregate assets in an amount
sufficient to cover their obligations under the hedge contracts. The net U.S.
dollar value of foreign currency underlying all contractual commitments held by
the Funds and the resulting unrealized appreciation or depreciation are
determined daily using prevailing exchange rates. Forward contracts involve
elements of market risk in excess of the amount reflected in the Statements of
Assets and Liabilities. The Funds bear the risk of an unfavorable change in the
foreign currency exchange rate underlying the forward contract. Additionally,
losses may arise if the counterparties do not perform under the contract terms.
Repurchase Agreements--
The Funds may enter into repurchase agreements with institutions that the Funds'
investment manager, Investors Research Corporation (IRC), has determined are
creditworthy pursuant to criteria adopted by the board of directors. Each
repurchase agreement is recorded at cost. The Funds require that the securities
purchased in a repurchase transaction be transferred to the custodian in a
manner sufficient to enable the Funds to obtain those securities in the event of
a default under the repurchase agreement. IRC monitors, on a daily basis, the
value of the securities transferred to ensure that the value, including accrued
interest, of the securities under each repurchase agreement is equal to or
greater than amounts owed to the Funds under each repurchase agreement.
Joint Trading Account--
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission,
the Funds, along with other registered investment companies having management
agreements with IRC, may transfer uninvested cash balances into a joint trading
account. These balances are invested in one or more repurchase agreements that
are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status--
It is the policy of the Funds to distribute all taxable income and capital gains
to shareholders and to otherwise qualify as a regulated investment company under
provisions of the Internal Revenue Code. Accordingly, no provision has been made
for federal income taxes.
Distributions to Shareholders--
Distributions to shareholders are recorded on the ex-dividend date.
Distributions from net investment income and net realized gains are declared and
paid annually.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences are primarily due to differing
treatments for foreign currency transactions and wash sales.
Supplementary Information--
Certain officers and directors of the Corporation are also officers and/or
directors, and, as a group, controlling stockholders of Twentieth Century
Companies, Inc., the parent of the Corporation's investment manager, IRC, the
Corporation's distributor, Twentieth Century Securities and the Corporation's
transfer agent, Twentieth Century Services, Inc.
Use of Estimates--
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those estimates.
23
NOTES TO FINANCIAL STATEMENTS (Continued) October 31, 1996
2. Transactions with Related Parties
The Corporation has entered into Management Agreements with IRC that provides
each Fund with investment advisory and management services in exchange for a
single, unified management fee per class. Additional fees apply to the Advisor
Class and Service Class shares, as described in the respective prospectuses. The
agreements provide that all expenses of the Funds, except brokerage commissions,
taxes, interest, expenses of those directors who are not considered "interested
persons" as defined in the Investment Company Act of 1940 (including counsel
fees) and extraordinary expenses, will be paid by IRC. The fee is computed daily
and paid monthly based on each Fund's average daily closing net assets during
the previous month. The annual management fee for the Investor Class of each
Fund is 1%.
3. Investment Transactions
Investment transactions (excluding short-term investments) for the year ended
October 31, 1996, were as follows:
<TABLE>
SELECT INVESTORS HERITAGE INVESTORS GROWTH INVESTORS
---------------- ------------------ ----------------
($ In Thousands)
----------------
PURCHASES
<S> <C> <C> <C>
Common Stocks $3,988,735 $1,237,762 $5,675,184
Preferred Stocks 31,104 10,274 --
Other Debt Obligations -- 27,723 --
PROCEEDS FROM SALES
Common Stocks $4,591,947 $1,232,259 $6,359,100
Preferred Stocks 41,726 17,613 --
Other Debt Obligations -- 29,788 --
</TABLE>
On October 31, 1996, the composition of unrealized appreciation and
(depreciation) of investment securities based on the aggregate cost of
investments for federal income tax purposes was as follows:
<TABLE>
Appreciation (Depreciation) Net Federal Tax Cost
------------ -------------- --- ----------------
($ In Thousands)
----------------
<S> <C> <C> <C> <C>
Select Investors $ 879,017 $(22,678) $ 856,339 $3,195,365
Heritage Investors 229,701 (14,643) 215,058 876,494
Growth Investors 1,130,667 (22,080) 1,108,587 3,688,963
</TABLE>
24
4. Affiliated Company Transactions
A summary of transactions for each issuer who is or was an affiliate at or
during the year ended October 31, 1996, follows:
<TABLE>
<CAPTION>
SHARE/PRINCIPAL REALIZED OCTOBER 31, 1996
BALANCE PURCHASE SALES GAIN SHARE/PRINCIPAL MARKET
FUND/ISSUER 10-31-95 COST COST (LOSS) INCOME BALANCE VALUE
- ----------- -------- ---- ---- ------ ------ ------- -----
($ In Thousands)
SELECT INVESTORS
<S> <C> <C> <C> <C> <C> <C> <C>
Applied Materials, Inc. 600,000 $ 18,688 $ 48,690 $ (14,592) -- -- --
BMC Software, Inc. -- 45,428 -- -- -- 700,000 $ 58,013
Cascade Communications Corp. -- 53,442 -- -- -- 900,000* 65,419
Lattice Semiconductor Corp. -- 32,727 32,727 (7,418) -- -- --
Sun Microsystems, Inc. -- 35,768 9,806 (511) -- 444,200 27,068
Texas Instruments Inc. 1,650,000 350 108,359 (28,263) $282 -- --
--- ------- ------- ---- --------
$186,403 $199,582 $ (50,784) $282 $150,500
======== ======== ========== ==== ========
HERITAGE INVESTORS
Arris Pharmaceutical Corp. -- $ 7,077 $ 7,077 $ (1,044) -- -- --
Bay Networks, Inc. 50,000 3,681 6,259 (1,816) -- -- --
Chiron Corp. -- 6,244 6,244 (1,462) -- -- --
Chiron Corp., 1.90%, 11-17-20 -- 1,940 1,944 (217) -- -- --
Cirrus Logic, Inc. 160,000 2,718 11,004 (5,376) -- -- --
Conseco Inc. -- 23,923 -- -- $53 650,000* $ 34,775
DEKALB Genetics Corp. -- 9,135 -- -- 65 390,000* 15,356
HBO & Co. 350,000 5,877 6,917 12,728 24 300,000* 18,075
Hologic, Inc. -- 4,110 864 (297) -- 80,000 1,835
LSI Logic Corp., 5.50%, 3-15-01 $1,200 6,413 11,221 (5,291) -- -- --
Lattice Semiconductor Corp. 130,000 3,781 8,879 (2,667) -- -- --
Newbridge Networks Corp. ADR -- 12,052 -- -- -- 400,000* 12,650
SCI Systems, Inc. 200,000 6,780 2,746 446 -- 325,000 16,148
Sybase, Inc. 200,000 15,359 22,684 (9,076) -- -- --
Zoom Telephonics, Inc. -- 8,005 8,005 (2,021) -- -- --
----- ----- ------ ---- --------
$117,095 $ 93,844 $ (16,093) $142 $ 98,839
======== ========= ========== ==== ========
GROWTH INVESTORS
Applied Materials, Inc. 2,200,000 $ 5,503 $104,831 $ (25,802) -- -- --
Bay Networks, Inc. 1,551,800 -- 45,503 33,980 -- -- --
Boston Chicken, Inc. 1,000,000 20,384 8,710 (1,652) -- 1,350,000 $ 49,021
Cephalon, Inc. -- 31,245 31,245 (11,740) -- -- --
Cerner Corp. 300,000 36,799 44,606 (14,079) -- -- --
Chiron Corp. 550,000 50,690 100,494 (17,364) -- -- --
Cirrus Logic, Inc. 1,000,000 -- 49,431 (27,034) -- -- --
Conseco Inc. -- 62,971 -- -- $89 1,547,900 82,813
Filenet Corp. 600,000 5,968 27,560 139 -- -- --
LSI Logic Corp. 975,000 50,868 95,850 (37,781) -- -- --
Lam Research Corp. 450,000 18,103 43,771 (15,743) -- -- --
Newbridge Networks Corp. ADR -- 213,251 25,436 (8,398) -- 6,800,000* 215,050
QUALCOMM Inc. 1,300,000 -- 60,354 (8,497) -- -- --
Sun Microsystems, Inc. -- 67,871 -- -- -- 1,325,000 80,742
Sybase, Inc. 3,044,200 41,270 145,466 (55,168) -- -- --
Tamura Electric Works ORD 1,800,000 -- 24,137 (3,101) 19 -- --
Texas Instruments Inc. 1,611,800 4,601 91,123 (5,839) 425 -- --
----- ------ ------ --- --------
$609,524 $898,517 $(198,079) $533 $427,626
======== ======== ========= ==== ========
</TABLE>
*Includes adjustments for shares received from stock split and/or stock
spinoff during the year.
25
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
Select Investors
Years ended October 31,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ...................$39.52 $37.67 $45.76 $39.18 $40.79
------ ------ ------ ------ ------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment
Income ................................ .20(1) .33(1) .40 .46 .53
Net Realized
and Unrealized
Gains (Losses) ........................ 6.73 4.68 (3.59) 7.94 .34
---- ---- ----- ---- ---
Total from
Investment Operations ................. 6.93 5.01 (3.19) 8.40 .87
---- ---- ----- ---- ---
DISTRIBUTIONS
From Net
Investment Income ..................... (.27) (.281) (.432) (.495) (.653)
From Net Realized
Gains on Investment
Transactions .......................... (4.66) (2.750) (4.466) (1.313) (1.823)
In Excess of Net
Realized Gains ........................ -- (.125) -- (.016) --
------ ----- ------ ----- ------
Total Distributions ................... (4.93) (3.156) (4.898) (1.824) (2.476)
----- ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD .........................$41.52 $39.52 $37.67 $45.76 $39.18
====== ====== ====== ====== ======
TOTAL RETURN(2) .......................19.76% 15.02% (7.37)% 22.20% 1.76%
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to
Average Net Assets .................... 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment
Income to Average
Net Assets ............................ .5% .9% 1.0% 1.1% 1.4%
Portfolio Turnover Rate ............... 105% 106% 126% 82% 95%
Average Commission
Paid per Share Traded .................$.0410 $.0460 --(3) --(3) --(3)
Net Assets, End
of Period (in millions) ...............$4,039 $4,008 $4,278 $5,160 $4,534
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Computed using average shares outstanding throughout the period.
(2)Total return assumes reinvestment of dividends and capital gains
distributions, if any.
(3)Disclosure of average commission paid per share was not required prior to
the year ended October 31, 1995.
See Notes to Financial Statements
26
<TABLE>
<CAPTION>
Heritage Investors
Years ended October 31,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................. $11.75 $10.32 $11.03 $9.30 $8.59
------ ------ ------ ----- -----
INCOME FROM
INVESTMENT OPERATIONS
Net Investment
Income .............................. --(1) .05(1) .07 .07 .10
Net Realized
and Unrealized
Gains (Losses) ...................... 1.15 1.96 (.21) 2.43 .72
---- ---- ---- ---- ---
Total from
Investment Operations ............... 1.15 2.01 (.14) 2.50 .82
---- ---- ---- ---- ---
DISTRIBUTIONS
From Net
Investment Income ................... (.05) (.033) (.068) (.093) (.113)
From Net Realized
Gains on Investment
Transactions ........................ (.61) (.514) (.500) (.679) --
In Excess of Net
Realized Gains ...................... -- (.030) (.006) -- --
------ ----- ----- ------ -------
Total Distributions ................. (.66) (.577) (.574) (.772) (.113)
---- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD ....................... $12.24 $11.75 $10.32 $11.03 $9.30
====== ====== ====== ====== =====
TOTAL RETURN(2) ..................... 10.44% 21.04% (1.13)% 28.64% 9.65%
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to
Average Net Assets .................. .99% .99% 1.00% 1.00% 1.00%
Ratio of Net Investment
Income to Average
Net Assets .......................... -- .5% .7% .7% 1.1%
Portfolio Turnover Rate ............. 122% 121% 136% 116% 119%
Average Commission
Paid per Share Traded ............... $.0420 $.0420 --(3) --(3) --(3)
Net Assets, End
of Period (in millions) ............. $1,083 $1,008 $897 $702 $369
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Computed using average shares outstanding throughout the period.
(2)Total return assumes reinvestment of dividends and capital gains
distributions, if any.
(3)Disclosure of average commission paid per share was not required prior to
the year ended October 31, 1995.
See Notes to Financial Statements
27
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED) (For a Share Outstanding Throughout the Period)
Growth Investors
Years ended October 31,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................. $23.88 $22.99 $25.27 $23.64 $22.32
------ ------ ------ ------ ------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment
Income (Loss) ....................... (.01)1 .08(1) .06 .06 (.02)
Net Realized and
Unrealized Gains .................... 1.47 4.08 .48 1.94 1.35
---- ---- --- ---- ----
Total from
Investment Operations ................ 1.46 4.16 .54 2.00 1.33
---- ---- --- ---- ----
DISTRIBUTIONS
From Net
Investment Income .................... (.07) (.051) (.056) -- (.013)
From Net Realized
Gains on Investment
Transactions ......................... (2.98) (3.183) (2.764) (.353) --
In Excess of Net
Realized Gains ....................... (.08) (.040) (.002) (.013) --
---- ----- ----- -----
Total Distributions .................. (3.13) (3.274) (2.822) (.366) (.013)
----- ------ ------ ----- -----
NET ASSET VALUE,
END OF PERIOD ........................ $22.21 $23.88 $22.99 $25.27 $23.64
====== ====== ====== ====== ======
TOTAL RETURN(2) ...................... 8.18% 22.31% 2.66% 8.48% 5.96%
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to
Average Net Assets ................... 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment
Income (Loss) to Average
Net Assets ........................... (.1)% .4% .3% .2% (.1)%
Portfolio Turnover Rate .............. 122% 141% 100% 94% 53%
Average Commission
Paid per Share Traded ................ $.0360 $.0400 --(3) --(3) --(3)
Net Assets, End
of Period (in millions) .............. $4,765 $5,130 $4,363 $4,641 $4,472
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Computed using average shares outstanding throughout the period.
(2)Total return assumes reinvestment of dividends and capital gains
distributions, if any.
(3)Disclosure of average commission paid per share was not required prior to
the year ended October 31, 1995.
See Notes to Financial Statements
28
- ------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS' REPORT
The Shareholders and Board of Directors
Twentieth Century Investors, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Select Investors, Heritage Investors
and Growth Investors, (three of the sixteen funds comprising TWENTIETH CENTURY
INVESTORS, INC.) as of October 31, 1996, and the related statements of
operations, the statements of changes in net assets, and the financial
highlights for each of the periods indicated. These financial statements and
financial highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and brokers. As to
securities purchased but not received, we requested confirmations from brokers,
and when replies were not received, we performed alternative auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Select Investors, Heritage Investors and Growth Investors, as of October 31,
1996, and the results of their operations, changes in their net assets, and the
financial highlights for each of the periods indicated in conformity with
generally accepted accounting principles.
/s/BAIRD, KURTZ & DOBSON
BAIRD, KURTZ & DOBSON
Kansas City, Missouri
November 20, 1996
29
- ------------------------------------------------------------------------
IMPORTANT NOTICE FOR ALL IRA AND 403(B) SHAREHOLDERS
As required by law, any distributions you receive from an IRA and certain 403(b)
distributions [not eligible for rollover to an IRA or to another 403(b)] are
subject to federal income tax withholding at the rate of 10% of the total amount
withdrawn, unless you elect not to have withholding apply. If you don't want us
to withhold on this amount, you may send us a written notice not to have the
federal income tax withheld. Your written notice is valid for six months from
the date of receipt at Twentieth Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount, unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Conversions/ Redemptions form or an IRS Form W-4P. Call Twentieth Century for
either form. Your written election is valid for only six months from the date of
receipt at Twentieth Century. You may revoke your election at any time by
sending a written notice to us.
Remember, even if you elect not to have income tax withheld, you are liable for
paying income tax on the taxable portion of your withdrawal. If you elect not to
have income tax withheld or you don't have enough income tax withheld, you may
be responsible for payment of estimated tax. You may incur penalties under the
estimated tax rules if your withholding and estimated tax payments are not
sufficient.
30
This page left blank for your notes.
31
Twentieth Century Investors, Inc.
Investment Manager
Investors Research Corporation
Kansas City, Missouri
This report and the financial 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.
Twentieth Century Securities, Inc.
TWENTIETH CENTURY
Growth Funds
Annual Report
October 31, 1996
Select
Heritage
Growth
---------------------------------
TWENTIETH CENTURY INVESTORS, INC.
Twentieth Century Mutual Funds
and The Benham Group
- ------------------------------
P.O. BOX 419200
KANSAS CITY, MISSOURI
64141-6200
- ------------------------------
PERSON-TO-PERSON ASSISTANCE:
1-800-345-2021 OR 816-531-5575
- ------------------------------
AUTOMATED INFORMATION LINE:
1-800-345-8765
- ------------------------------
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 OR 816-753-1865
- ------------------------------
FAX: 816-340-7962
- ------------------------------
INTERNET: www.twentieth-century.com
- ------------------------------
SH-BKT-6907 [recycled logo]
9612 Recycled
TWENTIETH CENTURY
AGGRESSIVE
GROWTH FUNDS
Annual Report
OCTOBER 31,
1996
Ultra
Vista
------------------------------------------------------------------------
TWENTIETH CENTURY INVESTORS, INC.
[front cover]
------------------------------------------------------------------------
TABLE OF CONTENTS
Our Message to You-------------------------------------------------------------1
Investment Philosophy and Policies---------------------------------------------2
New Class of Shares------------------------------------------------------------2
Period Overview----------------------------------------------------------------3
Investment Review
Ultra Investors-----------------------------------------------------------4
Vista Investors-----------------------------------------------------------7
Schedules of Investments
Ultra Investors----------------------------------------------------------10
Vista Investors----------------------------------------------------------13
Statements of Assets and Liabilities---------------------------------------15
Statements of Operations---------------------------------------------------16
Statements of Changes in Net Assets----------------------------------------17
Notes to Financial Statements----------------------------------------------18
Financial Highlights-------------------------------------------------------25
Independent Accountants' Report-----------------------------------------------27
INDICES USED FOR PERFORMANCE COMPARISONS - None are investment products
available for purchase.
THE S&P 500 INDEX is an index created by Standard & Poor's Corporation that is
considered to represent the performance of the U.S. stock market generally. The
index, however, has a large capitalization bias, which is why mutual funds that
invest in middle capitalization or small capitalization stocks may choose to use
smaller capitalization indices as benchmarks.
NASDAQ COMPOSITE INDEX is a market capitalization price-only index that reflects
the aggregate performance of domestic common stocks traded on the regular Nasdaq
market, as well as national market system-traded foreign common stocks and
American Depositary Receipts. It is considered to represent the performance of
smaller capitalization and growth-oriented U.S. stocks generally.
Twentieth Century Mutual Funds and The Benham Group are registered service marks
of Twentieth Century Services, Inc. and Benham Management Corporation,
respectively. American Century is a service mark of Twentieth Century Services,
Inc.
October 31, 1996
- ------------------------------------------------------------------------
OUR MESSAGE TO YOU
The 12 months ended October 31, 1996, was a landmark period for the U.S.
stock market and for Twentieth Century. The market rallied to all-time highs in
late spring and from late summer into fall. The Dow Jones Industrial Average
surpassed 6000 for the first time and the S&P 500 broke through the 700 level.
Specific stock sector performance varied widely in the volatile market
environment. In the following pages, our investment management team discusses
the extent to which Ultra and Vista participated in the 1996 rally.
[photo of James E. Stowers
and James E. Stowers III]
On the corporate front, we completed the operational integration of
Twentieth Century and The Benham Group in September. As a result, you now have
direct access to a broader spectrum of funds and services, including the Benham
family of U.S. Treasury, government and municipal funds. Twentieth Century also
began to offer two classes of shares for many of its funds, including Ultra and
Vista. One class is for investors who buy directly from Twentieth Century (the
Investor Class) and one is for investors who buy through financial
intermediaries (the Advisor Class). We've introduced the Advisor Class as a way
to make shares of the funds available to investors who buy shares through
financial intermediaries who expect to be compensated for the additional
services they provide.
In October we announced the new name for our recently integrated company.
Beginning January 1, 1997, we will serve you under the name AMERICAN CENTURY
INVESTMENTS, which reflects our expanded identity, the spirit of independence
common to Twentieth Century and Benham, and our optimism for a new century of
continued American prosperity. American Century's fund family will be divided
into three groups - the Benham Group, the American Century Group and the
Twentieth Century Group. Ultra and Vista will remain in the Twentieth Century
Group, reflecting their continued adherence to the growth style of investing
that we have practiced over the years.
You may have noticed that this annual report covers only two funds, Ultra
and Vista, whereas in the past it covered six. This new focused format allows us
to deliver your report more rapidly to you. We can also give you better
information by tailoring the report specifically to the issues that are most
relevant to Ultra and Vista investors.
We continue to work to provide you with information and services we think
are useful and convenient. Thank you for investing with us.
Sincerely,
/s/James E. Stowers /s/James E. Stowers III
James E. Stowers James E. Stowers III
Chairman of the Board and Founder President and Chief Executive Officer
1
- ------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
The philosophy behind Twentieth Century's growth funds focuses on three
important principles. Chiefly, the funds seek to own successful companies, which
we define as those whose earnings and revenues are growing at accelerating
rates. In addition, we attempt to keep the funds fully invested, regardless of
short-term market activity. Experience has shown that the greatest market gains
occur in unpredictable spurts and that missing even some of those opportunities
may significantly limit potential for gain. Finally, Twentieth Century funds are
managed by teams, rather than by one "star" manager. We believe this allows us
to make better, more consistent management decisions.
In addition to these principles, each fund has its own investment policies:
ULTRA INVESTORS generally invests in the securities of mid-sized and larger
companies that exhibit accelerating growth. It will typically have significant
price fluctuations.
VISTA INVESTORS invests mainly in the securities of smaller or medium-sized
firms with accelerating growth. Although Vista has been one of Twentieth
Century's more volatile funds over the short term, it has also offered high
potential for long-term growth.
NEW CLASS OF SHARES FOR ADVISORS
Until September 3, 1996, Ultra and Vista issued one class of fund shares,
reflecting the fact that most investors bought their Twentieth Century fund
shares directly from Twentieth Century. All investors paid the same 1.00% annual
unified management fee and did not pay any commissions or other fees to
Twentieth Century.
But times have changed. Increasing numbers of investors are purchasing fund
shares through financial intermediaries who expect compensation for fund
transactions. In September, Twentieth Century began to offer two classes of
shares for many of its funds, including Ultra and Vista. One class is for
investors who still buy directly from Twentieth Century, the other for investors
who buy through financial intermediaries.
The original class of Ultra and Vista shares is called the INVESTOR CLASS.
All shares issued and outstanding before September 3, 1996, have been designated
as Investor Class shares. Investor Class shares may also be purchased after
September 3, 1996. Investor Class shareholders still pay the 1.00% annual
unified management fee and do not pay any commissions or other fees for purchase
of fund shares directly from Twentieth Century. Investors who buy Investor Class
shares through a broker-dealer may be required to pay the broker-dealer a
transaction fee. THE PRICE AND PERFORMANCE OF THE INVESTOR CLASS ARE LISTED IN
NEWSPAPERS. No other class will be so listed.
In addition, there is an ADVISOR CLASS, which is sold through banks,
broker-dealers, insurance companies and financial advisors. Advisor Class
investors pay a reduced annual management fee (0.75%), but also pay a 0.50%
12b-1 service and distribution fee, half of which is available to pay for
recordkeeping and administrative services and half of which is available to pay
for distribution services provided by the financial intermediary through which
the Advisor Class shares are purchased.
Both classes of shares represent a pro rata interest in the funds, and
generally have the same rights and conditions.
2
October 31, 1996
- ------------------------------------------------------------------------
PERIOD OVERVIEW
U.S. ECONOMIC ENVIRONMENT
The watchword in the U.S. economy in 1996 year to date (as of October 31)
was uncertainty. Mixed economic signals led to widely varying expectations about
the Federal Reserve's interest rate policy which, in turn, produced considerable
volatility in U.S. capital markets. The year began with recessionary
expectations that caused the Federal Reserve to cut short-term interest rates in
January to boost the economy. Concerns about a slowdown gave way to fears about
higher interest rates and inflation as the economy grew at a
stronger-than-expected 2.2% annual rate in the first quarter, then heated up in
the second quarter, expanding at a 4.7% annual rate. Yet these fears proved
premature and inflation anxiety subsided as third quarter economic growth fell
to a 2.0% annual rate.
Despite the growth spurt in the second quarter, inflation has remained tame
throughout the year. For the first 10 months of 1996, inflation (as measured by
the consumer price index) rose at an annualized rate of 3.3%. A strong
correlation has historically existed between low inflation and strong stock
market performance, and that correlation has continued so far in 1996.
U.S. STOCK MARKET ENVIRONMENT
When discussing the U.S. stock market's 1996 performance through October
31, some market analysts have used the terms "risk-averse," "fear-driven" and
"rotational." Those descriptions are best understood by examining stock
investors' general reactions to the market's strong performance in 1995 and the
uncertain economic environment in 1996. U.S. stock market returns in 1995 were
exceptional. The major U.S. stock indices (the Dow Jones Industrial Average, the
S&P 500 and the Nasdaq Composite Index) each returned over 30% for the year.
After such strong results, many investors feared weaker performance in 1996.
These bearish expectations were fueled further by predictions of economic
weakness and slower earnings growth. Then, strong second quarter economic growth
made many stock investors nervous about higher interest rates and inflation,
which can also hurt stock performance.
What we have seen, as a result, is conservative investment behavior in 1996
- - what analysts refer to as a "flight to quality." Although most investors have
continued to show a willingness to invest in the equity markets, their
nervousness has caused many of them to focus on the largest, most liquid
companies in each stock sector. Market analysts are calling these stocks the new
"Nifty 50," comparing them to the original Nifty 50 that existed in the early
1970s. The new Nifty 50 includes S&P 500 companies such as General Electric,
Coca-Cola, Gillette, Colgate-Palmolive and Citibank, as well as Nasdaq companies
such as Microsoft and Intel.
The flight to quality has boosted the performance of these stocks and the
indices of which they are a part. Both the S&P 500 and the Nasdaq Composite
Index were up over 16% year to date as of October 31. But the new Nifty 50
stocks have been the biggest beneficiaries of this unexpectedly strong
performance. The returns for the shares of medium-sized and small companies have
been lower. As of October 31, the S&P 400 index of medium-sized companies had
returned 13% year to date, and the Russell 2000 index of small company stocks
was up just 9%.
3
- ------------------------------------------------------------------------
ULTRA INVESTORS
- ------------------------------------------------------------------------
MANAGEMENT Q & A
An interview with Jim Stowers III and Bruce Wimberly, portfolio managers
on the Ultra Investors management team.
Q: HOW DID ULTRA INVESTORS PERFORM OVER THE 12-MONTH PERIOD ENDED OCTOBER 31,
1996?
A: The fund's total return for the period was 10.79%, compared with a 24.03%
total return for the S&P 500 Index and a gain of 17.90% for the Nasdaq
Composite Index. The fund performed better through the first 10 months of
1996 but not nearly enough to make up for ground it lost to the S&P 500 in
late 1995 when technology stocks corrected. The fund's long-term
performance remains strong, with returns ahead of the S&P for both the
five-year and 10-year periods ended October 31, 1996 (see chart below).
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (as of October 31, 1996)
1 Year 5 Years 10 Years Since Inception
Investor Class Investor Class Investor Class Advisor Class
-------------- --------------- -------------- ---------------
ULTRA: Investor Class*
<S> <C> <C> <C> <C>
(Inception 11/2/81) 10.79% 15.62% 19.92% N/A
ULTRA: Advisor Class*
(Inception 9/3/96) N/A N/A N/A -0.10%
S&P 500 24.03% 15.50% 14.62% 1.63%
NASDAQ 17.90% 17.60% 12.97% -1.18%
*See page 2 for a description of the share classes
</TABLE>
- -----------------------------------------------------------------------
$10,000 OVER A 10-YEAR PERIOD (as of October 31, 1996)
[mountain graph]
Value on 10/31/96
- -----------------
ULTRA INVESTORS S&P 500 NASDAQ
$10,000 $10,000 $10,000
$9,676 $10,634 $8,961
$11,566 $12,212 $10,601
$16,236 $15,420 $12,629
$14,771 $14,261 $9,143
$29,766 $19,038 $15,051
$29,632 $20,929 $16,774
$41,420 $24,044 $21,600
$40,557 $24,975 $21,551
$55,519 $31,557 $28,718
$61,509 $39,139 $33,858
Graph represents a hypothetical investment in Ultra Investors, Investor Class as
of 10/31/86. Performance of Advisor Class shares will vary from that of Investor
Class shares due to differing sales loads and fees.
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
Quick
Fund
Facts
----------------
ULTRA
INVESTORS
----------------
TOTAL SIZE
(ALL CLASSES):
$18.3 billion
(as of October 31, 1996)
INVESTMENT APPROACH:
Aggressive Growth
TICKER:
TWCUX
4
October 31, 1996
- ------------------------------------------------------------------------
ULTRA INVESTORS
Q: WHY DID ULTRA UNDERPERFORM THE S&P 500 FOR THE PERIOD?
A: There were two main reasons. One, alluded to in the previous answer and
discussed in the semiannual report, is the correction in the technology
sector in late 1995 after excess manufacturing capacity in the
semiconductor market became apparent. The other reason is general market
uncertainty over the direction of the economy and future corporate
earnings. During the first 10 months of 1996, this has resulted in two
reactions. Many investors sought out those companies, such as Coca-Cola,
that are slower growing but have more predictable earnings and less
sensitivity to economic swings. Secondly, investors rotated in and out of
various industry groups. Rotation is not our style. Our approach is not to
chase the stocks that the market is rewarding at any one moment but to
stick to our discipline of investing in companies exhibiting accelerating
growth over time. This discipline may result in short-term periods of
underperformance. however, over longer periods of time, we believe the
market will continue to reward our long-term growth style of investing. For
more information about the S&P 500's performance, see the Period Overview
on page 3.
Q: WHY DID ULTRA UNDERPERFORM THE NASDAQ COMPOSITE?
A: The fund had an overweighting of semiconductor stocks relative to the
Nasdaq index in late 1995. Therefore, the correction that hit those stocks
had a greater adverse effect on the fund. For much of 1996, the fund
benefited from gains in the Nasdaq Composite because it owned many of the
larger Nasdaq names that drove the index's performance, including Oracle
Systems Corp., Cisco Systems, Inc., Intel Corp. and Microsoft Corp. Yet
it's also important to keep in mind that as of October 31, 1996, only about
one-third of the companies owned by the fund are traded on the Nasdaq.
Q: DOES THE MARKET'S FAVORING OF LARGE CAPITALIZATION STOCKS WITH PREDICTABLE
EARNINGS CHANGE ULTRA'S STRATEGY?
A: No. We continue to believe that the market ultimately recognizes and
rewards the stocks of companies with accelerating earnings. Our approach
remains the same: to carefully research and invest in companies we believe
have the best long-term growth potential. These companies can be in any
number of industries or any market capitalization but share many of the
same basic characteristics. They tend to have improving business
fundamentals, leading products in growing industries and a committed
management team.
Q: DOES ULTRA'S STRATEGY LEAD IT TO ANY OF THE LARGE CAPITALIZATION STOCKS
THAT HAVE RECENTLY DRIVEN THE PERFORMANCE OF THE S&P 500?
A: Yes, General Electric Co. is one such example. This company may not have
been associated with Ultra in the past but we like it because management
has greatly increased shareholder value by improving operational
efficiency, increasing foreign investment and dominating the markets in
which it
TOP TEN HOLDINGS (as of October 31, 1996)
- ------------------------------------------------------------------------
% of fund
investments in
% of fund these holdings
investments one year ago
Cisco Systems Inc. 6.2% 3.3%
Sun Microsystems, Inc. 4.5% 2.3%
Ascend Communications, Inc. 4.0% 1.2%
Merck & Co., Inc. 3.6% 2.1%
Citicorp 3.2% 1.6%
Cascade Communications Corp. 3.0% 1.1%
Chase Manhattan Corp. 2.9% -
Pfizer, Inc. 2.7% 2.6%
Johnson & Johnson 2.6% 2.0%
U.S. Robotics Corp. 2.3% 2.2%
5
- -------------------------------------------------------------------------
ULTRA INVESTORS
competes. Demand for GE's power generation products has increased overseas
and its finance division continues to generate excellent returns on
investment. Although Ultra today invests in larger cap stocks than it has
in the past, the underlying philosophy in choosing those stocks remains the
same.
Q: HOW HAS THE PORTFOLIO CHANGED IN THE SIX MONTHS ENDED OCTOBER 31, 1996?
A: There were no major shifts in the portfolio over that period. We continued
to like the way the fund was positioned both in terms of earnings power and
industry weightings. Two areas where we increased holdings modestly were
stocks in the financial and lodging industries. One of our larger bank
holdings is Citicorp, which we added to during the period. We continue to
like its prospects both in terms of continuing cost efficiencies and
improving capital management. In addition, it continues to expand its
services in fast-growing markets outside of the U.S.
We also increased holdings in the lodging industry because it has benefited
from improved pricing and higher occupancy rates. Given the lack of new
construction and positive demographic trends, we think industry
fundamentals will remain strong.
Q: AS OF OCTOBER 31, 1996, THE FUND STILL HAD ABOUT HALF OF ITS ASSETS IN
TECHNOLOGY STOCKS, THE SAME EXPOSURE AS AT APRIL 30. WHICH SECTORS DO YOU
LIKE WITHIN TECHNOLOGY?
A: The portfolio's period end holdings were very well diversified within
technology, with an emphasis on telecommunications. In general, we focused
on stocks with dominant market share that can exhibit some degree of
pricing flexibility. Companies like Cisco Systems, Inc., Ascend
Communications, Inc. and U.S. Robotics remained large holdings in the fund
because of their excellent growth characteristics. We also like these
companies because they benefit from the increasing need for bandwidth, or
data carrying capacity, for computer networks. We also have added stocks of
companies that are helping with data management and storage.
Q: WHAT ARE YOUR THOUGHTS ABOUT THE FUND'S FUTURE?
A: Many observers are confident that the pace of U.S. corporate profit growth
will slow in the next 12 to 24 months. If they are right, earnings growth
will be more difficult for investors to find. To the extent that Ultra
continues to own the growing companies that have been the cornerstone of
its long-term philosophy and success, we are confident about the fund's
prospects over the next several years.
TOP FIVE INDUSTRIES (as of October 31, 1996)
- ------------------------------------------------------------------------
% of fund
investments in
% of fund these industries
investments one year ago
Computer Peripherals 15.4% 16.9%
Computer Software & Services 11.5% 15.0%
Pharmaceuticals 11.3% 8.9%
Banking 8.7% 2.4%
Communications Equipment 7.6% 7.2%
Ultra Investors' schedule of investments begins on page 10.
6
October 31, 1996
- ------------------------------------------------------------------------
VISTA INVESTORS
- ------------------------------------------------------------------------
MANAGEMENT Q & A
An interview with Glenn Fogle, a portfolio manager on the Vista Investors
management team.
Q: HOW DID THE FUND PERFORM OVER THE 12-MONTH PERIOD ENDED OCTOBER 31, 1996?
A: Vista Investors had a 6.96% total return for the period while the S&P 500
Index gained 24.03% and the Nasdaq Composite Index rose 17.90% The fund's
underperformance versus these indices is in contrast with longer-term
performance that is on par with the S&P 500 (see the chart below).
Q: WHY DID VISTA UNDERPERFORM THE S&P 500 FOR THE PERIOD?
A: Because 1996 has been a better year for the large company stocks in the S&P
500 than for the small
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (as of October 31, 1996)
1 Year 5 Years 10 Years Since Inception
Investor Class Investor Class Investor Class Advisor Class
VISTA: Investor Class*
<S> <C> <C> <C> <C>
(Inception 11/25/83) 6.96% 14.61% 14.67% N/A
VISTA: Advisor Class*
(Inception 9/3/96) N/A N/A N/A -7.11%
S&P 500 24.03% 15.50% 14.62% 1.63%
NASDAQ 17.90% 17.60% 12.97% -1.18%
</TABLE>
*See page 2 for a description of the share classes.
[mountain graph]
- ------------------------------------------------------------------------
$10,000 OVER A 10-YEAR PERIOD (as of October 31, 1996)
Value on 10/31/96
- ------------------------------------------------------------------------
$10,000 OVER A 10-YEAR
VISTA INVESTORS S&P 500 Nasdaq
$10,000 $10,000 $10,000
$9,229 $10,634 $8,961
$11,566 $12,212 $10,601
$15,238 $15,420 $12,629
$11,858 $14,261 $9,143
$19,882 $19,038 $15,051
$20,788 $20,929 $16,774
$24,471 $24,044 $21,600
$25,489 $24,975 $21,551
$36,755 $31,557 $28,718
$39,313 $39,139 $33,858
Graph represents a hypothetical investment in Vista Investors, Investor Class as
of 10/31/86. Performance of Advisor Class shares will vary from that of Investor
Class shares due to differing sales loads and fees.
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
Quick
Fund
Facts
----------------
Vista
Investors
---------------
TOTAL SIZE
(ALL CLASSES):
$2.3 billion
(as of October 31, 1996)
INVESTMENT APPROACH:
Aggressive Growth
TICKER:
TWCVX
7
- ------------------------------------------------------------------------
VISTA INVESTORS
company stocks in the fund. As we discuss in the Period Overview on page 3,
the U.S. stock market was very volatile during the period as many investors
tried to determine the direction of the economy. To use a nautical
metaphor, when the seas are stormy, people want to be on a big boat. In the
1996 stock market, the big boat was large companies. Investors increasingly
shunned smaller companies and previously obscure stocks in rapidly growing
industries. Although these characteristics may be out of favor at the
moment, Vista continues to hold these types of stocks because we think they
have the greatest potential for long-term earnings growth and ultimately
for higher valuations.
Q: WHY DID VISTA UNDERPERFORM THE NASDAQ COMPOSITE INDEX?
A: The Nasdaq index is considered a barometer for the stock price performance
of companies that are smaller than those in the S&P 500 index, yet the
composite is heavily weighted toward large capitalization companies listed
on Nasdaq. The strong performance of the Nasdaq index during the period
reflects the outperformance of some of its largest component companies,
including Oracle Systems
Top Ten Holdings (as of October 31, 1996)
- --------------------------------------------------------------------
% of fund
investments in
% of fund these holdings
investments one year ago
PairGain Technologies, Inc. 6.7% 1.4%
HFS, Inc. 5.8% 2.7%
HBO & Co. 4.0% 2.2%
Rational Software Corp. 3.7% -
Dura Pharmaceuticals, Inc. 3.4% 1.3%
Cognos Incorporated ADR 3.1% 1.2%
Corporate Express, Inc. 2.8% 1.9%
McAfee Associates, Inc. 2.7% -
Jones Medical Industries. Inc. 2.6% -
USA Waste Services, Inc. 2.6% 1.0%
Corp., Cisco Systems, Inc., Intel Corp. and Microsoft Corp. These stocks
benefited from the same factors that boosted the S&P 500 - investors were
buying larger, more established companies with relatively predictable
earnings. Because Vista tends to invest in smaller companies, it did not
benefit from the Nasdaq's large stock bias. Vista also was underweighted in
financial stocks, which comprise a significant portion of the index. In
general, the shares of smaller banking companies benefited from industry
consolidation trends, but we do not think their growth prospects are
generally as strong as those of the companies Vista owned during the
period.
Q: CAN YOU GIVE SOME EXAMPLES OF COMPANIES THE MARKET MISTREATED THAT THE
VISTA MANAGEMENT TEAM LIKED?
A: Corporate Express, Inc. and Centocor, Inc. are two companies that
exemplified this trend. Corporate Express' stock lost about 25% of its
value when the market corrected in July and hadn't bounced back as of the
end of the period. These shares performed poorly despite spectacular
company performance. During the third quarter of 1996, the company
experienced quarterly revenue growth above 50% and an earnings jump of 66%.
We think Corporate Express will grow rapidly in 1997 and eventually
investors should be willing to pay for that growth.
Top Five Industries (as of October 31, 1996)
- ------------------------------------------------------------------------
% of fund
investments in
% of fund these industries
investments one year ago
Computer Software & Services 20.3% 11.9%
Business Services & Supplies 15.4% 8.6%
Communications Equipment 13.1% 3.9%
Leisure 7.2% 2.0%
Pharmaceuticals 7.0% 1.6%
8
October 31, 1996
- ------------------------------------------------------------------------
VISTA INVESTORS
Centocor is a biotech company that introduced a new product with proven
clinical benefits and enormous potential. The product, Reopro, is an
anti-coagulant used to keep blood from clotting during angioplasty, a procedure
that clears clogged arteries. Initially, the market was excited by Reopro and
the stock reached $40 a share in May before dropping to $29 a share at the end
of October. Again, we think the market price of the stock will eventually
reflect the progress of the company.
Q: HOW HAS THE COMPOSITION OF THE FUND'S PORTFOLIO CHANGED IN THE SIX MONTHS
ENDED OCTOBER 31, 1996?
A: Our industry weightings have remained relatively steady since the changes
we made during the six months ended April 30. As you may recall, we
eliminated our holdings in semiconductor stocks in late 1995 in the wake of
softening demand. Since then, we've held onto the software and services
companies added at that time.
Q: HOW HAS VISTA'S TECHNOLOGY POSITION CHANGED FROM A YEAR AGO?
A: It has dropped from 56.6% of the fund a year ago to 39.4% as of October 31,
1996. Whereas semiconductor and related stocks were as much as one third of
the fund a year ago, all have since been sold. Vista's semiannual report
discussed an oversupply of semiconductor manufacturing capacity which
prompted that change. As of October 31, 1996, our biggest concentration
within the technology sector was computer software and we believe we are
well diversified within that category. By that we mean that our holdings
offer a wide variety of software products to customers in many different
industries - utilities, hospitals, manufacturers and distributors.
Generally, these products customize computer systems to work in a
particular business environment.
Q: CAN YOU GIVE SOME EXAMPLES?
A: Rational Software Corp. and Cognos Incor-porated were two of Vista's
largest holdings as of the end of the period. Rational's software is used
to design and create applications programs. Cognos sells software that
helps corporations make their databases more accessible to nontechnical
users. Looking ahead, we like software companies because as long as the
world continues to use computers, people will need more powerful software
to make their systems more effective.
Q: DO YOU BELIEVE A CORRECTION COULD OCCUR IN THE SOFTWARE MARKET, AS HAPPENED
WITH SEMICONDUCTORS?
A: Stock prices for software companies can always go down, but the two
businesses are very different. Pricing for software is more defensible,
margins are high and product costs are low. The software companies that we
own sell a proprietary, value-added product with few substitutes. In
contrast, semiconductors are more like commodity products. The customer
will readily switch to the lowest-cost supplier, so manufacturers are
constantly investing in expensive plants to reduce their unit costs. A
sudden increase in manufacturing capacity, as happened in 1995, can impact
the economics for that industry.
Q: CAN YOU OFFER SHAREHOLDERS ANY PERSPECTIVE ON THE FUND'S FUTURE?
A: Over the last half year or so, the kinds of companies on which Vista
focuses (rapidly growing small- and medium-sized firms) have substantially
underperformed major stock market indices such as the S&P 500 and the Dow
Jones Industrial Average. Investors have favored the stocks of larger
companies despite the fact that the companies owned in Vista are growing
several times faster than the average company in the major market indices.
We find this combination of circumstances attractive because we can now buy
more "growth" for a lower price.
Vista Investors' schedule of investments begins on page 13.
9
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS October 31, 1996
ULTRA INVESTORS
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS
AEROSPACE & DEFENSE-2.9%
975,000 AlliedSignal Inc. $ 63,862
2,050,000 Boeing Co. 195,519
1,400,000 Lockheed Martin Corp. 125,475
1,100,000 United Technologies Corp. 141,625
---------
526,481
---------
BANKING-8.7%
1,600,000 Bank of Boston Corp. 102,400
2,250,000 BankAmerica Corp. 205,875
6,250,000 Chase Manhattan Corp. 535,938
5,895,000 Citicorp 583,605
4,339,232 HSBC Holdings PLC ORD 88,387
800,000 NationsBank Corp. 75,400
---------
1,591,605
---------
BIOTECHNOLOGY-2.5%
6,250,000 Amgen Inc.1 383,203
900,000 Biogen Inc.1++ 67,163
---------
450,366
---------
BROADCASTING-0.3%
2,172,500 Evergreen Media Corporation1++ 58,386
---------
BUSINESS SERVICES & SUPPLIES-1.8%
2,400,000 AccuStaff, Inc.1++ 63,900
950,000 CUC International, Inc.1 23,275
11,098,105 New World
Development Co., Ltd. ORD 64,589
1,700,000 Paychex, Inc. 96,688
7,500,000 Sun Hung Kai
Properties Limited ORD 85,357
---------
333,809
---------
CHEMICAL & RESINS-2.7%
135,000 Ciba-Geigy AG ORD 165,789
1,400,000 IMC Global, Inc. 52,500
4,100,000 Monsanto Co. 162,462
1,000,000 Potash Corp.
of Saskatchewan Inc. ADR 70,875
1,075,000 Praxair, Inc. 47,569
---------
499,195
---------
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-7.6%
350,000 Andrew Corp.1 $ 17,062
1,000,000 Aspect Telecommunications
Corp.1 59,250
7,450,000 Cascade Communications
Corp.1++ 541,521
3,000,000 Newbridge Networks
Corp. ADR1++ 94,875
1,348,000 Northern Telecom Ltd. ADR 87,788
840,000 PairGain Technologies, Inc.1++ 57,750
1,300,000 Tellabs, Inc.1 110,663
6,600,000 U.S. Robotics Corp.1++ 415,388
---------
1,384,297
---------
COMMUNICATIONS SERVICES-4.6%
5,950,000 Lucent Technologies, Inc. 279,650
2,800,000 Sprint Corp. 109,900
3,750,000 Telecomunicacoes Brasileiras
S.A. ADR 279,375
6,750,000 Worldcom Inc.1 164,953
---------
833,878
---------
COMPUTER PERIPHERALS-15.4%
11,288,000 Ascend Communications, Inc.1++ 737,247
18,416,000 Cisco Systems Inc.1 1,138,339
4,900,000 FORE Systems, Inc.1++ 194,469
7,300,000 Iomega Corporation1++ 157,406
2,350,000 Seagate Technology1 156,862
2,550,000 Storage Technology Corp.1 108,694
4,700,000 3Com Corp.1++ 318,131
---------
2,811,148
---------
COMPUTER SOFTWARE & SERVICES-11.5%
2,675,000 BMC Software, Inc.1++ 221,690
1,900,000 Citrix Systems, Inc.1++ 104,500
3,900,000 Computer Associates
International, Inc. 230,588
1,200,000 Electronics for Imaging, Inc.1++ 86,400
3,100,000 HBO & Co.++ 186,775
900,000 McAfee Associates, Inc.1++ 41,006
642,100 Medic Computer
Systems, Inc.1++ 17,979
1,425,000 Microsoft Corp.1 195,670
9,500,000 Oracle Systems Corp.1 401,969
5,150,000 Parametric Technology Corp.1 251,384
2,900,000 Peoplesoft, Inc.1++ 259,913
See Notes to Financial Statements 10
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
750,000 Shared Medical
Systems Corp.++ $ 36,094
1,925,930 Sterling Commerce, Inc.1++ 54,167
550,000 Sterling Software, Inc.1 17,875
---------
2,106,010
---------
COMPUTER SYSTEMS-6.4%
1,350,000 Dell Computer Corp.1++ 110,025
1,800,000 International Business
Machines Corp. 232,200
13,450,000 Sun Microsystems, Inc.1++ 819,609
---------
1,161,834
---------
CONSUMER PRODUCTS-0.6%
1,150,000 Gillette Company 85,962
38,017 SMH Swiss Corporation for
Microelectronics and
Watchmaking Industries
Ltd. ORD 23,239
---------
109,201
---------
DIVERSIFIED COMPANIES-1.8%
3,200,000 General Electric Co. 309,600
1,500,000 Westinghouse Electric Corp. 25,687
---------
335,287
---------
ELECTRICAL & ELECTRONIC COMPONENTS-2.5%
2,750,000 C-Cube Microsystems Inc.1++ 106,906
3,200,000 Intel Corp. 351,400
---------
458,306
---------
ENERGY (PRODUCTION & MARKETING)-1.9%
1,150,000 Benton Oil & Gas Co.1 28,103
1,100,000 Chesapeake Energy Corp.1 64,075
4,050,000 Global Marine, Inc.1 74,419
1,750,000 Noble Drilling Corp.1 32,594
1,000,000 Transocean Offshore Inc. 63,250
1,700,000 Williams Companies, Inc. (The) 88,825
---------
351,266
---------
ENERGY (SERVICES)-1.7%
2,900,000 Baker Hughes Inc. 103,313
2,150,000 Schlumberger Ltd. 213,119
---------
316,432
---------
ENVIRONMENTAL SERVICES-1.3%
7,750,000 Republic Industries, Inc.1 240,734
---------
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
FINANCIAL SERVICES-3.3%
4,000,000 Associates First Capital Corp. $ 173,500
8,400,000 Cheung Kong (Holdings)
Ltd. ORD 67,355
7,000,000 Citic Pacific Ltd. ORD 34,039
1,200,000 Federal Home Loan Mortgage
Corporation 121,200
450,000 Green Tree Financial Corp. 17,831
1,300,000 Household International, Inc. 115,050
2,150,000 MBNA Corp. 81,163
---------
610,138
---------
HEALTHCARE-1.3%
1,500,000 Columbia/HCA
Healthcare Corp. 53,625
2,500,000 Healthsouth Rehabilitation
Corp.1 93,750
1,900,000 Oxford Health Plans, Inc.1++ 86,569
---------
233,944
---------
INDUSTRIAL EQUIPMENT & MACHINERY-1.0%
715,400 Case Corp. 33,266
3,450,000 Deere & Co. 144,038
---------
177,304
---------
INSURANCE-0.6%
750,000 Allstate Corp. 42,094
1,100,000 ITT Hartford Group, Inc. 69,300
---------
111,394
----------
Leisure-1.7%
20,000 Disney (Walt) Co. 1,317
7,900,000 Hilton Hotels Corporation 239,963
1,132,900 Marriott International, Inc. 64,434
---------
305,714
----------
MEDICAL EQUIPMENT & SUPPLIES-0.6%
1,200,000 Medtronic, Inc. 77,250
950,000 US Surgical Corp. 39,781
---------
117,031
---------
PERSONAL SERVICES-0.6%
3,800,000 Service Corp. International 108,300
---------
PHARMACEUTICALS-11.3%
4,600,000 American Home Products Corp. 281,750
9,560,000 Johnson & Johnson 470,830
1,800,000 Lilly (Eli) & Co. 126,900
8,850,000 Merck & Co., Inc. 656,006
See Notes to Financial Statements 11
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) October 31, 1996
ULTRA INVESTORS (CONTINUED)
- --------------------------------------------------------------------------------
Shares/Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
5,900,000 Pfizer, Inc. $ 488,225
1,750,000 Sankyo Co. Ltd. ORD 43,307
---------
2,067,018
---------
RESTAURANTS-0.3%
1,650,000 Boston Chicken, Inc.1++ 59,916
---------
RETAIL (APPAREL)-1.4%
4,400,000 NIKE, Inc. 259,050
---------
RETAIL (GENERAL MERCHANDISE)-0.6%
2,350,000 Sears, Roebuck & Co. 113,681
---------
RETAIL (SPECIALTY)-1.8%
3,450,000 Bed Bath & Beyond Inc.1++ 86,897
1,875,000 Just For Feet, Inc.1++ 48,867
2,556,600 Oakley, Inc.1 38,029
1,000,000 PETsMART, Inc.1 26,750
4,000,000 Starbucks Corp.1++ 130,250
---------
330,793
---------
TOBACCO-0.8%
1,500,000 Philip Morris Companies Inc. 138,938
---------
TOTAL COMMON STOCKS-99.5% 18,201,456
(Cost $12,255,210) ----------
TEMPORARY CASH INVESTMENTS*
$12,762 par value FHLMC Discount Note,
5.36%, 11-1-96 12,762
$20,000 par value FNMA Discount Note,
5.15%, 11-8-96 19,980
Repurchase Agreement, Goldman Sachs
& Co., Inc., (U.S. Treasury obligations),
in a joint trading account at 5.45%,
dated 10-31-96, due 11-1-96
(Delivery value $67,610) 67,600
---------
TOTAL TEMPORARY CASH INVESTMENTS-0.5% 100,342
---------
(Cost $100,342)
TOTAL INVESTMENT
SECURITIES -100.0% $18,301,798
===========
(Cost $12,355,552)
Forward Foreign Currency Contracts
Contracts Settlement Unrealized
to Sell Dates Value Gain (Loss)
------------------ ---------- ---------- ------------
3,085,674,984 JPY 11-29-96 $ 27,170 $ (33)
98,941,157 CHF 11-29-96 78,222 1,081
------ -----
$105,392 $1,048
======== ======
(Value on Settlement Date $106,440)
See Notes to Financial Statements 12
- --------------------------------------------------------------------------------
VISTA INVESTORS
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS
AIRLINES-0.9%
550,000 Atlas Air, Inc.1 $ 20,281
---------
BIOTECHNOLOGY-5.7%
1,800,000 Centocor, Inc.1 52,762
525,000 Genetics Institute, Inc.1 34,387
1,000,000 IDEC Pharmaceuticals Corp.1++ 21,563
600,000 Interneuron
Pharmaceuticals, Inc.1 14,700
300,000 Neurex Corp.1++ 4,668
---------
128,080
---------
BUSINESS SERVICES & SUPPLIES-15.4%
1,025,000 APAC Teleservices, Inc.1 47,150
1,875,000 AccuStaff, Inc.1++ 49,922
750,000 Career Horizons, Inc.1++ 30,469
1,275,000 Corestaff, Inc.1 32,592
1,300,000 Corrections Corp. of America1 33,800
2,600,000 Employee Solutions, Inc.1++ 57,200
700,000 Gartner Group, Inc.1 21,700
570,000 National Data Corp. 23,441
800,000 Quintiles Transnational Corp.1 52,500
--------
348,774
--------
COMMUNICATIONS EQUIPMENT-13.1%
775,000 Cable Design
Technologies Corp.1 19,956
1,650,000 Comverse Technology, Inc.1++ 57,544
825,000 MRV Communications, Inc.1 17,531
850,000 P-COM, Inc.1++ 18,700
2,200,000 PairGain Technologies, Inc.1++ 151,250
400,000 Premisys
Communications, Inc.1 19,950
238,000 VideoServer, Inc.1 11,201
---------
296,132
---------
COMMUNICATIONS SERVICES-0.7%
600,000 Omnipoint Corporation1 16,425
---------
COMPUTER PERIPHERALS-3.3%
400,000 Cisco Systems Inc.1 24,725
850,000 Diebold, Inc. 48,875
---------
73,600
---------
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICES-20.3%
1,000,000 Acxiom Corp.1 $ 39,125
500,000 Affiliated Computer
Services, Inc.1 27,125
500,000 Aspen Technology, Inc.1++ 33,500
700,000 Baan Co., N.V. ADR
(Acquired 3-1-96
through 6-3-96,
Cost $20,332)1+ 25,900
2,250,000 Cognos Incorporated ADR1++ 70,312
1,500,000 HBO & Co.++ 90,375
1,350,000 McAfee Associates, Inc.1++ 61,509
2,200,000 Rational Software Corp.1++ 84,012
85,000 Remedy Corp.1 4,123
450,000 Viasoft, Inc.1 22,275
---------
458,256
---------
ELECTRICAL & ELECTRONIC COMPONENTS-2.0%
700,000 DSP Communications, Inc.1++ 26,688
387,500 Sanmina Corp.1 17,873
---------
44,561
---------
ENVIRONMENTAL SERVICES-4.3%
1,800,000 USA Waste Services, Inc.1 57,600
1,150,000 United Waste Systems, Inc.1 39,388
---------
96,988
---------
FINANCIAL SERVICES-0.7%
600,000 Cityscape Financial Corp.1 15,300
---------
HEALTHCARE-4.2%
450,000 Access Health Inc.1 14,738
1,725,000 Health Management
Associates, Inc.1 37,950
525,000 Henry Schein, Inc.1 20,836
450,000 OccuSystems, Inc.1++ 12,403
700,000 Orthodontic Centers
of America Inc.1++ 9,975
---------
95,902
---------
LEISURE-7.2%
1,500,000 Extended Stay America, Inc.1 29,813
1,800,000 HFS, Inc.1 131,850
---------
161,663
---------
MEDICAL EQUIPMENT & SUPPLIES-1.9%
653,700 IDEXX Laboratories, Inc.1 25,576
900,000 Thermolase Corp.1 17,663
---------
43,239
---------
See Notes to Financial Statements 13
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) October 31, 1996
VISTA INVESTORS (CONTINUED)
- --------------------------------------------------------------------------------
Shares/Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
METALS (NON-FERROUS)-2.0%
754,600 Oregon Metallurgical Corp.1++ $ 23,581
675,000 Titanium Metals Corporation1 20,883
---------
44,464
---------
PHARMACEUTICALS-7.0%
2,200,000 Dura Pharmaceuticals, Inc.1++ 76,175
1,350,000 Jones Medical Industries, Inc.++ 58,388
450,000 Medicis Pharmaceutical Corp.1++ 22,612
---------
157,175
---------
RETAIL (FOOD & DRUG)-1.1%
950,000 Whole Foods Market, Inc.1++ 24,403
---------
RETAIL (GENERAL MERCHANDISE)-0.9%
640,000 Jones Apparel Group, Inc.1 20,000
---------
RETAIL (SPECIALTY)-5.2%
1,900,000 Corporate Express, Inc.1 62,344
600,000 Fastenal Company 27,825
925,000 U.S. Office Products Co.1++ 26,594
---------
116,763
---------
MISCELLANEOUS-1.1%
850,000 Apollo Group Inc. Cl A1 23,163
346,900 Fuisz Technologies Limited1 2,775
---------
25,938
---------
TOTAL COMMON STOCKS-97.0% 2,187,944
---------
(Cost $1,652,312)
TEMPORARY CASH INVESTMENTS*
$27,665 par value FNMA Discount Note,
5.186%, 11-5-96 27,649
Repurchase Agreement, J.P. Morgan
Securities, Inc., (U.S. Treasury
obligations), in a joint trading account
at 5.52%, dated 10-31-96, due 11-1-96
(Delivery value $40,906) 40,900
---------
TOTAL TEMPORARY CASH INVESTMENTS-3.0% 68,549
(Cost $68,549) ---------
TOTAL INVESTMENT
SECURITIES-100.0% $2,256,493
(Cost $1,720,861 ==========
NOTES TO SCHEDULES OF INVESTMENTS
ADR = American Depositary Receipt
CHF = Swiss Franc
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
JPY = Japanese Yen
ORD = Foreign Ordinary Share
1 Non-income producing
+ Security was purchased under Rule 144A of the Securities Act of 1933
and, unless registered under the Act or exempted from registration, may only be
sold to qualified institutional investors. The aggregate value of restricted
securities at October 31, 1996, was $25,900 (in thousands), which represented
1.1% of the net assets of Vista.
++ Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as define in the
Investment Company Act of 1940. See Note 5 in Notes to Financial Statements for
a summary of transactions for each issuer who is or was an affiliate at or
during the year ended October 31, 1996.
* The rates for U.S. Government Agency discount notes are the yield to maturity
at purchase.
See Notes to Financial Statements 14
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1996
Ultra Investors Vista Investors
($ In Thousands, Except Per-Share Amounts)
<S> <C> <C>
ASSETS
Investment securities, at value (identified cost of $12,355,552
and $1,720,861, respectively) (Notes 3 and 5) ........................ $18,301,798 $2,256,493
Cash ...................................................................... 20,725 7,927
Receivable for forward foreign currency exchange contracts ................ 1,048 --
Receivable for investments sold ........................................... 115,090 52,035
Receivable for capital shares sold ........................................ 2,069 1,429
Dividends and interest receivable ......................................... 6,880 6
----------- ----------
18,447,610 2,317,890
----------- ----------
LIABILITIES
Disbursements in excess of demand deposit cash ............................ 17,345 2,886
Payable for investments purchased ......................................... 123,446 29,605
Payable for capital shares redeemed ....................................... 12,256 1,883
Accrued management fees (Note 2) .......................................... 15,581 2,032
Distribution fees payable (Note 2) ........................................ 2 1
Shareholder service fees payable (Note 2) ................................. 2 1
Other liabilities ......................................................... 32 4
---------- ----------
168,664 36,412
----------- ----------
Net Assets ................................................................ $18,278,946 $2,281,478
=========== ==========
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ................................... $11,321,04 $1,577,821
Accumulated undistributed net realized gain
from investment and foreign currency transactions .................... 1,010,641 168,024
Net unrealized appreciation on investments
and translation of assets and liabilities in foreign
currencies (Note 3) .................................................. 5,947,264 535,633
----------- ----------
$18,278,946 $2,281,478
=========== ==========
INVESTOR CLASS
Net assets .............................................................. $18,265,895 $2,275,832
Shares outstanding (in thousands) ....................................... 618,715 145,175
Net asset value, offering price and redemption
price per share .................................................... $29.52 $15.68
ADVISOR CLASS
Net assets .............................................................. $13,051 $5,646
Shares outstanding (in thousands) ....................................... 442 360
Net asset value, offering price and redemption
price per share .................................................... $29.52 $15.67
</TABLE>
See Notes to Financial Statements 15
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Year Ended October 31, 1996
Ultra Investors Vista Investors
---------($ In Thousands)---------
<S> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Dividends (net of foreign taxes withheld
of $683 and $0, respectively)--------------------------------------- $110,875 $ 305
Interest-------------------------------------------------------------- 20,035 5,134
---------- --------
130,910 5,439
---------- --------
Expenses:
Management fees (Note 2)---------------------------------------------- 162,208 20,199
Distribution fees - Advisor Class (Note 2)---------------------------- 2 1
Shareholder service fees - Advisor Class (Note 2)--------------------- 2 1
Directors' fees and expenses------------------------------------------ 166 22
---------- --------
162,378 20,223
---------- --------
NET INVESTMENT (LOSS)---------------------------------------------------- (31,468) (14,784)
---------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY (Note 3)
Net realized gain during the year on:
Investments----------------------------------------------------------- 1,023,974 171,813
Foreign currency transactions----------------------------------------- 13,238 -
---------- --------
1,037,212 171,813
---------- --------
Change in net unrealized appreciation during the year on:
Investments---------------------------------------------------------- 777,812 (24,182)
Translation of assets and liabilities in
foreign currencies-------------------------------------------------- 164 -
---------- --------
777,976 (24,182)
---------- --------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY-------------------------------------- 1,815,188 147,631
---------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS--------------------------------------------- $1,783,720 $132,847
========== ========
</TABLE>
See Notes to Financial Statements 16
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended October 31, 1996 and October 31, 1995
Ultra Investors Vista Investors
--------------------------------------------
($ In Thousands)
1996 1995 1996 1995
----- ----- ----- -----
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C>
OPERATIONS
Net investment (loss)---------------------------- $(31,468) $(36,254) $(14,784) $(7,194)
Net realized gain on investments
and foreign currency transactions------------- 1,037,212 619,125 171,813 111,473
Change in net unrealized appreciation
(depreciation) on investments and
translation of assets and liabilities
in foreign currencies------------------------- 777,976 3,146,594 (24,182) 328,626
------------ ----------- --------- ----------
Net increase in net assets resulting
from operations------------------------------- 1,783,720 3,729,465 132,847 432,905
------------ ----------- --------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains from investment
transactions:
Investor Class-------------------------------- (673,603) (308,428) (111,473) (1,747)
In excess of net realized gains from
investment transactions:
Investor Class-------------------------------- (9,858) - (1,791) (414)
------------ ----------- --------- ----------
Decrease in net assets from distributions-------- (683,461) (308,428) (113,264) (2,161)
------------ ----------- --------- ----------
NET INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (Note 4) ------------- 2,802,785 610,592 585,978 452,830
------------ ----------- --------- ----------
NET INCREASE IN NET ASSETS----------------------- 3,903,044 4,031,629 605,561 883,574
NET ASSETS
BEGINNING OF YEAR-------------------------------- 14,375,902 10,344,273 1,675,917 792,343
------------ ----------- --------- ----------
End of year-------------------------------------- $18,278,946 $14,375,902 $2,281,478 $1,675,917
=========== =========== ========== ==========
</TABLE>
See Notes to Financial Statements
17
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS October 31, 1996
1. Organization and Summary of Significant Accounting Policies
Organization-
Twentieth Century Investors, Inc. (the Corporation) is registered under the
Investment Company Act of 1940 as an open-end diversified management investment
company. Ultra and Vista (the Funds) are two of the sixteen series of funds
issued by the Corporation. The Funds' investment objective is to seek capital
growth by investing primarily in equity securities. On September 3, 1996, the
Funds implemented a multiple class structure whereby each Fund is authorized to
issue four classes of shares: the Investor Class, the Institutional Class, the
Service Class, and the Advisor Class. The shares outstanding prior to September
3, 1996, were designated as Investor Class shares. The four classes of shares
differ principally in their respective shareholder servicing and distribution
expenses and arrangements. All shares of each Fund represent an equal pro rata
interest in the assets of the class to which such shares belong, and have
identical voting, dividend, liquidation and other rights and the same terms and
conditions, except for class specific expenses and exclusive rights to vote on
matters affecting only individual classes. Sale of the Advisor Class commenced
on October 2, 1996. Sale of the Institutional and Service classes had not
commenced as of the report date. The following significant accounting policies,
related to all classes of the Funds, are in accordance with accounting policies
generally accepted in the investment company industry.
Security Valuations-
Portfolio securities traded primarily on a principal securities exchange
are valued at the last reported sales price, or the mean of the latest bid and
asked prices where no last sales price is available. Securities traded
over-the-counter are valued at the mean of the latest bid and asked prices or,
in the case of certain foreign securities, at the last reported sales price.
When valuations are not readily available, securities are valued at fair value
as determined in accordance with procedures adopted by the board of directors.
Security Transactions-
Security transactions are accounted for on the date purchased or sold. Net
realized gains and losses are determined on the identified cost basis, which is
also used for federal income tax purposes.
Investment Income-
Dividend income less foreign taxes withheld (if any) is recorded as of the
ex-dividend date. Interest income is recognized on the accrual basis and
includes amortization of discounts and premiums.
Foreign Currency Transactions-
The accounting records of the Funds are maintained in U.S. dollars. All
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at prevailing exchange rates. Purchases and sales of
investment securities, dividend and interest income, and certain expenses are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
The Funds do not isolate that portion of the results of operations
resulting from changes in the foreign exchange rates on investments from the
fluctuations arising from changes in the market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss on
investments.
Net realized foreign currency exchange gains or losses arise from sales of
foreign currencies and the difference between asset and liability amounts
initially stated in foreign currencies and the U.S. dollar value of the amounts
actually received or paid. Net unrealized foreign currency exchange gains or
losses arise from changes in the value of assets and liabilities, other than
portfolio securities at the end of the reporting period, resulting from changes
in the exchange rates.
18
- --------------------------------------------------------------------------------
Forward Foreign Currency Exchange Contracts-
The Funds may enter into forward foreign currency exchange contracts for
the purpose of settling specific purchases or sales of securities denominated in
a foreign currency or to hedge the Funds' exposure to foreign currency exchange
rate fluctuations. When required, the funds will segregate assets in an amount
sufficient to cover their obligation under the hedge contracts. The net U.S.
dollar value of foreign currency underlying all contractual commitments held by
the Funds and the resulting unrealized appreciation or depreciation are
determined daily using prevailing exchange rates. Forward contracts involve
elements of market risk in excess of the amount reflected in the Statements of
Assets and Liabilities. The Funds bear the risk of an unfavorable change in the
foreign currency exchange rate underlying the forward contract. Additionally,
losses may arise if the counterparties do not perform under the contract terms.
Repurchase Agreements-
The Funds may enter into repurchase agreements with institutions that the
Funds' investment manager, Investors Research Corporation (IRC), has determined
are creditworthy pursuant to criteria adopted by the board of directors. Each
repurchase agreement is recorded at cost. The Funds require that the securities
purchased in a repurchase transaction be transferred to the custodian in a
manner sufficient to enable the Funds to obtain those securities in the event of
a default under the repurchase agreement. IRC monitors, on a daily basis, the
value of the securities transferred to ensure that the value, including accrued
interest, of the securities under each repurchase agreement is equal to or
greater than amounts owed to the Funds under each repurchase agreement.
Joint Trading Account-
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the Funds, along with other registered investment companies having
management agreements with IRC, may transfer uninvested cash balances into a
joint trading account. These balances are invested in one or more repurchase
agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status-
It is the policy of the Funds to distribute all taxable income and capital
gains to shareholders and to otherwise qualify as a regulated investment company
under provisions of the Internal Revenue Code. Accordingly, no provision has
been made for federal income taxes.
Distributions to Shareholders-
Distributions to shareholders are recorded on the ex-dividend date.
Distributions from net investment income and net realized gains are declared and
paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences are primarily due to differing
treatments for foreign currency transactions and wash sales.
Supplementary Information-
Certain officers and directors of the Corporation are also officers and/or
directors, and, as a group, controlling stockholders of Twentieth Century
Companies, Inc., the parent of the Corporation's investment manager, IRC, the
Corporation's distributor, Twentieth Century Securities (TCS), and the
Corporation's transfer agent, Twentieth Century Services, Inc.
Use of Estimates-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
19
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued) October 31, 1996
2. Transactions with Related Parties
The Corporation has entered into Management Agreements with IRC that
provides each Fund with investment advisory and management services in exchange
for a single, unified management fee per class. Additional fees apply to the
Advisor Class and service class shares, as described in the respective
prospectuses. The agreements provide that all expenses of the Funds, except
brokerage commissions, taxes, interest, expenses of those directors who are not
considered "interested persons" as defined in the Investment Company Act of 1940
(including counsel fees) and extraordinary expenses, will be paid by IRC. The
fee is computed daily and paid monthly based on each Fund's average daily
closing net assets during the previous month. The annual management fee for each
class is as follows:
Investor Class 1.00%
Advisor Class .75%
The board of directors has adopted a shareholder services and distribution
plan for the Advisor Class, pursuant to Rule 12-b1 of the Investment Company Act
of 1940. The Advisor Class Master Distribution and Shareholder Services Plan
provides that the Funds will pay IRC an annual distribution fee equal to .25%
and service fee equal to .25%. The fees are computed daily and paid monthly
based on each Fund's average daily closing net assets during the previous month.
The distribution fee provides compensation for distribution expenses incurred in
connection with distributing shares of the Funds including, but not limited to,
payments to brokers, dealers, and financial institutions that have entered into
sales agreements with TCS and/or IRC. The service fee provides compensation for
shareholder and administrative services rendered by IRC, its affiliates or
independent third party providers. Fees incurred under the Master Distribution
and Shareholder Services Plan during the period ended October 31, 1996 were
$4,764 for Ultra, and $2,084 for Vista.
3. Investment Transactions
Investment transactions (excluding short-term investments) for the year
ended October 31, 1996, were as follows:
PURCHASES OF PROCEEDS FROM SALES
COMMON STOCKS OF COMMON STOCKS
------------- ------------------
---------------($ In Thousands)-----------
Ultra Investors $16,890,231 $13,982,056
Vista Investors 2,259,492 1,776,871
On October 31, 1996, the composition of unrealized appreciation and
(depreciation) of investment securities based on the aggregate cost of
investments for federal income tax purposes was as follows:
<TABLE>
APPRECIATION (DEPRECIATION) NET FEDERAL TAX COST
------------- ------------- ---- ----------------
---------------------------($ In Thousands)------------------------
<S> <C> <C> <C> <C>
Ultra Investors $5,992,171 $(78,433) $5,913,738 $12,388,060
Vista Investors 616,345 (81,388) 534,957 1,721,536
</TABLE>
20
- --------------------------------------------------------------------------------
4. Capital Share Transactions
There are 750,000,000 shares of the Investor Class and 312,500,000 shares
of the Advisor Class authorized for issuance in Ultra. There are 500,000,000
shares of the Investor Class and 210,000,000 shares of the Advisor Class
authorized for issuance in Vista. All shares are $.01 par value.
Transactions in shares of the Funds were as follows:
<TABLE>
INVESTOR CLASS ULTRA VISTA
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------ ------- ------- -------
-------------------(In Thousands)--------------
<S> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1996
Shares sold 194,099 $5,275,609 92,373 $1,404,556
Shares issued in reinvestment of distributions 26,782 669,557 7,805 109,657
Shares redeemed (114,976) (3,155,542) (61,545) (934,295)
-------- ---------- ------- --------
Net increase 105,905 $2,789,624 38,633 $ 579,918
======= ========== ====== ==========
YEAR ENDED OCTOBER 31, 1995
Shares sold 143,246 $3,318,033 88,066 $1,139,754
Shares issued in reinvestment of distributions 15,606 301,508 203 2,085
Shares redeemed (134,889) (3,008,949) (54,178) (689,009)
-------- ---------- ------- --------
Net increase 23,963 $ 610,592 34,091 $ 452,830
====== =========== ====== ==========
ADVISOR CLASS ULTRA VISTA
--------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------ ------- ------- -------
-----------------( In Thousands)---------------
OCTOBER 2, 1996*
THROUGH OCTOBER 31, 1996
Shares sold 443 $13,191 364 $6,124
Shares redeemed (1) (30) (4) (64)
-- --- -- ---
Net increase 442 $13,161 360 $6,060
=== ======= === ======
</TABLE>
* Sale of the Advisor Class commenced on October 2, 1996.
21
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED) October 31, 1996
5. Affiliated Company Transactions
A summary of transactions for each issuer who is or was an affiliate at or
during the year ended October 31, 1996, follows:
<TABLE>
<CAPTION>
OCTOBER 31, 1996
SHARE REALIZED -----------------
FUND/ BALANCE PURCHASE SALES GAIN SHARE MARKET
ISSUER 10-31-95 COST COST (LOSS) INCOME BALANCE VALUE
- ------------------ --------- ------- ----- ----- ------ ------- -----
---------------------------($ In Thousands)-----------------------
ULTRA INVESTORS
<S> <C> <C> <C> <C> <C> <C> <C>
AccuStaff, Inc. - $ 79,873 $ 7,224 $(2,521) - 2,400,000 $ 63,900
Adobe Systems Inc. 2,300,000 101,271 195,423 (54,924) $141 - -
Altera Corp. 2,100,000 50,572 118,653 38,345 - - -
America Online Inc. 2,750,000 - 68,951 203,738 - - -
Applied Materials, Inc. 6,700,000 33,074 125,752 131,930 - - -
Ascend Communications, Inc. 2,670,000 277,176 27,717 (5,194) - 11,288,000* 737,247
Atmel Corp. 1,650,000 37,538 69,599 207 - - -
BMC Software, Inc. 1,800,000 154,173 47,692 11,765 - 2,675,000 221,690
Bay Networks, Inc. 6,750,000 66,209 232,224 110,821 - - -
Bed Bath & Beyond Inc. - 88,848 14,393 (4,604) - 3,450,000* 86,897
Biogen Inc. 2,325,000 23,145 102,930 10,558 - 900,000 67,163
Boston Chicken, Inc. - 56,578 - - - 1,650,000 59,916
C-Cube Microsystems Inc. - 257,864 155,518 (33,387) - 2,750,000 106,906
Cascade Communications Corp. 2,150,000 43,370 - - - 7,450,000* 541,521
Chiron Corp. - 113,945 113,945 (31,491) - - -
Cirrus Logic, Inc. 3,000,000 - 79,512 (2,990) - - -
Citrix Systems, Inc. - 73,263 - - - 1,900,000* 104,500
Dell Computer Corp. 7,000,000 113,576 109,299 85,208 - 1,350,000 110,025
Diamond Multimedia
Systems, Inc. - 43,664 43,664 (23,978) - - -
Electronics for Imaging, Inc. 549,500 119,325 76,855 (8,759) - 1,200,000 86,400
Evergreen Media Corporation - 53,724 2,453 626 - 2,172,500* 58,386
FORE Systems, Inc. 1,900,000 89,558 57,262 (8,424) - 4,900,000* 194,469
Genzyme Corp. 2,170,000 - 93,014 14,333 - - -
HBO & Co. 600,000 113,995 39,856 4,074 256 3,100,000* 186,775
HealthCare COMPARE Corp. 1,200,000 38,598 73,028 7,858 - - -
Informix Corp. 6,450,000 34,491 132,278 26,852 - - -
Intuit Inc. 3,500,000 - 126,818 37,415 - - -
Iomega Corporation - 181,589 69,726 (43,139) - 7,300,000* 157,406
Just for Feet, Inc. - 58,641 - - - 1,875,000* 48,867
LSI Logic Corp. 4,292,100 - 75,446 59,517 - - -
Lam Research Corp. 1,834,300 - 64,503 28,055 - - -
McAfee Associates, Inc. - 37,724 - - - 900,000* 41,006
Medic Computer Systems, Inc. - 79,362 56,385 (14,040) - 642,100* 17,979
NETCOM On-Line Communication
Services, Inc. 115,000 58,045 64,348 (36,041) - - -
Network General Corp. 1,450,000 6,480 63,562 (4,917) - - -
Newbridge Networks Corp.
ADR - 134,818 42,919 (15,116) - 3,000,000* 94,875
Oak Technology, Inc. 1,425,000 27,348 90,578 (29,788) - - -
Oxford Health Plans, Inc. 1,400,000 47,920 42,102 31,626 - 1,900,000* 86,569
PacifiCare Health Systems,
Inc. Cl B - 135,829 135,829 (20,760) - - -
22
- ------------------------------------------------------------------------------------------------
5. Affiliated Company Transactions (Continued)
OCTOBER 31, 1996
SHARE REALIZED -----------------
FUND/ BALANCE PURCHASE SALES GAIN SHARE MARKET
ISSUER 10-31-95 COST COST (LOSS) INCOME BALANCE VALUE
- ------------------ --------- ------- ------ -------- ------- -------- ---------
--------------------------------($ In Thousands)----------------------------
ULTRA INVESTORS (CONTINUED)
PairGain Technologies, Inc. - $48,430 - - - 840,000 $ 57,750
Peoplesoft, Inc. 1,225,000 26,546 - - - 2,900,000* 259,913
Phycor, Inc. 1,725,000 9,931 $47,924 $42,987 - - -
Picturetel Corp. 1,600,000 - 48,228 60,950 - - -
Presstek, Inc. - 59,846 59,846 13,944 - - -
QUALCOMM Inc. 2,950,00 75,216 185,729 (18,093) - - -
Quarterdeck Office
Systems, Inc. 1,000,000 51,739 61,593 (23,534) - - -
SCI Systems, Inc. - 53,745 53,745 (9,748) - - -
S3 Incorporated 2,700,000 1,878 47,709 (12,053) - - -
Shared Medical Systems Corp. - 74,110 30,174 (8,416) $368 750,000 36,094
Silicon Valley Group, Inc. 1,575,000 16,322 74,873 (25,933) - - -
Softkey International Inc. 1,125,000 - 30,046 967 - - -
Spyglass, Inc. - 46,306 46,306 (21,925) - - -
Starbucks Corp. 1,000,000 110,590 42,21 (6,337) - 4,000,000* 130,250
Sterling Commerce, Inc. - 40,664 7,896 (2,036) - 1,925,930 54,167
StrataCom, Inc. 2,400,000 - 30,636 50,087 - - -
Structural Dynamics
Research Corp. - 68,395 68,395 (22,472) - - -
Sun Microsystems, Inc. 4,150,000 224,917 - - - 13,450,000* 819,609
Sunglass Hut International, Inc. - 46,600 46,600 (19,518) - - -
Tamura Electric Works ORD 1,000,000 - 13,791 (230) - - -
Tencor Instruments 950,000 - 33,845 (11,908) - - -
Texas Instruments Inc. 6,300,000 - 430,962 (112,183) 417 - -
Trident Microsystems, Inc. - 29,737 29,737 (15,519) - - -
3Com Corp. 12,400,000 44,61 131,939 209,515 - 4,700,000 318,131
U.S. Long Distance Corporation - 24,569 13,944 (4,277) - - -
U.S. Robotics Corp. 3,450,000 52,357 52,032 3,902 - 6,600,000* 415,388
UUNET Technologies Inc. 600,000 - 109,342 (49,588) - - -
VISX, Incorporated - 46,665 46,665 (18,153) - - -
Watson Pharmaceuticals 775,000 31,443 60,122 (2,487) - - -
WinStar Communications, Inc. - 37,319 37,319 (14,019) - - -
---------- ---------- -------- ------ ----------
$4,053,522 $4,661,071 $446,778 $1,182 $5,163,799
========== ========== ======== ====== ==========
VISTA INVESTORS
AccuStaff Inc. - $51,079 - - - 1,875,000* $49,922
Applied Materials, Inc. 330,000 14,517 $32,380 $(10,067) - - -
Aspen Technology, Inc. - 23,569 - - - 500,000 33,500
Atmel Corp. 1,500,000 19,911 33,058 28,096 - - -
Boca Research, Inc. 540,000 4,139 16,440 (3,393) - - -
California Amplifier, Inc. - 26,371 26,371 (4,512) - - -
Career Horizons, Inc. - 30,145 - - - 750,000 30,469
Cephalon, Inc. - 26,690 26,690 (8,617) - - -
Cognos Incorporated ADR 600,000 6,947 - - - 2,250,000* 70,312
Comverse Technology Inc. - 53,606 - - - 1,650,000 57,544
23
- ---------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED) October 31, 1996
5. Affiliated Company Transactions (continued)
OCTOBER 31, 1996
SHARE REALIZED -----------------
FUND/ BALANCE PURCHASE SALES GAIN SHARE MARKET
ISSUER 10-31-95 COST COST (LOSS) INCOME BALANCE VALUE
- ------------------ --------- ------- ------ -------- ------- -------- --------
---------------------------------($ In Thousands)---------------------------
VISTA INVESTORS (CONTINUED)
DSP Communications, Inc. - $ 37,755 $ 18,036 $ 1,371 - 700,000 $26,688
Diamond Multimedia
Systems, Inc. 650,000 1,528 15,448 (804) - - --
Dura Pharmaceuticals, Inc. 750,000 19,393 - - - 2,200,000* 76,175
Employee Solutions, Inc. - 42,840 - - - 2,600,000* 57,200
FSI International, Inc. 1,150,000 - 23,038 (6,343) - - -
Genzyme Tissue Repair 800,000 1,187 10,993 1,000 - - -
HBO & Co. 520,000 25,155 - - $103 1,500,000* 90,375
Hummingbird Communications
Ltd. ADR - 25,059 25,059 (11,102) - - -
IDEC Pharmaceuticals Corp. - 20,440 - - - 1,000,000 21,563
Jones Medical Industries, Inc. - 38,881 - - 54 1,350,000* 58,388
LSI Logic Corp. 1,850,000 - 24,970 28,174 - - -
Macromedia, Inc. 1,800,000 - 27,226 39,888 - - -
McAfee Associates, Inc. - 48,827 20,375 5,761 - 1,350,000* 61,509
Medicis Pharmaceutical Corp. - 19,088 6,702 4,584 - 450,000* 22,612
MicroCom, Inc. - 19,420 19,420 (8,578) - - -
Neurex Corp. - 11,434 4,693 (1,667) - 300,000 4,668
OccuSystems, Inc. - 15,488 - - - 450,000 12,403
Oregon Metallurgical Corp. - 19,782 - - - 754,600 23,581
Orthodontic Centers
of America Inc. - 23,945 12,873 (3,442) - 700,000* 9,975
P-COM, Inc. - 24,004 - - - 850,000 18,700
PC Docs Group
International, Inc. ADR 937,000 1,119 12,832 5,017 - - -
PairGain Technologies, Inc. 550,000 37,396 - - - 2,200,000* 151,250
Physician Sales & Service, Inc. - 31,260 31,260 (4,912) - - -
Rational Software Corp. - 47,736 - - - 2,200,000* 84,012
S3 Incorporated 1,550,000 - 13,665 2,439 - - -
Softkey International Inc. 400,000 - 9,794 2,705 - - -
STERIS Corp. 1,500,000 - 37,148 11,948 - - -
StrataCom, Inc. 380,000 - 6,325 22,713 - - -
Sunglass Hut
International, Inc. 1,800,000 9,827 43,344 8,142 - - -
Tencor Instruments 780,000 - 19,250 (5,303) - - -
U.S. Office Products Co. - 33,246 - - - 925,000 26,594
Ultratech Stepper, Inc. 940,000 - 23,806 (6,665) - - -
Whole Foods Market, Inc. - 37,055 6,927 (1,985) - 950,000 24,403
-------- -------- ------- ---- ----------
$890,817 $590,101 $90,157 $157 $1,011,843
======== ======== ======= ==== ==========
</TABLE>
*Includes adjustments for shares received from stock split and/or stock spinoff
during the period.
24
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
ULTRA INVESTORS
INVESTOR CLASS ADVISOR CLASS
Years ended October 31, October 2, 1996(4)
---------------------------------------------- through
1996 1995 1994 1993 1992 October 31, 1996
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ........... $28.03 $21.16 $21.61 $15.46 $15.53 $29.55
------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment
(Loss) ................... (.05)(1) (.07)(1) (.03) (.09) (.05) (.02)(1)
Net Realized
and Unrealized
Gains (Losses) ........... 2.84 7.58 (.42) 6.24 (.02) (.01)
------ ------ ------ ------ ------ ------
Total from
Investment Operations .... 2.79 7.51 (.45) 6.15 (.07) (.03)
------ ------ ------ ------ ------ ------
DISTRIBUTIONS
From Net Realized
Gains on Investment
Transactions ............. (1.19) (.645) - - - -
In Excess of Net
Realized Gains ........... (.11) - - - - -
------ ------ ------ ------ ------ ------
Total Distributions ...... (1.30) (.645) - - - -
------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD ................. $29.52 $28.03 $21.16 $21.61 $15.46 $29.52
====== ====== ====== ====== ====== ======
TOTAL RETURN2 ................. 10.79% 36.89% (2.08%) 39.78% (.45%) (.10%)
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to
Average Net Assets ....... 1.00% 1.00% 1.00% 1.00% 1.00% 1.25%(3)
Ratio of Net Investment
(Loss) to Average
Net Assets ................ (.2%) (.3%) (.1%) (.6%) (.4%) (.8%)(3)
Portfolio Turnover Rate ... 87% 87% 78% 53% 59% 87%
Average Commission
Paid per Share Traded .....$.0350 $.0330 -(5) -(5) -(5) $.0350
Net Assets, End
of Period
(in millions) ............$18,266 $14,376 $10,344 $8,037 $4,275 $13
</TABLE>
1Computed using average shares outstanding throughout the period.
2Total return assumes reinvestment of dividends and capital gains distributions,
if any. Total returns for periods less than one year are not annualized.
3Annualized
4Sale of the Advisor Class commenced on October 2, 1996.
5Disclosure of average commission paid per share was not required prior to the
year ended October 31, 1995.
See Notes to Financial Statements
25
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued) (For a Share Outstanding Throughout the Period)
VISTA INVESTORS
INVESTOR CLASS ADVISOR CLASS
Years ended October 31, October 2, 1996(4)
---------------------------------------------- through
1996 1995 1994 1993 1992 October 31, 1996
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .......... $15.73 $10.94 $12.24 $11.01 $10.53 $16.87
------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment
(Loss) .................. (.11)(1) (.08)(1) (.08) (.07) (.04) (.02)(1)
Net Realized
and Unrealized
Gains (Losses) .......... 1.09 4.90 .45 1.95 .52 (1.18)
------ ------ ------ ------ ------ ------
Total from
Investment Operations ... .98 4.82 .37 1.88 .48 (1.20)
------ ------ ------ ------ ------ ------
DISTRIBUTIONS
From Net Realized
Gains on Investment
Transactions ............ (1.02) (.030) (1.663) (.641) - -
In Excess of Net
Realized Gains .......... (.01) - (.012) (.006) - -
------ ------ ------ ------ ------ ------
Total Distributions ..... (1.03) (.030) (1.675) (.647) - -
------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD ................ $15.68 $15.73 $10.94 $12.24 $11.01 $15.67
====== ====== ====== ====== ====== ======
TOTAL RETURN2 ........... 6.96% 44.20% 4.16% 17.71% 4.55% (7.11%)
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to
Average Net Assets ...... .99% .98% 1.00% 1.00% 1.00% 1.25%(3)
Ratio of Net Investment
(Loss) to Average
Net Assets .............. (.7%) (.6%) (.8%) (.6%) (.4%) (1.2%)3
Portfolio Turnover Rate . 91% 89% 111% 133% 87% 91%
Average Commission
Paid per Share Traded ... $.0280 $.0330 -(5) -(5) -(5) $.0280
Net Assets, End
of Period
(in millions) ........... $2,276 $1,676 $792 $847 $830 $6
- --------------------------------------------------------------------------------
</TABLE>
1Computed using average shares outstanding throughout the period.
2Total return assumes reinvestment of dividends and capital gains distributions,
if any. Total returns for periods less than one year are not annualized.
3Annualized
4Sale of the Advisor Class commenced on October 2, 1996.
5Disclosure of average commission paid per share was not required prior to the
year ended October 31, 1995.
See Notes to Financial Statements 26
- ------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS' REPORT
The Shareholders and Board of Directors
Twentieth Century Investors, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Ultra Investors and Vista Investors
(two of the sixteen funds comprising TWENTIETH CENTURY INVESTORS, INC.) as of
October 31, 1996, and the related statements of operations, the statements of
changes in net assets, and the financial highlights for each of the periods
indicated. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and brokers. As to
securities purchased but not received, we requested confirmations from brokers,
and when replies were not received, we performed alternative auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Ultra Investors and Vista Investors, as of October 31, 1996, and the results of
their operations, changes in their net assets, and the financial highlights for
each of the periods indicated in conformity with generally accepted accounting
principles.
/s/BAIRD, KURTZ & DOBSON
BAIRD, KURTZ & DOBSON
Kansas City, Missouri
November 20, 1996
27
IMPORTANT NOTICE FOR ALL IRA AND 403(B) SHAREHOLDERS
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)]
are subject to federal income tax withholding at the rate of 10% of the total
amount withdrawn, unless you elect not to have withholding apply. If you don't
want us to withhold on this amount, you may send us a written notice not to have
the federal income tax withheld. Your written notice is valid for six months
from the date of receipt at Twentieth Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount, unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchanges/Redemptions form or an IRS Form W-4P. Call Twentieth Century for
either form. Your written election is valid for only six months from the date of
receipt at Twentieth Century. You may revoke your election at any time by
sending a written notice to us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
28
TWENTIETH CENTURY INVESTORS, INC.
INVESTMENT MANAGER
INVESTORS RESEARCH CORPORATION
KANSAS CITY, MISSOURI
THIS REPORT AND THE FINANCIAL
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.
TWENTIETH CENTURY SECURITIES, INC.
TWENTIETH CENTURY
AGGRESSIVE
GROWTH FUNDS
Annual Report
October 31, 1996
Twentieth Century Mutual Funds
and The Benham Group
- ------------------------------------------------
P.O. BOX 419200
KANSAS CITY, MISSOURI
64141-6200
- ------------------------------------------------
PERSON-TO-PERSON ASSISTANCE:
1-800-345-2021 OR 816-531-5575
- ------------------------------------------------
AUTOMATED INFORMATION LINE:
1-800-345-8765
- ------------------------------------------------
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 OR 816-753-1865
- ------------------------------------------------
FAX: 816-340-7962
- ------------------------------------------------
Ultra
Vista
----------------------------------------
TWENTIETH CENTURY INVESTORS, INC.
SH-BKT-6906 [recycled logo]
9612
TWENTIETH CENTURY
GIFTRUST
ANNUAL REPORT
OCTOBER 31, 1996
(Giftrust artwork)
-------------------------------------
TWENTIETH CENTURY INVESTORS, INC.
- --------------------------------------------------------------------------------
October 31, 1996
TABLE OF CONTENTS
Our Message to You..........................................................2
Period Overview.............................................................3
Investment Philosophy and Policies..........................................4
Investment Review...........................................................5
Schedule of Investments.....................................................9
Statement of Assets and Liabilities........................................12
Statement of Operations....................................................13
Statements of Changes in Net Assets........................................14
Notes to Financial Statements..............................................15
Financial Highlights.......................................................20
Independent Accountants' Report............................................21
INDICES USED FOR PERFORMANCE COMPARISON- None are investment products available
for purchase.
THE S&P 500 INDEX is an index created by Standard & Poor's Corporation that
is considered to represent the performance of the U.S. stock market generally.
The index, however, has a large capitalization bias, which is why mutual funds
that invest in middle capitalization or small capitalization stocks may choose
to use smaller capitalization indices as benchmarks.
NASDAQ COMPOSITE INDEX is a market capitalization price-only index that
reflects the aggregate performance of domestic common stocks traded on the
regular Nasdaq market, as well as national market system-traded foreign common
stocks and American Depositary Receipts. It is considered to represent the
performance of smaller capitalization and growth-oriented U.S. stocks.
Twentieth Century Mutual Funds and The Benham Group are registered service
marks of Twentieth Century Services, Inc. and Benham Management Corporation,
respectively. American Century is a service mark of Twentieth Century
Services, Inc.
1
- --------------------------------------------------------------------------------
OUR MESSAGE TO YOU
The 12 months ended October 31, 1996, was a landmark period for the U.S.
stock market and for Twentieth Century. The market rallied to all-time highs in
late spring and from late summer into fall. The Dow Jones Industrial Average
surpassed 6000 for the first time and the S&P 500 broke through the 700 level.
However, specific stock sector performance varied widely in the volatile market
environment. In the following pages, our investment management team discusses
the extent to which Giftrust participated in the 1996 rally.
[Photo of James E. Stowers and James E. Stowers III]
On the corporate front, we completed the operational integration of
Twentieth Century and The Benham Group in September. As a result, investors now
have direct access to a broader spectrum of funds and services, including the
Benham family of U.S. Treasury, government and municipal funds. Another
integration landmark is the new Twentieth Century Web site. We've made it easier
for investors who use personal computers and have Internet access to download
information about Twentieth Century and Benham funds. The Web site address is:
WWW.TWENTIETH-CENTURY.COM.
In October we announced the new name for our recently integrated company.
Beginning January 1, 1997, we will serve you under the name American Century
Investments, which reflects our expanded identity, the spirit of independence
common to Twentieth Century and Benham, and our optimism for a new century of
continued American prosperity. American Century's fund family will be divided
into three groups -- the Benham Group, the American Century Group and the
Twentieth Century Group. Giftrust will remain in the Twentieth Century Group,
reflecting its continued adherence to the growth style of investing that we have
practiced over the years.
We continue to work to provide you with information and services which we
believe are useful and convenient.
Sincerely,
/s/James E. Stowers /s/James E. Stowers III
James E. Stowers James E. Stowers III
Chairman of the Board and Founder President and Chief Executive Officer
2
- --------------------------------------------------------------------------------
October 31, 1996
PERIOD OVERVIEW
U.S. ECONOMIC ENVIRONMENT
The watchword in the U.S. economy in 1996 year to date (as of October 31)
was uncertainty. Mixed economic signals led to widely varying expectations about
the Federal Reserve's interest rate policy which, in turn, produced considerable
volatility in U.S. capital markets. The year began with recessionary
expectations that caused the Federal Reserve to cut short-term interest rates in
January to boost the economy. Concerns about a slowdown gave way to fears about
higher interest rates and inflation as the economy grew at a
stronger-than-expected 2.2% annual growth rate in the first quarter, then heated
up in the second quarter, expanding at a 4.7% annual rate. Yet these fears
proved premature and inflation anxiety subsided as third quarter economic growth
fell to a 2.0% annual rate.
Despite the growth spurt in the second quarter, inflation has remained tame
throughout the year. For the first 10 months of 1996, inflation (as measured by
the consumer price index) rose at an annualized rate of 3.3%. A strong
correlation has historically existed between low inflation and strong stock
market performance, and that correlation has continued so far in 1996.
U.S. STOCK MARKET ENVIRONMENT
When discussing the U.S. stock market's 1996 performance through October
31, some market analysts have used the terms "risk-averse," "fear-driven" and
"rotational." Those descriptions are best understood by examining stock
investors' general reactions to the market's strong performance in 1995 and the
uncertain economic environment in 1996. U.S. stock market returns in 1995 were
exceptional. The major U.S. stock market indices (the Dow Jones Industrial
Average, the S&P 500 and the Nasdaq Composite Index) each returned over 30% for
the year. After such strong results, many investors feared weaker performance in
1996. These bearish expectations were fueled further by predictions of economic
weakness and slower earnings growth. Then, strong second quarter economic growth
made many stock investors nervous about higher interest rates and inflation,
which can also hurt stock performance.
What we have seen, as a result, is conservative investment behavior in 1996
- -- what analysts refer to as a "flight to quality." Although most investors have
continued to show a willingness to invest in the equity markets, their
nervousness has caused many of them to focus on the largest, most liquid
companies in each stock sector. Market analysts are calling these stocks the new
"Nifty 50," comparing them to the original Nifty 50 (including IBM, General
Motors and AT&T) that existed in the early 1970s. The new Nifty 50 includes S&P
500 companies such as General Electric, Coca-Cola, Gillette, Colgate-Palmolive
and Citibank, as well as Nasdaq companies such as Microsoft and Intel.
3
- --------------------------------------------------------------------------------
PERIOD OVERVIEW
(CONTINUED)
The flight to quality has boosted the performance of these stocks and the
indices of which they are a part. Both the S&P 500 and the Nasdaq Composite
Index were up over 16% year to date as of October 31. But the new Nifty 50
stocks have been among the biggest beneficiaries of this unexpectedly strong
performance. The returns for the shares of medium-sized and small companies have
been lower. As of October 31, the S&P 400 index of medium-sized companies had
returned 13% year to date, and the Russell 2000 index of small company stocks
was up just 9%.
INVESTMENT
PHILOSOPHY
AND POLICIES
The philosophy behind Twentieth Century's growth funds focuses on three
important principles. Chiefly, the funds seek to own successful companies, which
we define as those whose earnings and revenues are growing at accelerating
rates. In addition, we attempt to keep the funds fully invested, regardless of
short-term market activity. Experience has shown that the greatest market gains
occur in unpredictable spurts and that missing even some of those opportunities
may significantly limit potential for gain. Finally, Twentieth Century funds are
managed by teams, rather than by one "star" manager. We believe this allows us
to make better, more consistent management decisions.
In addition to these principles, each of our funds, including Giftrust
Investors, has its own investment policies:
GIFTRUST INVESTORS generally invests in the securities of small companies
with accelerating growth. Shares of Giftrust can only be given as a gift, and
all investments must remain in the fund for a minimum of 10 years or until the
recipient reaches the age of majority, whichever is later. Giftrust is a
volatile investment with high long-term growth potential.
4
- --------------------------------------------------------------------------------
October 31, 1996
INVESTMENT REVIEW
- -----------------
MANAGEMENT Q & A
An interview with Glenn Fogle, a portfolio manager on the Giftrust
Investors management team.
Q: HOW DID THE FUND PERFORM OVER THE YEAR ENDED OCTOBER 31, 1996?
A: Giftrust Investors had a 9.72% total return for the period while the S&P
500 Index showed a total return of 24.03% and the Nasdaq Composite Index
rose 17.90%. The fund's underperformance versus these indices contrasts
with its stronger long-term performance. Its returns were well ahead of the
S&P 500 and Nasdaq for both the five-year and 10-year periods ended October
31, 1996 (see chart on page 6).
Q: WHY DID GIFTRUST UNDERPERFORM THE S&P 500 FOR THE PERIOD?
A: Because 1996 has been a better year for large company stocks in the S&P 500
than for small company stocks in the fund. As we discuss in the Period
Overview on page 3, the U.S. stock market was very volatile during the
period as many investors tried to determine the direction of the economy.
To use a nautical metaphor, when the seas are stormy, many people want to
be on a big boat. In the 1996 stock market, the big boat was large
companies. Investors increasingly shunned smaller companies and previously
obscure stocks in rapidly growing industries. Although these
characteristics may be out of favor at the moment, Giftrust continues to
hold these types of stocks because we think they have the greatest
potential for long-term earnings growth and ultimately for higher
valuations.
Q: WHY DID GIFTRUST UNDERPERFORM THE NASDAQ COMPOSITE INDEX?
A: The Nasdaq is considered a barometer for the stock performance of companies
that are smaller than those in the S&P 500 index, yet the composite is
heavily weighted toward large capitalization companies listed on Nasdaq.
The strong performance of the Nasdaq during the period reflects the
outperformance of some
TOP FIVE INDUSTRIES (as of October 31, 1996)
- --------------------------------------------------------------------------------
% of fund
investments in
% of fund these industries
investments one year ago
Computer Software & Services 23.3% 20.3%
Business Services & Supplies 21.2% 1.6%
Computer Peripherals 9.9% 11.2%
Retail (Specialty) 8.8% --
Communications Equipment 5.1% 4.8%
5
- --------------------------------------------------------------------------------
INVESTMENT REVIEW (CONTINUED)
of its largest component companies, including Cisco Systems, Inc., Oracle
Systems Corp., Intel Corp. and Microsoft Corp. These stocks benefited from the
same factors that boosted the S&P 500 -- many investors were buying larger, more
established companies with relatively predictable earnings. Because Giftrust
tends to invest in smaller companies, it did not benefit from the Nasdaq's large
stock bias. Giftrust also was underweighted in banks and financial stocks, which
comprise a significant portion of
Quick Fund Facts
----------------------------------------
GIFTRUST INVESTORS
----------------------------------------
STRATEGY:
Aggressively seeks growth by investing
in the securities of fast-growing
smaller companies.
INCEPTION DATE: November 25, 1983
SIZE: $866 million
(as of October 31, 1996)
INVESTMENT APPROACH:
Aggressive Growth
TICKER: TWGTX
- ------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
GIFTRUST INVESTORS S&P 500 NASDAQ
6 Months* -3.59% 9.03% 2.60%
1 Year 9.72% 24.03% 17.90%
5 Years 24.31% 15.50% 17.60%
10 Years 21.71% 14.62% 12.97%
*Actual
- ------------------------------------------------------------------------
$10,000 OVER A 10-YEAR PERIOD (as of October 31, 1996)
[mountain graph - data below]
Value on 10/31/96:
- ----------------------------------------------------
Giftrust Investors S&P 500 Nasdaq
$10,000 $10,000 $10,000
$9,598 $10,634 $8,961
$11,162 $12,212 $10,601
$16,723 $15,420 $12,629
$13,414 $14,261 $9,143
$24,019 $19,038 $15,051
$26,499 $20,929 $16,774
$41,299 $24,044 $21,600
$49,043 $24,975 $21,551
$64,990 $31,557 $28,718
$71,307 $39,139 $33,858
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
6
- --------------------------------------------------------------------------------
October 31, 1996
the Nasdaq index. In general, the shares of smaller banking companies
benefited from industry consolidation trends, but we do not think their
growth prospects are generally as strong as those of the companies Giftrust
owned during the period.
Q: CAN YOU GIVE AN EXAMPLE OF A SMALL COMPANY THE MARKET IGNORED DURING THE
PERIOD THAT THE GIFTRUST MANAGEMENT TEAM LIKED?
A: Centocor, Inc. is a good example. Centocor is a biotech company that
introduced a new product with proven clinical benefits and enormous
potential. The product, Reopro, is an anti-coagulant used to keep blood
from clotting during angioplasty, a procedure that clears clogged arteries.
Initially, the market was excited by Reopro and the stock reached $40 a
share on April 30 before dropping to $29 a share at the close of the
period. We think the market price of the stock will eventually reflect the
progress of the company.
Q: HOW HAS THE COMPOSITION OF THE FUND'S PORTFOLIO CHANGED IN THE SIX MONTHS
ENDED OCTOBER 31?
A: At October 31, approximately 44% of the fund was invested in 39 companies
that were first purchased during that six-month period. The majority of
these new names are in computer software and services, computer peripherals
and business services. The fund's weighting in the healthcare and medical
equipment sectors was reduced from a combined 20% to 9% and we increased
holdings in business services companies from 8% of the fund to 18%. The
shift reflects slowing growth in the health maintenance organization
industry and other healthcare stocks in Giftrust relative to the growth we
TOP TEN HOLDINGS (as of October 31, 1996)
- -----------------------------------------------------------------------
% of fund
investments in
% of fund these holdings
investments one year ago
CBT Group Plc ADR 4.8% 1.5%
SystemSoft Corp. 4.2% --
APAC Teleservices, Inc. 4.1% 1.1%
RadiSys Corp. 4.0% --
PMT Services, Inc. 3.4% --
Clarify, Inc. 3.4% --
Transaction Systems Architects, Inc. 3.3% --
U.S. Office Products Co. 3.3% --
ABR Information Services, Inc. 3.2% --
Security Dynamics Technologies Inc. 2.3% 3.2%
7
- ----------------------------------------------------------------------
INVESTMENT REVIEW (CONTINUED)
found in business services and other areas.
Q: HOW HAS GIFTRUST'S TECHNOLOGY POSITION CHANGED FROM A YEAR AGO?
A: It has dropped from 69% of the fund a year ago to 40.6% at October 31,
1996. Whereas semiconductor and related stocks were as much as one-third of
the fund a year ago, all have since been sold. The fund's semi- annual
report discussed an oversupply of semiconductor manufacturing capacity
which prompted that change. As of October 31, 1996, our biggest
concentration within the technology sector was computer software and
services and we believe we are well diversified within those categories. By
that we mean that our holdings offer a wide variety of software products to
customers in many different industries -- utilities, hospitals,
manufacturers and distributors. Generally, these products customize
computer systems to work in a particular business environment.
Q: CAN YOU GIVE SOME EXAMPLES?
A: Giftrust's largest holding at October 31, 1996, was CBT Group Plc. CBT has
partnered with software vendors such as Oracle and Microsoft to develop
computer-based, as opposed to classroom, training for information
technology workers. Clients in essence lease a library of training programs
from CBT. Systemsoft Corp. is another company we added during the period.
It has developed a new product that personal computer (PC) manufacturers
will install in their PCs to analyze system problems. When hardware fails
or software won't run, this utility tests various components to try to
pinpoint the problem before the computer user makes a toll-free call for
help.
Q: WHAT NON-TECHNOLOGY STOCKS PERFORMED WELL DURING THE PERIOD?
A: The Wet Seal, Inc. is a retail stock we bought early this year after it
purchased its primary competitor, Contempo Casuals. The two were the
largest mall-based chains targeting teen-age fashion for girls. We've found
this industry is benefiting from improved demographics while competition
has decreased. There were more than 4,000 fashion stores catering to
teen-age girls in the U.S. in 1991 compared to about 1,000 today.
Q: WHAT CHANGES IN THE MARKET DO YOU SEE GOING FORWARD AND HOW ARE YOU
POSITIONED TO RESPOND TO THOSE CHANGES?
A: The economy appears to be slowing, although a recession does not appear
likely. There seems to be little inflationary pressure, which is good for
both the bond and stock markets. However, weak inflation means a lack of
pricing power in general, which puts pressure on corporate earnings. Our
strategy is to own companies where demand is less sensitive to growth in
the overall economy and where new products or services are being introduced
with limited competition. Historically, that has been an effective
combination for the fund.
8
- --------------------------------------------------------------------------------
SCHEDULE OF
INVESTMENTS October 31, 1996
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS
AEROSPACE & DEFENSE--1.5%
600,000 Wyman-Gordon Co.1 $ 13,125
--------
BIOTECHNOLOGY--4.4%
500,000 Centocor, Inc.1 14,656
400,000 Incyte Pharmaceuticals, Inc.1 16,150
220,000 Martek Biosciences Corp.1 4,703
150,000 Neurex Corp.1+ 2,334
--------
37,843
--------
BUSINESS SERVICES & SUPPLIES--21.2%
400,000 ABR Information Services, Inc.1 27,550
775,000 APAC Teleservices, Inc.1 35,650
400,000 NOVA Corp.1 8,700
1,450,000 PMT Services, Inc.1+ 29,000
310,000 PAREXEL International Corporation1 15,170
94,800 Precision Response Corp.1 3,400
375,000 Romac International, Inc.1 10,922
415,000 Snyder Communications, Inc.1 8,093
138,000 Sykes Enterprises, Inc.1 6,365
250,000 TeleTech Holdings Inc.1 7,891
582,200 Wackenhut Corrections Corp.1 10,771
400,000 Whittman-Hart, Inc.1 18,800
--------
182,312
--------
COMMUNICATIONS EQUIPMENT--5.1%
71,000 Advanced Fibre Communications1 4,069
200,000 Coherent Communications Systems Corp.1 3,912
204,600 NICE-Systems Ltd. ADR1 4,079
550,000 P-COM, Inc.1+ 12,100
140,000 Premisys Communications, Inc.1 6,983
238,500 Proxim, Inc.1 5,486
200,000 Verilink Corp.1 7,100
--------
43,729
--------
COMMUNICATIONS SERVICES--1.4%
480,000 Tel-Save Holdings, Inc.1 11,880
--------
COMPUTER PERIPHERALS--9.9%
350,000 Centennial Technologies, Inc.1 19,468
320,000 Network Appliances, Inc.1 11,080
541,000 RadiSys Corp.1+ 34,523
250,000 Security Dynamics Technologies Inc.1 20,188
--------
85,259
--------
See Notes to Financial Statements
9
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
Computer Software & Services--23.3%
750,000 CBT Group Plc ADR1 $ 41,531
250,000 Ciber, Inc.1 8,781
600,000 Clarify, Inc.1 28,912
100,000 HCIA1 2,800
127,000 i2 Technologies, Inc.1 4,778
225,000 Intelligroup, Inc.1 3,572
200,000 Manugistics Group, Inc.1 8,625
187,500 McAfee Associates, Inc.1+ 8,543
180,000 Remedy Corp.1 8,730
1,295,000 SystemSoft Corp.1+ 36,260
700,000 Transaction Systems Architects, Inc.1 28,700
523,200 Vantive Corp.1 17,266
55,000 XLConnect Solutions Inc.1 1,623
--------
200,121
--------
CONSUMER PRODUCTS--1.6%
875,000 NBTY, Inc.1 13,563
--------
ELECTRICAL & ELECTRONIC COMPONENTS--0.9%
215,000 DSP Communications, Inc.1+ 8,197
--------
ENERGY (PRODUCTION & MARKETING)--0.8%
340,000 Petroleum Securities Australia Ltd. ADR1 6,949
--------
ENERGY (SERVICES)--0.5%
300,000 Hvide Marine, Inc.1 4,406
--------
FINANCIAL SERVICES--1.6%
160,000 RAC Financial Group, Inc.1 9,580
125,000 Southern Pacific Funding Corp.1 3,938
--------
13,518
--------
HEALTHCARE--4.5%
525,000 OccuSystems, Inc.1+ 14,470
225,000 Pediatrix Medical Group Inc.1 8,859
200,000 Total Renal Care Holdings, Inc.1 7,800
250,000 United Dental Care, Inc.1 7,563
--------
38,692
--------
LEISURE--2.7%
250,000 Imax Corporation ADR1 8,969
437,500 Studio Plus Hotels, Inc.1+ 7,793
300,000 Suburban Lodges of America, Inc.1 6,375
--------
23,137
--------
MEDICAL EQUIPMENT & SUPPLIES--3.6%
375,000 ESC Medical Systems Ltd. ADR1 10,406
100,000 Hologic, Inc.1+ 2,294
775,000 Neuromedical Systems, Inc.1 13,127
190,000 Spine-Tech, Inc.1 4,750
--------
30,577
--------
See Notes to Financial Statements
10
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares/Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
PHARMACEUTICALS--1.7%
540,000 Capstone Pharmacy Services, Inc.1 $ 6,311
275,000 NCS HealthCare, Inc.1 8,353
--------
14,664
--------
RETAIL (SPECIALTY)--8.8%
180,000 Finish Line, Inc.1 7,650
300,000 Gadzooks, Inc.1 8,775
270,000 MSC Industrial Direct Co., Inc.1 9,990
315,000 Pacific Sunwear of California1 7,048
975,000 U.S. Office Products Co.1+ 28,031
300,000 Wet Seal, Inc. (The) Cl A1+ 9,394
240,000 Wilmar Industries, Inc.1 5,190
--------
76,078
--------
MISCELLANEOUS--0.3%
150,000 Andrx Corp.1 2,081
20,000 Northland Cranberries, Inc. 378
--------
2,459
--------
TOTAL COMMON STOCKS--93.8% 806,509
(Cost $609,902) --------
TEMPORARY CASH INVESTMENTS*
$15,000 par value FNMA Discount Note, 5.21%, 11-29-96 14,939
Repurchase Agreement, Merrill Lynch & Co., Inc.,
(U.S. Treasury obligations), in a joint trading
account at 5.50%, dated 10-31-96, due 11-1-96
(Delivery value $38,606) 38,600
--------
TOTAL TEMPORARY CASH INVESTMENTS--6.2% 53,539
(Cost $53,539) --------
TOTAL INVESTMENT SECURITIES--100.0% $860,048
(Cost $663,441) ========
Notes to schedule of investments
ADR = American Depositary Receipt
FNMA = Federal National Mortgage Association
1 Non-income producing
+ Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as defined in the
Investment Company Act of 1940. See Note 4 in Notes to Financial Statements
for a summary of transactions for each issuer who is or was an affiliate at
or during the year ended October 31, 1996.
* The rates for U.S. Government Agency discount notes are the yield to
maturity at purchase.
See Notes to Financial Statements
11
- --------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
October 31, 1996
($ In Thousands,
Except Per-Share
Amounts)
ASSETS
Investment securities, at value (identified
cost of $663,441) (Notes 3 and 4)...............................$860,048
Cash ................................................................ 455
Receivable for investments sold...................................... 14,036
Dividends and interest receivable.................................... 8
--------
874,547
--------
LIABILITIES
Disbursements in excess of demand
deposit cash.................................................... 79
Payable for investments purchased.................................... 7,958
Payable for capital shares redeemed.................................. 1
Accrued management fees (Note 2)..................................... 758
Other liabilities.................................................... 1
--------
8,797
--------
NET ASSETS APPLICABLE
TO OUTSTANDING SHARES................................................$865,750
========
Capital Shares, $.01 par value
(In thousands)
Authorized........................................................... 200,000
========
Outstanding.......................................................... 33,572
========
NET ASSET VALUE PER SHARE $ 25.79
========
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)..............................$643,202
Accumulated undistributed net realized
gain from investment transactions............................... 25,941
Net unrealized appreciation on
investments (Note 3)........................................... 196,607
--------
$865,750
========
See Notes to Financial Statements
12
- --------------------------------------------------------------------------------
STATEMENT
OF OPERATIONS
Year ended October 31, 1996
($ In Thousands)
INVESTMENT INCOME (Loss)
Income:
Interest.......................................................... $ 1,413
Dividends......................................................... 18
-------
1,431
-------
Expenses:
Management fees (Note 2).......................................... 7,162
Directors' fees and expenses...................................... 8
-------
7,170
-------
NET INVESTMENT (LOSS).................................................. (5,739)
-------
REALIZED AND UNREALIZED GAIN (Note 3)
Net realized gain during the year on investments....................... 25,992
Change in net unrealized appreciation
during the year on investments.................................... 51,469
--------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS....................................................... 77,461
-------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.............................................. $71,722
=======
See Notes to Financial Statements
13
- ------------------------------------------------------------------------
STATEMENTS OF
CHANGES IN NET ASSETS
Years Ended October 31, 1996 and October 31, 1995
1996 1995
-------- --------
INCREASE (DECREASE) IN NET ASSETS
($ In Thousands)
OPERATIONS
Net investment (loss)................................... $ (5,739) $ (2,756)
Net realized gain on investments........................ 25,992 50,818
Change in net unrealized appreciation
on investments..................................... 51,469 66,656
-------- --------
Net increase in net assets
resulting from operations.......................... 71,722 114,718
-------- --------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains
from investment transactions....................... (48,106) (14,781)
-------- --------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................... 242,811 183,953
Proceeds from reinvestment of distributions............. 48,106 14,781
Payments for shares redeemed............................ (9,895) (3,160)
-------- --------
Net increase in net assets from capital
share transactions................................. 281,022 195,574
-------- --------
NET INCREASE IN NET ASSETS.............................. 304,638 295,511
NET ASSETS
Beginning of year....................................... 561,112 265,601
-------- --------
End of year............................................. $865,750 $561,112
======== ========
TRANSACTIONS IN SHARES OF THE FUND:
(In thousands)
Sold ................................................... 10,014 8,277
Issued in reinvestment of distributions................. 2,075 816
Redeemed................................................ (413) (153)
-------- --------
Net increase ........................................... 11,676 8,940
======== ========
See Notes to Financial Statements
14
- ------------------------------------------------------------------------
NOTES TO
FINANCIAL STATEMENTS October 31, 1996
1. Organization and Summary of Significant Accounting Policies
Organization--
Twentieth Century Investors, Inc. (the Corporation) is registered under the
Investment Company Act of 1940 as an open-end diversified management investment
company. Giftrust (the Fund) is one of the sixteen series of funds issued by the
Corporation. The Fund's investment objective is to seek capital growth by
investing primarily in common stocks. The following significant accounting
policies, related to the Fund, are in accordance with accounting policies
generally accepted in the investment company industry.
Security Valuations--
Portfolio securities traded primarily on a principal securities exchange
are valued at the last reported sales price, or the mean of the latest bid and
asked prices where no last sales price is available. Securities traded
over-the-counter are valued at the mean of the latest bid and asked prices or,
in the case of certain foreign securities, at the last reported sales price.
When valuations are not readily available, securities are valued at fair value
as determined in accordance with procedures adopted by the board of directors.
Security Transactions--
Security transactions are accounted for on the date purchased or sold. Net
realized gains and losses are determined on the identified cost basis, which is
also used for federal income tax purposes.
Investment Income--
Dividend income less foreign taxes withheld (if any) is recorded as of the
ex-dividend date. Interest income is recognized on the accrual basis and
includes amortization of discounts and premiums.
Repurchase Agreements--
The Fund may enter into repurchase agreements with institutions that the
Fund's investment manager, Investors Research Corporation (IRC), has determined
are creditworthy pursuant to criteria adopted by the board of directors. Each
repurchase agreement is recorded at cost. The Fund requires that the securities
purchased 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. IRC monitors, on a daily basis, the
value of the securities transferred to ensure that the value, including accrued
interest, of the securities under each repurchase agreement is equal to or
greater than amounts owed to the Fund under each repurchase agreement.
15
- ------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
1. Organization and Summary of Significant Accounting Policies
(continued)
Joint Trading Account--
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies having
management agreements with IRC, may transfer uninvested cash balances into a
joint trading account. These balances are invested in one or more repurchase
agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status--
It is the policy of the Fund to distribute all taxable income and capital
gains to shareholders and to otherwise qualify as a regulated investment company
under provisions of the Internal Revenue Code. Accordingly, no provision has
been made for federal income taxes.
Distributions to Shareholders--
Distributions to shareholders are recorded on the ex-dividend date.
Distributions from net investment income and net realized gains are declared and
paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences are primarily due to differing
treatments for wash sales.
Supplementary Information--
Certain officers and directors of the Corporation are also officers and/or
directors, and, as a group, controlling stockholders of Twentieth Century
Companies, Inc., the parent of the Corporation's investment manager, IRC.
Use of Estimates--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
16
2. Transactions with Related Parties
The Corporation has entered into a Management Agreement with IRC that
provides the Fund with investment advisory and management services in exchange
for a single, unified fee. The Agreement provides that all expenses of the Fund,
except brokerage commissions, taxes, interest, expenses of those directors who
are not considered "interested persons" as defined in the Investment Company Act
of 1940 (including counsel fees) and extraordinary expenses, will be paid by
IRC. The fee is computed daily and paid monthly based on the Fund's average
daily closing net assets during the previous month. The annual management fee
for the Fund is 1%.
3. Investment Transactions
Purchases and sales of common stock for the year ended October 31, 1996,
were $1,074,713,052 and $857,783,982, respectively. On October 31, 1996,
accumulated net unrealized appreciation on investments, based on the aggregate
cost of investments of $664,498,342 for federal income tax purposes, was
$195,549,383, consisting of unrealized appreciation of $215,853,452 and
unrealized depreciation of $20,304,069.
(CONTINUED ON NEXT PAGE)
17
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
4. Affiliated Company Transactions
A summary of transactions for each issuer who is or was an affiliate at or
during the year ended October 31, 1996, follows:
SHARE
BALANCE PURCHASE
ISSUER+ 10-31-95 COST
- ------------------------- --------- --------
--($ In Thousands)--
Applied Materials, Inc. 220,000 $ 1,985
Asyst Technologies, Inc. 330,000 --
Atmel Corp. 440,000 7,146
Bio-Vascular, Inc. 500,000 --
Brooks Automation, Inc. 475,000 --
Cascade Communications -- 7,476
Cirrus Logic, Inc. 200,000 --
Cyberoptics Corporation 425,000 1,794
DSP Communications, Inc. 300,000 --
Data Translation, Inc. 500,000 --
Hologic, Inc. -- 13,321
Hummingbird
Communications Ltd. ADR 350,000 --
McAfee Associates, Inc. 125,000 5,538
Neurex Corp. -- 10,373
OccuSystems, Inc. 250,000 7,717
P-COM, Inc. -- 13,137
PMT Services, Inc. -- 24,610
Pinnacle Systems, Inc. 440,000
Pri Automation, Inc. 350,000 --
RadiSys Corp. -- 23,889
Rent-Way, Inc. 262,500 --
ResMed, Inc. 375,000 --
Robotic Visions Systems, Inc. 700,000 --
Semtech Corporation 230,000 --
Shiva Corp. 250,000 1,315
Studio Plus Hotels, Inc. 300,000 2,525
Sun Microsystems, Inc. -- 8,991
SystemSoft Corp. -- 26,290
Teltrend, Inc. -- 13,804
Tencor Instruments 480,000 --
U.S. Office Products Co. -- 27,693
Ultratech Stepper, Inc. 450,000 1,501
Wet Seal, Inc. (The) Cl A -- 18,283
--------
$217,388
========
* Includes adjustments for shares received from stock split and/or stock spinoff
during the year.
+ None of the securities produced income during period held.
18
- ------------------------------------------------------------------------
OCTOBER 31, 1996
REALIZED ---------------------------
SALES GAIN SHARE MARKET
COST (LOSS) BALANCE VALUE
------- -------- --------- --------
--------------------($ In Thousands)-------------------------
$ 14,301 $(5,006) -- --
11,874 (3,315) -- --
11,207 8,169 -- --
8,188 (3,738) -- --
6,920 (1,224) -- --
7,476 651 -- --
9,862 (4,077) -- --
12,327 (1,191) -- --
4,191 7,223 215,000 * $ 8,197
7,250 3,173 -- --
9,865 2,838 100,000 * 2,294
11,977 1,215 -- --
7,223 7,568 187,500 * 8,543
7,951 (1,280) 150,000 2,334
-- -- 525,000 14,470
-- -- 550,000 12,100
-- -- 1,450,000 * 29,000
9,294 2,229 -- --
8,778 (1,401) -- --
-- -- 541,000 34,523
2,573 (500) -- --
4,108 214 -- --
10,493 390 -- --
3,787 1,118 -- --
11,031 15,486 -- --
2,703 216 437,500 * 7,793
8,991 242 -- --
-- -- 1,295,000 * 36,260
13,804 (26) -- --
5,163 3,927 -- --
-- -- 975,000 28,031
6,385 3,015 -- --
10,401 5,237 300,000 9,394
-------- ------- --------
$228,123 $41,153 $192,939
======== ======= ========
19
- ------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
GIFTRUST INVESTORS
--------------------------------------------------
Years ended October 31,
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------
NET ASSET VALUE,
<S> <C> <C> <C> <C> <C>
BEGINNING OF PERIOD................... $25.63 $20.50 $19.23 $13.57 $12.94
------ ------ ------ ------ ------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment (Loss)................. (.20)1 (.16)1 (.10) (.09) (.08)
Net Realized
and Unrealized
Gains ................................ 2.46 6.37 3.28 7.18 1.41
------ ------ ------ ------ ------
Total from
Investment Operations................. 2.26 6.21 3.18 7.09 1.33
------ ------ ------ ------ ------
DISTRIBUTIONS
From Net Realized
Gains on Investment
Transactions.......................... (2.10) (1.085) (1.911) (1.425) (.697)
In Excess of Net
Realized Gains........................ -- -- -- (.007) --
------ ------ ------ ------ ------
Total Distributions................... (2.10) (1.085) (1.911) (1.432) (.697)
------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD......................... $25.79 $25.63 $20.50 $19.23 $13.57
====== ====== ====== ====== ======
TOTAL RETURN2.................... 9.72% 32.52% 18.75% 55.84% 10.32%
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to
Average Net Assets.................... .98% .98% 1.00% 1.00% 1.00%
Ratio of Net Investment
(Loss) to Average
Net Assets............................ (.8%) (.7%) (.7%) (.7%) (.7%)
Portfolio Turnover Rate............... 121% 105% 115% 143% 134%
Average Commission
Paid per Share Traded................. $.0230 $.0260 --3 --3 --3
Net Assets, End
of Period (in millions)............... $866 $561 $266 $154 $78
1 Computed using average shares outstanding throughout the period.
2 Total return assumes reinvestment of dividends and capital gains
distributions, if any.
3 Disclosure of average commission paid per share was not required prior to
the year ended October 31, 1995.
</TABLE>
See Notes to Financial Statements
20
- ------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS' REPORT
The Shareholders and Board of Directors
Twentieth Century Investors, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Giftrust Investors (one of the sixteen
funds comprising TWENTIETH CENTURY INVESTORS, INC.) as of October 31, 1996, and
the related statement of operations, the statements of changes in net assets,
and the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and brokers. As to
securities purchased but not received, we requested confirmations from brokers,
and when replies were not received, we performed alternative auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Giftrust Investors, as of October 31, 1996, and the results of its operations,
changes in its net assets, and the financial highlights for each of the periods
indicated in conformity with generally accepted accounting principles.
/s/Baird, Kurtz & Dobson
BAIRD, KURTZ & DOBSON
Kansas City, Missouri
November 20, 1996
21
TWENTIETH CENTURY INVESTORS, INC.
INVESTMENT MANAGER
INVESTORS RESEARCH CORPORATION
KANSAS CITY, MISSOURI
THIS REPORT AND THE FINANCIAL 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.
TWENTIETH CENTURY SECURITIES, INC.
Twentieth Century Mutual Funds
and The Benham Group
- ------------------------------------------
P.O. BOX 419200
KANSAS CITY, MISSOURI
64141-6200
- ------------------------------------------
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
- ------------------------------------------
Automated information line:
1-800-345-8765
- ------------------------------------------
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
- ------------------------------------------
Fax: 816-340-7962
- ------------------------------------------
SH-BKT-6909 [recycled logo]
9612 Recycled
TWENTIETH CENTURY
Balanced
Annual Report
OCTOBER 31,
1996
--------------------------------------------------------------
TWENTIETH CENTURY INVESTORS, INC.
[front cover]
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Our Message to You....................................................1
Background Information................................................2
Period Overview.......................................................3
Investment Review.....................................................4
Schedule of Investments...............................................7
Statement of Assets and Liabilities..................................11
Statement of Operations..............................................12
Statements of Changes in Net Assets..................................13
Notes to Financial Statements........................................14
Financial Highlights.................................................17
Independent Accountants' Report......................................18
Twentieth Century Mutual Funds and The Benham Group are registered service marks
of Twentieth Century Services, Inc. and Benham Management Corporation,
respectively. American Century is a service mark of Twentieth Century Services,
Inc.
[inside front cover]
- --------------------------------------------------------------------------------
October 31, 1996
OUR MESSAGE TO YOU
The 12 months ended October 31, 1996, was a landmark period for the U.S.
stock market and for Twentieth Century. The stock market rallied to all-time
highs in late spring and from late summer into early fall. The Dow Jones
Industrial Average surpassed 6000 for the first time and the S&P 500 broke
through the 700 level. Stock returns for the period eclipsed bond returns, but
after a rocky period during the first half of 1996, bonds enjoyed a rebound in
October. In the following pages, our investment management team discusses how
Balanced Investors participated in the 1996 stock rally and the bond rebound.
The team also discusses a management and strategy shift for the fund's stock
portfolio.
[Photo of James E. Stowers and James E. Stowers III]
On the corporate front, we completed the operational integration of
Twentieth Century and The Benham Group in September. As a result, you now have
direct access to a broader spectrum of funds and services, including the Benham
family of U.S. Treasury, government and municipal funds. Another integration
landmark is the new Twentieth Century Web site. If you use a personal computer
and have Internet access, we've made it easier for you to download information
about Twentieth Century and Benham funds and, with your personal access code, to
access your fund accounts. You can view account balances, exchange money between
existing accounts and make additional investments. The Web site address is:
www.twentieth-century.com. We are one of the first fund companies to offer
direct on-line transactions via the Internet.
In October we announced the new name for our recently integrated company.
Beginning January 1, 1997, we will serve you under the name American Century
Investments, which reflects our expanded identity, the spirit of independence
common to Twentieth Century and Benham, and our optimism for a new century of
continued American prosperity. American Century's fund family will be divided
into three groups -- the Benham Group, the American Century Group and the
Twentieth Century Group. Balanced will be part of the American Century Group
because the fund's investment approach -- long-term growth with less volatility
than our other growth funds -- puts it in the middle group of our investment
offerings, between generally more conservative Benham funds and aggressive
Twentieth Century funds.
You may have noticed that this annual report covers only Balanced, whereas
in the past it covered six funds. This new focused format allows us to give you
better information by tailoring the report specifically to the issues that are
most relevant to the investors in Balanced.
We continue to work to provide you with information and services we think
are useful and convenient. Thank you for investing with us.
Sincerely,
/s/James E. Stowers /s/James E. Stowers III
James E. Stowers James E. Stowers III
Chairman of the Board and Founder President and Chief Executive Officer
1
- --------------------------------------------------------------------------------
BACKGROUND INFORMATION
Balanced Investors seeks to provide long-term growth with less volatility
than Twentieth Century Group growth funds. The fund keeps about 60% of its
assets in the stocks of firms with accelerating growth rates. Under normal
market conditions, the remaining assets are held in quality, intermediate-term
bonds.
The fund's investment philosophy focuses on four important principles:
o We attempt to keep the fund fully invested at all times, regardless of
short-term market activity. Experience has shown that market gains can
occur in unpredictable spurts and that missing even some of those
opportunities may significantly limit potential for gain.
o For the stock portfolio, the management team seeks to own highly successful
companies, which we define as those whose earnings and revenues are growing
at accelerating rates.
o For the bond portfolio, "quality first" is the rule. The management team
seeks only investment-grade bonds -- those rated in the top four quality
categories by nationally recognized statistical organizations.
o Each portfolio is managed by a team, rather than by one "star" manager. We
believe this allows us to make better, more consistent management
decisions.
PORTFOLIO MANAGERS
Stock Portfolio: Jim Stowers III, Bruce Wimberly
Bond Portfolio: Bud Hoops, Jeff Houston
Indices used for performance comparisons - None are investment products
available for purchase.
The S&P 500 Index is an index created by Standard & Poor's Corporation that is
considered to represent the performance of the U.S. stock market generally. The
index, however, has a large capitalization bias, which is why mutual funds that
invest in middle capitalization or small capitalization stocks may choose to use
smaller capitalization indices as benchmarks.
Nasdaq Composite Index is a market capitalization price-only index that reflects
the aggregate performance of domestic common stocks traded on the regular Nasdaq
market, as well as national market system-traded foreign common stocks and
American Depositary Receipts. It is considered to represent the performance of
smaller capitalization and growth-oriented U.S. stocks.
2
- --------------------------------------------------------------------------------
October 31, 1996
PERIOD OVERVIEW
U.S. STOCK ENVIRONMENT
When discussing the U.S. stock market's 1996 performance year to date (as
of October 31), some market analysts have used the terms "risk-averse,"
"fear-driven" and "rotational." Those descriptions are best understood by
examining the general reaction to the market's strong performance in 1995 and
the uncertain economic environment in 1996. U.S. stock market returns in 1995
were exceptional. The major U.S. stock market indices (the Dow Jones Industrial
Average, the S&P 500 and the Nasdaq Composite Index) each returned over 30% for
the year. After such strong results, many investors feared weaker performance in
1996. These bearish expectations were fueled further by predictions of economic
weakness and slower earnings growth. Then, strong second quarter economic growth
made many stock investors nervous about higher interest rates and inflation,
which can also hurt stock performance.
What we have seen, as a result, is conservative investment behavior in 1996
- -- what analysts refer to as a "flight to quality." Although most investors have
continued to show a willingness to invest in the equity markets, their
nervousness has caused many of them to focus on the largest, most liquid
companies in each stock sector. Market analysts are calling these stocks the new
"Nifty 50," comparing them to the original Nifty 50 (including IBM, General
Motors and AT&T) that existed in the early 1970s. The new Nifty 50 includes S&P
500 companies such as General Electric, Coca-Cola, Gillette, Colgate-Palmolive
and Citibank, as well as Nasdaq companies such as Microsoft and Intel.
The flight to quality has boosted the performance of these stocks and the
indices of which they are a part. Both the S&P 500 and the Nasdaq Composite
Index were up over 16% year to date as of October 31. But the new Nifty 50
stocks have been some of the biggest beneficiaries of this unexpectedly strong
performance. The returns for the shares of medium-sized and small companies have
been lower. As of October 31, the S&P 400 index of medium-sized companies had
returned 13% year to date, and the Russell 2000 index of small company stocks
was up just 9%.
U.S. ECONOMIC AND BOND ENVIRONMENT
The watchword in the U.S. economy and the U.S. bond market for the period
was uncertainty. Mixed economic signals led to widely varying expectations about
the Federal Reserve's interest rate policy which, in turn, produced considerable
volatility in U.S. capital markets. The year began with recessionary
expectations that caused the Federal Reserve to cut short-term interest rates in
January to boost the economy. Concerns about a slowdown gave way to fears about
higher interest rates and inflation as the economy grew at a
stronger-than-expected 2.2% annual growth rate in the first quarter, then heated
up in the second quarter, expanding at a 4.7% annual rate. Yet these fears
proved premature and inflation anxiety subsided as third quarter economic growth
fell to a 2.0% annual rate.
Despite the growth spurt in the second quarter, inflation has remained tame
throughout the year. For the first 10 months of 1996, inflation (as measured by
the consumer price index) rose at an annualized rate of 3.3%.
In spite of generally good inflation news as the period ended, it was a
lackluster year for bonds because of earlier economic uncertainty, the breakdown
of federal budget deficit reduction discussions and inflation scares. Inflation
fears in the first and second quarters pushed the benchmark 30-year U.S.
Treasury bond yield from 5.94% at the beginning of the year to almost 7.20% in
June and July. As bond yields rose, bond prices fell, and many bonds had
negative total returns until the market rallied in October. That's when signs of
economic weakness and the likelihood of the Republican Party maintaining control
of Congress helped the 30-year Treasury bond yield ease back to 6.64% on October
31. Despite the volatility in the market, intermediate-term U.S. bonds achieved
total returns in the 5% to 7% range for the period.
3
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
Management Q & A
An interview with Bruce Wimberly and Jeff Houston, portfolio managers on
the Balanced Investors management team.
Q: HOW DID THE FUND PERFORM?
A: For the year ended October 31, 1996, the fund's total return was 14.04%, a
blend of the performance of the fund's stock portfolio (approximately 60%
of the fund) and its bond portfolio (approximately 40%). As we discussed in
the Period Overview on page 3, 1996 has been good for stocks and lackluster
for bonds. The performance of the fund's stock and bond portfolios
reflected the performance of U.S. stocks and bonds in general.
Q: HOW DID THE FUND'S STOCK PORTFOLIO PERFORM?
A: The benchmark for the fund's stock portfolio is the S&P 500, and we stayed
within range of that tar-
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (as of October 31, 1996)
Balanced Investors S&P 500
--------------- ---------------
6 Months* 8.15% 9.03%
1 Year 14.04% 24.03%
5 Years 8.50% 15.50%
Inception 12.21% 15.41%
(10/20/88 to 10/31/96)
*Actual cumulative return
- --------------------------------------------------------------------------------
$10,000 OVER LIFE OF FUND (as of October 31, 1996)
[mountain graph - data below]
Value on 10/31/96
- -----------------
DATE BALANCED INVESTORS S&P 500
--------- --------------------------------------------
10/20/88 $10,000 $10,000
10/31/89 $11,989 $12,453
10/31/90 $11,736 $11,516
10/31/91 $16,775 $15,374
10/31/92 $16,882 $16,901
10/31/93 $19,186 $19,417
10/31/94 $19,008 $20,168
10/31/95 $22,118 $25,484
10/31/96 $25,224 $31,607
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
Quick
Fund
Facts
----------------
BALANCED
INVESTORS
----------------
STRATEGY:
A mix of
growth stocks and
intermediate-term bonds,
with approximately
60% allocated to
stocks.
INCEPTION DATE:
October 20, 1988
SIZE:
$879 million
(as of October 31, 1996)
INVESTMENT APPROACH:
Balanced
TICKER:
TWBIX
4
- --------------------------------------------------------------------------------
October 31, 1996
INVESTMENT REVIEW
get. For the year ended October 31, 1996, the stock portfolio produced a
total return of 20.08% while the S&P 500's total return was 24.03%. For the
six months ended October 31, the stock portfolio outperformed the S&P 500,
10.38% to 9.03%.
Q: WHAT FACTORS HAD A FAVORABLE IMPACT ON THE PERFORMANCE OF THE FUND'S STOCK
PORTFOLIO?
A: From late 1995 through the first quarter of 1996, the fund built a
significant position in energy stocks, which generated strong returns in
1996 as oil prices rose. We especially liked oil exploration companies that
we expected to benefit from the continuing demand for new oil supplies.
Examples include Global Marine and Falcon Drilling. Banks have been another
good story in 1996. In addition to the merger and acquisition activity that
boosted valuations, banks have improved their operating efficiencies. With
the widespread acceptance and use of automated teller machines and the
increasing use of on-line banking over the Internet, banks have lowered
their cost structures. Citicorp is a good example of a bank stock that
performed well for the fund.
Q: WHAT FACTORS HAD A NEGATIVE IMPACT ON THE PERFORMANCE OF THE FUND'S STOCK
PORTFOLIO?
A: Technology stocks experienced significant declines from November to January
and again in June due to sporadic earnings disappointments and concerns
about weakening demand and pricing for computers, semiconductor chips and
software. The fund's worst-performing holdings were almost entirely in the
technology category, including Intuit, Texas Instruments, Compaq Computer,
Electronic Arts and Lattice Semiconductor.
Q: WHAT SIGNIFICANT CHANGES, IF ANY, DID YOU MAKE TO THE FUND'S STOCK
PORTFOLIO SINCE THE SEMIANNUAL REPORT?
A: The most significant change was in the fund's management team. In October,
in an effort to improve the performance of the stock portfolio, Twentieth
Century's Ultra Investors team assumed responsibility for the portfolio.
While we will continue to follow Twentieth Century's growth-oriented
investment approach, we'll also be raising somewhat the fund's ownership of
more rapidly growing mid-sized firms. This blending of smaller,
faster-growing companies with the fund's traditional holdings of larger,
blue-chip firms is one important way we expect to enhance returns. Another
way is by working to improve our stock selection effectiveness.
Q: WHAT SIGNIFICANT CHANGES HAS THE NEW TEAM MADE TO THE STOCK PORTFOLIO SINCE
OCTOBER 1?
A: To improve the fund's diversification we have reduced its holdings in
energy and retail stocks.
TOP FIVE INDUSTRIES (as of October 31, 1996)
- --------------------------------------------------------------------------------
% of fund's equity
investments in
% of fund's these holdings
equity investments one year ago
Pharmaceuticals 15.9% 3.4%
Computer Software & Services 15.3% 10.3%
Aerospace & Defense 9.2% 4.8%
Energy (Services) 6.2% 2.2%
Banking 6.0% 4.5%
TOP TEN STOCK HOLDINGS (as of October 31, 1996)
- --------------------------------------------------------------------------------
% of fund's equity
investments in
% of fund's these holdings
equity investments one year ago
Intel Corp. 4.3% 2.3%
HFS, Inc. 4.2% 1.6%
Global Marine Inc. 3.5% --
Boeing Co. 3.5% 1.2%
NIKE, Inc. 3.5% 2.1%
Johnson & Johnson 3.2% 0.8%
Oracle Systems Corp. 3.2% 2.3%
Falcon Drilling Company, Inc. 3.0% --
Parametric Technology Corp. 3.0% --
United Technologies Corp. 2.9% 1.3%
5
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
Those securities gave a significant boost to performance in 1996, but their
appreciation caused the fund to become too concentrated in those sectors. We've
also been selectively trimming holdings in cyclical stocks, such as equipment
makers and auto producers. We want companies with more consistent earnings
profiles whose performance isn't so dependent upon economic cycles. To that end,
we've added the stocks of companies in sectors that we expect to produce steady
results, such as healthcare, waste management and hotel/lodging.
Q: HOW DID THE FUND'S BOND PORTFOLIO PERFORM?
A: We invest the bond portfolio in intermediate-term bonds to offset the
volatility in the fund's stock portfolio. For the year ended October 31,
1996, the bond portfolio produced a total return of 5.18%, which kept pace
with intermediate-term bonds in general. For the same period, the total
return of a broad intermediate-term U.S. bond market index (the Lehman
Intermediate Government/Corporate Index*) was 5.81%. As we discussed in the
Period Overview, economic uncertainty, the breakdown of federal budget
deficit reduction talks and inflation fears made this a difficult year for
bonds.
Q: WHAT SIGNIFICANT CHANGES, IF ANY, DID YOU MAKE TO THE FUND'S BOND PORTFOLIO
SINCE THE SEMIANNUAL REPORT?
A: We assigned a higher allocation to mortgage- and asset-backed securities.
We nudged corporates down from 57% to 53%, boosted mortgage- and
asset-backed securities from 8% to 15% and cut Treasuries from 30% to 25%.
Mortgage- and asset-backed securities were priced relatively attractively
during the period, while improving credit quality caused corporates to
become relatively expensive.
Q: HOW WOULD YOU DESCRIBE THE BOND PORTFOLIO'S CURRENT POSITION AND YOUR
OUTLOOK?
A: The bond market appeared to hit bottom during early September and the
fund's holdings enjoyed a fall rally. We think the rally could continue in
1997 if slow-to-moderate economic growth and low inflation persist and the
government makes meaningful progress on fiscal reform. We plan to continue
to monitor the economic data to assure that our outlook remains consistent
with broader economic trends.
Quality Diversification (as of October 31, 1996)
- -----------------------------------------------------------------------------
(Moody's ratings) % of fixed income investments
AAA 40%
AA 7%
A 37%
BBB 16%
-----
100%
Weighted Average Maturity (as of October 31, 1996)
- -----------------------------------------------------------------------------
6.1 Years
Average years to maturity indicates the average time until the principal on the
Fund's bond portfolio is expected to be repaid, weighted by dollar amount.
Duration (as of October 31, 1996)
- -----------------------------------------------------------------------------
3.9 Years
Duration is a measure of the sensitivity of a portfolio to changes in interest
rates. As the duration of a fund increases, the impact of a change in interest
rates on the value of its portfolio also increases.
*The Lehman Intermediate Government/Corporate Index reflects the price
fluctuations of U.S. Treasury and government agency securities, corporate bonds
and Yankee bonds with one- to 10-year maturities.
Balanced Investors' schedule of investments begins on page 7.
6
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS OCTOBER 31, 1996
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS
Advertising -- 0.1%
40,000 Lamar Advertising Co.(1) $ 1,095
----------
Aerospace & Defense -- 5.4%
151,600 BE Aerospace, Inc.(1) 3,278
187,000 Boeing Co. 17,835
125,000 Lockheed Martin Corp. 11,203
113,000 United Technologies Corp. 14,549
----------
46,865
----------
Banking -- 3.5%
105,000 BankAmerica Corp. 9,607
112,360 Chase Manhattan Corp. 9,635
115,000 Citicorp 11,385
----------
30,627
----------
Biotechnology -- 0.5%
65,000 Amgen Inc.(1) 3,985
----------
Broadcasting -- 1.5%
242,500 SFX Broadcasting, Inc. Cl A(1) 10,397
79,200 Univision Communications Inc.(1) 2,673
----------
13,070
----------
Chemicals & Resins -- 1.9%
5,300 Ciba-Geigy AG ORD 6,509
240,000 Monsanto Co. 9,510
----------
16,019
----------
Communications Equipment -- 1.5%
200,000 U.S. Robotics Corp.(1++) 12,588
----------
Communications Services -- 0.3%
52,200 Mastec, Inc.(1) 2,535
----------
Computer Software & Services -- 9.0%
220,000 American Management System, Inc.(1) 6,985
115,000 BMC Software, Inc.(1++) 9,531
220,100 Cambridge Technology Partners, Inc.(1) 7,236
125,000 Computer Associates International, Inc. 7,391
60,000 Compuware Corp.(1) 3,180
50,000 Electronics for Imaging, Inc.(1) 3,600
105,293 First Data Corp. 8,397
380,000 Oracle Systems Corp.(1) 16,079
315,000 Parametric Technology Corp.(1) 15,376
----------
77,775
----------
- --------------------------------------------------------------------------------
Shares Value
($ In Thousands)
- --------------------------------------------------------------------------------
Computer Systems -- 1.5%
84,200 Saville Systems Ireland plc ADR(1) $ 3,626
150,000 Sun Microsystems, Inc.(1++) 9,141
----------
12,767
----------
Diversified Companies -- 2.1%
172,100 Flowers Industries, Inc. 4,023
150,000 General Electric Co. 14,512
----------
18,535
----------
Electrical & Electronic Components -- 2.9%
200,000 Intel Corp. 21,962
70,000 Uniphase Corp.(1) 3,334
----------
25,296
----------
Energy (Production & Marketing) -- 3.3%
300,000 American Power Conversion Corp.(1) 6,356
975,000 Global Marine Inc.(1) 17,916
80,000 Sonat Inc. 3,940
----------
28,212
----------
Energy (Services) -- 3.6%
205,000 Diamond Offshore Drilling, Inc.(1) 12,479
435,000 Falcon Drilling Company, Inc.(1) 15,442
60,000 Halliburton Co. 3,397
----------
31,318
----------
Environmental Services -- 0.5%
150,000 Republic Industries, Inc.(1) 4,659
----------
Healthcare -- 1.1%
120,000 Cardinal Health, Inc. 9,420
----------
Leisure -- 3.2%
290,000 HFS, Inc.(1) 21,242
200,000 Promus Companies Inc.(1) 6,350
----------
27,592
----------
Pharmaceuticals -- 9.4%
200,000 American Home Products Corp. 12,250
330,000 Johnson & Johnson 16,252
170,000 Lilly (Eli) & Co. 11,985
160,000 Merck & Co., Inc. 11,860
170,000 Pfizer, Inc. 14,068
414,995 U.S. Bioscience, Inc.(1) 4,772
150,000 Warner-Lambert Co. 9,544
----------
80,731
----------
See Notes to Financial Statements
7
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 1996
- --------------------------------------------------------------------------------
Shares/Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Retail (Apparel) -- 2.0%
300,000 NIKE, Inc. $ 17,663
----------
Retail (General Merchandise) -- 1.3%
240,000 Kohl's Corp.(1) 8,640
100,000 Wal-Mart Stores, Inc. 2,663
----------
11,303
----------
Retail (Specialty) -- 3.3%
130,000 Home Depot, Inc. 7,118
200,000 TJX Companies, Inc. 8,000
236,000 Toys "R" Us, Inc.(1) 7,995
175,000 U.S. Office Products Co.(1++) 5,031
----------
28,144
----------
Transportation -- 0.9%
259,000 Sabre Group Holdings Inc.(1) 7,900
----------
Total Common Stocks--58.8% 508,099
----------
(Cost $388,153)
U.S. TREASURY SECURITIES
$10,000 U.S. Treasury Notes,
8.875%, 11-15-97 10,332
22,350 U.S. Treasury Notes,
6.125%, 3-31-98 22,503
2,500 U.S. Treasury Notes,
5.875%, 4-30-98 2,509
5,000 U.S. Treasury Notes,
6.00%, 9-30-98 5,026
5,000 U.S. Treasury Notes,
5.50%, 11-15-98 4,976
4,000 U.S. Treasury Notes,
6.625%, 6-30-01 4,087
11,750 U.S. Treasury Notes,
6.375%, 9-30-01 11,889
8,500 U.S. Treasury Notes,
5.75%, 8-15-03 8,285
600 U.S. Treasury Notes,
5.875%, 11-15-05 581
3,800 U.S. Treasury Notes,
7.00%, 7-15-06 3,971
14,200 U.S. Treasury Notes,
6.50%, 10-15-06 14,344
----------
Total U.S. Treasury Securities-- 10.3% 88,503
----------
(Cost $88,977)
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES*
$ 1,099 FHLMC Series 1239-EPAC
REMIC, 6.80%, 1-15-16 $ 1,099
2,000 FHLMC Series 77-HPAC
REMIC, 8.50%, 9-15-20 2,082
1,043 FHLMC Series 106-EPAC
REMIC, 6.95%, 12-15-20 1,049
7,925 FNMA Pool #050985,
6.00%, 2-1-09 7,680
684 FNMA 89 Series 85-DPAC
REMIC, 7.60%, 5-25-18 688
2,159 FNMA 90 Series 98-HPAC
REMIC, 7.50%, 10-25-19 2,184
8,407 FNMA Pool #250627,
8.00%, 7-1-26 8,583
7,408 GNMA Pool #002202,
7.00%, 4-20-26 7,235
----------
Total Mortgage-Backed Securities-- 3.6% 30,600
----------
(Cost $30,514)
OTHER ASSET-BACKED SECURITIES*
5,000 Amresco Residential Securities
Mortgage Loan Trust,
7.55%, 2-25-23 5,122
5,000 First Merchants Auto Receivables
Corp., 6.80%, 5-15-01 5,083
5,000 NationsBank Auto Owner Trust,
6.75%, 6-15-01 5,065
5,000 Premier Auto Trust,
6.65%, 8-6-02 5,035
2,000 Standard Credit Card Trust,
8.625%, 1-7-02 2,015
----------
Total Other Asset-Backed Securities-- 2.6% 22,320
----------
(Cost $21,972)
CORPORATE BONDS
Automobiles & Auto Parts -- 1.5%
1,000 Ford Motor Credit Corp.,
6.75%, 5-15-05 986
7,000 General Motors Acceptance
Corp., MTN, 6.375%, 10-12-99 7,026
5,000 General Motors Acceptance
Corp., MTN, 5.45%, 2-22-00 4,863
----------
12,875
----------
See Notes to Financial Statements
8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares/Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Banking -- 4.0%
$ 4,000 Capital One Financial Corp.,
8.125%, 3-1-00 $ 4,170
2,000 Citicorp, MTN,
7.125%, 9-1-05 2,032
5,000 Citicorp, MTN,
7.75%, 6-15-06 5,269
5,000 First Union Corp.,
8.77%, 11-15-04 5,288
4,730 National Bank of Canada,
8.125%, 8-15-04 5,043
5,000 NationsBank Corp.,
6.875%, 2-15-05 4,981
3,000 Santander Financial Issuances,
6.375%, 2-15-11 2,794
5,150 Santander Financial Issuances
Ltd, 7.00%, 4-1-06 5,150
----------
34,727
----------
Communications Services -- 0.5%
3,000 GTE South, 7.25%, 8-1-02 3,109
1,500 Tele-Communications, Inc.,
8.25%, 1-15-03 1,505
----------
4,614
----------
Diversified Companies -- 0.6%
5,000 Hanson Overseas BV,
6.75%, 9-15-05 4,919
----------
Energy (Production & Marketing) -- 0.6%
5,000 Dresser Industries, Inc.,
6.25%, 6-1-00 4,988
----------
Financial Services -- 4.7%
4,000 AB Spintab, 7.50%, 8-14-49
(Acquired 9-20-96, Cost $3,909)(+) 4,045
4,000 Associates First Capital Corp.,
6.75%, 7-15-01 4,050
5,000 First USA, Inc.,
7.00%, 8-20-01 5,044
3,000 Greyhound Financial Corp.,
6.75%, 3-25-99 3,037
5,000 Household Finance Co.,
8.95%, 9-15-99 5,350
5,700 Lehman Brothers Holdings, Inc.,
7.25%, 10-15-03 5,757
3,000 Lehman Brothers, Inc.,
5.75%, 11-15-98 2,970
6,000 Norwest Financial, Inc.,
6.25%, 11-1-02 5,955
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
$ 4,700 Salomon Brothers Inc., VRN,
6.386%, 11-20-96, resets monthly
off the 1-month LIBOR plus
1.00% with no caps, final
maturity 2-27-97 $ 4,711
----------
40,919
----------
Food & Beverage -- 0.4%
3,675 RJR Nabisco, Inc.,
8.75%, 4-15-04 3,712
----------
Industrial Equipment & Machinery -- 1.1%
4,750 Anixter International Inc.,
8.00%, 9-15-03 4,875
5,000 Caterpillar Financial Services
Corp., MTN, 6.09%, 5-10-99 5,000
----------
9,875
----------
Insurance -- 1.6%
5,000 Aetna Services Inc.,
6.75%, 8-15-01 5,056
3,750 Nationwide Mutual Insurance
Co., 6.50%, 2-15-04 (Acquired
2-9-96, Cost $3,782)(+) 3,647
5,000 Underwriters Reinsurance Co.,
7.875%, 6-30-06 (Acquired
8-6-96, Cost $5,156)(+) 5,237
----------
13,940
----------
Publishing -- 0.7%
5,750 Time Warner Inc., 8.11%, 8-15-06 5,944
----------
Real Estate -- 1.2%
5,000 Price REIT, Inc. (The), 7.25%,
11-1-00 5,050
5,000 Spieker Properties, Inc., 6.80%,
12-15-01 4,969
----------
10,019
----------
Retail (General Merchandise) -- 0.9%
2,500 Dayton Hudson Corp.,
9.25%, 3-1-06 2,709
4,500 Sears, Roebuck & Co., MTN,
8.23%, 10-21-04 4,866
----------
7,575
----------
See Notes to Financial Statements
9
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 1996
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Tobacco Products -- 0.9%
$ 2,000 Philip Morris Companies Inc.,
7.25%, 9-15-01 $ 2,045
5,500 Philip Morris Companies Inc.,
6.95%, 6-1-06 5,548
----------
7,593
----------
Utilities (Electric) -- 2.4%
6,750 China Light & Power Co. Ltd.,
7.50%, 4-15-06 6,834
4,832 Connecticut Light & Power
Co., 7.625%, 4-1-97 4,838
2,000 Kansas Power & Light Co.,
8.875%, 3-1-00 2,135
5,000 Public Service Electric & Gas
Co., 7.125%, 11-1-97 5,063
2,000 Texas Utilities Electric Co.,
8.125%, 2-1-02 2,128
----------
20,998
----------
Utilities (Gas) -- 0.5%
4,000 Southwest Gas Corp.,
7.50%, 8-1-06 4,100
----------
Total Corporate Bonds-- 21.6% 186,798
----------
(Cost $185,629)
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
SOVEREIGN GOVERNMENTS & AGENCIES
$ 6,000 Hydro-Quebec, MTN, 7.02%,
3-23-05 $ 6,060
5,000 Korea Electric Power, 6.375%,
12-1-03 4,894
4,000 Republic of Italy, VRN, 5.593%,
1-27-97, resets quarterly off
the 3-month LIBOR plus
.0625% with no caps, final
maturity 7-26-99 4,016
----------
Total Sovereign Governments
& Agencies-- 1.7% 14,970
----------
(Cost $14,599)
TEMPORARY CASH INVESTMENTS -- 1.4%
Repurchase Agreement, Merrill Lynch
& Co., Inc., (U.S. Treasury obligations),
in a joint trading account at 5.50%,
dated 10-31-96, due 11-1-96 (Delivery
value $12,402) 12,400
----------
(Cost $12,400)
TOTAL INVESTMENT SECURITIES-- 100.0% $863,690
==========
(Cost $742,244)
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
LIBOR = London Interbank Offered Rate
MTN = Medium Term Note
resets = The frequency with which a fixed-income security's coupon changes,
based on current market conditions or an underlying index. The more
frequently a security resets, the less risk the investor is taking that the
coupon will vary significantly from current market rates.
ORD = Foreign Ordinary Share
VRN = Variable Rate Note, rates shown are effective 10-31-96. Interest reset
date is indicated and used in calculating the weighted average portfolio
maturity.
1Non-income producing
*Final maturity indicated. Expected remaining average lifeused for purposes of
calculating the weighted average portfolio maturity.
+Securities were purchased under Rule 144A of the Securities Act of 1933 and,
unless registered under the Act or exempted from registration, may only be sold
to qualified institutional investors. The aggregate value of restricted
securities at October 31, 1996, was $12,929,375, which represented 1.5% of the
net assets of Balanced.
++Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as defined in the
Investment Company Act of 1940. See Note 4 in Notes to Financial Statements for
a summary of transactions for each issuer who is or was an affiliate at or
during the year ended October 31, 1996.
See Notes to Financial Statements
10
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
($ In Thousands, Except
Per-Share Amounts)
ASSETS
Investment securities, at value (identified
cost of $742,244) (Notes 3 and 4) ............................$863,690
Cash .............................................................. 3,279
Receivable for investments sold ................................... 52,550
Receivable for capital shares sold ................................ 99
Dividends and interest receivable ................................. 5,515
----------
925,133
----------
LIABILITIES
Disbursements in excess of demand deposit cash .................... 1,071
Payable for investments purchased ................................. 39,990
Payable for capital shares redeemed ............................... 4,152
Accrued management fees (Note 2) .................................. 751
Other liabilities ................................................. 1
----------
45,965
----------
NET ASSETS APPLICABLE
TO OUTSTANDING SHARES .............................................$879,168
=======
CAPITAL SHARES, $.01 PAR VALUE
(In thousands)
Authorized ........................................................ 100,000
=======
Outstanding ....................................................... 47,404
=======
NET ASSET VALUE PER SHARE ......................................... $18.55
=======
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ...........................$690,197
Undistributed net investment income .............................. 2,912
Accumulated undistributed net realized
gain from investment and foreign
currency transactions ........................................ 64,614
Net unrealized appreciation on investments
and translation of assets and liabilities in
foreign currencies (Note 3) .................................. 121,445
----------
$879,168
=======
See Notes to Financial Statements
11
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended October 31, 1996
($ In Thousands)
INVESTMENT INCOME
Income:
Interest .....................................................$ 24,471
Dividends (net of foreign taxes withheld of $121) ............ 5,264
----------
29,735
----------
Expenses:
Management fees (Note 2) ..................................... 8,345
Directors' fees and expenses ................................. 9
----------
8,354
----------
NET INVESTMENT INCOME ............................................. 21,381
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY (Note 3)
Net realized gain during the year on:
Investments .................................................. 64,952
Foreign currency transactions ................................ 1,289
----------
66,241
----------
Change in net unrealized appreciation during the year on:
Investments .................................................. 24,266
Translation of assets and liabilities in
foreign currencies ........................................... (90)
----------
24,176
----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY .................................. 90,417
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .........................................$111,798
=======
See Notes to Financial Statements
12
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended October 31, 1996 and October 31, 1995
INCREASE (DECREASE) IN NET ASSETS 1996 1995
----- -----
-------- ($ In Thousands) --------
OPERATIONS
Net investment income ...........................$ 21,381 $ 21,719
Net realized gain on investments
and foreign currency transactions .......... 66,241 47,518
Change in net unrealized appreciation
on investments and translation
of assets and liabilities
in foreign currencies ...................... 24,176 45,137
---------- ----------
Net increase in net assets resulting
from operations ............................ 111,798 114,374
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ...................... (21,812) (21,381)
From net realized gains
from investment transactions ............... (46,792) (12,064)
---------- ----------
Decrease in net assets from distributions ....... (68,604) (33,445)
---------- ----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ....................... 202,311 185,512
Proceeds from reinvestment of distributions ..... 67,547 32,925
Payments for shares redeemed ....................(249,454) (187,662)
---------- ----------
Net increase in net assets from capital
share transactions ......................... 20,404 30,775
---------- ----------
NET INCREASE IN NET ASSETS ...................... 63,598 111,704
NET ASSETS
Beginning of year ............................... 815,570 703,866
---------- ----------
End of year ..................................... $879,168 $815,570
======= =======
Undistributed net investment income ............. $ 2,912 $ 2,054
======= =======
TRANSACTIONS IN SHARES OF THE FUND:
(In thousands)
Sold ............................................ 11,553 11,370
Issued in reinvestment of distributions ......... 3,994 2,073
Redeemed ........................................ (14,226) (11,520)
---------- ----------
Net increase .................................... 1,321 1,923
======= =======
See Notes to Financial Statements
13
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization--
Twentieth Century Investors, Inc. (the Corporation) is registered under the
Investment Company Act of 1940 as an open-end diversified management investment
company. Balanced (the Fund) is one of the sixteen series of funds issued by the
Corporation. The Fund's investment objective is to seek captial growth and
current income. It is management's intention to maintain approximately 60% of
the Fund's assets in common stocks and the remainder in bonds and other fixed
income securities. On September 3, 1996, the fund implemented a multiple class
structure whereby the Fund is authorized to issue four classes of shares: the
Investor Class, the Institutional Class, the Service Class, and the Advisor
Class. The shares outstanding prior to September 3, 1996, were designated as
Investor Class shares. The four classes of shares differ principally in their
respective shareholder servicing and distribution expenses and arrangements. All
shares of the Fund represent an equal pro rata interest in the assets of the
class to which such shares belong, and have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except for class
specific expenses and exclusive rights to vote on matters affecting only
individual classes. Sale of the Institutional, Service and Advisor classes had
not commenced as of the report date. The following significant accounting
policies, related to all classes of the Fund, are in accordance with accounting
policies generally accepted in the investment company industry.
Security Valuations--
Portfolio securities traded primarily on a principal securities exchange
are valued at the last reported sales price, or the mean of the latest bid and
asked prices where no last sales price is available. Securities traded
over-the-counter are valued at the mean of the latest bid and asked prices or,
in the case of certain foreign securities, at the last reported sales price.
Debt securities not traded on a principal securities exchange are valued through
valuations obtained from a commercial pricing service or at the mean of the most
recent bid and asked prices. When valuations are not readily available,
securities are valued at fair value as determined in accordance with procedures
adopted by the board of directors.
Security Transactions--
Security transactions are accounted for on the date purchased or sold. Net
realized gains and losses are determined on the identified cost basis, which is
also used for federal income tax purposes.
Investment Income--
Dividend income less foreign taxes withheld (if any) is recorded as of the
ex-dividend date. Interest income is recognized on the accrual basis and
includes amortization of discounts and premiums.
Foreign Currency Transactions--
The accounting records of the Fund are maintained in U.S. dollars. All
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at prevailing exchange rates. Purchases and sales of
investment securities,dividend and interest income, and certain expenses are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in the foreign exchange rates on investments from the
fluctuations arising from changes in the market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss on
investments.
Net realized foreign currency exchange gains or losses arise from sales of
foreign currencies and the difference between asset and liability amounts
initially stated in foreign currencies and the U.S. dollar value of the amounts
actually received or paid. Net unrealized foreign currency exchange gains or
losses arise from changes in the value of assets and liabilities other than
portfolio securities at the end of the reporting period, resulting from changes
in the exchange rates.
14
- --------------------------------------------------------------------------------
Forward Foreign Currency Exchange Contracts--
The Fund may enter into forward foreign currency exchange contracts for the
purpose of settling specific purchases or sales of securities denominated in a
foreign currency or to hedge the Fund's exposure to foreign currency exchange
rate fluctuations. When required, the Fund will segregate assets in an amount
sufficient to cover its obligations under the hedge contracts. The net U.S.
dollar value of foreign currency underlying all contractual commitments held by
the Fund and the resulting unrealized appreciation or depreciation are
determined daily using prevailing exchange rates. Forward contracts involve
elements of market risk in excess of the amount reflected in the Statement of
Assets and Liabilities. The Fund bears the risk of an unfavorable change in the
foreign currency exchange rate underlying the forward contract. Additionally,
losses may arise if the counterparties do not perform under the contract terms.
Repurchase Agreements--
The Fund may enter into repurchase agreements with institutions that the
Fund's investment manager, Investors Research Corporation (IRC), has determined
are creditworthy pursuant to criteria adopted by the board of directors. Each
repurchase agreement is recorded at cost. The Fund requires that the securities
purchased 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. IRC monitors, on a daily basis, the
value of the securities transferred to ensure that the value, including accrued
interest, of the securities under each repurchase agreement is equal to or
greater than amounts owed to the Fund under each repurchase agreement.
Joint Trading Account--
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies having
management agreements with IRC, may transfer uninvested cash balances into a
joint trading account. These balances are invested in one or more repurchase
agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status--
It is the policy of the Fund to distribute all taxable income and capital
gains to shareholders and to otherwise qualify as a regulated investment company
under provisions of the Internal Revenue Code. Accordingly, no provision has
been made for federal income taxes.
Distributions to Shareholders--
Distributions to shareholders are recorded on the ex-dividend date.
Distributions from net investment income are declared and paid quarterly.
Distributions from net realized gains are declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences are primarily due to differing
treatments for foreign currency transactions and wash sales.
Supplementary Information--
Certain officers and directors of the Corporation are also officers and/or
directors, and, as a group, controlling stockholders of Twentieth Century
Companies, Inc., the parent of the Corporation's investment manager, IRC, the
Corporation's distributor, Twentieth Century Securities and the Corporation's
transfer agent, Twentieth Century Services, Inc.
Use of Estimates--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
15
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1996
2. TRANSACTIONS WITH RELATED PARTIES
The Corporation has entered into Management Agreements with IRC that
provides the Fund with investment advisory and management services in exchange
for a single, unified management fee per class. Additional fees apply to the
Advisor Class and Service Class shares, as described in the respective
prospectuses. The agreements provide that all expenses of the Fund, except
brokerage commissions, taxes, interest, expenses of those directors who are not
considered "interested persons" as defined in the Investment Company Act of 1940
(including counsel fees) and extraordinary expenses, will be paid by IRC. The
fee is computed daily and paid monthly based on the Fund's average daily closing
net assets during the previous month. The annual management fee for the Investor
Class of the Fund is 1%.
3. INVESTMENT TRANSACTIONS
The aggregate cost of investment securities purchased (excluding short-term
investments) for the year ended October 31, 1996, totaled $553,982,507 for
common stocks, $208,121,306 for U.S. Treasury and Agency obligations and
$287,122,363 for other debt obligations. Proceeds from investment securities
sold (excluding short-term investments) totaled $590,457,763 for common stocks,
$203,796,272 for U.S. Treasury and Agency obligations and $262,347,505 for other
debt obligations. On October 31, 1996, accumulated net unrealized appreciation
on investments, based on the aggregate cost of investments of $742,388,957 for
federal income tax purposes, was $121,300,847, consisting of unrealized
appreciation of $131,292,877 and unrealized depreciation of $9,992,030.
4. AFFILIATED COMPANY TRANSACTIONS
A summary of transactions for each issuer who is or was an affiliate at or
during the year ended October 31, 1996, follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Share Realized October 31, 1996
---------------------
Balance Purchase Sales Gain Share Market
Issuer 10-31-95 Cost Cost (Loss) Income Balance Value
- ------------------------ ------- --------- ------- ------- ------- -------- ------
- ------------------------------------- ($ In Thousands) -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BMC Software, Inc. -- $ 7,797 -- -- -- 115,000 $ 9,531
Intuit Inc. 160,000 1,450 $6,907 $1,811 -- -- --
Lattice Semiconductor Corp. 180,000 2,014 7,682 (1,087) -- -- --
Sun Microsystems, Inc. -- 8,068 -- -- -- 150,000 9,141
Texas Instruments Inc. 200,000 -- 13,899 (4,245) $34 -- --
U.S. Office Products Co. -- 6,506 -- -- -- 175,000 5,031
U.S. Robotics Corp. -- 14,811 -- -- -- 200,000* 12,588
----------------------------------- ----------
$40,646 $28,488 $(3,521) $34 $36,291
======= ======= ======= === =======
- --------------------------------------------------------------------------------------------
</TABLE>
* Includes adjustments for shares received from stock split and/or stock spinoff
during the year.
16
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Financial highlights (For a Share Outstanding Throughout the Period)
Years ended
October 31,
-----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ............$17.70 $15.94 $16.52 $14.89 $15.11
------ ------ ------ ------ ------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment
Income .................... .44(1) .48(1) .42 .38 .33
Net Realized
and Unrealized
Gain (Loss) ............... 1.88 2.03 (.58) 1.62 (.23)
------ ------ ------ ------ ------
Total from
Investment Operations ..... 2.32 2.51 (.16) 2.00 .10
------ ------ ------ ------ ------
DISTRIBUTIONS
From Net
Investment Income ........ (.46) (.475) (.416) (.375) (.322)
From Net Realized
Gain on Investment
Transactions ..............(1.01) (.274) -- -- --
------ ------ ------ ------ ------
Total Distributions .......(1.47) (.749) (.416) (.375) (.322)
------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD ..................$18.55 $17.70 $15.94 $16.52 $14.89
====== ====== ====== ====== ======
TOTAL RETURN(2).................14.04% 16.36% (.93%) 13.64% .63%
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to
Average Net Assets ........ .99% .98% 1.00% 1.00% 1.00%
Ratio of Net Investment
Income to Average
Net Assets ................ 2.5% 2.9% 2.7% 2.4% 2.4%
Portfolio Turnover Rate ... 130% 85% 94% 95% 100%
Average Commission
Paid per Share Traded .....$.0400 $.0390 --(3) --(3) --(3)
Net Assets, End
of Period (in millions) ... $879 $816 $704 $706 $654
- ------------------------------------------------------------------------------------
</TABLE>
1 Computed using average shares outstanding throughout the period.
2 Total return assumes reinvestment of dividends and capital gains
distributions, if any.
3 Disclosure of average commission paid per share was not required prior to
the year ended October 31, 1995.
See Notes to Financial Statements
17
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS' REPORT
The Shareholders and Board of Directors
Twentieth Century Investors, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments of Balanced Investors (one of the sixteen
funds comprising TWENTIETH CENTURY INVESTORS, INC.) as of October 31, 1996, and
the related statement of operations, the statements of changes in net assets,
and the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and brokers. As to
securities purchased but not received, we requested confirmations from brokers,
and when replies were not received, we performed alternative auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Balanced Investors, as of October 31, 1996, and the results of its operations,
changes in its net assets, and the financial highlights for each of the periods
indicated in conformity with generally accepted accounting principles.
/s/BAIRD, KURTZ & DOBSON
BAIRD, KURTZ & DOBSON
Kansas City, Missouri
November 20, 1996
18
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Important Notice for All IRA and 403(b) Shareholders
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)]
are subject to federal income tax withholding at the rate of 10% of the total
amount withdrawn, unless you elect not to have withholding apply. If you don't
want us to withhold on this amount, you may send us a written notice not to have
the federal income tax withheld. Your written notice is valid for six months
from the date of receipt at Twentieth Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount, unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchanges/Redemptions form or an IRS Form W-4P. Call Twentieth Century for
either form. Your written election is valid for only six months from the date of
receipt at Twentieth Century. You may revoke your election at any time by
sending a written notice to us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
- --------------------------------------------------------------------------------
19
- --------------------------------------------------------------------------------
This page left blank for your notes.
20
- --------------------------------------------------------------------------------
TWENTIETH CENTURY INVESTORS, INC. TWENTIETH CENTURY
Balanced
INVESTMENT MANAGER Annual Report
INVESTORS RESEARCH CORPORATION October 31, 1996
KANSAS CITY, MISSOURI
THIS REPORT AND THE FINANCIAL 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.
TWENTIETH CENTURY SECURITIES, INC.
Twentieth Century Mutual Funds
and The Benham Group
- ----------------------------------
P.O. BOX 419200
KANSAS CITY, MISSOURI
64141-6200
- ----------------------------------
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
- ----------------------------------
Automated information line:
1-800-345-8765
- ----------------------------------
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
- ----------------------------------
Fax: 816-340-7962
- ----------------------------------
Internet: www.twentieth-century.com
- ---------------------------------- ----------------------------------------
TWENTIETH CENTURY INVESTORS, INC.
SH-BKT-6908
9612 [recycled logo]
Recycled
TWENTIETH CENTURY
Cash Reserve
Fund
Annual Report
OCTOBER 31,
1996
TWENTIETH CENTURY INVESTORS, INC.
[front cover]
TABLE OF CONTENTS
Our Message to You.........................................................1
Investment Philosophy......................................................2
Period Overview............................................................3
Credit Review and Analysis.................................................4
Management Q&A.............................................................5
Schedule of Investments....................................................7
Statement of Assets and Liabilities.......................................10
Statement of Operations...................................................11
Statements of Changes in Net Assets.......................................12
Notes to Financial Statements.............................................13
Financial Highlights......................................................15
Independent Accountants' Report...........................................16
IMPORTANT NOTICE FOR ALL IRA AND 403(b) SHAREHOLDERS
Any distribution you receive from an IRA and certain 403(b) distributions
[those not eligible for rollover to an IRA or to another 403(b)] are subject to
federal income tax withholding at the rate of 10% of the total amount withdrawn,
unless you elect not to have withholding apply. If you don't want us to withhold
this amount, you may send us a written election not to have federal income tax
withheld. Your written election is valid for six months from the date of receipt
by Twentieth Century. Even if you plan to roll over the amount you withdraw to
another tax-deferred account, the withholding rate still applies to the
withdrawn amount, unless we have received a written election not to withhold
within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Conversions/Redemptions form or an IRS Form W-4P. Call Twentieth Century for
either form. Your written election is valid for only six months from the date of
receipt by Twentieth Century. You may revoke your election at any time by
sending a written notice to us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
Twentieth Century Mutual Funds and The Benham Group are registered marks of
Twentieth Century Services, Inc. and Benham Management Corporation,
respectively. American Century is a service mark of Twentieth Century Services,
Inc.
October 31, 1996
OUR MESSAGE TO YOU
================================================================================
The twelve months ended October 31, 1996, were distinguished by change,
both for U.S. money market rates and for Twentieth Century. After falling
throughout 1995, money market rates fluctuated in 1996 in response to changing
interest rate expectations. In the following pages, our investment management
team provides some further details about money market rate fluctuations and how
your fund was managed throughout the period.
[photo of James E. Stowers and James E. Stowers III]
Fluctuating market conditions underscore the importance of quality
investments. Our commitment to high-quality securities is exemplified by the
expansion of our credit research team. The five members of the team carry out
in-depth analysis on all securities considered for purchase by Twentieth
Century/Benham money market and bond funds. Over the past year, the team
established a new credit management system that defines investment limits to cap
our funds' exposure to individual issuers, countries or industries. The team
plays an important role in the management of Cash Reserve.
On the corporate front, we completed the operational integration of
Twentieth Century and The Benham Group in September. As a result, you now have
direct access to a broader spectrum of funds and services, including the Benham
family of U.S. Treasury, government and municipal funds. Another integration
landmark is the new Twentieth Century Web site. If you use a personal computer
and have access to the Internet, we've made it easier for you to download
information about Twentieth Century and Benham funds and access your fund
accounts. You can view account balances, exchange money between existing
accounts and make additional investments. The Web site address is:
www.twentieth-century.com. We are one of the first fund companies to offer
direct on-line transactions via the Internet.
In October, we announced the new name for our recently integrated company.
Beginning January 1, 1997, we will serve you under the name American Century
Investments, which reflects our expanded identity, the spirit of independence
common to Twentieth Century and Benham, and our optimism for a new century of
continued American prosperity. American Century's fund family will be divided
into three groups--the Benham Group, American Century Group and Twentieth
Century Group. Cash Reserve will be part of the Benham Group because the fund's
investment goals--current income and principal preservation--match key
attributes of that group.
You may have noticed that this annual report includes only Cash Reserve,
whereas in the past it covered nine funds. This new focused format allows us to
give you better information by tailoring the report specifically to the issues
that are most relevant to you and your fund.
We continue to work to provide you with information and services that we
believe are useful and convenient to you. Thank you for investing with us.
Sincerely,
/s/James E. Stowers
James E. Stowers
Chairman of the Board and Founder
/s/James E. Stowers III
James E. Stowers III
President and Chief Executive Officer
1
INVESTMENT PHILOSOPHY
Twentieth Century introduced its first fixed-income fund in 1982. Today,
with Twentieth Century's acquisition of The Benham Group, the combined company
offers 41 fixed-income funds, ranging from money market funds to long-term bond
funds and including both taxable and tax-exempt funds.
Cash Reserve, which was established on March 1, 1985, is a money market
fund. The fund seeks to provide a high level of current income consistent with
principal preservation by investing in a diversified portfolio of short-term
money market securities. The fund must maintain a weighted average maturity of
90 days or less.
An investment in Cash Reserve is neither insured nor guaranteed by the U.S.
government. Yields will fluctuate, and there can be no assurance that the fund
will be able to maintain a stable net asset value of $1 per share.
Portfolio Management Team
- --------------------------------------------------------------------------------
Bob Gahagan, Vice President and Senior Portfolio Manager
Amy O'Donnell, Portfolio Manager
Credit Research Team
- --------------------------------------------------------------------------------
Vicki Zesses, Corporate Credit Research Manager
Greg Afiesh, Credit Analyst
John Walsh, Credit Analyst
Michael Difley, Credit Analyst
Sudha Mani, Associate Credit Analyst
2
October 31, 1996
PERIOD OVERVIEW
U.S. Economy
A series of interest rate cuts by the Federal Reserve (the Fed) beginning in
1995 and culminating in January 1996 helped the U.S. economy rebound in 1996. An
improving retail sector, surging auto sales and a resilient housing market
helped the economy expand at an impressive 4.7% annual rate in the second
quarter of 1996. The economy remained strong throughout the summer as healthy
employment growth sent the national unemployment rate to a six-year low of 5.1%.
However, this trend appeared to reverse itself in the third quarter as economic
growth slowed to a more sedate 2.2% annual pace. Some recent economic data seem
to suggest that slowing could continue, but there has been enough conflicting
evidence to cause considerable uncertainty about the rate of growth going
forward.
In spite of the second-quarter surge in growth, inflation remained tame
during the period. For the twelve months ended October 31, inflation (as
measured by the consumer price index) rose at a 3.0% annualized rate. In light
of this lack of inflationary pressure, the Fed held short-term interest rates
steady from February through October.
Corporate Money Market Securities
Money market yields fluctuated throughout the twelve months ended October
31, 1996. Yields fell early in the period because the Fed cut short-term
interest rates in December 1995 and again in January 1996 to stimulate the
economy. Market expectations for even lower rates were so pronounced in late
1995 and early 1996 that yields for one-month securities were higher than for
six- to twelve-month securities because of strong demand from investors trying
to lock in higher rates.
However, interest rate expectations suddenly reversed in March following the
release of the surprisingly strong February employment report. Instead of a rate
reduction, the market began pricing in an interest rate increase.
Despite the fact that the federal funds rate (the lending rate targeted by
the Fed for large overnight loans between commercial banks) has remained steady
since the Fed's last rate cut in January, changing expectations of Fed policy
caused money market yields to fluctuate significantly, particularly between
April and October. Strong second-quarter economic growth and employment gains
sparked inflation fears, which moderated during the third quarter as wage
pressures lessened and the pace of economic growth slowed. As a result, there
was considerable uncertainty in U.S. financial markets about the Fed's interest
rate intentions.
The graph above depicts the reactive volatility in money market rates
between April and October. As the graph illustrates, three-month LIBOR,* which
tends to reflect market participants' current expectations for interest rates,
fluctuated throughout the period. The sharpest movements in three-month LIBOR
typically occurred in response to the government's monthly employment report,
which the market uses as a gauge of economic strength.
* London interbank offered rate--a "money market rate" that most banks and
corporations track when determining the rate they'll pay to investors on
short-term debt.
[line graph - data below]
Fed Funds vs. Three-Month LIBOR
LIBOR Fed Funds Rate Target Employment Report Released
4/30/96 5.48% 5.25%
5/1/96 5.52 5.25
5/2/96 5.52 5.25
5/3/96 5.55 5.25 *
5/6/96 5.55 5.25
5/7/96 5.52 5.25
5/8/96 5.52 5.25
5/9/96 5.52 5.25
5/10/96 5.52 5.25
5/13/96 5.51 5.25
5/14/96 5.52 5.25
5/15/96 5.48 5.25
5/16/96 5.48 5.25
5/17/96 5.52 5.25
5/20/96 5.52 5.25
5/21/96 5.52 5.25
5/22/96 5.52 5.25
5/23/96 5.51 5.25
5/24/96 5.5 5.25
5/27/96 5.5 5.25
5/28/96 5.5 5.25
5/29/96 5.49 5.25
5/30/96 5.52 5.25
5/31/96 5.52 5.25
6/3/96 5.55 5.25
6/4/96 5.55 5.25
6/5/96 5.55 5.25
6/6/96 5.55 5.25
6/7/96 5.52 5.25 *
6/10/96 5.61 5.25
6/11/96 5.61 5.25
6/12/96 5.61 5.25
6/13/96 5.61 5.25
6/14/96 5.61 5.25
6/17/96 5.59 5.25
6/18/96 5.59 5.25
6/19/96 5.59 5.25
6/20/96 5.58 5.25
6/21/96 5.59 5.25
6/24/96 5.59 5.25
6/25/96 5.59 5.25
6/26/96 5.61 5.25
6/27/96 5.63 5.25
6/28/96 5.6 5.25
7/1/96 5.59 5.25
7/2/96 5.59 5.25
7/3/96 5.62 5.25
7/4/96 5.59 5.25
7/5/96 5.59 5.25 *
7/8/96 5.72 5.25
7/9/96 5.72 5.25
7/10/96 5.71 5.25
7/11/96 5.7 5.25
7/12/96 5.69 5.25
7/15/96 5.69 5.25
7/16/96 5.7 5.25
7/17/96 5.68 5.25
7/18/96 5.68 5.25
7/19/96 5.65 5.25
7/22/96 5.65 5.25
7/23/96 5.65 5.25
7/24/96 5.65 5.25
7/25/96 5.66 5.25
7/26/96 5.66 5.25
7/29/96 5.67 5.25
7/30/96 5.7 5.25
7/31/96 5.69 5.25
8/1/96 5.67 5.25
8/2/96 5.62 5.25 *
8/5/96 5.55 5.25
8/6/96 5.56 5.25
8/7/96 5.55 5.25
8/8/96 5.55 5.25
8/9/96 5.55 5.25
8/12/96 5.53 5.25
8/13/96 5.53 5.25
8/14/96 5.53 5.25
8/15/96 5.53 5.25
8/16/96 5.53 5.25
8/19/96 5.53 5.25
8/20/96 5.53 5.25
8/21/96 5.5 5.25
8/22/96 5.5 5.25
8/23/96 5.48 5.25
8/26/96 5.48 5.25
8/27/96 5.54 5.25
8/28/96 5.55 5.25
8/29/96 5.54 5.25
8/30/96 5.57 5.25
9/2/96 5.63 5.25
9/3/96 5.68 5.25
9/4/96 5.66 5.25
9/5/96 5.68 5.25
9/6/96 5.69 5.25 *
9/9/96 5.66 5.25
9/10/96 5.66 5.25
9/11/96 5.65 5.25
9/12/96 5.65 5.25
9/13/96 5.65 5.25
9/16/96 5.58 5.25
9/17/96 5.58 5.25
9/18/96 5.64 5.25
9/19/96 5.64 5.25
9/20/96 5.66 5.25
9/23/96 5.66 5.25
9/24/96 5.68 5.25
9/25/96 5.58 5.25
9/26/96 5.56 5.25
9/27/96 5.65 5.25
9/30/96 5.65 5.25
10/1/96 5.67 5.25
10/2/96 5.65 5.25
10/3/96 5.62 5.25
10/4/96 5.61 5.25 *
10/7/96 5.55 5.25
10/8/96 5.55 5.25
10/9/96 5.55 5.25
10/10/96 5.55 5.25
10/11/96 5.58 5.25
10/14/96 5.55 5.25
10/15/96 5.55 5.25
10/16/96 5.55 5.25
10/17/96 5.55 5.25
10/18/96 5.55 5.25
10/21/96 5.55 5.25
10/22/96 5.55 5.25
10/23/96 5.55 5.25
10/24/96 5.55 5.25
10/25/96 5.55 5.25
10/28/96 5.55 5.25
10/29/96 5.55 5.25
10/30/96 5.52 5.25
10/31/96 5.52 5.25
Source: DRI/McGraw-Hill
3
CREDIT REVIEW AND ANALYSIS
Corporate credit conditions improved during the twelve months ended October
31, 1996. Increased efficiency and a stronger U.S. economy led to improving
business conditions for many corporations. As a result, credit quality among
corporate securities improved. Significant credit upgrades during the period
occurred among the securities of industrial companies, most recently in the
airline sector. In the financial sector, banks continued a credit upgrade trend
that began a few years ago, while a rising stock market and heavy initial public
offering (IPO) activity translated into upgrades for broker-dealers.
Several broad credit trends developed during the period that may generate
credit downgrades for individual companies in the coming year. One of those is a
tendency toward disaggregation of large, diversified corporations in mature
industries. While spinning off business units may create the opportunity to
enhance shareholder value, this trend is potentially negative for holders of
corporate debt because it lessens a company's revenue diversification among
multiple lines of business.
Another development is a trend toward stock buy-backs. Improved corporate
efficiencies have led to stronger cash flows, which companies are using to
enhance shareholder value by repurchasing stock. Stock buy-backs draw down cash
reserves that could have been used to retire debt.
A third trend with implications for corporate credit quality is the rising
number of mergers and acquisitions in mature industries, such as utilities and
railroads. Mergers can increase a company's debt load because the acquisition
itself may be financed through debt and the acquisition target may bring its own
debt to the acquiring company. However, mergers and acquisitions can be positive
from the debtholder's perspective because aggregation adds diversity to the
business and can improve cash flows and generate greater efficiency in the long
run. Banking is an excellent example of an industry that benefited from
consolidation.
Actually, money market funds such as Cash Reserve have been major catalysts
in the trend towards consolidation in the banking industry. In the past, large
corporations in need of loans depended on commercial banks to supply them with
cash. Now they can raise cash more cheaply by issuing commercial paper to
investors, including mutual funds such as those offered by Twentieth
Century/Benham. The transition away from traditional bank loans in favor of
borrowing directly from investors is known as "disintermediation" (i.e.,
eliminating the middle man).
Dwindling corporate demand for bank loans resulted in fiercer competition
among financial institutions. This ultimately helped trigger the progression we
have seen over the last few years--regional banks being acquired by
super-regional banks, and super-regionals and money centers purchasing one
another as they attempt to benefit from economies of scale, improve efficiencies
and cut costs. The positive side-effect of this trend has been the improved
asset quality of surviving banks and a corresponding improvement in the credit
quality of debt issued by these banks.
4
October 31, 1996
CASH RESERVE
- --------------------------------------------------------------------------------
Management Q & A
An interview with Bob Gahagan, vice president and senior portfolio manager
on the Cash Reserve management team.
Q: How did the fund perform?
A: The fund outperformed its peer group average, producing a return of 4.99%
for the fiscal year ended October 31, 1996, versus the 4.86% average annual
return of the 289 funds in Lipper's "Money Market Funds" category over the
same period.* (See the accompanying Average Annual Total Returns chart for
a comparison of the fund's 1-, 5- and 10-year returns with those of its
peers.)
Q: The fund's seven-day SEC yield declined during the twelve-month period.
Why?
A: The fund's lower seven-day SEC yield is indicative of a broader trend
toward lower money market rates early in the period. Yields on U.S. money
market securities fell in December and January as the Federal Reserve (the
Fed) reduced short-term interest rates to stimulate the economy. As a
result, the fund's seven-day yield declined from 5.16% on October 31, 1995,
to 4.78% on April 30, 1996. As we discuss in the Period Overview (see page
3), changing expectations of Fed interest rate policy caused yields to
fluctuate sharply between April and October 1996, though yields ultimately
finished the six-month period little changed. By the end of the fiscal
year, the fund's seven-day current yield was 4.74%.
Q: How was the fund positioned during the period?
A: We positioned the fund defensively for much of the period because of
widespread fear of a Fed interest rate increase. The concerns stemmed from
statistics showing strength in the economy and potential wage inflation
brought about by healthy
QUICK
FUND
FACTS
----------------
CASH RESERVE
----------------
Strategy:
High level of current
income consistent with
principal preservation.
Inception date:
March 1, 1985
Size:
$1.3 billion
(as of October 31, 1996)
Weighted Average
Portfolio Maturity:
46 days
- --------------------------------------------------------------------------------
Average Annual Total Returns
(as of October 31, 1996)
Average Money
Cash Reserve Market Fund
------------ -----------
1 Year 4.99% 4.86%
5 Years 3.92% 3.95%
10 Years 5.43% 5.51%
- --------------------------------------------------------------------------------
Seven-day SEC Yield
(as of October 31, 1996)
Cash Reserve 4.74%
- --------------------------------------------------------------------------------
Asset Allocation
(as of October 31, 1996)
[pie chart]
U.S. Government
Agency Securities 12%
Other Corporate Debt 13%
Certificates of Deposit 2%
Commercial
Paper 73%
Percent of fund investments.
* Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ.
An investment in Cash Reserve is neither insured nor guaranteed by the U.S.
government. Yields will fluctuate, and there can be no assurance that the fund
will be able to maintain a stable net asset value of $1 per share.
5
CASH RESERVE
employment growth. We allowed the fund's average maturity to fall from
nearly 70 days in December 1995 to less than 40 days by mid-summer to
better capture the rise in interest rates. (The shorter the fund's average
maturity, the more quickly we can reinvest its assets, which benefits the
fund when interest rates are rising.)
Another way we improved the fund's responsiveness to changing interest
rates was to increase its holdings of corporate and government agency
floating-rate notes (floaters) from about 3% of assets at the beginning of
the period to almost 17% of the portfolio by October 1996. (Floaters
reflect changes in interest rates quickly because their interest rates
reset on a periodic--usually monthly--basis.)
By the end of the period, economic reports showed the economy expanding at
a moderate, non-inflationary pace, so we lengthened the fund's maturity
from the defensive posture we had maintained during the summer to a more
neutral position.
Q: How did you lengthen the fund's average maturity?
A: One way we extended the average maturity was by increasing the fund's
holdings of corporate asset-backed securities, which typically have stated
final maturities of one year or less and also offer relatively higher
yields than CDs and commercial paper. As a result, buying asset-backed
securities was an effective way to enhance the fund's returns while
extending its average maturity during October and November. Another
attraction of the asset-backed securities we purchased was their high
credit quality.
Q: While we're on the subject of credit quality, did the fund's Orange County,
California, securities pay off on their maturity date?
A: Yes. About 3% of the fund's assets were in taxable variable-rate demand
notes issued by Orange County, California, that paid off at full value in
June. The combined efforts of our credit research staff, legal department
and portfolio management team led us to the correct conclusion that the
securities would pay off in full at maturity.
Q: Looking ahead, what's your outlook for money market yields over the next
six months?
A: Recent economic data showing moderate economic growth, tame inflation and
mild wage growth seem to have convinced market participants that an
interest rate increase by the Fed is unlikely. We remain cautious, however,
because low unemployment, steady income growth and near-record levels of
consumer confidence could spur economic growth during the holiday season
and into 1997. The decline in interest rates during October and November
and a healthy stock market may also stimulate consumer spending, which
accounts for about two-thirds of the U.S. economy. Our bias would be for
the Fed to leave interest rates unchanged at least through mid-1997. Though
the market seems correctly priced for such an outcome, stronger consumer
spending could once again cause short-term interest rates to fluctuate.
Q: Given this outlook, how will you position the fund going forward?
A: Money market rates may remain stable over the next few months. However, we
will vary the fund's maturity to take advantage of any temporary
aberrations in short-term yields. We will likely maintain or even increase
the fund's holdings of interest-rate sensitive floaters, and we expect to
continue to utilize our credit research staff to enhance the fund's returns
by adding high-quality asset-backed securities.
6
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS October 31, 1996
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
COMMERCIAL PAPER*
Adhesives & Sealants--0.7%
$ 9,000 Minnesota Mining &
Manufacturing Co.,
5.17%, 11-14-96 $ 8,983
-----
Agriculture--2.2%
30,000 Cargill Inc., 5.09%-5.22%,
12-31-96 through 1-2-97 29,862
------
Banking--6.2%
5,700 Abbey National North
America Corp., 5.17%,
11-29-96 5,677
17,500 Bank of Nova Scotia, 5.22%,
1-22-97 17,280
46,500 Bil North America, Inc.,
5.15%-5.25%, 12-5-96
through 4-16-97 45,834
3,000 Generale Bank S.A., 5.22%,
1-21-97 2,964
5,080 IMI Funding Co. (U.S.A.),
5.23%, 2-12-97 5,002
7,800 National Australia, 5.22%,
1-21-97 7,707
-----
84,464
------
Convenience Stores--0.7%
10,000 Southland Corp., 5.09%,
12-31-96 9,911
-----
Diversified Companies--6.3%
40,000 General Electric Capital
Corp., 5.22%, 1-21-97
through 1-31-97 39,486
36,600 Mitsubishi International,
5.16%-5.22%, 12-3-96
through 1-21-97 36,339
10,000 Mitsui & Company
(U.S.A.), 5.15%, 12-6-96 9,949
-----
85,774
------
Education--0.7%
9,400 Leland Stanford University,
5.22%-5.25%, 1-14-97
through 4-9-97 9,259
-----
Energy--0.8%
11,800 Koch Industries Inc.,
5.17%, 11-12-96 11,781
------
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Financial Services--14.1%
$ 30,300 American Express Co.,
5.17%, 11-8-96 $ 30,269
27,000 American Express Credit,
5.17%, 11-18-96 26,932
35,000 Associates Corp., 5.12%,
12-18-96 34,760
26,000 General Motors Acceptance
Co., 5.22%, 1-21-97 25,689
21,500 General Re Corp.,
5.11%-5.12%, 12-20-96
through 12-24-96 21,336
19,500 Hitachi Credit America
Corp., 5.11%-5.22%,
12-23-96 through 1-27-97 19,308
20,000 Prudential Funding,
5.22%, 1-21-97 19,760
15,000 Toyota Motor Credit Co.,
5.22%, 1-7-97 14,852
------
192,906
-------
Household Audio & Video--0.8%
10,500 Panasonic Finance, 5.09%,
12-31-96 (Acquired
10-1-96, Cost $10,359)+ 10,407
------
Insurance--2.2%
5,000 American Family Mutual
Insurance Co., 5.12%,
12-20-96 4,963
10,000 Prudential Insurance Co.,
5.22%, 1-31-97 9,864
7,400 SAFECO Corp., 5.17%,
11-12-96 7,388
7,500 USAA Capital Corp.,
5.17%, 11-21-96 7,478
-----
29,693
------
Metals & Mining--6.4%
25,300 RTZ America Inc., 5.17%,
11-12-96 25,259
5,000 U.S. Borax, Inc., 5.17%,
11-13-96 4,991
57,800 U.S. Borax, Inc., 5.12%-5.17%,
11-1-96 through 12-20-96
(Acquired 8-2-96 through
9-23-96, Cost $57,601)+ 57,601
------
87,851
------
See Notes to Financial Statements
7
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued) October 31, 1996
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Office Equipment & Supplies--0.8%
$ 11,000 Pitney Bowes Credit
Corp., 5.17%, 11-18-96 $ 10,973
Petroleum Refining--5.3%
6,000 Chevron Transport, 5.17%,
11-13-96 5,989
25,000 Chevron Transport, 5.12%,
12-18-96 (Acquired
10-29-96, Cost $24,817)+ 24,828
21,600 Chevron U.K. Investment
PLC, 5.12%-5.22%,
12-18-96 through 1-16-97 21,378
20,000 Statoil-Den Norske Stats,
5.17%, 11-14-96 19,962
------
72,157
------
Pharmaceuticals--4.4%
10,000 Bayer Corp., 5.17%,
11-19-96 9,973
28,000 Glaxo Wellcome PLC,
5.11%-5.22%, 12-23-96
through 1-13-97 27,749
23,000 Warner-Lambert Co.,
5.17%, 11-4-96 22,990
------
60,712
------
Publishing--2.8%
28,797 Knight-Ridder, Inc., 5.22%,
1-17-97 (Acquired
10-21-96, Cost $28,424)+ 28,471
10,000 Reed Elsevier Inc., 5.17%,
11-4-96 9,995
-----
38,466
------
Security Brokers & Dealers--13.3%
28,300 BT Securities Corp.,
5.15%, 12-6-96 28,152
62,400 Goldman Sachs Group L.P.,
5.14%-5.25%, 11-29-96
through 4-4-97 61,592
30,000 Merrill Lynch & Co., Inc.,
5.15%, 12-6-96 29,846
62,700 Morgan Stanley & Group,
Inc., 5.17%-5.24%, 11-1-96
through 3-24-97 62,370
------
181,960
-------
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Sovereign Governments
& Agencies--2.0%
$ 28,000 Sweden (Kingdom of),
5.17%-5.22%, 11-15-96
through 2-4-97 $ 27,749
------
Telecommunications
& Equipment--1.2%
14,150 Ameritech Corp., 5.24%,
3-24-97 13,848
3,000 Bellsouth
Telecommunications,
Inc., 5.22%, 2-4-97 2,958
-----
16,806
------
Utilities (Electric)--2.2%
30,000 National Rural Utilities
Cooperative Finance
Corp., 5.17%, 11-21-96 29,912
------
Total Commercial Paper--73.1% 999,626
-------
CERTIFICATES OF DEPOSIT--2.2%
30,000 ABN Amro Bank
Chicago, 5.54%, 11-6-96 30,000
------
OTHER CORPORATE DEBT--12.9%
32,000 Abbey National Treasury,
VRN, 5.28%, 11-21-96,
resets monthly off the
1-month LIBOR minus
.10%, final maturity 2-21-97 31,994
40,000 Bank Of America Illinois,
5.29%, 1-8-97 40,001
15,000 Bayerische Landesbank,
VRN, 5.29%, 11-1-96,
resets monthly off the
1-month LIBOR minus
.15%, final maturity 3-3-97 14,995
10,000 Ford Credit Auto Owner
Trust, Series 1996-B,
Class A1, 5.51%, 10-15-97 10,000
30,000 PNC Bank N.A. Pittsburgh,
VRN, 5.33%, 11-20-96,
resets monthly off the
1-month LIBOR minus
.05%, final maturity
12-20-96 30,000
25,000 Wachovia Bank of NC,
VRN, 5.30%, 11-5-96,
resets monthly off the
1-month LIBOR minus
.125%, final maturity 1-3-97 24,996
See Notes to Financial Statments
8
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued) October 31, 1996
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
$ 25,000 Wachovia Bank of NC,
VRN, 5.25%, 11-29-96,
resets monthly off the
1-month LIBOR minus
.125%, final maturity
5-28-97 $ 24,987
------
176,973
-------
U.S. GOVERNMENT
AGENCY SECURITIES--11.8%*
40,000 FFCB, VRN, 5.29%, 11-17-96,
resets monthly off
the 1-month LIBOR minus
.20%, final maturity 3-17-97 39,983
25,000 FHLB, VRN, 5.46%, 11-1-96,
resets daily off the Fed
Funds rate plus .15%, final
maturity 8-1-97 25,000
27,500 FNMA, MTN, 5.60%, 11-1-96 27,500
13,500 FNMA Discount Note,
5.16%, 11-20-96 13,463
25,000 FNMA, 5.31%, 12-11-96 25,011
30,000 FNMA, MTN, VRN, 5.32%,
11-1-96, resets daily off the
Fed Funds rate plus .01%,
final maturity 5-5-97 29,987
------
160,944
-------
TOTAL INVESTMENT
SECURITIES--100.0% $ 1,367,543
=============
NOTES TO SCHEDULE OF INVESTMENTS
FFCB = Federal Farm Credit Banks
FHLB = Federal Home Loan Banks
FNMA = Federal National Mortgage Association
LIBOR = London Interbank Offered Rate
MTN = Medium Term Note
resets = The frequency with which a fixed-income security's coupon changes,
based on current market conditions or an underlying index. The more frequently a
security resets, the less risk the investor is taking that the coupon will vary
significantly from current market rates.
VRN = Variable Rate Note, rates shown are effective 10-31-96. Interest reset
date is indicated and used in calculating the weighted average portfolio
maturity.
*The rates for U.S. Government Agency discount notes and commercial paper are
the yield to maturity at October 31, 1996. The rates for U.S. Government Agency
securities are the stated coupon rates.
+ Security was purchased under Rule 144A of the Securities Act of 1933 and,
unless registered under the Act or exempted from registration, may only be sold
to qualified institutional investors. The aggregate value of restricted
securities at October 31, 1996, was $121,306,187 which represented 9.0% of the
net assets of Cash Reserve.
See Notes to Financial Statements
9
STATEMENT OF ASSETS AND LIABILITIES
Cash
October 31, 1996 Reserve
($ In Thousands,
Except Per-Share
Amounts)
Assets
Investment securities, at value (Note 1)................ $1,367,543
Cash.................................................... 237
Receivable for capital shares sold...................... 3
Interest receivable..................................... 4,423
-------------
1,372,206
-------------
Liabilities
Disbursements in excess of demand deposit cash.......... 6,113
Payable for investments purchased....................... 14,994
Payable for capital shares redeemed..................... 2,152
Dividends payable....................................... 1,039
Accrued management fees (Note 2)........................ 802
Other liabilities....................................... 6
-------------
25,106
-------------
Net Assets Applicable to Outstanding Shares................ $1,347,100
=============
Capital Shares, $.01 par value
(In Thousands)
Authorized.............................................. 2,000,000
=============
Outstanding............................................. 1,347,178
=============
Net Asset Value Per Share.................................. $ 1.00
=============
Net Assets Consist Of:
Capital (par value and paid-in surplus)................. $1,347,178
Accumulated undistributed net realized (loss)
from investment transactions........................... (78)
-------------
$1,347,100
=============
See Notes to Financial Statements
10
STATEMENT OF OPERATIONS
Cash
Year Ended October 31, 1996 Reserve
($ In Thousands)
Investment Income
Income:
Interest...................................................... $76,713
----------
Expenses:
Management fees (Note 2)...................................... 9,594
Directors' fees and expenses.................................. 15
----------
9,609
----------
Net investment income............................................ 67,104
----------
Net realized gain on investments................................. 2
----------
Net Increase in Net Assets
Resulting from Operations........................................ $67,106
==========
See Notes to Financial Statements
11
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended October 31, 1996 Cash
and October 31, 1995 Reserve
($ In Thousands)
Increase (Decrease) in Net Assets 1996 1995
Operations
<S> <C> <C>
Net investment income..................................................... $ 67,104 $ 71,777
Net realized gain (loss) on investment transactions....................... 2 (80)
------------- -------------
Net increase in net assets resulting from operations...................... 67,106 71,697
------------- -------------
Distributions to shareholders
from net investment income................................................ (67,104) (71,777)
------------- -------------
Capital Share Transactions
Proceeds from shares sold................................................. 2,137,139 1,917,043
Proceeds from reinvestment of distributions............................... 64,608 69,197
Payments for shares redeemed.............................................. (2,324,195) (1,815,596)
------------- -------------
Net increase (decrease) in net assets from capital share transactions..... (122,448) 170,644
------------- -------------
Net increase (decrease) in net assets........................................ (122,446) 170,564
Net Assets
Beginning of year......................................................... 1,469,546 1,298,982
------------- -------------
End of year............................................................... $1,347,100 $1,469,546
============= =============
Transactions in shares of the Fund:
(In thousands)
Sold...................................................................... 2,137,139 1,917,043
Issued in reinvestment of distributions................................... 64,608 69,197
Redeemed.................................................................. (2,324,195) (1,815,596)
------------- -------------
Net increase (decrease)................................................... (122,448) 170,644
============= =============
</TABLE>
See Notes to Financial Statements
12
NOTES TO FINANCIAL STATEMENTS October 31, 1996
1. Organization and Summary of Significant Accounting Policies
Organization--
Twentieth Century Investors, Inc. (the Corporation) is registered
under the Investment Company Act of 1940 as an open-end diversified
management investment company. Cash Reserve (the Fund) is one of the
sixteen series of funds issued by the Corporation. The Fund's investment
objective is to obtain maximum current income consistent with the
preservation of principal and maintenance of liquidity. The fund intends to
pursue its investment objective by investing substantially all of its
assets in a portfolio of money market instruments and maintaining a
weighted average maturity of not more than 90 days. On September 3, 1996,
the Fund implemented a multiple class structure whereby the Fund is
authorized to issue three classes of shares: the Investor Class, the
Service Class and the Advisor Class. The shares outstanding prior to
September 3, 1996, were designated as Investor Class shares. The three
classes of shares differ principally in their respective shareholder
servicing and distribution expenses and arrangements. All shares of the
Fund represent an equal pro rata interest in the assets of the class to
which such shares belong, and have identical voting, dividend, liquidation
and other rights and the same terms and conditions, except for class
specific expenses and exclusive rights to vote on matters affecting only
individual classes. Sale of the Service and Advisor classes had not
commenced as of the report date. The following significant accounting
policies, related to all classes of the Fund, are in accordance with
accounting policies generally accepted in the investment company industry.
Security Valuations--
Securities are valued at amortized cost, which approximates current
value. When valuations are not readily available, securities are valued at
fair value as determined in accordance with procedures adopted by the board
of directors.
Security Transactions--
Security transactions are accounted for on the date purchased or sold.
Net realized gains and losses are determined on the identified cost basis,
which is also used for federal income tax purposes.
Investment Income--
Interest income is recorded on the accrual basis and includes
amortization of discounts and premiums.
Repurchase Agreements--
The Fund may enter into repurchase agreements with institutions that
the Fund's investment manager, Investors Research Corporation (IRC), has
determined are creditworthy pursuant to criteria adopted by the board of
directors. Each repurchase agreement is recorded at cost. The Fund requires
that the securities purchased 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. IRC
monitors, on a daily basis, the value of the securities transferred to
ensure that the value, including accrued interest, of the securities under
each repurchase agreement is equal to or greater than amounts owed to the
Fund under each repurchase agreement.
13
Joint Trading Account--
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies
having management agreements with IRC, may transfer uninvested cash
balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
Income Tax Status--
It is the Fund's policy to distribute all taxable income and to
otherwise qualify as a regulated investment company under provisions of
the Internal Revenue Code. Accordingly, no provision has been made for
federal income taxes.
Distributions to Shareholders--
Distributions from net investment income are declared daily and
distributed monthly. The Fund does not expect to realize any long-term
capital gains, and accordingly, does not expect to pay any capital gains
distributions.
Supplementary Information--
Certain officers and directors of the Corporation are also officers
and/or directors, and, as a group, controlling stockholders of Twentieth
Century Companies, Inc., the parent of the Corporation's investment
manager, IRC, the Corporation's distributor, Twentieth Century Securities
and the Corporation's transfer agent, Twentieth Century Services, Inc.
Use of Estimates--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of increases and decreases
in net assets from operations during the reporting period. Actual results
could differ from those estimates.
2. Transactions with Related Parties
The Corporation has entered into Management Agreements with IRC that
provides the Fund with investment advisory and management services in
exchange for a single, unified management fee per class. Additional fees
apply to the Advisor Class and Service Class shares, as described in the
respective prospectuses. The Agreements provide that all expenses of the
Fund, except brokerage commissions, taxes, interest, expenses of those
directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by IRC. The fee is computed daily and paid monthly
based on the Fund's average daily closing net assets during the previous
month. The annual management fee for the Investor Class is .70%.
14
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
Years Ended October 31,
1996 1995 1994 1993(1) 1992(1)
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........... $1.00 $1.00 $1.00 $1.00 $1.00
------- --------- --------- --------- ---------
Income from
Investment Operations
Net Investment
Income ..................... .05 .05 .03 .02 .04
------- --------- --------- --------- ---------
Distributions
From Net Investment
Income...................... (.05) (.052) (.032) (.023) (.037)
------- --------- --------- --------- ---------
Net Asset Value,
End of Period................. $1.00 $1.00 $1.00 $1.00 $1.00
======= ======== ======== ======== ========
Total Return(2)............. 4.99% 5.38% 3.21% 2.30% 3.74%
Ratios/Supplemental Data
Ratio of Expenses
to Average Net Assets....... .70% .70% .80% 1.00% .98%3
Ratio of Net Investment
Income to Average
Net Assets.................. 4.88% 5.27% 3.18% 2.30% 3.62%
Net Assets, End
of Period (in thousands).... $1,347,106 $1,469,546 $1,298,982 $1,256,012 $1,487,961
</TABLE>
(1)The data presented has been restated to give effect to a 100 for 1 stock
split in the form of a stock dividend that occurred on November 13, 1993.
(2)Total return assumes reinvestment of dividends and capital gains
distributions, if any.
(3)Expenses are shown net of management fees waived by Investors Research
Corporation for low-balance account fees collected during the period.
See Notes to Financial Statements
15
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Board of Directors:
Twentieth Century Investors, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Cash Reserve Fund (one of the
sixteen funds comprising TWENTIETH CENTURY INVESTORS, INC.), as of October 31,
1996, and the related statement of operations, the statements of changes in net
assets and the financial highlights for each of the periods indicated. These
financial statements and financial highlights are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and brokers. As to
securities purchased but not received, we requested confirmations from brokers,
and when replies were not received, we performed alternative auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Cash Reserve Fund as of October 31, 1996, and the results of its operations,
changes in its net assets and the financial highlights for each of the periods
indicated in conformity with generally accepted accounting principles.
/s/BAIRD, KURTZ & DOBSON
BAIRD, KURTZ & DOBSON
Kansas City, Missouri
November 20, 1996
16
TWENTIETH CENTURY INVESTORS, INC.
Investment Manager
INVESTORS RESEARCH CORPORATION
Kansas City, Missouri
This report and the
financial 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.
Twentieth Century Mutual Funds
and The Benham Group
- ------------------------------
P.O. Box 419200
Kansas City, Missouri
64141-6200
- ------------------------------
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
- ------------------------------
Automated information line:
1-800-345-8765
- ------------------------------
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
- ------------------------------
Fax: 816-340-7962
- ------------------------------
Internet: www.twentieth-century.com
- ------------------------------
TWENTIETH CENTURY
Cash Reserve
Fund
Annual Report
October 31, 1996
Cash Reserve Fund
-----------------
TWENTIETH CENTURY
INVESTORS, INC.
SH-BKT-6145 [recycled logo]
9612 Recycled
Twentieth Century Securities, Inc.
TWENTIETH CENTURY
U.S. Government
Bond Funds
Annual Report
OCTOBER 31,
1996
U.S. Governments Short-Term
U.S. Governments Intermediate-Term
- --------------------------------------------------------------------------------
TWENTIETH CENTURY INVESTORS, INC.
[cover page]
TABLE OF CONTENTS
Our Message to You.......................................................1
Investment Philosophy....................................................2
Period Overview..........................................................3
Management Q&As
U.S. Governments Short-Term..........................................4
U.S. Governments Intermediate-Term...................................6
Schedules of Investments
U.S. Governments Short-Term..........................................8
U.S. Governments Intermediate-Term...................................8
Statements of Assets and Liabilities....................................10
Statements of Operations................................................11
Statements of Changes in Net Assets.....................................12
Notes to Financial Statements...........................................13
Financial Highlights....................................................15
Independent Accountants' Report.........................................17
IMPORTANT NOTICE FOR ALL IRA AND 403(b) SHAREHOLDERS
Any distribution you receive from an IRA and certain 403(b) distributions
[those not eligible for rollover to an IRA or to another 403(b)] are subject to
federal income tax withholding at the rate of 10% of the total amount withdrawn,
unless you elect not to have withholding apply. If you don't want us to withhold
this amount, you may send us a written election not to have federal income tax
withheld. Your written election is valid for six months from the date of receipt
by Twentieth Century. Even if you plan to roll over the amount you withdraw to
another tax-deferred account, the withholding rate still applies to the
withdrawn amount, unless we have received a written election not to withhold
within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Conversions/Redemptions form or an IRS Form W-4P. Call Twentieth Century for
either form. Your written election is valid for only six months from the date of
receipt by Twentieth Century. You may revoke your election at any time by
sending a written notice to us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
Twentieth Century Mutual Funds and The Benham Group are registered marks of
Twentieth Century Services, Inc. and Benham Management Corporation,
respectively. American Century is a service mark of Twentieth Century Services,
Inc.
ii
October 31, 1996
- --------------------------------------------------------------------------------
OUR MESSAGE TO YOU
The twelve months ended October 31, 1996, were distinguished by change, both
in the U.S. bond market and at Twentieth Century. After a rocky period in the
first half of 1996, bonds stabilized during the summer and enjoyed a rebound in
October. In the following pages, our investment management team provides some
further details about the market's changing direction and how your fund was
managed throughout the period.
[photo of James E. Stowers and James E. Stowers III]
On the corporate front, we completed the operational integration of
Twentieth Century and The Benham Group in September. As a result, you now have
direct access to a broader spectrum of funds and services, including the Benham
family of U.S. Treasury, government and municipal funds. Another integration
landmark is the new Twentieth Century Web site. If you use a personal computer
and have access to the Internet, we've made it easier for you to download
information about Twentieth Century and Benham funds and access your fund
accounts. You can view account balances, exchange money between existing
accounts and make additional investments. The Web site address is:
www.twentieth-century.com. We are one of the first fund companies to offer
direct on-line transactions via the Internet.
In October, we announced the new name for our recently integrated company.
Beginning January 1, 1997, we will serve you under the name American Century
Investments, which reflects our expanded identity, the spirit of independence
common to Twentieth Century and Benham, and our optimism for a new century of
continued American prosperity. American Century's fund family will be divided
into three groups--the Benham Group, American Century Group and Twentieth
Century Group. The U.S. Governments Short-Term and Intermediate-Term funds will
be part of the Benham Group because the funds' investment style--conservative
fixed-income--matches the key attributes of that group.
You may have noticed that this annual report includes only U.S. Governments
Short-Term and Intermediate-Term, whereas in the past it covered nine funds.
This new focused format allows us to give you better information by tailoring
the report specifically to the issues that are most relevant to you and your
fund.
We continue to work to provide you with information and services that we
believe are useful and convenient to you. Thank you for investing with us.
Sincerely,
/s/James E. Stowers
James E. Stowers
Chairman of the Board and Founder
/s/James E. Stowers III
James E. Stowers III
President and Chief Executive Officer
1
INVESTMENT PHILOSOPHY
Twentieth Century introduced its first fixed-income fund in 1982. Today,
with Twentieth Century's acquisition of The Benham Group, the combined company
offers 41 fixed-income funds, ranging from money market funds to long-term bond
funds, including both taxable and tax-exempt funds.
- --------------------------------------------------------------------------------
U.S. Governments Short-Term
U.S. Governments Short-Term, which was established on December 15, 1982, is
intended for investors seeking income with limited price fluctuations. The fund
invests in securities of the U.S. government and its agencies and seeks to
maintain a weighted average maturity of three years or less.
- --------------------------------------------------------------------------------
U.S. Governments
Intermediate-Term
U.S. Governments Intermediate-Term, which was established on March 1, 1994,
is intended for investors who seek a higher level of current income and can
accept a greater degree of price fluctuation. The fund invests in securities of
the U.S. government and its agencies and seeks to maintain a weighted average
maturity of three to 10 years.
- --------------------------------------------------------------------------------
Comparative Indices
The indices listed below are used in this report to serve as comparisons for
the performance of a fund. They are not investment products available for
purchase.
Consumer Price Index is a measure of the average change in prices over time
in a fixed market basket of goods and services.
Merrill Lynch Government (1-3 Year) Index is based on the price fluctuations
of U.S. Treasury notes with maturities of one to three years.
Lehman Intermediate Government Bond Index is made up of more than 855 issues
with an average maturity of 3.8 years and an average yield of 7.1%.
Approximately 87% of the index is U.S. Treasury issues--the other 13% is U.S.
government agency issues.
Portfolio Management Team
- --------------------------------------------------------------------------------
Bob Gahagan, Vice President and Senior Portfolio Manager
Dave Schroeder, Vice President and Senior Portfolio Manager
Casey Colton, Portfolio Manager
2
October 31, 1996
- --------------------------------------------------------------------------------
PERIOD OVERVIEW
U.S. Economy
A series of interest rate cuts by the Federal Reserve (the Fed) beginning in
1995 and culminating in January 1996 helped the U.S. economy rebound in 1996. An
improving retail sector, surging auto sales and a resilient housing market
helped the economy expand at an impressive 4.7% annual rate in the second
quarter of 1996. The economy remained strong throughout the summer as healthy
employment growth sent the national unemployment rate to a six-year low of 5.1%.
However, this trend appeared to reverse itself in the third quarter as economic
growth slowed to a more sedate 2.2% annual pace. Some recent economic data seem
to suggest that slowing could continue, but there has been enough conflicting
evidence to cause considerable uncertainty about the rate of growth going
forward.
In spite of the second-quarter surge in growth, inflation remained tame
during the period. For the twelve months ended October 31, 1996, inflation (as
measured by the consumer price index) rose at a 3.0% annualized rate. In light
of this lack of inflationary pressure, the Fed held short-term interest rates
steady from February through October.
U.S. Bond Market
Much like the economy, the U.S. bond market experienced several distinct
shifts during the 12 months ended October 31, 1996. The end result was slightly
positive performance across all maturity sectors. For example, the two-year
Treasury note posted a total return of 5.6% during the period, while the 30-year
Treasury bond returned 2.7%.
In late 1995, the bond market extended its year-long rally as the economy
continued to grow at a moderate pace. But bond yields soared during the first
and second quarters of 1996, when signs of stronger economic growth sparked
inflation fears. The 30-year Treasury bond yield, which had fallen as low as 6%
in January, rose above 7% by May as the market priced in an interest rate
increase by the Fed (see the accompanying graph).
Bonds traded listlessly throughout the summer, reflecting the market's
uncertainty about the economic outlook. But the Fed held short-term interest
rates steady through the end of the period, and increasing evidence of
moderating economic growth ultimately convinced the bond market that a rate hike
was unnecessary. This conclusion sparked a substantial rebound in bond prices,
causing Treasury yields to fall by 30-40 basis points (a basis point equals
0.01%) across the maturity spectrum in October.
U.S. government agency securities performed well versus Treasurys during the
period. While demand was strong for agency securities, issuance was relatively
light, causing yield spreads between agency and Treasury securities to tighten.
Mortgage-backed securities, with their higher yields, outperformed both Treasury
and agency securities during the period.
[line graph - data below]
Treasury Yield Curve
Years 10/31/95 4/30/96 10/31/96
1 5.541% 5.611% 5.404%
2 5.608 6.043 5.732
3 5.681 6.183 5.860
4 5.740 6.320 5.890
5 5.804 6.409 6.070
6 5.872 6.495 6.105
7 5.940 6.580 6.140
8 5.966 6.610 6.207
9 5.992 6.640 6.274
10 6.018 6.670 6.341
11 6.034 6.711 6.376
12 6.051 6.752 6.411
13 6.067 6.793 6.445
14 6.084 6.834 6.480
15 6.100 6.875 6.515
16 6.116 6.916 6.550
17 6.132 6.957 6.585
18 6.148 6.998 6.620
19 6.164 7.039 6.655
20 6.180 7.080 6.690
21 6.195 7.062 6.685
22 6.210 7.044 6.680
23 6.225 7.026 6.675
24 6.240 7.008 6.670
25 6.255 6.990 6.665
26 6.270 6.973 6.660
27 6.286 6.956 6.655
28 6.301 6.938 6.651
29 6.317 6.921 6.646
30 6.332 6.904 6.641
3
U.S. GOVERNMENTS SHORT-TERM
- --------------------------------------------------------------------------------
Management Q & A
An interview with Bob Gahagan, Vice President and Senior Portfolio Manager.
Q: How did the fund perform?
A: For the fiscal year ended October 31, 1996, the fund nearly kept pace with
its peer group average, producing a 5.09% total return versus the 5.15%
average total return for the 54 "Short U.S. Government Funds" tracked by
Lipper Analytical Services.
Q: How was the fund positioned during the period?
A: For most of the period, the fund was positioned similarly to many of its
peers in terms of duration and weighted average maturity. When government
employment reports showed signs of surging economic growth in the first and
second quarters of 1996, we shortened the fund's duration from just over
two years in January to around 1.7 years by June. When subsequent reports
showed that fears of brisk economic growth and wage inflation were
exaggerated, we began to cautiously extend the fund's duration.
Q: How did this affect the fund's performance?
A: The fund's performance was aided by its shorter duration in the spring and
summer when bond yields were moving higher. And though the fund's duration
was shorter than its peer group average when bonds rallied in September and
October 1996,
QUICK
FUND
FACTS
-----
U.S. GOVERNMENTS SHORT-TERM
---------------------------
Strategy:
Competitive level
of current income
with limited price volatility.
Inception date:
December 15, 1982
Size:
$349.8 million
(as of October 31, 1996)
- --------------------------------------------------------------------------------
Average Annual Total Returns
(as of October 31, 1996)
U.S. Governments Merrill Lynch Govt.
Short-Term (1-3 Year) Index
---------- ----------------
1 Year 5.09% 5.91%
5 Years 4.94% 5.97%
10 Years 6.07% 7.20%
- --------------------------------------------------------------------------------
[pie chart]
Asset Allocation (as of October 31, 1996)
- --------------------------------------------------------------------------------
U.S. Government Agency Securities 26%
Mortgage-Backed Securities 30%
U.S. Treasury Securities 44%
Percent of fund investments.
[mountain graph - data below]
- --------------------------------------------------------------------------------
$10,000 Over a 10-Year Period
Value on 10/31/96:
- ------------------
$18,027 U.S. Governments Short-Term
$20,049 Merrill Lynch Govt. (1-3 Year)
$14,064 Consumer Price Index*
$10,000
investment
made on 10/31/86
U.S. Governments Merrill Lynch Consumer Price Index
Short-Term Govt. (1-3 Year)
10/31/86 $10000 $10000 $10000
Dec-86 10067 10091 10018
Mar-87 10179 10217 10063
Jun-87 10133 10284 10189
Sep-87 10063 10302 10317
Dec-87 10452 10660 10356
Mar-88 10729 10942 10455
Jun-88 10828 11055 10590
Sep-88 10979 11216 10752
Dec-88 11041 11324 10814
Mar-89 11151 11465 10975
Jun-89 11723 12035 11137
Sep-89 11833 12210 11218
Dec-89 12145 12555 11317
Mar-90 12106 12667 11550
Jun-90 12400 13021 11657
Sep-90 12632 13332 11909
Dec-90 13061 13776 12008
Mar-91 13276 14079 12116
Jun-91 13503 14356 12205
Sep-91 14009 14839 12313
Dec-91 14581 15385 12376
Mar-92 14459 15409 12502
Jun-92 14853 15852 12583
Sep-92 15284 16325 12681
Dec-92 15221 16354 12735
Mar-93 15511 16716 12887
Jun-93 15642 16896 12960
Sep-93 15807 17138 13022
Dec-93 15857 17239 13084
Mar-94 15694 17153 13210
Jun-94 15655 17167 13281
Sep-94 15786 17337 13407
Dec-94 15778 17337 13434
Mar-95 16280 17920 13453
Jun-95 16775 18494 13551
Sep-95 17006 18771 13614
Dec-95 17437 19244 13641
Mar-96 17428 19308 13836
Jun-96 17590 19503 13924
Sep-96 17835 19825 14022
Oct-96 18027 20049 14064
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Merrill Lynch Government Index's total return line does not.
*Source: Lipper Analytical Services, Inc.
4
October 31, 1996
- --------------------------------------------------------------------------------
U.S. GOVERNMENTS SHORT-TERM
the fund managed to keep pace with its competitors because of the extra
return provided by its government agency and mortgage-backed securities.
Q: Can you elaborate?
A: Over the past year, we cut the fund's Treasury position from 83% to 44%,
moving these assets into government agency and mortgage-backed securities.
We've maintained a 20-30% weighting in mortgage-backeds throughout 1996.
The higher yields offered by these securities helped them to outperform
both Treasury and agency securities while bond prices languished for most
of the year.
In April, we began shifting some of the fund's Treasury holdings into
government agency securities, specifically callable agency notes, which
typically yield more than non-callables because of the added risk of the
call feature. Callable securities generally perform best if interest rates
remain in a relatively narrow range or move higher, as they did during the
last six months.
As of October 31, 26% of the fund's assets were invested in agency
securities. The higher yield provided by these agency notes, coupled with
the tightening of Treasury/agency yield spreads, enhanced fund performance.
(A "yield spread" is the difference between the yields of two different
types of debt securities with comparable maturities and is used to
determine their relative values.)
Q: What is your outlook for bonds over the next six months?
A: There is still considerable uncertainty regarding the strength of economic
growth going forward. While many market participants believe that growth
will slow significantly over the next few months, we think it possible that
consumer spending, which accounts for about two-thirds of the U.S. economy,
may not slow as much as some analysts expect. Currently, U.S. bond markets
seem appropriately priced for a steady Fed interest rate policy. As long as
economic data continue to support a steady monetary policy, we see no
reason for short- and intermediate-term interest rates to move dramatically
in either direction.
Q: How will this outlook affect your plans for the fund going forward?
A: We plan to maintain the fund's neutral duration until we see a significant
shift in market sentiment or economic fundamentals. If yield spreads
between Treasury and agency securities continue to tighten, our next move
would be to reduce our exposure to the agency market, which has performed
well relative to Treasurys over the last six months.
If we begin to see signs of a weakening economy, which could cause the Fed
to lower short-term interest rates, we would extend the fund's duration and
look to either (1) restructure our mortgage-backed position by selling
premium bonds (bonds trading above par value) and replacing them with
discount mortgage-backed securities, which tend to perform better than
premiums as rates fall; or (2) increase the fund's Treasury position by
reducing our holdings in mortgage-backed securities.
Quality Diversification (as of October 31, 1996)
- --------------------------------------------------------------------------------
(Moody's rating) % of fund investments
AAA 100%
Weighted Average Maturity (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 2.0
Weighted average maturity indicates the average time until the principal on the
Fund's bond portfolio is expected to be repaid, weighted by dollar amount.
Duration (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 1.7
Duration is a measure of the sensitivity of a portfolio to changes in interest
rates. As the duration of a fund increases, the impact of a change in interest
rates on the value of its portfolio also increases.
5
- --------------------------------------------------------------------------------
U.S. GOVERNMENTS INTERMEDIATE-TERM
- --------------------------------------------------------------------------------
Management Q & A
An interview with Casey Colton, Portfolio Manager.
Q: How did the fund perform?
A: For the fiscal year ended October 31, 1996, the fund returned 4.12% versus
the 4.57% average total return for the 124 "Intermediate U.S. Government
Funds" tracked by Lipper Analytical Services. For the second half of the
period--from April 30 to October 31--the fund kept better pace with its
peer group average, posting a total return of 4.39%, compared with the
4.41% average return of its Lipper group.
Q: How was the fund positioned during the period?
A: The fund's duration was relatively long for the first half of 1996, but a
brief bond market rally in July gave us an opportunity to return to a
neutral stance more consistent with the fund's objectives and asset size.
We trimmed our slightly aggressive position in U.S. Treasury notes and
shortened the fund's duration by about three-tenths of a year.
Q: But the fund's duration actually fell by seven-tenths of a year (from 4.3
years to 3.6 years) between April and October.
A: That's true. When bonds rallied strongly in October, the duration of the
fund's mortgage-backed securities contracted. This character-
QUICK
FUND
FACTS
-----
U.S. GOVERNMENTS INTERMEDIATE-TERM
----------------------------------
Strategy:
Competitive level of
current income with
limited price volatility.
Inception date:
March 1, 1994
Size:
$24.4 million
(as of October 31, 1996)
- --------------------------------------------------------------------------------
Average Annual Total Returns
(as of October 31, 1996)
U.S. Governments Lehman Intermediate
Intermediate-Term Govt. Bond Index
- --------------------------------------------------------------------------------
1 Year 4.12% 5.67%
Inception 5.38% 5.95%
(3/1/94 to 10/31/96)
[pie chart]
- --------------------------------------------------------------------------------
Asset Allocation (as of October 31, 1996)
Mortgage-Backed Securities 26%
Temporary Cash Investments 3%
U.S. Treasury Securities 71%
Percent of fund investments.
[mountain graph - data below]
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
Value on 10/31/96:
- -----------------
$11,501 U.S. Governments Intermediate-Term
$11,667 Lehman Intermediate Govt. Bond Index
$10,789 Consumer Price Index*
$10,000
investment
made on 3/1/94
(Inception date)
U.S. Governments Lehman Govt. Consumer Price Index
Intermediate-Term Intermediate
3/1/94 $10000 $10000 $10000
Mar-94 9895 9854 10034
Apr-94 9851 9790 10048
May-94 9854 9797 10055
Jun-94 9846 9799 10089
Jul-94 9962 9927 10117
Aug-94 9979 9956 10157
Sep-94 9892 9873 10184
Oct-94 9899 9875 10192
Nov-94 9854 9831 10205
Dec-94 9893 9863 10205
Jan-95 10030 10024 10246
Feb-95 10216 10217 10286
Mar-95 10271 10274 10320
Apr-95 10377 10393 10355
May-95 10687 10686 10375
Jun-95 10749 10754 10396
Jul-95 10726 10760 10396
Aug-95 10822 10849 10423
Sep-95 10905 10922 10444
Oct-95 11046 11042 10478
Nov-95 11196 11177 10471
Dec-95 11323 11287 10463
Jan-96 11408 11382 10525
Feb-96 11198 11261 10559
Mar-96 11103 11210 10614
Apr-96 11017 11177 10655
May-96 10977 11171 10675
Jun-96 11106 11285 10682
Jul-96 11136 11320 10702
Aug-96 11130 11333 10722
Sep-96 11297 11479 10757
Oct-96 11501 11667 10789
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Lehman Bond Index's total return line does not.
*Source: Lipper Analytical Services, Inc.
6
October 31, 1996
- --------------------------------------------------------------------------------
U.S. GOVERNMENTS INTERMEDIATE-TERM
istic, known as "negative convexity," is displayed by callable securities.
Negative convexity causes callable bond durations to shorten as interest
rates fall.
This also explains why we like to keep the bulk of the fund's assets in
Treasurys. A heavier weighting in mortgage-backed securities would mean
more duration contraction during market rallies, when we ideally want
longer duration in order to capture as much price appreciation as possible.
The fund's Lipper peer group is on average more heavily invested in
mortgage-backed securities than the fund, consequently it experienced an
even larger drop in average duration when the market rallied. It is
important to note that the actual impact of negative convexity on fund
performance can sometimes be delayed, because mortgage prepayments can lag
a sharp drop in interest rates by two months or more.
Q: What is the current breakdown of the fund's holdings?
A: From April through October we held about 70% of the fund's assets in
Treasurys and 26% in mortgage-backed securities. The higher yields offered
by mortgage-backed securities allowed them to outperform both Treasury and
agency securities while 30-year Treasury bond yields remained in a
6.75%-7.25% range for most of 1996.
Q: Speaking of agency securities, why haven't you included any in the fund's
portfolio?
A: Because of its small size, the fund loses considerable liquidity when we
fragment its assets into a number of different security sectors. Lower
liquidity makes it difficult to adjust the fund for sudden changes in
market direction. To increase liquidity, we have consolidated the fund's
holdings into Treasury and mortgage-backed securities, and we do not
anticipate adding agency securities to the portfolio.
Q: What are your plans for the fund going forward?
A: Given the continuing uncertainty regarding the economic outlook, we will
likely keep the fund's duration neutral. We intend to maintain the fund's
current Treasury/mortgage weightings, which will benefit the fund if the
bond market continues to rally. If we see a flattening trend in the yield
curve and a further bond market rally (which could lead to underperformance
of longer-maturity bonds), we will likely sell some of the fund's
longer-term securities (10 years and above) and move those assets into
shorter-term (two- to five-year) securities.
Quality Diversification (as of October 31, 1996)
- --------------------------------------------------------------------------------
(Moody's rating) % of fund investments
AAA 100%
Weighted Average Maturity (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 5.6
Weighted average maturity indicates the average time until the principal on the
Fund's bond portfolio is expected to be repaid, weighted by dollar amount.
Duration (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 3.6
Duration is a measure of the sensitivity of a portfolio to changes in interest
rates. As the duration of a fund increases, the impact of a change in interest
rates on the value of its portfolio also increases.
7
SCHEDULES OF INVESTMENTS October 31, 1996
U.S. GOVERNMENTS SHORT-TERM
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES--43.6%
$ 23,100 U.S. Treasury Notes,
5.75%, 9-30-97 $ 23,160
23,100 U.S. Treasury Notes,
7.375%, 11-15-97 23,517
12,800 U.S. Treasury Notes,
5.375%, 11-30-97 12,777
11,070 U.S. Treasury Notes,
5.00%, 1-31-98 10,990
11,080 U.S. Treasury Notes,
7.25%, 2-15-98 11,297
11,000 U.S. Treasury Notes,
6.125%, 3-31-98 11,075
12,000 U.S. Treasury Notes,
5.875%, 10-31-98 12,028
12,925 U.S. Treasury Notes,
5.00%, 1-31-99 12,711
18,600 U.S. Treasury Notes,
5.00%, 2-15-99 18,288
10,615 U.S. Treasury Notes,
6.75%, 5-31-99 10,840
4,670 U.S. Treasury Notes,
7.75%, 2-15-01 4,969
-----
(Cost $150,707) 151,652
-------
U.S. GOVERNMENT AGENCY
SECURITIES--26.1%
44,500 FHLB, 5.99%, 2-9-98 44,657
6,000 FHLB, 6.25%, 3-9-98 6,041
9,290 FHLMC, 5.19%, 1-20-99 9,129
25,000 FNMA, 6.01%, 10-9-98 25,060
6,000 FNMA, 5.20%, 2-18-99 5,894
-----
(Cost $90,380) 90,781
------
MORTGAGE-BACKED
SECURITIES*--30.3%
15,177 FHLMC Series 1344 B TAC
REMIC, 6.00%, 10-15-05 15,105
6,500 FHLMC Series 1836 C PAC
REMIC, 6.25%, 6-15-14 6,493
6,650 FHLMC Series 1822 B PAC
REMIC, 6.50%, 2-15-16 6,685
14,404 FHLMC Series 1834 A PAC
REMIC, 7.00%, 1-15-20 14,490
$ 14,515 FHLMC Series 1861 E PAC
REMIC, 6.50%, 8-15-20 $ 14,436
9,988 FNMA 93 Series 93 C PAC
REMIC, 5.50%, 2-25-06 9,870
4,372 FNMA 93 Series 185 PB PAC
REMIC, 4.90%, 4-25-09 4,346
8,996 FNMA 96 Series 10 A PAC
REMIC, 6.50%, 11-25-17 8,999
9,915 FNMA 96 Series 12 A PAC
REMIC, 6.50%, 12-25-17 9,923
7,418 FNMA G93 Series 29 A PAC
REMIC, 6.65%, 10-25-18 7,415
7,509 FNMA 96 Series 16 D PAC
REMIC, 7.00%, 8-25-21 7,535
-----
(Cost $104,230) 105,297
-------
TOTAL INVESTMENT
SECURITIES--100.0% $ 347,730
=============
(Cost $345,317)
U.S. GOVERNMENTS INTERMEDIATE-TERM
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES--70.9%
$ 1,160 U.S. Treasury Notes,
8.25%, 7-15-98 $ 1,208
600 U.S. Treasury Notes,
6.375%, 5-15-99 607
3,000 U.S. Treasury Notes,
6.00%, 8-15-99 3,009
1,270 U.S. Treasury Notes,
8.00%, 8-15-99 1,338
1,625 U.S. Treasury Notes,
6.875%, 8-31-99 1,666
485 U.S. Treasury Notes,
7.125%, 9-30-99 501
500 U.S. Treasury Notes,
6.125%, 7-31-00 502
975 U.S. Treasury Notes,
6.25%, 8-31-00 983
1,000 U.S. Treasury Notes,
6.125%, 9-30-00 1,004
725 U.S. Treasury Notes,
5.75%, 10-31-00 718
See Notes to Financial Statements
8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
$ 1,395 U.S. Treasury Notes,
7.50%, 11-15-01 $ 1,478
600 U.S. Treasury Notes,
7.50%, 5-15-02 639
960 U.S. Treasury Notes,
6.375%, 8-15-02 972
1,000 U.S. Treasury Notes,
6.50%, 8-15-05 1,011
405 U.S. Treasury Bonds,
9.125%, 5-15-09 470
830 U.S. Treasury Bonds,
9.25%, 2-15-16 1,058
-----
(Cost $17,277) 17,164
------
MORTGAGE-BACKED
SECURITIES*--26.4%
300 FHLMC Series 1576 PD
PAC REMIC, 5.50%, 9-15-02 297
194 FHLMC Pool #E00279,
6.50%, 2-1-09 192
562 FHLMC Gold Pool #G10418,
6.50%, 11-1-10 554
518 FHLMC Gold Pool #G10461,
5.50%, 2-1-11 490
1,063 FHLMC Gold Pool #E63092,
6.00%, 3-1-11 1,026
300 FHLMC Series 1684 D PAC
REMIC, 5.35%, 11-15-14 295
281 FHLMC Series 1702-B TA
PAC REMIC, 5.85%, 11-15-17 280
1,000 FHLMC Series 1684 F PAC
REMIC, 5.75%, 8-15-20 958
1,485 FNMA Series 1993-5 G PAC
REMIC, 7.15%, 9-25-06 1,498
557 GNMA GPM Pool #009314,
9.75%, 4-20-25 595
195 GNMA SF II Pool #002124,
9.00%, 11-20-25 205
---
(Cost $6,443) 6,390
-----
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
TEMPORARY
CASH INVESTMENTS--2.7%
Repurchase Agreement,
Merrill Lynch & Co., Inc.,
(U.S. Treasury obligations),
in a joint trading account at 5.50%,
dated 10-31-96, due 11-1-96
(Delivery value $660) $ 660
------
(Cost $660)
TOTAL INVESTMENT
SECURITIES--100.0% $ 24,214
======
(Cost $24,380)
Notes to schedules of investments
- ---------------------------------
FHLB = Federal Home Loan Banks
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
*Final maturity indicated. Expected remaining average life used for purposes of
calculating the weighted average portfolio maturity.
See Notes to Financial Statements
9
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1996
U.S. Governments U.S. Governments
Short-Term Intermediate-Term
($ In Thousands, Except Per-Share Amounts)
<S> <C> <C>
Assets
Investment securities, at value (identified
cost of $345,317 and $24,380,
respectively) (Note 3) ........................... $ 347,730 $ 24,214
Receivable for capital shares sold ................ -- 14
Interest receivable ............................... 3,822 317
--------- ---------
351,552 24,545
--------- ---------
Liabilities
Disbursements in excess of demand deposit cash .... 1,079 79
Payable for capital shares redeemed ............... 182 7
Dividends payable ................................. 311 21
Accrued management fees (Note 2) .................. 208 16
--------- ---------
1,780 123
--------- ---------
Net Assets Applicable to Outstanding Shares .......... $ 349,772 $ 24,422
========= =========
Capital Shares, $.01 par value
(In Thousands)
Authorized ........................................ 100,000 100,000
========= =========
Outstanding ....................................... 36,941 2,481
========= =========
Net Asset Value Per Share ............................ $ 9.47 $ 9.84
========= =========
Net Assets Consist Of:
Capital (par value and paid-in surplus) ........... $ 367,317 $ 24,251
Accumulated undistributed net realized gain (loss)
from investment transactions ..................... (19,958) 337
Net unrealized appreciation (depreciation) on
investments (Note 3) ............................. 2,413 (166)
--------- ---------
$ 349,772 $ 24,422
========= =========
</TABLE>
See Notes to Financial Statements
10
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Year Ended October 31, 1996
U.S. Governments U.S. Governments
Short-Term Intermediate-Term
----------($ In Thousands)----------
Investment Income
Income:
Interest.................................... $22,514 $ 1,511
---------- ----------
Expenses:
Management fees (Note 2).................... 2,570 180
Directors' fees and expenses................ 4 --
---------- ----------
2,574 180
---------- ----------
Net investment income.......................... 19,940 1,331
---------- ----------
Realized and Unrealized Gain (Loss) on
Investments (Note 3)
Net realized gain (loss) on investments........ (339) 338
Change in net unrealized appreciation
(depreciation) on investments............... (1,269) (720)
---------- ----------
Net realized and unrealized (loss)
on investments................................. (1,608) (382)
---------- ----------
Net Increase in Net Assets
Resulting from Operations...................... $18,332 $ 949
========== ==========
See Notes to Financial Statments
11
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended October 31, 1996
and October 31, 1995
U.S. Governments U.S. Governments
Short-Term Intermediate-Term
---------- -----------------
($ In Thousands)
Increase (Decrease) in Net Assets 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operations
Net investment income ....................................... $ 19,940 $ 21,486 $ 1,331 $ 840
Net realized gain (loss) on
investment transactions .................................... (339) 506 338 200
Change in net unrealized appreciation
(depreciation) on investments .............................. (1,269) 9,263 (720) 629
--------- --------- --------- ---------
Net increase in net assets
resulting from operations .................................. 18,332 31,255 949 1,669
--------- --------- --------- ---------
Distributions to Shareholders
From net investment income .................................. (19,940) (21,486) (1,331) (840)
From net realized gains from
investment transactions .................................... -- -- (131) --
--------- --------- --------- ---------
Decrease in net assets from distributions ................... (19,940) (21,486) (1,462) (840)
--------- --------- --------- ---------
Capital Share Transactions
Proceeds from shares sold ................................... 78,893 86,423 19,986 21,446
Proceeds from reinvestment of distributions ................. 18,705 20,147 1,405 805
Payments for shares redeemed ................................ (137,549) (121,761) (18,437) (7,379)
--------- --------- --------- ---------
Net increase (decrease) in net assets
from capital share transactions ............................ (39,951) (15,191) 2,954 14,872
--------- --------- --------- ---------
Net increase (decrease) in net assets .......................... (41,559) (5,422) 2,441 15,701
Net Assets
Beginning of year ........................................... 391,331 396,753 21,981 6,280
--------- --------- --------- ---------
End of year ................................................. $ 349,772 $ 391,331 $ 24,422 $ 21,981
========= ========= ========= =========
Transactions in shares of the Funds:
(In thousands)
Sold ........................................................ 8,327 9,240 2,025 2,205
Issued in reinvestment of distributions ..................... 1,977 2,152 143 82
Redeemed .................................................... (14,531) (13,034) (1,877) (754)
--------- --------- --------- ---------
Net increase (decrease) ..................................... (4,227) (1,642) 291 1,533
========= ========= ========= =========
See Notes to Financial Statements
</TABLE>
12
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS October 31, 1996
1. Organization and Summary of Significant Accounting Policies
Organization--
Twentieth Century Investors, Inc. (the Corporation) is registered
under the Investment Company Act of 1940 as an open-end diversified
management investment company. U.S. Governments Short-Term and U.S.
Governments Intermediate-Term (the Funds) are two of the sixteen series of
funds issued by the Corporation. The investment objective of U.S.
Governments Short-Term is to seek income. The Fund intends to pursue this
by investing in securities of the U.S. government and its agencies and
maintaining a weighted average maturity of three years or less. The
investment objective of U.S. Governments Intermediate-Term is to seek a
competitive level of income. The Fund intends to pursue this by investing
in securities of the U.S. government and its agencies and maintaining a
weighted average maturity of three to 10 years. On September 3, 1996, the
Funds implemented a multiple class structure whereby the Funds are
authorized to issue three classes of shares: the Investor Class, the
Service Class and the Advisor Class. The shares outstanding prior to
September 3, 1996, were designated as Investor Class shares. The three
classes of shares differ principally in their respective shareholder
servicing and distribution expenses and arrangements. All shares of each
fund represent an equal pro rata interest in the assets of the class to
which such shares belong, and have identical voting, dividend, liquidation
and other rights and the same terms and conditions, except for class
specific expenses and exclusive rights to vote on matters affecting only
individual classes. Sale of the Service and Advisor classes had not
commenced as of the report date. The following significant accounting
policies, related to all classes of the Funds, are in accordance with
accounting policies generally accepted in the investment company industry.
Security Valuations--
Securities are valued through valuations obtained from a commercial
pricing service or at the mean of the most recent bid and asked prices.
When valuations are not readily available, securities are valued at fair
value as determined in accordance with procedures adopted by the board of
directors.
Security Transactions--
Security transactions are accounted for on the date purchased or sold.
Net realized gains and losses are determined on the identified cost basis,
which is also used for federal income tax purposes.
Investment Income--
Interest income is recorded on the accrual basis and includes
amortization of discounts and premiums.
Repurchase Agreements--
The Funds may enter into repurchase agreements with institutions that
the Funds' investment manager, Investors Research Corporation (IRC), has
determined are creditworthy pursuant to criteria adopted by the board of
directors. Each repurchase agreement is recorded at cost. The Funds
require that the securities purchased in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the Funds to
obtain those securities in the event of a default under the repurchase
agreement. IRC monitors, on a daily basis, the value of the securities
transferred to ensure that the value, including accrued interest, of the
securities under each repurchase agreement is equal to or greater than
amounts owed to the Funds under each repurchase agreement.
Joint Trading Account--
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the Funds, along with other registered investment companies
having management agreements with IRC, may transfer uninvested cash
balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
Income Tax Status--
It is the Funds' policy to distribute all taxable income and capital
gains to shareholders and to otherwise qualify as a regulated investment
company under provisions of the Internal Revenue Code. Accordingly, no
provision has been made for federal income taxes.
13
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued) October 31, 1996
Distributions to Shareholders--
Distributions from net investment income are declared daily and
distributed monthly. Distributions from net realized gains in excess of
available capital loss carryovers are declared and paid annually. At
October 31, 1996, U.S. Governments Short-Term had an accumulated net
realized capital loss carryover of $19,957,873 (expiring 1997 through
2002), which may be used to offset future taxable capital gains.
The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences are
primarily due to differences in the recognition of income and expense
items for financial statement and tax purposes.
Supplementary Information--
Certain officers and directors of the Corporation are also officers
and/or directors, and, as a group, controlling stockholders of Twentieth
Century Companies, Inc., the parent of the Corporation's investment
manager, IRC, the Corporation's distributor, Twentieth Century Securities
and the Corporation's transfer agent, Twentieth Century Services, Inc.
Use of Estimates--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of increases and decreases
in net assets from operations during the reporting period. Actual results
could differ from those estimates.
2. Transactions with Related Parties
The Corporation has entered into Management Agreements with IRC that
provides each Fund with investment advisory and management services in
exchange for a single, unified management fee per class. Additional fees
apply to the Advisor Class and Service Class shares, as described in the
respective prospectuses. The Agreements provide that all expenses of the
Funds, except brokerage commissions, taxes, interest, expenses of those
directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by IRC. The fee is computed daily and paid monthly
based on each Fund's average daily closing net assets during the previous
month. The annual management fee for the Investor Class of U.S.
Governments Short-Term is .70%. The annual management fee for the Investor
Class of U.S. Governments Intermediate-Term is .75%.
3. Investment Transactions
The aggregate cost of U.S. Treasury and Agency obligations purchased
(excluding short-term investments) for the year ended October 31, 1996, for
U.S. Governments Short-Term and U.S. Governments Intermediate-Term totaled
$862,961,698 and $28,859,905, respectively. The proceeds from sales of U.S.
Treasury and Agency obligations (excluding short-term investments) for the
year ended October 31, 1996, for U.S. Governments Short-Term and U.S.
Governments Intermediate-Term totaled $882,416,691 and $25,819,856,
respectively. As of October 31, 1996, the accumulated net unrealized
appreciation of U.S. Governments Short-Term was $2,412,927, consisting of
unrealized appreciation of $2,435,345 and unrealized depreciation of
$22,418. The accumulated net unrealized depreciation for U.S. Governments
Intermediate-Term was $165,754, consisting of unrealized appreciation of
$110,703 and unrealized depreciation of $276,457. The aggregate cost of
investments for federal income tax purposes was the same as the cost for
financial reporting purposes.
14
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
U.S. Governments Short-Term
Years Ended October 31,
-----------------------
1996 1995 1994 1993(1) 1992(1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........... $9.51 $9.27 $9.67 $9.61 $9.41
------- -------- -------- ------- --------
Income from
Investment Operations
Net Investment
Income ..................... .51 .52 .40 .36 .44
Net Realized
and Unrealized
Gains (Losses).............. (.04) .24 (.40) .06 .20
------- -------- -------- ------- --------
Total from
Investment Operations....... .47 .76 -- .42 .64
------- -------- -------- ------- --------
Distributions
From Net
Investment Income........... (.51) (.519) (.402) (.36) (.441)
------- -------- -------- ------- --------
Net Asset Value,
End of Period................. $9.47 $9.51 $9.27 $9.67 $9.61
======= ======== ======== ======= ========
Total Return(2)............... 5.09% 8.42% .07% 4.45% 6.85%
Ratios/Supplemental Data
Ratio of Expenses
to Average Net Assets......... .70% .70% .81% 1.00% .99%(3)
Ratio of Net Investment
Income to Average
Net Assets.................... 5.39% 5.53% 4.17% 3.73% 4.62%
Portfolio
Turnover Rate................. 246% 128% 470% 413% 391%
Net Assets, End
of Period (in thousands) ..... $349,772 $391,331 $396,753 $511,981 $569,430
</TABLE>
1 The data presented has been restated to give effect to a 10 for 1 stock
split in the form of a stock dividend that occurred on November 13, 1993.
2 Total return assumes reinvestment of dividends and capital gains
distributions, if any.
3 Expenses are shown net of management fees waived by Investors Research
Corporation for low-balance account fees collected during the period.
See Notes to Financial Statements
15
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
U.S. Governments Intermediate-Term
Years ended October 31, March 1, 1994
----------------------- (inception) through
1996 1995 October 31, 1994
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period.......... $10.04 $9.55 $10.00
--------- ---------- ----------
Income from
Investment Operations
Net Investment
Income ..................... .54 .58 .34
Net Realized
and Unrealized
Gains (Losses).............. (.14) .49 (.45)
--------- ---------- ----------
Total from
Investment Operations....... .40 1.07 (.11)
--------- ---------- ----------
Distributions
From Net
Investment Income........... (.54) (.583) (.343)
From Net Realized
Gains on Investment
Transactions................ (.06) -- --
--------- ---------- ----------
Total Distributions......... (.60) (.583) (.343)
--------- ---------- ----------
Net Asset Value,
End of Period................ $9.84 $10.04 $9.55
========= ========== ==========
Total Return(1)............... 4.12% 11.58% (1.01%)
Ratios/Supplemental Data
Ratio of Expenses
to Average Net Assets....... .74% .74% .75%(2)
Ratio of Net Investment
Income to Average
Net Assets.................. 5.50% 5.99% 5.43%(2)
Portfolio Turnover Rate..... 112% 137% 205%
Net Assets, End
of Period (in thousands) ... $24,422 $21,981 $6,280
1 Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
2 Annualized
See Notes to Financial Statements
16
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Board of Directors:
Twentieth Century Investors, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the U.S. Governments Short-Term Fund
and U.S. Governments Intermediate-Term Fund (two of the sixteen funds comprising
TWENTIETH CENTURY INVESTORS, INC.), as of October 31, 1996, and the related
statements of operations, the statements of changes in net assets and the
financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and brokers. As to
securities purchased but not received, we requested confirmations from brokers,
and when replies were not received, we performed alternative auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
U.S. Governments Short-Term Fund and U.S. Governments Intermediate-Term Fund as
of October 31, 1996, and the results of their operations, changes in their net
assets and the financial highlights for each of the periods indicated in
conformity with generally accepted accounting principles.
/s/BAIRD, KURTZ & DOBSON
BAIRD, KURTZ & DOBSON
Kansas City, Missouri
November 20, 1996
17
This page has been left blank for your notes.
18
This page has been left blank for your notes.
19
This page has been left blank for your notes.
20
TWENTIETH CENTURY INVESTORS, INC.
Investment Manager
INVESTORS RESEARCH CORPORATION
Kansas City, Missouri
This report and the financial
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.
Twentieth Century Mutual Funds
and The Benham Group
- -------------------------------------
P.O. Box 419200
Kansas City, Missouri
64141-6200
- -------------------------------------
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
- -------------------------------------
Automated information line:
1-800-345-8765
- -------------------------------------
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
- -------------------------------------
Fax: 816-340-7962
- -------------------------------------
Internet: www.twentieth-century.com
- -------------------------------------
SH-BKT-6144 [recycled logo]
9612 Recycled
Twentieth Century Securities, Inc.
TWENTIETH CENTURY
U.S. Government
Bond Funds
Annual Report
October 31, 1996
U.S. Governments Short-Term
U.S. Governments Intermediate-Term
----------------------------------
TWENTIETH CENTURY
INVESTORS, INC.
TWENTIETH CENTURY
Tax-Exempt
Funds
Annual Report
OCTOBER 31,
1996
Tax-Exempt Short-Term
Tax-Exempt Intermediate-Term
Tax-Exempt Long-Term
- --------------------------------------------------------------------------------
TWENTIETH CENTURY INVESTORS, INC.
[cover page]
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Our Message to You...........................................................1
Investment Philosophy........................................................2
Period Overview..............................................................3
Credit Review and Analysis...................................................4
Management Q&As
Tax-Exempt Short-Term....................................................5
Tax-Exempt Intermediate-Term.............................................7
Tax-Exempt Long-Term.....................................................9
Schedules of Investments
Tax-Exempt Short-Term...................................................11
Tax-Exempt Intermediate-Term............................................13
Tax-Exempt Long-Term....................................................16
Statements of Assets and Liabilities........................................20
Statements of Operations....................................................21
Statements of Changes in Net Assets.........................................22
Notes to Financial Statements...............................................23
Financial Highlights........................................................25
Independent Accountants' Report.............................................28
INDICES USED FOR PERFORMANCE COMPARISON
The indices listed below are used in this report to serve as a comparison for
the performance of a fund. They are not investment products available for
purchase.
Consumer Price Index is a measure of the average change in prices over time in a
fixed market basket of goods and services.
Merrill Lynch Muni (0-3 Year) Index is a market-value-weighted index composed of
short-term municipal debt issues with an overall maturity of approximately 1.5
years.
Lehman 5-Year General Obligation Index is a municipal bond index composed of
more than 11,000 bonds with maturities of four to six years. The bonds are rated
BBB or higher by Standard & Poor's, with an average rating of AA. The average
maturity of the index is five years.
Lehman Muni Bond Index is composed of 8,000 actual municipal bonds. The bonds
are all investment-grade, fixed-rate, long-term maturities (greater than two
years) and are selected from issues larger than $50 million dated since January
1994.
Twentieth Century Mutual Funds and The Benham Group are registered marks of
Twentieth Century Services, Inc. and Benham Management Corporation,
respectively. American Century is a service mark of Twentieth Century Services,
Inc.
October 31, 1996
- --------------------------------------------------------------------------------
OUR MESSAGE TO YOU
The 12 months ended October 31, 1996, were distinguished by change, both in
the U.S. bond market and at Twentieth Century. After a rocky period in the first
half of 1996, bonds stabilized during the summer and enjoyed a rebound in
October. In the following pages, our investment management team provides some
further details about the market's changing direction and how your fund was
managed throughout the period.
Changing market conditions underscore the importance of quality investments.
Our commitment to quality securities is exemplified by the expansion of our
municipal credit research team. The three members of the team carry out in-depth
analysis on all securities considered for purchase by Twentieth Century/Benham
municipal money market and bond funds. Over the past year, the team established
a new credit management system that defines investment limits to cap our funds'
exposure to individual issuers, sectors or regions. The team plays an important
role in the management of the Tax-Exempt funds, helping to identify quality
securities with undervalued credit ratings.
[photo of James E. Stowers and James E. Stowers III]
On the corporate front, we completed the operational integration of
Twentieth Century and The Benham Group in September. As a result, you now have
direct access to a broader spectrum of funds and services, including the Benham
family of U.S. Treasury, government and municipal funds. Another integration
landmark is the new Twentieth Century Web site. If you use a personal computer
and have access to the Internet, we've made it easier for you to download
information about Twentieth Century and Benham funds and access your fund
accounts. You can view account balances, exchange shares between existing
accounts and make additional investments. The Web site address is:
www.twentieth-century.com. We are one of the first fund companies to offer
direct on-line transactions via the Internet.
In October, we announced the new name for our recently integrated company.
Beginning January 1, 1997, we will serve you under the name American Century
Investments, which reflects our expanded identity, the spirit of independence
common to Twentieth Century and Benham, and our optimism for a new century of
continued American prosperity. American Century's fund family will be divided
into three groups--the Benham Group, American Century Group and Twentieth
Century Group. Tax-Exempt Short-Term, Intermediate-Term and Long-Term will be
part of the Benham Group because the funds' investment style--tax-exempt
fixed-income--matches key attributes of that group.
You may have noticed that this annual report includes only Tax-Exempt
Short-Term, Intermediate-Term and Long-Term, whereas in the past it covered nine
funds. This new focused format allows us to give you better information by
tailoring the report specifically to the issues that are most relevant to you
and your fund.
We continue to work to provide you with information and services that we
believe are useful and convenient to you. Thank you for investing with us.
Sincerely,
/s/James E. Stowers
James E. Stowers
Chairman of the Board and Founder
/s/James E. Stowers III
James E. Stowers III
President and Chief Executive Officer
1
INVESTMENT PHILOSOPHY
Twentieth Century introduced its first fixed-income fund in 1982. Today,
with Twentieth Century's acquisition of The Benham Group, the combined company
offers 41 fixed-income funds, ranging from money market funds to long-term bond
funds and including both taxable and tax-exempt funds.
TAX-EXEMPT FUNDS
Tax-Exempt Short-Term, which was established on March 1, 1993, is intended
for investors who seek tax-exempt income and can accept some fluctuation in
principal. The fund invests primarily in short-term municipal bonds and seeks to
maintain a weighted average maturity of three years or less. However, as of
March 1, 1997, the weighted average maturity limitation will change. Please see
the management Q&A discussion on page 5 for an explanation.
Tax-Exempt Intermediate-Term, which was established on March 2, 1987, is
intended for investors who can accept fluctuation in the value of their
investment in order to earn a higher level of tax-exempt income than is
generally available from tax-exempt short-term bonds. The Fund invests in
tax-exempt bonds and seeks to maintain a weighted average maturity of 3-10
years.
Tax-Exempt Long-Term, which was established on March 2, 1987, is intended
for investors who seek a higher level of tax-exempt income and can accept the
greater degree of price volatility associated with longer-term bonds. The fund
invests in longer-term tax-exempt bonds and seeks to maintain a weighted average
maturity of 10 years or more.
Portfolio Management Team
- --------------------------------------------------------------------------------
Dave MacEwen, Vice President & Senior Municipal
Portfolio Manager
Joel Silva, Municipal Portfolio Manager
Municipal Credit Analysis Team
- --------------------------------------------------------------------------------
Steven Permut, Municipal Credit Research Manager
Scott Lord, Credit Analyst
Bill McClintock, Credit Analyst
2
October 31, 1996
- --------------------------------------------------------------------------------
PERIOD OVERVIEW
U.S. Economy
A series of interest rate cuts by the Federal Reserve (the Fed) beginning in
1995 and culminating in January 1996 helped the U.S. economy rebound in 1996. An
improving retail sector, surging auto sales and a resilient housing market
helped the economy expand at an impressive 4.7% annual rate in the second
quarter of 1996. The economy remained strong throughout the summer as healthy
employment growth sent the national unemployment rate to a six-year low of 5.1%.
However, this trend appeared to reverse itself in the third quarter as economic
growth slowed to a more sedate 2.2% annual pace. Some recent economic data seem
to suggest that slowing could continue, but there has been enough conflicting
evidence to cause considerable uncertainty about the rate of growth going
forward.
In spite of the second-quarter surge in growth, inflation remained tame
during the period. For the twelve months ended October 31, inflation (as
measured by the consumer price index) rose at a 3.0% annualized rate. In light
of this lack of inflationary pressure, the Fed held short-term interest rates
steady from February through October.
U.S. Municipal Bond Market
Although U.S. bonds finished the fiscal year ended October 31, 1996, in the
midst of a rally, the overall period was not always a pleasant one for
investors. After ending 1995 with bullish optimism, market expectations turned
bearish during the first quarter of 1996 because of an unexpected economic
growth surge that ignited inflation fears and caused the bond market to sell
off. As a result, the yield curve--a graphic representation of the relationship
between bond maturities and returns--rose from February to April (see the graph
below).
While municipal bond (muni) prices headed lower, Treasury securities
(Treasurys) fell further; as a result, munis significantly outperformed
Treasurys during the first ten months of 1996. Much of the strong performance of
munis early in 1996 can be attributed to the dissipation of flat-tax fears,
which had a negative effect on munis in 1995 and caused them to be inexpensively
priced compared to Treasurys. As the Dole/ Kemp ticket with its flat-tax
platform lost steam during the months preceding the election, concern over tax
reform disappeared.
Once it became official that the balance of power between the Democratic
White House and deficit-wary Republican Congress would continue, optimism grew
that the status-quo election results would allow bond investors to continue
enjoying favorable returns. In addition, historically low levels of muni
issuance that supported bond prices in 1995 continued to work in munis' favor
during 1996. These bond-friendly factors, combined with subdued inflation
levels, fueled a strong rally that sent muni yields sharply lower from October
through early November.
[line graph - data below]
Municipal Yield Curve
Years 11/1/95 4/30/96 10/31/96
1 3.630% 3.640% 3.650%
2 3.830 3.980 3.950
3 3.980 4.190 4.150
4 4.100 4.340 4.300
5 4.200 4.490 4.400
6 4.300 4.600 4.500
7 4.400 4.710 4.600
8 4.500 4.810 4.700
9 4.600 4.910 4.800
10 4.700 5.010 4.900
11 4.806 5.104 4.984
12 4.912 5.198 5.068
13 5.018 5.292 5.152
14 5.124 5.386 5.236
15 5.230 5.480 5.320
16 5.276 5.518 5.352
17 5.322 5.556 5.384
18 5.368 5.594 5.416
19 5.414 5.632 5.448
20 5.460 5.670 5.480
21 5.476 5.678 5.488
22 5.492 5.686 5.496
23 5.508 5.694 5.504
24 5.524 5.702 5.512
25 5.540 5.710 5.520
26 5.544 5.714 5.524
27 5.548 5.718 5.528
28 5.552 5.722 5.532
29 5.556 5.726 5.536
30 5.560 5.730 5.540
3
CREDIT REVIEW AND ANALYSIS
The favorable national economic trends outlined in the Period Overview on
page 3 led to further improvements in municipal credit quality. Credit upgrades
outpaced downgrades by more than a 4-to-1 ratio during the first three quarters
of 1996. This contrasted sharply with the start of 1995, when credit downgrades
were predominant.
Regionally, the Rocky Mountain and Southwest states continued to display the
strongest economic growth in the nation, and this strength has now extended to
the West Coast (see the accompanying map). California's economy in particular is
growing at a faster rate than the nation as a whole, having fully recovered from
its economic downturn in the early 1990s. Florida and the Southeastern portions
of the country are also showing strong growth, while growth is relatively steady
in the Midwest. Overall, the Northeast and Great Lakes regions are the only
lagging areas, though they have seen improving economic conditions in 1996.
Credit Quality Trends
[map of the United States]
General obligation bonds have benefited from the stronger economic
environment that has fueled increased tax revenues. However, federal welfare
reform enacted in the third-quarter of 1996 may pose longer-term credit concerns
for both state and local governments. Among other specific sectors, health care
issues continued to suffer credit pressures due to a widespread trend toward
managed care. Public power issues in specific regions also experienced
competitive pressures stemming from the partial deregulation of the electric
utilities industry. We will continue to monitor these and other credit issues as
they develop.
It is important to note that this type of sector analysis provides only a
glimpse of broader trends within the municipal marketplace. While such analysis
remains an important element in municipal research, growing market complexity
and issue disparities point to a continuing need for thorough case-by-case
analysis.
4
October 31, 1996
- --------------------------------------------------------------------------------
TAX-EXEMPT SHORT-TERM
- --------------------------------------------------------------------------------
Management Q & A
An interview with Joel Silva, a municipal portfolio manager on the Tax-Exempt
Bond funds management team.
Q: How did the fund perform?
A: The fund managed a strong performance in comparison with its peers. For the
fiscal year ended October 31, 1996, the fund's total return was 4.26%,
compared with the 3.95% average return of the 30 "Short Municipal Debt
Funds" tracked by Lipper Analytical Services.
Q: Why and how did you change the fund's position over the fiscal year?
A: During late 1995 and early 1996, the fund was positioned more aggressively
than many of its peers, with the fund's portfolio holdings more heavily
weighted toward the long and short ends of the fund's bond-maturity
spectrum. This positioning allowed the fund to benefit from the bond rally
that lasted into the first quarter of 1996. After the end of the first
quarter, we began to shorten the fund's average maturity as evidence of a
strengthening economy caused the market to sell off. By the end of April,
the average maturity was down to 2.4 years, and it remained close to that
mark through the end of the period. While shortening the fund's average
maturity, we took the opportunity to sell some discount bonds (bonds that
are trading at less than face value) and used the proceeds to purchase
premium
QUICK
FUND
FACTS
- --------------------------------------------------------------------------------
TAX-EXEMPT
SHORT-TERM
- --------------------------------------------------------------------------------
Strategy:
Tax-exempt income
with limited principal
fluctuations.
Inception date:
March 1, 1993
Size:
$49.8 million
(as of October 31, 1996)
- --------------------------------------------------------------------------------
Average Annual Total Returns
(as of October 31, 1996)
Tax-Exempt Merrill Lynch Muni
Short-Term (0-3 Year) Index
6 Months+ 2.38% 2.24%
1 Year 4.26% 4.17%
Inception 4.23% 4.11%
(3/1/93 to 10/31/96)
+Cumulative total return
- --------------------------------------------------------------------------------
Asset Allocation (as of October 31, 1996)
[pie chart]
General Obligation Bonds 36%
Electric Revenue 17%
Lease/Certificate of Participation 13%
Housing Revenue 5%
Higher Education 4%
Industrial Development Revenue 3%
Water and Sewer Revenue 3%
Other Tax-Exempt Securities 19%
Percent of fund investments.
[mountain graph - data below]
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
Value on 10/31/96:
- ------------------
$11,640 Tax-Exempt Short-Term
$11,593 Merrill Lynch Muni (0-3 Year) Index
$11,060 Consumer Price Index*
$10,000
investment
made on 3/1/93
(Inception date)
Tax-Exempt Short-Term Merrill Lynch Muni (0-3 Year) Consumer Price Index
3/1/93 $10000 $10000 $10000
Mar-93 10014 9993 10035
Jun-93 10132 10112 10091
Sep-93 10227 10151 10140
Dec-93 10336 10323 10188
Mar-94 10322 10320 10286
Jun-94 10426 10397 10342
Sep-94 10524 10500 10440
Dec-94 10592 10459 10461
Mar-95 10791 10694 10580
Jun-95 10965 10905 10657
Sep-95 11111 11065 10706
Dec-95 11307 11214 10728
Mar-96 11365 11326 10881
Jun-96 11436 11404 10951
Sep-96 11565 11536 11027
Oct-96 11640 11593 11060
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Merrill Lynch Muni Index's total return line does not.
*Source: Lipper Analytical Services, Inc.
5
- --------------------------------------------------------------------------------
TAX-EXEMPT SHORT-TERM
bonds(bonds trading above face value). We also distributed the fund's
portfolio holdings more evenly across the bond-maturity spectrum. This
neutral posture allows us to more quickly adjust the fund if market
conditions suddenly shift.
Q: As of March 1, 1997, the fund's name will change to the "Tax-Exempt
Limited-Term Fund." Why the change?
A: According to Securities and Exchange Commission (SEC) guidelines, a
"short-term" fund cannot extend its average maturity beyond three years. To
improve the fund's performance when market conditions are favorable, we
want the flexibility to extend the fund's maturity up to five years and
vary the fund's portfolio structure to a greater degree. The name change
will allow us to take advantage of an area in the bond market that we feel
has stronger growth potential than the one- to three-year maturity sector.
Q: Will this result in any significant change in the fund's performance?
A: Yes. We are hopeful that the change will allow us to provide stronger
risk-adjusted returns in the long run. Changing to a "limited-term" fund
will allow us to extend the fund's average maturity and duration when
appropriate. As a result, we will be able to do more value-added trading in
an attempt to improve the fund's performance. However, the longer average
maturity will increase the fund's share-price volatility. While the longer
average maturity will benefit shareholders when interest rates are falling,
it will have the opposite effect when interest rates are rising.
Q: What is the outlook for munis going forward?
A: Currently, slowing economic growth is benefiting all fixed-income
securities, but the holiday shopping season could have a significant impact
upon the inflation outlook. With consumer confidence at such high levels
and with the steady increase in consumer income this year, a strong turnout
during the holiday season could awaken the prospects for inflation. As a
result, the outlook for bonds in general is rather uncertain. However, in
the muni market we expect supply and demand factors to continue working in
munis' favor for the near future. The historically low muni issuance was a
major factor helping to support prices during the past year.
Q: Given this situation, what are your plans for the fund over the next six
months?
A: We will likely maintain the fund's neutral posture, lengthening or
shortening the fund's average maturity and duration in a narrow range
around this stance when appropriate. If the economic outlook does change
dramatically, we believe the fund is positioned to respond appropriately.
In addition, we will continue to utilize our strong credit research team to
search out securities with undervalued credit ratings that we believe have
the potential to appreciate in value.
Quality Diversification (as of October 31, 1996)
- --------------------------------------------------------------------------------
(Moody's ratings)% of fund investments
AAA 45%
AA 20%
A 19%
BBB 16%
------
100%
======
Weighted Average Maturity (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 2.3
Weighted average maturity indicates the average time until the principal on the
fund's bond portfolio is expected to be repaid, weighted by dollar amount.
Duration (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 2.1
Duration is a measure of the sensitivity of a portfolio to changes in interest
rates. As the duration of a fund increases, the impact of a change in interest
rates on the value of its portfolio also increases.
Tax-Exempt Short-Term schedule of investments begins on page 11.
6
October 31, 1996
- --------------------------------------------------------------------------------
TAX-EXEMPT INTERMEDIATE-TERM
- --------------------------------------------------------------------------------
Management Q & A
An interview with Joel Silva, a municipal portfolio manager on the Tax-Exempt
Bond funds management team.
Q: How did the fund perform?
A: The fund managed a strong performance in comparison with its peers. For the
fiscal year ended October 31, 1996, the fund's total return was 4.47%,
compared with the 4.34% average return of the 134 "Intermediate Municipal
Debt Funds" tracked by Lipper Analytical Services.
Q: Why did the fund perform well against its peers?
A: One contributing factor was the fund's large contingent of premium
noncallable bonds. (Premium bonds trade at prices above face value.)
Noncallable bonds cannot be repurchased prior to maturity by the issuer and
replaced with lower-yielding securities if interest rates decline. Despite
the market's gyrations, these premium noncallable bonds performed even
better than expected, and we sold many of them near the end of the period
at a substantial profit. In addition, our strong credit research staff made
many accurate assessments of specific credit situations throughout the U.S.
The credit team's diligent work led to the purchase of many undervalued
securities that subsequently appreciated in value.
QUICK
FUND
FACTS
- --------------------------------------------------------------------------------
TAX-EXEMPT
INTERMEDIATE-TERM
- --------------------------------------------------------------------------------
Strategy:
High level of tax-
exempt income.
Inception date:
March 2, 1987
Size:
$80.6 million
(as of October 31, 1996)
- --------------------------------------------------------------------------------
Average Annual Total Returns
(as of October 31, 1996)
Tax-Exempt Lehman 5-Year Gen.
Intermediate-Term Obligation Index
6 Months+ 3.30% 3.17%
1 Year 4.47% 4.81%
5 Years 6.09% 6.35%
Inception 5.94% 6.37%
(3/2/87 to 10/31/96)
+Cumulative total return
[pie chart]
- --------------------------------------------------------------------------------
Asset Allocation (as of October 31, 1996)
Hospital Revenue 18%
General Obligation Bonds 14%
Water and Sewer Revenue 11%
Electric Revenue 9%
Higher Education 7%
Lease/Certificate of Participation 4%
Transportation Revenue 4%
Housing Revenue 3%
Other Tax-Exempt Securities 30%
Percent of fund investments.
[mountain graph - data below]
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
Value on 10/31/96:
$17,465 Tax-Exempt Intermediate-Term
$18,167 Lehman 5-Year General Obligation Index
$14,179 Consumer Price Index*
$10,000
investment
made on 3/2/87
(Inception date)
Tax-Exempt Lehman 5-Year Consumer Price Index
Intermediate-Term General Obligation
3/2/87 $10000 $10000 $10000
Mar-87 9958 9943 10045
Jun-87 9856 9852 10171
Sep-87 9720 9649 10299
Dec-87 10036 10017 10338
Mar-88 10235 10328 10436
Jun-88 10402 10371 10571
Sep-88 10521 10489 10732
Dec-88 10640 10553 10795
Mar-89 10630 10524 10956
Jun-89 10964 11018 11117
Sep-89 11070 11141 11198
Dec-89 11349 11474 11296
Mar-90 11394 11529 11529
Jun-90 11575 11787 11636
Sep-90 11700 11912 11888
Dec-90 12062 12307 11986
Mar-91 12316 12572 12094
Jun-91 12505 12792 12184
Sep-91 12885 13246 12291
Dec-91 13275 13690 12353
Mar-92 13348 13679 12479
Jun-92 13720 14124 12561
Sep-92 13976 14475 12659
Dec-92 14228 14705 12712
Mar-93 14581 15079 12864
Jun-93 14925 15435 12936
Sep-93 15305 15768 12998
Dec-93 15518 15962 13061
Mar-94 14969 15459 13186
Jun-94 15142 15667 13257
Sep-94 15262 15793 13383
Dec-94 15198 15741 13410
Mar-95 15832 16380 13563
Jun-95 16194 16798 13662
Sep-95 16575 17257 13725
Dec-95 17011 17572 13752
Mar-96 16927 17629 13949
Jun-96 16976 17705 14038
Sep-96 17280 17993 14136
Oct-96 17465 18167 14179
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Lehman 5-Year General Obligation Index's total return line does not.
*Source: Lipper Analytical Services, Inc.
7
- --------------------------------------------------------------------------------
TAX-EXEMPT INTERMEDIATE-TERM
Q: Why and how did you change the fund's position over the fiscal year?
A: During late 1995 and early 1996, the fund was positioned more aggressively
than many of its peers, with its portfolio holdings more heavily weighted
toward the long and short ends of the fund's bond-maturity spectrum. This
positioning allowed the fund to benefit from the bond rally that lasted
into the first quarter of 1996. After the end of the first quarter, we
began to shorten the fund's average maturity as evidence of a strengthening
economy caused the market to sell off. By the end of April, the average
maturity was down to 7.3 years, and it remained close to that mark through
the end of the period. While shortening the fund's average maturity, we
took the opportunity to sell some longer discount bonds (bonds trading at
less than face value) and used the proceeds to purchase premium noncallable
bonds. We also distributed the fund's portfolio holdings more evenly across
the bond-maturity spectrum. This neutral posture allows us to more quickly
adjust the fund if market conditions suddenly shift.
Q: You significantly decreased your holdings of California munis while
increasing your holdings of New York munis. Why?
A: In late 1995, we purchased some California munis at very attractive prices.
As California's economy continued to improve throughout the period, the
securities appreciated in value. In the third quarter of 1996, New York
issued a larger-than-normal amount of munis at very attractive prices. To
take advantage of this situation, we sold many of the California munis at a
profit and used the proceeds to purchase some of the New York munis.
Q: What is the outlook for munis going forward?
A: Currently, slowing U.S. economic growth is benefiting all fixed-income
securities, but the holiday shopping season could have a significant impact
upon the inflation outlook. With consumer confidence at such high levels
and the steady increase in consumer income this year, a strong turnout
during the holiday season could increase the prospects for inflation. As a
result, the outlook for bonds in general is rather uncertain. However, in
the muni market we expect supply and demand factors to continue working in
munis' favor for the near future.
Q: Given this situation, what are your plans for the Fund over the next six
months?
A: We will likely maintain the fund's neutral posture, lengthening or
shortening the fund's average maturity and duration in a narrow range
around this stance when appropriate. If the economic outlook does change
dramatically, we believe the fund is positioned to respond appropriately.
In addition, we will continue to utilize our strong credit research team to
search out securities with undervalued credit ratings that we believe have
the potential to appreciate in value.
Quality Diversification (as of October 31, 1996)
- --------------------------------------------------------------------------------
(Moody's ratings)% of fund investments
AAA 75%
AA 9%
A 11%
BBB 5%
------
100%
======
Weighted Average Maturity (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 7.1
Weighted average maturity indicates the average time until the principal on the
fund's bond portfolio is expected to be repaid, weighted by dollar amount.
Duration (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 5.3
Duration is a measure of the sensitivity of a portfolio to changes in interest
rates. As the duration of a fund increases, the impact of a change in interest
rates on the value of its portfolio also increases.
Tax-Exempt Intermediate-Term schedule of investments begins on page 13.
8
October 31, 1996
- --------------------------------------------------------------------------------
TAX-EXEMPT LONG-TERM
- --------------------------------------------------------------------------------
Management Q & A
An interview with Dave MacEwen, vice president and a senior municipal
portfolio manager on the Tax-Exempt Bond funds management team.
Q: How did the fund perform?
A: The fund managed a strong performance in comparison with its peers. For the
fiscal year ended October 31, 1996, the fund's total return was 5.60%,
compared to the 5.11% average return of the 228 "General Municipal Debt
Funds" tracked by Lipper Analytical Services.
Q: Why did the fund perform well against its peers?
A: One contributing factor was the fund's large contingent of premium
noncallable bonds. (Premium bonds trade at prices above face value.)
Noncallable bonds cannot be repurchased prior to maturity by the issuer and
replaced with lower-yielding securities if interest rates decline. Despite
the market's gyrations, these premium noncallable bonds performed even
better than expected, and we sold many of them near the end of the period
at a substantial profit. In addition, our strong credit research staff made
many accurate assessments of specific credit situations throughout the U.S.
The credit team's diligent work led to the purchase of many undervalued
securities that subsequently appreciated in value.
QUICK
FUND
FACTS
- --------------------------------------------------------------------------------
TAX-EXEMPT
LONG-TERM
- --------------------------------------------------------------------------------
Strategy:
High level of tax-
exempt income.
Inception date:
March 2, 1987
Size:
$60.8 million
(as of October 31, 1996)
- --------------------------------------------------------------------------------
Average Annual Total Returns
(as of October 31, 1996)
Tax-Exempt Lehman Muni
Long-Term Bond Index
6 Months+ 5.39% 4.54%
1 Year 5.60% 5.70%
5 Years 7.19% 7.50%
Inception 7.13% 7.53%
(3/2/87 to 10/31/96)
+Cumulative total return
[pie chart]
- --------------------------------------------------------------------------------
Asset Allocation (as of October 31, 1996)
General Obligation Bonds 18%
Electric Revenue 16%
Water and Sewer Revenue 14%
Lease/Certificate of Participation 8%
Higher Education 5%
Industrial Development Revenue 5%
Hospital Revenue 3%
Prerefunded Bonds 3%
Other Tax-Exempt Securities 28%
Percent of fund investments.
[mountain graph - data below]
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
Value on 10/31/96:
$19,455 Tax-Exempt Long-Term
$20,181 Lehman Muni Bond Index
$14,179 Consumer Price Index*
$10,000
investment
made on 3/2/87
(Inception date)
Tax-Exempt Long-Term Lehman Muni Bond Consumer Price Index
3/2/87 $10000 $10000 $10000
Mar-87 9962 9894 10045
Jun-87 9562 9625 10171
Sep-87 9179 9385 10299
Dec-87 9852 9805 10338
Mar-88 10094 10142 10436
Jun-88 10289 10339 10571
Sep-88 10572 10604 10732
Dec-88 10872 10802 10795
Mar-89 10919 10873 10956
Jun-89 11570 11517 11117
Sep-89 11470 11525 11198
Dec-89 11910 11967 11296
Mar-90 11821 12021 11529
Jun-90 12124 12302 11636
Sep-90 12017 12310 11888
Dec-90 12644 12840 11986
Mar-91 12838 13131 12094
Jun-91 13054 13412 12184
Sep-91 13594 13933 12291
Dec-91 14163 14400 12353
Mar-92 14175 14443 12479
Jun-92 14713 14991 12561
Sep-92 15080 15389 12659
Dec-92 15240 15670 12712
Mar-93 15786 16251 12864
Jun-93 16282 16782 12936
Sep-93 16863 17349 12998
Dec-93 17092 17592 13061
Mar-94 16159 16627 13186
Jun-94 16267 16809 13257
Sep-94 16368 16925 13383
Dec-94 16137 16683 13410
Mar-95 17215 17863 13563
Jun-95 17577 18293 13662
Sep-95 18065 18818 13725
Dec-95 19122 19596 13752
Mar-96 18596 19360 13949
Jun-96 18673 19508 14038
Sep-96 19223 19954 14136
Oct-96 19455 20181 14179
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Lehman Muni Bond Index's total return line does not.
*Source: Lipper Analytical Services, Inc.
9
- --------------------------------------------------------------------------------
TAX-EXEMPT LONG-TERM
Q: Why and how did you change the fund's position over the fiscal year?
A: During late 1995 and early 1996, the fund's duration was positioned more
aggressively than many of its peers, and its portfolio holdings were more
heavily weighted toward the long and short ends of the fund's bond-maturity
spectrum. This positioning allowed the fund to benefit from the bond rally
that lasted into the first quarter of 1996. After the end of the first
quarter, we began to shorten the fund's duration as evidence of a
strengthening economy caused the market to sell off. By the end of April,
the duration was down to 8.2 years, and it remained close to that mark
through the end of the period. While shortening the fund's duration, we
took the opportunity to sell some long discount bonds (bonds that are
selling at less than face value) and used the proceeds to purchase premium
noncallable bonds. We also distributed the fund's portfolio holdings more
evenly across the bond-maturity spectrum. This neutral posture allows us to
more quickly adjust the fund if market conditions suddenly shift.
Q: You significantly decreased your holdings of California munis while
increasing your holdings of New York munis. Why?
A: In late 1995, we purchased some California munis at very attractive prices.
As California's economy continued to improve throughout the period, the
securities appreciated in value. In the third quarter of 1996, New York
issued a larger-than-normal amount of munis at very attractive prices. To
take advantage of this situation, we sold many of the California munis at a
profit and used the proceeds to purchase some of the New York munis.
Q: What is the outlook for munis going forward?
A: Currently, slowing U.S. economic growth is benefiting all fixed-income
securities, but the holiday shopping season could have a significant impact
upon the inflation outlook. As a result, the outlook for bonds in general
is rather uncertain despite the recent rally in interest rates. On a
positive note, we expect supply and demand factors to continue working in
munis' favor for the near future.
Q: What are your plans for the fund over the next six months?
A: We will likely maintain the fund's neutral posture, lengthening or
shortening the fund's duration in a narrow range around this stance when
appropriate. If the economic outlook does change dramatically, we believe
the fund is positioned to respond appropriately. In addition, we will
continue to utilize our strong credit research team to search out
securities with undervalued credit ratings that we believe have the
potential to appreciate in value.
Quality Diversification (as of October 31, 1996)
- --------------------------------------------------------------------------------
(Moody's ratings)% of fund investments
AAA 54%
AA 24%
A 12%
BBB 10%
------
100%
======
Weighted Average Maturity (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 17.8
Weighted average maturity indicates the average time until the principal on the
fund's bond portfolio is expected to be repaid, weighted by dollar amount.
Duration (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 8.3
Duration is a measure of the sensitivity of a portfolio to changes in interest
rates. As the duration of a fund increases, the impact of a change in interest
rates on the value of its portfolio also increases.
Tax-Exempt Long-Term schedule of investments begins on page 16.
10
SCHEDULES OF INVESTMENTS October 31, 1996
TAX-EXEMPT SHORT-TERM
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES
Alabama--2.0%
$ 1,000 Alabama GO, 5.70%, 3-1-98 $ 1,024
-------------
Alaska--1.5%
735 Anchorage GO, Series A,
5.50%, 8-1-99
(AMBAC) 757
--------------
Arizona--6.6%
750 Maricopa County
Certificates of
Participation, 5.625%,
6-1-00 767
1,000 Maricopa County
Community College
District GO, Series A,
6.80%, 7-1-98 1,047
1,000 Pinal County High School
School District 82 Casa
Grande, Series B, 6.50%,
7-1-98 (AMBAC) 1,042
535 Tucson Certificates of
Participation, 5.25%,
1-1-97 (Asset Guarantee) 536
--------------
3,392
--------------
California--8.5%
1,190 California Educational
Facilities Auth. Rev.,
(Pooled College &
University Project),
4.10%, 12-1-96 1,190
2,000 California State GO,
11.00%, 3-1-98 2,183
1,000 Central Valley Financing
Auth. Rev. (Cogeneration
Project), 5.00%, 7-1-98 1,006
--------------
4,379
--------------
Colorado--6.3%
1,000 Denver City & County
Airport Rev., Series B,
5.25%, 11-15-02 (MBIA) 1,021
1,140 Denver City & County
Airport Rev., Series D,
6.80%, 11-15-97 1,170
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
$ 1,000 Highlands Ranch
Metropolitan District #2,
6.00%, 6-15-02 (FSA) $ 1,071
--------------
3,262
--------------
Connecticut--4.0%
2,000 Connecticut State Special
Tax Obligation Rev.,
(Transportation
Infrastructure), 5.50%,
10-1-00 (FGIC) 2,080
--------------
Florida--2.3%
1,200 Florida Housing Finance
Agency Rev., 5.50%,
11-1-07, Prerefunded
11-1-96 at 100% of Par* 1,200
--------------
Georgia--2.0%
1,000 Gwinnett County Water &
Sewer Rev., 6.50%, 8-1-00,
Prerefunded 8-1-98 at
102% of Par* 1,061
--------------
Guam--2.9%
1,000 Government of Guam GO,
Series A, 5.50%, 8-15-97 1,011
500 Guam Power Auth. Rev.,
Series A, 5.20%, 10-1-97 506
--------------
1,517
--------------
Illinois--6.0%
1,000 Chicago Park District,
4.00%, 1-1-98 (MBIA) 1,001
1,015 Cook County GO, Series A,
5.75%, 11-15-99 (MBIA) 1,057
1,000 Southern Illinois University
Rev., (Housing and
Auxiliary Facilities),
5.00%, 4-1-00 (MBIA) 1,015
--------------
3,073
--------------
Indiana--3.8%
1,960 Indiana Transportation
Finance Auth. Highway
Rev., Series A, 6.70%,
6-1-97 1,992
--------------
Louisiana--2.9%
1,500 Louisiana Public Facilities
Auth. Rev., (Browning-
Ferris Project), 3.85%,
11-1-96 1,500
--------------
See Notes to Financial Statements
11
SCHEDULES OF INVESTMENTS (Continued) October 31, 1996
TAX-EXEMPT SHORT-TERM (Cont.)
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Maryland--3.0%
$ 1,500 Baltimore County GO,
(Pension Funding), 5.00%,
8-1-01$ 1,542
--------------
Michigan--1.0%
500 Michigan Hospital Finance
Auth. Rev., (Genesys
Health Systems), 6.40%,
10-1-97 509
--------------
Minnesota--4.6%
1,200 Minneapolis Hospital Rev.
(Lifespan Inc.- Abbott
Northwestern), 7.00%,
12-1-01, Prerefunded
12-1-99 at 102% of Par * 1,315
1,000 Minnesota State GO,
6.40%, 8-1-98 1,043
--------------
2,358
--------------
Missouri--2.0%
1,000 Kansas City Port Auth.
Facilities Rev., Series A,
(Riverfront Park Project),
5.75%, 10-1-98 1,019
--------------
New Jersey--3.5%
1,750 West Windsor Plainsboro
GO, 5.25%, 12-1-02 (FGIC) 1,814
--------------
New York--0.9%
445 Port Auth. of New York and
New Jersey Rev.,
Consolidated Notes,
Series SS, 4.90%, 9-1-97 445
--------------
Oregon--5.1%
1,000 Oregon State GO, 5.30%,
4-15-98 1,021
1,610 Washington County Unified
Sewer Agency Rev.,
Series A, 4.80%, 10-1-98
(AMBAC) 1,634
--------------
2,655
--------------
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Pennsylvania--6.7%
$ 1,425 Pennsylvania Housing
Finance Agency Rev.,
Series 50A, (Single
Family Mortgage),
4.20%, 10-1-97 $ 1,431
2,000 Philadelphia Gas Works
Rev., 14th Series, 5.40%,
7-1-98 2,031
--------------
3,462
--------------
Puerto Rico--2.5%
1,280 Puerto Rico Electric Power
Auth. Rev., Series W,
4.25%, 7-1-97 1,284
--------------
South Carolina--2.1%
145 Piedmont Municipal Power
Agency Rev., Series A,
(Escrowed to Maturity),
6.00%, 1-1-02 (FGIC)* 154
855 Piedmont Municipal Power
Agency Rev., Series A,
6.00%, 1-1-02 (FGIC) 909
--------------
1,063
--------------
Tennessee--2.6%
1,300 Metropolitan Nashville
Airport Rev., Series A,
6.125%, 7-1-98 (FGIC) 1,341
--------------
Texas--9.7%
1,780 Brownsville Utility System
Rev., 5.00%, 9-1-00
(AMBAC) 1,820
1,000 Colorado River Municipal
Water District Rev.,
Series A, 8.50%, 1-1-01,
Prerefunded 1-1-01 at
100% of Par (AMBAC)* 1,152
1,000 Houston Hotel Occupancy
Tax Rev., 5.00%, 7-1-97 1,008
1,000 Texas Public Finance Auth.
Rev., Series B, 8.00%,
10-1-97 1,039
--------------
5,019
--------------
Utah--3.2%
1,600 Utah State GO, Series F,
5.50%, 7-1-98 1,643
--------------
See Notes to Financial Statements
12
- --------------------------------------------------------------------------------
TAX-EXEMPT SHORT-TERM (Cont.)
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Washington--4.3%
$ 1,680 Snohomish County Public
Utility District #1 Electric
Rev., Series B, 4.75%,
1-1-00 $ 1,682
515 Washington Public Power
Supply System Rev.,
Series C, (Nuclear
Project #1), 4.50%, 7-1-98 517
--------------
2,199
--------------
TOTAL INVESTMENT
SECURITIES--100.0% $ 51,590
==============
(Cost $51,197)
- --------------------------------------------------------------------------------
TAX-EXEMPT INTERMEDIATE-TERM
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES
Arizona--1.0%
$ 750 Maricopa County
Certificates of
Participation, 5.625%,
6-1-00 $ 767
--------------
Colorado--1.4%
1,000 Denver Sales Tax Rev.,
Series A, (Major League
Baseball Stadium District),
6.10%, 10-1-01 (FGIC) 1,072
--------------
District of Columbia--1.3%
1,000 District of Columbia
Hospital Rev., Series A,
(Medlantic Health Care
Group), 5.25%, 8-15-02
(MBIA) 1,024
--------------
Florida--4.3%
1,250 Hillsborough County
Aviation Auth. Rev.,
Series A, (Tampa
International Airport),
6.60%, 10-1-03 (FGIC) 1,336
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
$ 1,000 Lakeland Electric and
Water Rev., Series B,
6.00%, 10-1-09 (FGIC) $ 1,079
1,000 Miami Beach Water
and Sewer Rev., 5.10%,
9-1-05 (FSA) 1,019
--------------
3,434
--------------
Georgia--3.4%
1,000 Atlanta Airport Facilities
Rev., 7.00%, 1-1-01 1,084
500 Georgia State GO, Series
B, 6.30%, 3-1-08 554
1,000 Metropolitan Atlanta Rapid
Transit Auth. Sales
Tax Rev., Series M,
6.05%, 7-1-01 1,061
--------------
2,699
--------------
Illinois--5.5%
2,000 Chicago O'Hare
International Airport
Rev., Series A, 5.00%,
1-1-00 (MBIA) 2,036
2,250 Illinois State GO,
6.00%, 10-1-01 2,387
--------------
4,423
--------------
Kentucky--1.3%
1,000 Kenton County Airport Rev.,
Series A, (Cincinnati/
Northern Kentucky),
6.00%, 3-1-03 (MBIA) 1,057
--------------
Maryland--1.3%
1,000 Maryland Health and
Higher Educational
Facilities Auth. Rev.,
(Francis Scott Key
Hospital), 5.00%, 7-1-03
(FGIC) 1,017
--------------
Massachusetts--9.6%
2,605 Massachusetts Bay
Transportation Auth.
Rev., Series C, 5.40%,
3-1-00 2,683
1,000 Massachusetts GO,
Series B, (Consolidated
Loan), 5.50%, 6-1-05
(FGIC) 1,042
See Notes to Financial Statments
13
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (Continued) October 31, 1996
- --------------------------------------------------------------------------------
TAX-EXEMPT INTERMEDIATE-TERM (Cont.)
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
$ 1,500 Massachusetts GO, Series
B, 5.40%, 11-1-07 (MBIA) $ 1,544
2,000 Massachusetts Housing
Finance Agency Rev.,
Series A, 5.90%, 1-1-03
(AMBAC) 2,053
360 Massachusetts Water
Resources Auth. Rev.,
Series A, (Escrowed to
Maturity), 6.90%, 4-1-97* 365
--------------
7,687
--------------
Mississippi--2.5%
2,000 Mississippi Hospital
Equipment and Facilities
Auth. Rev., (North Miss.
Health Service), 5.00%,
5-15-00 (AMBAC) 2,029
--------------
Missouri--1.3%
1,000 Missouri Board of Public
Buildings State Office
Buildings Special
Obligation Rev., 6.30%,
12-1-05 1,062
--------------
Nebraska--2.6%
2,000 Nebraska Investment
Finance Auth. Hospital
Rev., (Methodist Health
System), 6.55%, 3-1-99
(MBIA) 2,101
--------------
New Jersey--7.2%
1,030 Atlantic City Board of
Education GO, 6.00%,
12-1-06 (AMBAC) 1,100
1,410 New Jersey Educational
Facility Auth. Rev., Series
A, (New Jersey Institute
of Technology), 5.90%,
7-1-08 (MBIA) 1,490
1,000 New Jersey Health Care
Facilities Financing Auth.
Rev., (Atlantic City
Medical Center), 6.15%,
7-1-99 1,038
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
$ 1,000 New Jersey State Turnpike
Auth. Rev., Series A,
6.20%, 1-1-00 $ 1,047
1,000 New Jersey Transportation
System Trust Fund Auth.
Rev., Series A, (Escrowed
to Maturity), 6.25%,
12-15-03* 1,094
--------------
5,769
--------------
New York--13.7%
1,950 City University of New York
Certificates of Participation,
(John Jay College), 5.00%,
8-15-09 (AMBAC) 1,883
2,500 Nassau County Series T,
5.20%, 9-1-05 (FGIC) 2,556
1,500 New York State Dorm.
Auth. Rev., Series A,
6.50%, 5-15-04 1,623
1,000 New York State Dorm.
Auth. Rev., Series A,
6.50%, 5-15-06 1,087
1,740 New York State Medical
Care Facilities Finance
Agency Rev., (Hospital
and Nursing Home),
5.95%, 8-15-09 1,773
685 New York State Thruway
Auth. Rev., (Service
Contract), 5.25%, 4-1-03 690
1,260 New York State Urban
Development Corp. Rev.,
(Correctional Facilities),
5.40%, 1-1-06 (AMBAC) 1,298
--------------
10,910
--------------
Ohio--7.6%
1,450 Ohio Higher Educational
Facility Commission Rev.,
(University of Dayton),
5.55%, 12-1-07 (FGIC) 1,495
1,000 Ohio Public Facility
Commission Rev., Series
IIA, (Mental Health
Facility), 5.625%, 12-1-98 1,030
3,320 Ohio Water Development
Auth. Pollution Control
Facilities Rev., 6.00%,
12-1-05 (MBIA) 3,579
--------------
6,104
--------------
See Notes to Financial Statments
14
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Oregon--3.8%
$ 1,805 Lane County School
District #19 GO,
(Springfield), 6.375%,
10-15-05 (MBIA) $ 1,997
1,000 Oregon State Department
Transportation Rev.,
5.50%, 6-1-00 (MBIA) 1,037
--------------
3,034
--------------
Pennsylvania--7.1%
1,000 Harrisburg Auth. Lease
Rev., (Escrowed to
Maturity), 6.25%, 6-1-00
(FSA)* 1,055
1,500 Pennsylvania Turnpike
Commission Rev., Series L,
6.25%, 6-1-01 (AMBAC) 1,609
2,000 Philadelphia Gas Works
Rev., 14th Series, 5.70%,
7-1-00 (FSA) 2,081
1,000 Philadelphia Water &
Wastewater Rev., 5.00%,
6-15-12 (FGIC) 952
--------------
5,697
--------------
Puerto Rico--1.3%
1,000 Puerto Rico Electric
Power Auth. Rev., Series
R, 5.70%, 7-1-00 (MBIA) 1,047
--------------
South Carolina--1.3%
1,000 Richland Lexington Airport
District Rev., Series C,
5.25%, 1-1-06 (AMBAC) 1,001
--------------
Texas--12.2%
535 Austin Utility System
Rev., Series A, (Escrowed
to Maturity), 7.50%,
11-15-98 (Acquired
2-3-95, Cost $547)*+ 571
2,000 Brazos Higher Education
Auth. Rev., Series A-1,
5.50%, 12-1-98 2,046
1,875 Brownsville Utility
System Rev., 6.00%,
9-1-08 (AMBAC) 2,019
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
$ 1,000 Dallas-Fort Worth Regional
Airport Rev., Series A,
5.90%, 11-1-08 (MBIA) $ 1,041
1,340 Harris County Health
Facilities Development
Corp. Hospital Rev., (St.
Luke's Episcopal
Hospital), 6.40%, 2-15-00 1,416
1,000 Tarrant County Health
Facility Development
Corporation Health
System Rev., (Harris
Methodist Health System),
5.00%, 9-1-07 (AMBAC) 979
1,500 Texas State Public Finance
Auth. Building Rev.
(Technical College),
6.25%, 8-1-09 (MBIA) 1,640
--------------
9,712
--------------
Utah--1.3%
1,000 Salt Lake County
Municipal Building Auth.
Lease Rev., Series A,
6.00%, 10-1-07 (MBIA) 1,063
--------------
Virginia--1.7%
1,275 Metropolitan Washington
D.C. Airports Auth. Rev.,
Series A, 6.30%,
10-1-03 (MBIA) 1,382
--------------
Washington--2.7%
1,000 Tacoma Electric System
Rev., 6.10%, 1-1-07 (FGIC) 1,068
1,000 Washington State Public
Power Supply Rev.,
Series C, (Project 2),
7.30%, 7-1-00 1,084
--------------
2,152
--------------
Wisconsin--2.1%
1,590 Wisconsin State Health
and Educational Facility
Auth. Rev., (Aurora
Medical Group), 6.00%,
11-15-10 (FSA) 1,692
--------------
Total Municipal Securities--97.5% 77,935
--------------
(Cost $75,983)
See Notes to Financial Statments
15
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (Continued) October 31, 1996
- --------------------------------------------------------------------------------
TAX-EXEMPT INTERMEDIATE-TERM (Cont.)
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
MUNICIPAL DERIVATIVES--2.5%
$ 2,000 Philadelphia Water and
Wastewater Rev., Inverse
Floater, (Fixed Airs),
5.15%, 6-15-04 ** $ 2,017
--------------
(Cost $1,986)
TEMPORARY CASH INVESTMENTS
7,000 Units of Participation
in Provident Institutional
Funds (Muni Fund
Portfolio) 7
--------------
(Cost $7)
TOTAL INVESTMENT
SECURITIES--100.0% $ 79,959
==============
(Cost $77,976)
- --------------------------------------------------------------------------------
TAX-EXEMPT LONG-TERM
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES
Alaska--0.1%
$ 60 Alaska State Housing Finance
Corp Rev., Series B, 8.75%,
12-1-16 (LOC: Swiss Bank) $ 62
--------------
California--18.8%
1,000 California Educational
Facilities Auth. Rev.,
(Pooled College &
University Project),
5.60%, 12-1-20 974
2,000 California State Public
Works Lease Rev.,
(Department of Corrections
Prisons A), 5.00%, 12-1-19
(AMBAC) 1,869
1,000 California State Public Works
Lease Rev., (University
Project A), 6.20%, 10-1-08 1,066
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
$ 1,225 Long Beach Water Rev.,
6.125%, 5-1-19 $ 1,261
1,500 Los Angeles Community
Redevelopment Agency
Rev., (Bunker Hill),
6.50%, 12-1-14 (FSA) 1,634
1,500 Metropolitan Water District
Rev., Series A, (Southern
California), 5.75%, 7-1-21 1,553
1,850 Northern California Power
Agency Rev., Series A,
(Hydroelectric Project #1),
6.25%, 7-1-12 (MBIA) 1,956
1,000 San Jose Redevelopment
Agency Tax Allocation,
Series D, 5.75%, 8-1-24 987
--------------
11,300
--------------
Colorado--0.5%
300 Colorado Housing Finance
Auth. Rev., Series C,
(Single Family Residential),
8.70%, 9-1-07 315
--------------
Connecticut--5.1%
1,000 Connecticut GO, Series E,
6.00%, 3-15-12 1,072
1,880 Connecticut State
Development Auth.
Rev., Series A, 6.375%,
10-15-24 1,998
--------------
3,070
--------------
District of Columbia--1.8%
1,000 Metropolitan Area
Transportation Auth.
Rev., 6.00%, 7-1-10 (FGIC) 1,075
--------------
Florida--4.6%
1,500 Reedy Creek Utility Rev.,
Series 1, 5.00%,
10-1-19 (MBIA) 1,385
1,350 Tampa Sports Auth. Sales
Tax Rev., (Tampa Bay
Arena Project), 5.75%,
10-1-25 (MBIA) 1,406
--------------
2,791
--------------
Illinois--9.3%
1,000 City of Chicago Rev.,
(Peoples Gas, Light and
Coke Co.), 7.50%, 3-1-15 1,091
See Notes to Financial Statments
16
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
$ 1,000 Cook County GO, 7.00%,
11-1-10, Prerefunded
11-1-00 at 102% of Par
(MBIA)* $ 1,111
500 Illinois Dedicated Tax Rev.,
(Civic Center), 6.25%,
12-15-20 (AMBAC) 546
1,500 Illinois GO, 6.25%, 10-1-06 1,609
1,000 Illinois Regional
Transportation Auth. Rev.,
Series A, 7.20%,
11-1-20 (AMBAC) 1,217
--------------
5,574
--------------
Indiana--1.7%
1,000 Indiana State Toll Finance
Auth. Rev., 6.875%, 7-1-12,
Prerefunded 1-1-97 at
102% of Par (FGIC)* 1,025
--------------
Kansas--1.8%
1,000 Kansas City Utility
System Rev., 6.375%,
9-1-23 (FGIC) 1,071
--------------
Kentucky--2.4%
1,000 Carroll County Pollution
Control Rev., Series A,
(Kentucky Utilities
Company Project), 7.45%,
9-15-16 1,143
270 Kentucky Housing Corp.
Rev., Series C, 7.90%,
1-1-21 (FHA) 285
--------------
1,428
--------------
Massachusetts--6.8%
1,000 Boston GO, Series B,
5.875%, 8-1-12 (AMBAC) 1,032
1,000 Boston GO, Series B,
5.875%, 8-1-13 (AMBAC) 1,028
1,000 Massachusetts GO, Series
A, (Consolidated Loan),
5.40%, 11-1-06 1,028
1,000 Massachusetts Water
Resources Auth. Rev.,
Series B, 5.50%, 11-1-15 981
--------------
4,069
--------------
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Michigan--4.0%
$ 1,500 Detroit Sewer Disposal
Rev., Series B, 5.25%,
7-1-21 (MBIA) $ 1,422
1,000 University of Michigan
Hospital Rev., Series A,
5.75%, 12-1-12 1,006
--------------
2,428
--------------
Montana--3.0%
1,650 Montana State Board
Investment Payroll Tax
Rev., (Escrowed to
Maturity), 6.875%, 6-1-20* 1,819
--------------
New York--11.7%
1,000 Municipal Assistance Corp.
Rev., Series 67, 7.625%,
7-1-08 1,096
1,000 New York Local Government
Assistance Corp. Rev.,
Series D, 6.75%, 4-1-07 1,111
1,000 New York State Dorm.
Auth. Rev. City University,
6.00%, 7-1-26 992
1,000 New York State
Environmental Facilities
Corp. Pollution Control
Rev., Series E, 6.30%, 6-15-02 1,083
1,000 New York State Urban
Development Corp. Rev.,
Series 4, (Correctional
Facilities), 5.375%, 1-1-23 906
2,000 New York State Urban
Development Corp. Rev.,
Series 6, (Correctional
Facilities), 5.375%, 1-1-15 1,870
--------------
7,058
--------------
North Carolina--2.8%
520 North Carolina Eastern
Municipal Power Agency
System Rev., Series A,
7.50%, 1-1-10, Prerefunded
1-1-09 at 100% of Par* 620
1,000 North Carolina Municipal
Power Agency #1 Rev.
(Catawba Electric), 6.00%,
1-1-10 (MBIA) 1,074
--------------
1,694
--------------
See Notes to Financial Statments
17
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (Continued) October 31, 1996
- --------------------------------------------------------------------------------
TAX-EXEMPT LONG-TERM (Cont.)
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Ohio--2.2%
$ 750 Ohio Higher Educational
Facility Commission Rev.,
(Case Western Reserve
University), 6.50%, 10-1-20 $ 848
500 Ohio Higher Educational
Facility Commission Rev.,
(University of Dayton),
5.80%, 12-1-14 (FGIC) 503
--------------
1,351
--------------
Pennsylvania--4.9%
1,125 Pennsylvania
Intergovernmental
Cooperative Auth. Special
Tax Rev., Series A,
5.00%, 6-15-22 (MBIA) 1,016
1,000 Philadelphia Gas Works
Rev., 15th Series,
5.375%, 8-1-07 (FSA) 1,014
1,000 Philadelphia Water &
Wastewater Rev., 5.25%,
6-15-23 (MBIA) 938
--------------
2,968
--------------
Puerto Rico--0.9%
500 Puerto Rico Commonwealth,
GO, 6.45%, 7-1-17 533
--------------
Rhode Island--1.8%
1,000 Rhode Island Depositors
Economic Protection
Corp. Special Obligation
Rev., Series A, 6.25%,
8-1-16 (MBIA) 1,086
--------------
Texas--8.2%
1,000 Alliance Airport Auth.
Special Facilities Rev.,
(American Airlines Project),
7.00%, 12-1-11 1,100
1,000 Denton Utility System
Rev., Series A, 5.95%,
12-1-14 (MBIA) 1,033
2,500 Texas Municipal Power
Agency Rev., Series A,
6.75%, 9-1-12 (AMBAC) 2,774
--------------
4,907
--------------
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Virginia--0.9%
$ 500 Norfolk Hospital Development
Auth. Rev., (Children's
Hospital), 7.00%, 6-1-11,
Prerefunded 6-1-01 at
102% of Par (AMBAC)* $ 560
--------------
Washington--3.4%
1,000 Washington State GO,
Series B, 5.375%, 5-1-08 1,019
1,000 Washington State Public
Power Supply Rev.,
Series A, (Nuclear
Project #1), 5.75%,
7-1-12 (MBIA) 1,006
--------------
2,025
--------------
Wisconsin--2.1%
1,180 Winneconne Community
School District GO,
6.75%, 4-1-14 (FGIC) 1,285
--------------
Wyoming--0.4%
220 Wyoming Community
Development Auth. Rev.,
Series B, (Single Family
Mortgage), 8.125%,
6-1-21 (FHA) 229
--------------
Total Municipal Securities--99.2% 59,723
==============
(Cost $56,753)
SHORT-TERM TAX-EXEMPT
SECURITIES--0.8%
500 Ontario California Industrial
Development Auth. Rev.,
Series A, (Erenberg
Partners), 4.00%, VRDO,
11-6-96, resets weekly,
final maturity 9-1-08
(LOC: Tokai Bank of
California Ltd.) 500
--------------
(Cost $500)
TOTAL INVESTMENT
SECURITIES--100.0% $ 60,223
==============
(Cost $57,253)
See Notes to Financial Statments
18
NOTES TO SCHEDULES OF INVESTMENTS
- --------------------------------------------------------------------------------
AMBAC = AMBAC Indemnity Corp.
FGIC = Financial Guaranty Insurance Company
FHA = Federal Housing Authority
FSA = Financial Security Association
GO = General Obligation
LOC = Letter of Credit
MBIA = Municipal Bond Insurance Association
resets = The frequency with which a fixed-income security's coupon changes,
based on current market conditions or an underlying index. The more frequently a
security resets, the less risk the investor is taking that the coupon will vary
significantly from current market rates.
VRDO = Variable Rate Demand Obligation. Interest reset date is indicated and
used in calculating the weighted average portfolio maturity. Rate shown is
effective 10-31-96.
*Escrowed in U.S. Government Securities
**Inverse floaters bear interest rates that move inversely to market interest
rates. Inverse floaters typically have durations twice as long as long-term
bonds, which may cause their values to be twice as volatile as long-term bonds
when market interest rates change.
+Security was purchased under Rule 144A of the Securities Act of 1933 and,
unless registered under the Act or exempted from registration, may only be sold
to qualified institutional investors. The aggregate value of restricted
securities at October 31, 1996, was $571,129 which represented 0.7% of the net
assets of Tax-Exempt Intermediate-Term.
19
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1996
Tax-Exempt Tax-Exempt Tax-Exempt
Short-Term Intermediate-Term Long-Term
($ In Thousands, Except Per-Share Amounts)
<S> <C> <C> <C> <C>
Assets
Investment securities, at value (identified
cost of $51,197, $77,976 and $57,253,
respectively) (Note 3).............. $51,590 $79,959 $ 60,223
Interest receivable.................. 815 1,333 1,023
----------- ----------- -----------
52,405 81,292 61,246
----------- ----------- -----------
Liabilities
Disbursements in excess of
demand deposit cash................. 438 493 391
Payable for investments purchased.... 2,020 -- --
Payable for capital shares redeemed.. 22 128 --
Dividends payable.................... 34 62 52
Accrued management fees (Note 2)..... 25 41 31
----------- ----------- -----------
2,539 724 474
----------- ----------- -----------
Net Assets Applicable
to Outstanding Shares................... $49,866 $80,568 $60,772
=========== =========== ===========
Capital Shares, $.01 par value
(In Thousands)
Authorized........................... 200,000 200,000 200,000
=========== =========== ===========
Outstanding.......................... 4,949 7,788 5,744
=========== =========== ===========
Net Asset Value Per Share............... $ 10.08 $10.35 $ 10.58
=========== =========== ===========
Net Assets Consist Of:
Capital (par value and paid-in surplus) $ 49,457 $ 78,401 $ 57,802
Accumulated undistributed net
realized gain from
investment transactions............. 16 184 --
Net unrealized appreciation
on investments (Note 3)............. 393 1,983 2,970
----------- ----------- -----------
$49,866 $80,568 $ 60,772
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
20
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Year Ended October 31, 1996
Tax-Exempt Tax-Exempt Tax-Exempt
Short-Term Intermediate-Term Long-Term
------------------ ($ In Thousands) -----------------
Investment Income
Income:
<S> <C> <C> <C>
Interest............................. $2,513 $4,273 $3,361
--------- -------- --------
Expenses:
Management fees (Note 2)............. 321 485 353
Directors' fees and expenses......... 1 1 1
Fees waived by manager (Note 2)...... (115) -- --
--------- -------- --------
207 486 354
--------- -------- --------
Net investment income................... 2,306 3,787 3,007
--------- -------- --------
Realized and Unrealized Gain (Loss)
on Investments (Note 3)
Net realized gain on investments........ 23 185 27
Change in net unrealized
appreciation on investments.......... (100) (538) 134
--------- -------- --------
Net realized and unrealized gain (loss)
on investments.......................... (77) (353) 161
--------- -------- --------
Net Increase in Net Assets
Resulting from Operations............... $2,229 $3,434 $3,168
========= ======== ========
</TABLE>
See Notes to Financial Statements
21
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended October 31, 1996
and October 31, 1995
Tax-Exempt Tax-Exempt Tax-Exempt
Short-Term Intermediate-Term Long-Term
-------------------------($ In Thousands)------------------------
Increase (Decrease) in Net Assets 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
Operations
<S> <C> <C> <C> <C> <C> <C>
Net investment income ........... $2,306 $2,614 $3,787 $ 3,764 $3,007 $2,801
Net realized gain (loss)
on investment transactions...... 23 25 185 553 27 (24)
Change in net unrealized
appreciation (depreciation)
on investments.................. (100) 829 (538) 3,482 134 4,424
---------- --------- --------- --------- --------- ---------
Net increase in net assets
resulting from operations....... 2,229 3,468 3,434 7,799 3,168 7,201
---------- --------- --------- --------- --------- ---------
Distributions to Shareholders
From net investment income....... (2,306) (2,614) (3,787) (3,764) (3,007) (2,801)
From net realized gains from
investment transactions......... -- -- (549) (639) -- (225)
---------- --------- --------- --------- --------- ---------
Decrease in net assets
from distributions (2,306) (2,614) (4,336) (4,403) (3,007) (3,026)
---------- --------- --------- --------- --------- ---------
Capital Share Transactions
Proceeds from shares sold........ 20,823 30,735 17,649 15,630 20,252 19,427
Proceeds from reinvestment
of distributions................ 2,061 2,326 3,711 3,755 2,575 2,594
Payments for shares redeemed..... (31,778) (35,935) (20,138) (23,933) (20,213) (19,163)
---------- --------- --------- --------- --------- ---------
Net increase (decrease) in
net assets from capital
share transactions.............. (8,894) (2,874) 1,222 (4,548) 2,614 2,858
---------- --------- --------- --------- --------- ---------
Net increase (decrease)
in net assets....................... (8,971) (2,020) 320 (1,152) 2,775 7,033
Net Assets
Beginning of year................ 58,837 60,857 80,248 81,400 57,997 50,964
---------- --------- --------- --------- --------- ---------
End of year...................... $49,866 $58,837 $80,568 $80,248 $60,772 $57,997
========== ========= ========= ========= ========= =========
Transactions in shares of the Funds:
(In thousands)
Sold............................. 2,064 3,071 1,701 1,538 1,920 1,921
Issued in reinvestment
of distributions................ 204 232 359 371 245 258
Redeemed......................... (3,148) (3,589) (1,949) (2,366) (1,925) (1,906)
---------- --------- --------- --------- --------- ---------
Net increase (decrease).......... (880) (286) 111 (457) 240 273
========== ========= ========= ========= ========= =========
</TABLE>
See Notes to Financial Statements
22
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS October 31, 1996
1. Organization and Summary of Significant Accounting Policies
Organization--
Twentieth Century Investors, Inc. (the Corporation) is registered
under the Investment Company Act of 1940 as an open-end diversified
management investment company. Tax-Exempt Short-Term, Tax-Exempt
Intermediate-Term and Tax-Exempt Long-Term (the Funds) are three of the
sixteen series of funds issued by the Corporation. The investment
objective of Tax-Exempt Short-Term is to seek income generally exempt from
federal income taxes. The Fund intends to pursue this by investing in
tax-exempt bonds and maintaining a weighted average maturity of three
years or less. The investment objective of Tax-Exempt Intermediate-Term is
to seek a competitive level of income generally exempt from federal income
taxes. The Fund intends to pursue this by investing in tax-exempt bonds
and maintaining a weighted average maturity of three to 10 years. The
investment objective of Tax-Exempt Long-Term is to seek a high level of
income generally exempt from federal income taxes. The Fund intends to
pursue this by investing in tax-exempt bonds and maintaining a weighted
average maturity of 10 years or greater. The following significant
accounting policies, related to all Funds, are in accordance with
accounting policies generally accepted in the investment company industry.
Security Valuations--
Securities are valued through valuations obtained from a commercial
pricing service or at the mean of the most recent bid and asked prices.
When valuations are not readily available, securities are valued at fair
value as determined in accordance with procedures adopted by the board of
directors.
Security Transactions--
Security transactions are accounted for on the date purchased or sold.
Net realized gains and losses are determined on the identified cost basis,
which is also used for federal income tax purposes.
Investment Income--
Interest income is recorded on the accrual basis and includes
amortization of discounts and premiums.
Repurchase Agreements--
The Funds may enter into repurchase agreements with institutions that
the Funds' investment manager, Investors Research Corporation (IRC), has
determined are creditworthy pursuant to criteria adopted by the board of
directors. Each repurchase agreement is recorded at cost. The Funds
require that the securities purchased in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the Funds to
obtain those securities in the event of a default under the repurchase
agreement. IRC monitors, on a daily basis, the value of the securities
transferred to ensure that the value, including accrued interest, of the
securities under each repurchase agreement is equal to or greater than
amounts owed to the Funds under each repurchase agreement.
Joint Trading Account--
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the Funds, along with other registered investment companies
having management agreements with IRC, may transfer uninvested cash
balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
Income Tax Status--
It is the Funds' policy to distribute all taxable income and capital
gains to shareholders and to otherwise qualify as a regulated investment
company under provisions of the Internal Revenue Code. Accordingly, no
provision has been made for federal income taxes.
23
- --------------------------------------------------------------------------------
Distributions to Shareholders--
Distributions from net investment income are declared daily and
distributed monthly. Distributions from net realized gains are declared
and paid annually.
The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences are
primarily due to differences in the recognition of income and expense
items for financial statement and tax purposes.
Supplementary Information--
Certain officers and directors of the Corporation are also officers
and/or directors, and, as a group, controlling stockholders of Twentieth
Century Companies, Inc., the parent of the Corporation's investment
manager, IRC, the Corporation's distributor, Twentieth Century Securities
and the Corporation's transfer agent, Twentieth Century Services, Inc.
Use of Estimates--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of increases and decreases
in net assets from operations during the reporting period. Actual results
could differ from those estimates.
2. Transactions with Related Parties
The Corporation has entered into a Management Agreement with IRC that
provides the Funds with investment advisory and management services in
exchange for a single, unified fee. The Agreement provides that all
expenses of the Funds, except brokerage commissions, taxes, interest,
expenses of those directors who are not considered "interested persons" as
defined in the Investment Company Act of 1940 (including counsel fees) and
extraordinary expenses, will be paid by IRC. The fee is computed daily and
paid monthly based on each Fund's average daily closing net assets during
the previous month. The annual management fee for Tax-Exempt Short-Term,
Tax-Exempt Intermediate-Term and Tax-Exempt Long-Term is .60%. The fee for
Tax-Exempt Short-Term had been voluntarily waived by IRC through February
29, 1996. From November 1, 1995 through February 29, 1996, the management
fees absorbed by IRC were $114,790.
3. Investment Transactions
The aggregate cost of municipal debt obligations purchased (excluding
short-term investments) for the year ended October 31, 1996, for
Tax-Exempt Short-Term, Tax-Exempt Intermediate-Term, and Tax-Exempt
Long-Term totaled $35,494,048, $31,558,708 and $34,217,710, respectively.
The proceeds from sales of municipal debt obligations (excluding
short-term investments) for the year ended October 31, 1996, for
Tax-Exempt Short-Term, Tax-Exempt Intermediate-Term and Tax-Exempt
Long-Term totaled $80,890,340, $68,479,276 and $76,442,511, respectively.
As of October 31, 1996, accumulated net unrealized appreciation of
Tax-Exempt Short-Term, Tax-Exempt Intermediate-Term and Tax-Exempt
Long-Term were $393,459, $1,982,494 and $2,969,637, consisting of
unrealized appreciation of $415,966, $2,062,096 and $3,017,585, and
unrealized depreciation of $22,507, $79,602 and $47,948, respectively. The
aggregate cost of investments for federal income tax purposes was the same
as the cost for financial reporting purposes.
24
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
Tax-Exempt Short-Term
Years ended October 31, March 1, 1993
-----------------------------------(inception) through
1996 1995 1994 October 31, 1993
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ............. $10.09 $9.95 $10.04 $10.00
-------- ---------- ---------- ----------
Income from
Investment Operations
Net Investment
Income ........................ .43 .44 .36 .21
Net Realized
and Unrealized
Gains (Losses) ................ (.01) .14 (.09) .04
-------- ---------- ---------- ----------
Total from
Investment Operations ......... .42 .58 .27 .25
-------- ---------- ---------- ----------
Distributions
From Net
Investment Income ............. (.43) (.440) (.362) (.214)
-------- ---------- ---------- ----------
Net Asset Value,
End of Period ................... $10.08 $10.09 $9.95 $10.04
======== ========== ========== ==========
Total Return(1) ............... 4.26% 5.95% 2.75% 2.55%
Ratios/Supplemental Data
Ratio of Expenses
to Average Net Assets ......... .38%(2) -- -- --
Ratio of Net Investment
Income to Average
Net Assets .................... 4.28% 4.38% 3.62% 3.09%(3)
Portfolio
Turnover Rate ................. 68% 78% 42% 3%
Net Assets, End
of Period (in thousands) ...... $49,866 $58,837 $60,857 $52,265
</TABLE>
- --------------------------------------------------------------------------------
1 Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
2 Investors Research Corporation had voluntarily waived its management fee
through February 29, 1996. In absence of the waiver, the ratio of operating
expenses to average net assets would have been .60%.
3 Annualized
See Notes to Financial Statements
25
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
Tax-Exempt Intermediate-Term
Years Ended October 31,
-------------------------------------------------------------------
1996 1995 1994 1993(1) 1992(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........... $10.45 $10.01 $10.75 $10.27 $10.06
-------- ---------- ---------- ---------- ----------
Income from
Investment Operations
Net Investment
Income ..................... .48 .49 .48 .48 .48
Net Realized
and Unrealized
Gains (Losses).............. (.03) .52 (.61) .55 .21
-------- ---------- ---------- ---------- ----------
Total from
Investment Operations....... .45 1.01 (.13) 1.03 .69
-------- ---------- ---------- ---------- ----------
Distributions
From Net
Investment Income........... (.48) (.487) (.476) (.476) (.481)
From Net Realized
Gains on Investment
Transactions................ (.07) (.082) (.133) (.078) --
-------- ---------- ---------- ---------- ----------
Total Distributions......... (.55) (.569) (.609) (.554) (.481)
-------- ---------- ---------- ---------- ----------
Net Asset Value,
End of Period................. $10.35 $10.45 $10.01 $10.75 $10.27
======== ========== ========== ========== ==========
Total Return(2)............. 4.47% 10.41% (1.25%) 10.25% 7.00%
Ratios/Supplemental Data
Ratio of Expenses
to Average Net Assets....... .60% .60% .60% .72% .98%3
Ratio of Net Investment
Income to Average
Net Assets.................. 4.66% 4.77% 4.59% 4.51% 4.68%
Portfolio
Turnover Rate............... 39% 32% 74% 38% 36%
Net Assets, End
of Period (in thousands)... $80,568 $80,248 $81,400 $98,740 $76,745
</TABLE>
- --------------------------------------------------------------------------------
1 The data presented has been restated to give effect to a 10 for 1 stock split
in the form of a stock dividend that occurred on November 13, 1993.
2 Total return assumes reinvestment of dividends and capital gains
distributions, if any.
3 Expenses are shown net of management fees waived by Investors Research
Corporation for low-balance account fees collected during the period.
See Notes to Financial Statements
26
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
Tax-Exempt Long-Term
Years Ended October 31,
--------------------------------------------------------------------
1996 1995 1994 1993(1) 1992(1)
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........... $10.54 $9.75 $11.10 $10.36 $10.23
-------- ---------- ---------- ---------- ----------
Income from
Investment Operations
Net Investment
Income ..................... .53 .53 .52 .53 .53
Net Realized
and Unrealized
Gains (Losses).............. .04 .83 (1.01) .90 .22
-------- ---------- ---------- ---------- ----------
Total from
Investment Operations....... .57 1.36 (.49) 1.43 .75
-------- ---------- ---------- ---------- ----------
Distributions
From Net
Investment Income........... (.53) (.532) (.519) (.529) (.530)
From Net Realized
Gains on Investment
Transactions................ -- (.044) (.342) (.161) (.088)
In Excess of Net
Realized Gains.............. -- -- -- (.003) --
-------- ---------- ---------- ---------- ----------
Total Distributions......... (.53) (.576) (.861) (.693) (.618)
-------- ---------- ---------- ---------- ----------
Net Asset Value,
End of Period................. $10.58 $10.54 $9.75 $11.10 $10.36
======== ========== ========== ========== ==========
Total Return(2)............. 5.60% 14.45% (4.70%) 14.32% 7.43%
Ratios/Supplemental Data
Ratio of Expenses
to Average Net Assets....... .59% .59% .60% .73% .98%(3)
Ratio of Net Investment
Income to Average
Net Assets.................. 5.06% 5.24% 5.00% 4.90% 5.07%
Portfolio
Turnover Rate............... 60% 61% 66% 81% 88%
Net Assets, End
of Period (in thousands) ... $60,772 $57,997 $50,964 $70,757 $61,825
</TABLE>
- --------------------------------------------------------------------------------
1 The data presented has been restated to give effect to a 10 for 1 stock split
in the form of a stock dividend that occurred on November 13, 1993.
2 Total return assumes reinvestment of dividends and capital gains
distributions, if any.
3 Expenses are shown net of management fees waived by Investors Research
Corporation for low-balance account fees collected during the period.
See Notes to Financial Statements
27
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Board of Directors:
Twentieth Century Investors, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Tax-Exempt Short-Term Fund,
Tax-Exempt Intermediate-Term Fund and Tax-Exempt Long-Term Fund (three of the
sixteen funds comprising TWENTIETH CENTURY INVESTORS, INC.), as of October 31,
1996, and the related statements of operations, the statements of changes in net
assets and the financial highlights for each of the periods indicated. These
financial statements and financial highlights are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and brokers. As to
securities purchased but not received, we requested confirmations from brokers,
and when replies were not received, we performed alternative auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Tax-Exempt Short-Term Fund, Tax-Exempt Intermediate-Term Fund and Tax-Exempt
Long-Term Fund as of October 31, 1996, and the results of their operations,
changes in their net assets and the financial highlights for each of the periods
indicated in conformity with generally accepted accounting principles.
/s/ BAIRD, KURTZ & DOBSON
BAIRD, KURTZ & DOBSON
Kansas City, Missouri
November 20, 1996
28
[blank page]
TWENTIETH CENTURY INVESTORS, INC.
Investment Manager
INVESTORS RESEARCH CORPORATION
Kansas City, Missouri
This report and the financial
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.
Twentieth Century Mutual Funds
and The Benham Group
- ------------------------------
P.O. Box 419200
Kansas City, Missouri
64141-6200
- ------------------------------
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
- ------------------------------
Automated information line:
1-800-345-8765
- ------------------------------
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
- ------------------------------
Fax: 816-340-7962
- ------------------------------
Internet: www.twentieth-century.com
SH-BKT-6143 [Recycled Logo]
9612 Recycled
Twentieth Century Securities, Inc.
TWENTIETH CENTURY
Tax-Exempt
Funds
Annual Report
October 31, 1996
Tax-Exempt Short-Term
Tax-Exempt Intermediate-Term
Tax-Exempt Long-Term
----------------------------
TWENTIETH CENTURY
INVESTORS, INC.
TWENTIETH CENTURY
Diversified
Bond Funds
Annual Report
OCTOBER 31,
1996
Limited-Term Bond
Intermediate-Term Bond
Long-Term Bond
- --------------------------------------------------------------------------------
TWENTIETH CENTURY INVESTORS, INC.
[cover page]
TABLE OF CONTENTS
Our Message to You........................................................1
Investment Philosophy.....................................................2
Period Overview...........................................................3
Credit Review and Analysis................................................4
Management Q&As
Limited-Term Bond.....................................................5
Intermediate-Term Bond................................................7
Long-Term Bond........................................................9
Schedules of Investments
Limited-Term Bond....................................................11
Intermediate-Term Bond...............................................12
Long-Term Bond.......................................................14
Statements of Assets and Liabilities.....................................17
Statements of Operations.................................................18
Statements of Changes in Net Assets......................................19
Notes to Financial Statements............................................20
Financial Highlights.....................................................23
Independent Accountants' Report..........................................26
IMPORTANT NOTICE FOR ALL IRA AND 403(b) SHAREHOLDERS
Any distribution you receive from an IRA and certain 403(b) distributions
[those not eligible for rollover to an IRA or to another 403(b)] are subject to
federal income tax withholding at the rate of 10% of the total amount withdrawn,
unless you elect not to have withholding apply. If you don't want us to withhold
this amount, you may send us a written election not to have federal income tax
withheld. Your written election is valid for six months from the date of receipt
by Twentieth Century. Even if you plan to roll over the amount you withdraw to
another tax-deferred account, the withholding rate still applies to the
withdrawn amount, unless we have received a written election not to withhold
within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Conversions/Redemptions form or an IRS Form W-4P. Call Twentieth Century for
either form. Your written election is valid for only six months from the date of
receipt by Twentieth Century. You may revoke your election at any time by
sending a written notice to us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
Twentieth Century Mutual Funds and The Benham Group are registered service
marks of Twentieth Century Services, Inc. and Benham Management Corporation,
respectively. American Century is a service mark of Twentieth Century Services,
Inc.
October 31, 1996
- --------------------------------------------------------------------------------
OUR MESSAGE TO YOU
The 12 months ended October 31, 1996, were distinguished by change, both in
the U.S. bond market and at Twentieth Century. After a rocky period in the first
half of 1996, bonds stabilized during the summer and enjoyed a rebound in
October. In the following pages, our investment management team provides some
further details about the market's changing direction and how your fund was
managed throughout the period.
Changing market conditions underscore the importance of quality investments.
Our commitment to quality securities is exemplified by the expansion of our
credit research team. The five members of the team carry out in-depth analysis
on all securities considered for purchase by Twentieth Century/Benham money
market and bond funds. Over the past year, the team established a new credit
management system that defines investment limits to cap our funds' exposure to
individual issuers, countries or industries. The team plays an important role in
the management of the Diversified Bond funds, helping to identify quality
securities with undervalued credit ratings.
[photo of James E. Stowers and James E. Stowers III]
On the corporate front, we completed the operational integration of
Twentieth Century and The Benham Group in September. As a result, you now have
direct access to a broader spectrum of funds and services, including the Benham
family of U.S. Treasury, government and municipal funds. Another integration
landmark is the new Twentieth Century Web site. If you use a personal computer
and have access to the Internet, we've made it easier for you to download
information about Twentieth Century and Benham funds and access your fund
accounts. You can view account balances, exchange shares between existing
accounts and make additional investments. The Web site address is:
www.twentieth-century.com. We are one of the first fund companies to offer
direct on-line transactions via the Internet.
In October, we announced the new name for our recently integrated company.
Beginning January 1, 1997, we will serve you under the name American Century
Investments, which reflects our expanded identity, the spirit of independence
common to Twentieth Century and Benham, and our optimism for a new century of
continued American prosperity. American Century's fund family will be divided
into three groups--the Benham Group, American Century Group and Twentieth
Century Group. Limited-Term Bond, Intermediate-Term Bond and Long-Term Bond will
be part of the Benham Group because the funds' investment style matches key
attributes of that group.
You may have noticed that this annual report includes only Limited-Term
Bond, Intermediate-Term Bond and Long-Term Bond, whereas in the past it covered
nine funds. This new focused format allows us to give you better information by
tailoring the report specifically to the issues that are most relevant to you
and your fund.
We continue to work to provide you with information and services that we
believe are useful and convenient to you. Thank you for investing with us.
Sincerely,
/s/James E. Stowers
James E. Stowers
Chairman of the Board and Founder
/s/James E. Stowers III
James E. Stowers III
President and Chief Executive Officer
1
INVESTMENT PHILOSOPHY
Twentieth Century introduced its first fixed-income fund in 1982. Today,
with Twentieth Century's acquisition of The Benham Group, the combined company
offers 41 fixed-income funds, ranging from money market funds to long-term bond
funds and including both taxable and tax-exempt funds.
- --------------------------------------------------------------------------------
Diversified Bond Funds
Limited-Term Bond, which was established on March 1, 1994, is intended for
investors seeking income with limited price fluctuations. The fund invests
primarily in investment-grade* corporate securities and other debt instruments,
and it seeks to maintain a weighted average maturity of five years or less.
Intermediate-Term Bond, which was established on March 1, 1994, is intended
for investors who seek a higher level of income than that provided by
Limited-Term Bond but with somewhat greater price volatility. The fund invests
in investment-grade securities and seeks to maintain a weighted average maturity
of 3-10 years.
Long-Term Bond, which was established on March 2, 1987, is intended for
investors who seek higher income and can accept the greater price volatility
associated with long-term bonds. The fund invests primarily in investment-grade
corporate bonds and other debt instruments, and it seeks to maintain a weighted
average maturity of 10 years or more. NOTE: Effective March 1, 1997, the fund's
weighted average maturity restrictions will change. See the management
discussion on page 10 for more details.
- --------------------------------------------------------------------------------
Comparative Indices
The Consumer Price Index is a measure of the average change in prices over
time in a fixed market basket of goods and services.
The Merrill Lynch Government/Corporate (1-5 Year) Index is a
market-value-weighted index composed of corporate and Treasury debt with an
overall maturity of approximately three years. The index consists of
approximately 24% corporate debt and 76% government debt. The corporate debt
issues are all rated BBB or better by Standard & Poor's.
The Lehman Intermediate Government/ Corporate Index includes the Lehman
Government and Corporate Bond Indices, which reflect the price fluctuations of
U.S. Treasury and government agency securities, corporate bonds and Yankee bonds
with maturities of 1-10 years.
The Lehman Aggregate Bond Index is composed of the Lehman
Government/Corporate Index and the Lehman Mortgage-Backed Securities Index,
which reflect the price fluctuations of Treasury issues, agency issues,
corporate bond issues and mortgage-backed securities.
* Securities rated Baa or above by Moody's Investors Service, Inc. and BBB or
above by Standard & Poor's Corporation are considered to be investment-grade.
Portfolio Management Team
- --------------------------------------------------------------------------------
Bud Hoops, Vice President and Senior Portfolio Manager
Jeffrey Houston, Portfolio Manager
Credit Research Team
- --------------------------------------------------------------------------------
Vicki Zesses, Corporate Credit Research Manager
Greg Afiesh, Credit Analyst
John Walsh, Credit Analyst
Michael Difley, Credit Analyst
Sudha Mani, Associate Credit Analyst
2
October 31, 1996
- --------------------------------------------------------------------------------
PERIOD OVERVIEW
U.S. Economy
A series of interest rate cuts by the Federal Reserve (the Fed) beginning in
1995 and culminating in January 1996 helped the U.S. economy rebound in 1996. An
improving retail sector, surging auto sales and a resilient housing market
helped the economy expand at an impressive 4.7% annual rate in the second
quarter of 1996. The economy remained strong throughout the summer as healthy
employment growth sent the national unemployment rate to a six-year low of 5.1%.
However, this trend appeared to reverse itself in the third quarter as economic
growth slowed to a more sedate 2.2% annual pace. Some recent economic data seem
to suggest that slowing could continue, but there has been enough conflicting
evidence to cause considerable uncertainty about the rate of growth going
forward.
In spite of the second-quarter surge in growth, inflation remained tame
during the period. For the 12 months ended October 31, inflation (as measured by
the consumer price index) rose at a 3.0% annualized rate. In light of this lack
of inflationary pressure, the Fed held short-term interest rates steady from
February through October.
U.S. Bond Market
Much like the economy, the U.S. bond market experienced several distinct
shifts during the 12 months ended October 31, 1996. The end result was slightly
positive performance across all maturity sectors. For example, the two-year
Treasury note posted a total return of 5.6% during the period, while the 30-year
Treasury bond returned 2.7%.
In late 1995, the bond market extended its year-long rally as the economy
continued to grow at a moderate pace. But bond yields soared during the first
and second quarters of 1996 when signs of stronger economic growth sparked
inflation fears. The 30-year Treasury bond yield, which had fallen as low as 6%
in January, rose above 7% by May as the market priced in a short-term interest
rate increase by the Fed (see the accompanying graph).
Bonds traded listlessly throughout the summer, reflecting the market's
uncertainty about the economic outlook. But the Fed held short-term interest
rates steady through the end of the period, and increasing evidence of
moderating economic growth ultimately convinced the bond market that a rate hike
was unnecessary. This conclusion sparked a substantial rebound in bond prices,
causing Treasury yields to fall by 30-40 basis points (a basis point equals
0.01%) across the maturity spectrum in October.
Mortgage-backed securities, with their higher yields, were the
top-performing fixed-income sector during the twelve-month period. Among other
bond sectors, corporate bonds outperformed Treasury and government securities.
The strengthening economy led to improving business conditions and better credit
quality among corporate securities, which in turn enhanced the price gains of
corporate bonds.
[line graph - data below]
Treasury Yield Curve
Years 10/31/95 4/30/96 10/31/96
1 5.541% 5.611% 5.404%
2 5.608 6.043 5.732
3 5.681 6.183 5.860
4 5.740 6.320 5.890
5 5.804 6.409 6.070
6 5.872 6.495 6.105
7 5.940 6.580 6.140
8 5.966 6.610 6.207
9 5.992 6.640 6.274
10 6.018 6.670 6.341
11 6.034 6.711 6.376
12 6.051 6.752 6.411
13 6.067 6.793 6.445
14 6.084 6.834 6.480
15 6.100 6.875 6.515
16 6.116 6.916 6.550
17 6.132 6.957 6.585
18 6.148 6.998 6.620
19 6.164 7.039 6.655
20 6.180 7.080 6.690
21 6.195 7.062 6.685
22 6.210 7.044 6.680
23 6.225 7.026 6.675
24 6.240 7.008 6.670
25 6.255 6.990 6.665
26 6.270 6.973 6.660
27 6.286 6.956 6.655
28 6.301 6.938 6.651
29 6.317 6.921 6.646
30 6.332 6.904 6.641
3
CREDIT REVIEW AND ANALYSIS
Corporate credit conditions improved during the twelve months ended October
31, 1996. Increased efficiency and a stronger U.S. economy led to improving
business conditions for many corporations. As a result, credit quality among
corporate securities improved. Significant credit upgrades during the period
occurred among the securities of industrial companies, most recently in the
airline sector. In the financial sector, banks continued a credit upgrade trend
that began a few years ago, while a rising stock market and heavy initial public
offering (IPO) activity translated into upgrades for broker-dealers.
Despite the improving credit conditions, several broad credit trends
developed during the period that may generate credit downgrades for individual
companies in the coming year. One of those is a tendency toward disaggregation
of large, diversified corporations in mature industries. While spinning off
business units may create the opportunity to enhance shareholder value, this
trend is potentially negative for holders of corporate debt because it lessens a
company's revenue diversification among multiple lines of business.
Another development is a trend toward stock buy-backs. Improved corporate
efficiencies have led to stronger cash flows, which many companies are using to
enhance shareholder value by repurchasing stock. Stock buy-backs draw down cash
reserves that could have been used to retire debt.
A third trend with implications for corporate credit quality is the rising
number of mergers and acquisitions in mature industries, such as utilities and
railroads. Mergers can increase a company's debt load because the acquisition
itself may be financed through debt and the acquisition target may bring its own
debt to the acquiring company. However, mergers and acquisitions can be positive
from the debtholder's perspective because aggregation adds diversity to the
business and can improve cash flows and generate greater efficiency in the long
run. Banking is an excellent example of an industry that benefited from
consolidation.
Changing environments in specific industries are also having an effect on
credit conditions. For example, electric utility companies incurred heavy debt
to expand facilities and build nuclear plants in the regulated environment of
the 1970s and 1980s, but they now face impending deregulation in many states. As
a result, utilities will need to become more efficient and produce power more
cheaply to survive in a competitive marketplace. In the short term, deregulation
will be phased in gradually from state to state, allowing companies the
opportunity to create efficiencies. Over the long term, however, credit quality
may be strained for electric utilities burdened by excessive debt or needing a
significant overhaul to be competitive.
Deregulation has also had an impact on the telecommunications industry.
Federal legislation passed by Congress in early 1996 deregulated portions of the
industry and eliminated many barriers to competition. Expansion into new areas,
as well as rapidly advancing technology, has changed the face of the
telecommunications industry. In general, the growing number of subscribers over
the last several years has provided a steady inflow of cash for
telecommunications companies. But new ventures and mergers with other businesses
(such as media conglomerates), as well as the need to stay abreast of changing
technology, will strain cash flows for some while producing new opportunities
for others. As these businesses evolve, they need to be constantly re-evaluated
from a credit standpoint.
4
October 31, 1996
- --------------------------------------------------------------------------------
LIMITED-TERM BOND
- --------------------------------------------------------------------------------
Management Q & A
An interview with Jeff Houston, a portfolio manager on the Diversified Bond
management team.
Q: How did the fund perform?
A: Limited-Term Bond slightly outperformed its peer group average. For the
fiscal year ended October 31, 1996, the fund posted a total return of
5.48%, compared with the 5.44% average return of the 98 "Short
Investment-Grade Debt Funds" tracked by Lipper Analytical Services.
Q: How was the fund positioned during the period?
A: We tend to maintain a fairly consistent average maturity and duration for
the fund. The fund's neutral position is an average maturity of about two
years and a duration around 1.75 years. Coming off the strong bond rally of
1995, the fund's maturity and duration were longer than neutral in the
early part of 1996, but we shortened it back to neutral as evidence of
stronger economic growth appeared.
Q: Over the past year, you've been reducing the fund's corporate bond holdings
and increasing its Treasury holdings. Why?
A: We believe that corporate securities have become overvalued compared to
Treasurys in the short-term sector of the market. Corporate securities
typically offer higher yields as compensation for increased credit risk,
but improving corporate credit quality
QUICK
FUND
FACTS
LIMITED-TERM BOND
Strategy:
Current income
with limited principal
fluctuations.
Inception date:
March 1, 1994
Size:
$8.1 million
(as of October 31, 1996)
- --------------------------------------------------------------------------------
Average Annual Total Returns
(as of October 31, 1996)
Limited-Term Merrill Lynch Govt./
Bond Corp (1-5 Year) Index
---- ---------------------
6 Months+ 3.50% 4.07%
1 Year 5.48% 5.92%
Inception 5.30% 6.13%
(3/1/94 to 10/31/96)
+Actual cumulative return
[pie chart]
- --------------------------------------------------------------------------------
Asset Allocation
(as of October 31, 1996)
U.S. Treasury Securities 40%
Corporate Bonds 36%
Other Asset-Backed Securities 10%
Mortgage-Backed Securities 7%
Sovereign Governments & Agencies 4%
Cash 3%
Percent of fund investments.
[mountain graph - data below]
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
Value on 10/31/96:
$11,477 Limited-Term Bond
$11,721 Merrill Lynch Govt/Corp (1-5 Year)
$10,789 Consumer Price Index*
$10,000
investment
made on 3/1/94
(Inception date)
Limited-Term Merrill Lynch Govt/ Consumer Price Index
Bond Corp (1-5 Year)
3/1/94 $10000 $10000 $10000
Mar-94 9933 9909 10034
Apr-94 9888 9851 10048
May-94 9887 9865 10055
Jun-94 9907 9885 10089
Jul-94 9999 9990 10117
Aug-94 10030 10026 10157
Sep-94 9990 9974 10184
Oct-94 9992 9988 10192
Nov-94 9958 9935 10205
Dec-94 9980 9961 10205
Jan-95 10102 10113 10246
Feb-95 10230 10285 10287
Mar-95 10291 10347 10321
Apr-95 10393 10454 10355
May-95 10582 10699 10375
Jun-95 10621 10763 10396
Jul-95 10650 10791 10396
Aug-95 10722 10865 10423
Sep-95 10795 10927 10444
Oct-95 10881 11035 10478
Nov-95 10986 11152 10471
Dec-95 11072 11252 10463
Jan-96 11169 11353 10525
Feb-96 11108 11274 10559
Mar-96 11098 11242 10614
Apr-96 11089 11231 10655
May-96 11119 11238 10675
Jun-96 11194 11335 10682
Jul-96 11236 11376 10702
Aug-96 11256 11403 10722
Sep-96 11365 11528 10757
Oct-96 11477 11721 10789
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Merrill Lynch Govt/Corp Index's total return line does not.
*Source: Lipper Analytical Services, Inc.
5
- --------------------------------------------------------------------------------
LIMITED-TERM BOND
has caused the spreads between corporate and Treasury yields to narrow
dramatically. In fact, corporate/Treasury yield spreads among securities
with maturities of less than five years are at their tightest levels since
1990. As a result, we've taken profits by selling some of the fund's
corporate holdings and shifting into Treasury securities.
Q: Is this why the fund's percentage of AAA-rated securities increased during
the fiscal year?
A: The additional Treasurys are part of the reason, but the fund's increased
holdings of asset-backed securities also contributed to the improved credit
quality. Asset-backed securities are typically backed by pools of credit
card debt, auto loans or home equity loans, and they're usually rated AAA
because they are structured to provide very high levels of credit
protection.
Q: Looking ahead, what is your outlook for the bond market over the next six
months?
A: The U.S. economy appears to have slowed from the rapid pace it established
earlier in the year and settled into what the Federal Reserve calls a
"sustainable level of economic growth"--an annual growth rate of 2.0%-2.5%.
This slowdown helped bonds rally in October and November. If these economic
conditions persist, we expect Fed policy to remain static and bond yields
to trade in a fairly narrow range over the next few months.
Though we are cautiously optimistic, we're watching a couple of factors
closely. The first is inflation--with unemployment at historically low
levels, rising labor costs could put upward pressure on consumer prices in
1997. We'll also be keeping an eye on the 105th Congress, which will
consider a balanced federal budget and entitlement reform in the coming
year. The outcome of these debates could have a profound effect on the bond
market.
Q: Given this outlook, what are your plans for the fund going forward?
A: For now, we intend to maintain the fund's neutral position, holding its
average maturity and duration steady. We will likely continue to
underweight corporate securities and look to expand our holdings of other
types of fixed-income securities when quality and yield spreads indicate
good value.
Quality Diversification (as of October 31, 1996)
- --------------------------------------------------------------------------------
(Moody's Rating) % of fund investments
AAA 60%
AA 4%
A 19%
BBB 17%
----
100%
====
Weighted Average Maturity (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 2.1
Weighted average maturity indicates the average time until the principal on the
fund's bond portfolio is expected to be repaid, weighted by dollar amount.
Duration (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 1.7
Duration is a measure of the sensitivity of a portfolio to changes in interest
rates. As the duration of a fund increases, the impact of a change in interest
rates on the value of its portfolio also increases.
Limited-Term Bond schedule of investments begins on page 11.
6
October 31, 1996
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM BOND
- --------------------------------------------------------------------------------
Management Q & A
An interview with Jeff Houston, a portfolio manager on the Diversified Bond
management team.
Q: How did the fund perform?
A: Intermediate-Term Bond performed well compared to its peer group. For the
fiscal year ended October 31, 1996, the fund posted a total return of
5.36%, compared with the 5.12% average return of the 176 "Intermediate
Investment-Grade Debt Funds" tracked by Lipper Analytical Services.
Q: How was the fund positioned during the period?
A: We positioned the fund to make the most of the prevailing economic
conditions. In late 1995, we lengthened the fund's average maturity and
duration to participate in the strong bond rally. However, we shortened the
maturity and duration to a more neutral position as evidence of stronger
economic growth appeared in the first quarter of 1996. We shortened further
in the summer as fears of a Fed interest rate increase roiled the markets.
But these fears abated as economic momentum slowed, so we resumed our
neutral posture at the end of the period.
Q: What changes did you make to the fund's composition?
A: We cut back on the fund's holdings of corporate securities because we
believe they have become overvalued compared to Treasurys. Corporate
securities typically offer high-
QUICK
FUND
FACTS
INTERMEDIATE-TERM BOND
Strategy:
High level of current income.
Inception date:
March 1, 1994
Size:
$15.6 million
(as of October 31, 1996)
- --------------------------------------------------------------------------------
Average Annual Total Returns
(as of October 31, 1996)
Intermediate-Term Lehman Intermediate
Bond Govt./Corp. Index
- --------------------------------------------------------------------------------
6 Months+ 4.66% 4.59%
1 Year 5.36% 5.81%
Inception 5.97% 6.18%
(3/1/94 to 10/31/96)
+Actual cumulative return
[pie chart]
- --------------------------------------------------------------------------------
Asset Allocation
(as of October 31, 1996)
Corporate Bonds 52%
U.S. Treasury Securities 25%
Mortgage-Backed Securities 10%
Other Asset-Backed Securities 8%
Sovereign Governments & Agencies 4%
Cash 1%
Percent of fund investments.
[mountain graph - data below]
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
Value on 10/31/96:
$11,674 Intermediate-Term Bond
$11,735 Lehman Intermediate Govt./Corp. Index
$10,789 Consumer Price Index*
$10,000
investment
made on 3/1/94
(Inception date)
Intermediate- Lehman Intermediate Consumer Price Index
Term Bond Govt/Corp
3/1/94 $10000 $10000 $10000
Mar-94 9856 9835 10034
Apr-94 9784 9768 10048
May-94 9798 9775 10055
Jun-94 9800 9776 10089
Jul-94 9926 9917 10117
Aug-94 9950 9947 10157
Sep-94 9881 9856 10184
Oct-94 9876 9855 10192
Nov-94 9840 9811 10205
Dec-94 9879 9845 10205
Jan-95 10014 10011 10246
Feb-95 10200 10219 10287
Mar-95 10264 10277 10321
Apr-95 10369 10403 10355
May-95 10701 10717 10375
Jun-95 10753 10789 10396
Jul-95 10743 10790 10396
Aug-95 10863 10888 10423
Sep-95 10949 10967 10444
Oct-95 11080 11089 10478
Nov-95 11232 11234 10471
Dec-95 11372 11352 10463
Jan-96 11472 11449 10525
Feb-96 11286 11315 10559
Mar-96 11215 11258 10614
Apr-96 11154 11218 10655
May-96 11129 11209 10675
Jun-96 11253 11328 10682
Jul-96 11277 11362 10702
Aug-96 11264 11371 10722
Sep-96 11448 11529 10757
Oct-96 11674 11735 10789
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Lehman Int. Govt/Corp Index's total return line does not.
*Source: Lipper Analytical Services, Inc.
7
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM BOND
er yields as compensation for increased credit risk, but improving
corporate credit quality has caused the spreads between corporate and
Treasury yields to narrow dramatically. In fact, corporate/Treasury yield
spreads are at their tightest levels since 1990. As a result, we've taken
profits by selling some of the fund's corporate securities, although they
still constitute about half of the fund's portfolio.
We replaced the fund's corporate holdings with other fixed-income
securities, most notably asset-backed securities. Asset-backed securities
are typically backed by pools of credit card debt, auto loans or home
equity loans, and they're usually rated AAA because they are structured to
provide very high levels of credit protection. Adding a combination of
asset-backed and Treasury securities to the fund's portfolio helped improve
its overall credit quality during the year.
Q: Looking ahead, what is your outlook for the bond market over the next six
months?
A: The U.S. economy appears to have slowed from the rapid pace it established
earlier in the year and settled into what the Federal Reserve calls a
"sustainable level of economic growth"--an annual growth rate of 2.0%-2.5%.
This slowdown helped bonds rally in October and November. If these economic
conditions persist, we expect Fed policy to remain static and bond yields
to trade in a fairly narrow range over the next few months.
Though we are cautiously optimistic, we're watching a couple of factors
closely. The first is inflation--with unemployment at historically low
levels, rising labor costs could put upward pressure on consumer prices in
1997. We'll also be keeping an eye on the 105th Congress, which will
consider a balanced federal budget and entitlement reform in the coming
year. The outcome of these debates could have a profound effect on the bond
market.
Q: Given this outlook, what are your plans for the fund going forward?
A: For now, we intend to maintain the fund's neutral position, holding its
average maturity and duration steady. We will likely continue to
underweight corporate securities and look to expand our holdings of other
types of fixed-income securities when quality and yield spreads indicate
good value. We believe that mortgage-backed securities look especially
attractive--they are among the highest-yielding government securities
available and tend to outperform other fixed-income sectors when interest
rates are steady.
Quality Diversification (as of October 31, 1996)
- --------------------------------------------------------------------------------
(Moody's Rating) % of fund investments
AAA 44%
AA 5%
A 32%
BBB 19%
-----
100%
=====
Weighted Average Maturity (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 6.4
Weighted average maturity indicates the average time until the principal on the
fund's bond portfolio is expected to be repaid, weighted by dollar amount.
Duration (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 4.0
Duration is a measure of the sensitivity of a portfolio to changes in interest
rates. As the duration of a fund increases, the impact of a change in interest
rates on the value of its portfolio also increases.
Intermediate-Term Bond schedule of investments begins on page 12.
8
October 31, 1996
- --------------------------------------------------------------------------------
LONG-TERM BOND
- --------------------------------------------------------------------------------
Management Q & A
An interview with Bud Hoops, vice president and a senior portfolio manager
on the Diversified Bond management team.
Q: How did the fund perform?
A: Long-Term Bond outperformed its peer group average. For the fiscal year
ended October 31, 1996, the fund posted a total return of 4.91%, compared
with the 4.82% average return of the 111 "A-Rated Debt Funds" tracked by
Lipper Analytical Services.
Q: How was the fund positioned during the period?
A: We positioned the fund to make the most of the prevailing economic
conditions. In late 1995, we lengthened the fund's average maturity and
duration to participate in the strong bond rally. However, we shortened the
maturity and duration back to a more neutral position as evidence of
stronger economic growth appeared in the first quarter of 1996. We
maintained this neutral position for the remainder of the period, keeping
the fund's average maturity around eleven years and its duration around
five years.
We also selectively added BBB-rated corporate bonds to the fund's
portfolio, increasing its BBB-rated exposure to more than 20%. In addition
to their relatively high yields, BBB-rated securities offer the opportunity
for price gains from credit-rating upgrades. Corporate credit conditions
improved significantly over the past year, and many BBB-rated securities
benefited. We worked closely with our corporate credit research team to
find the most likely
QUICK
FUND
FACTS
LONG-TERM BOND
Strategy:
High level of current income.
Inception date:
March 2, 1987
Size:
$142.6 million
(as of October 31, 1996)
- --------------------------------------------------------------------------------
Average Annual Total Returns
(as of October 31, 1996)
Long-Term Lehman Aggregate
Bond Bond Index
- --------------------------------------------------------------------------------
6 Months+ 5.14% 5.29%
1 Year 4.91% 5.85%
5 Years 7.48% 7.70%
Inception 7.69% 8.45%
(3/2/87 to 10/31/96)
+Actual cumulative return
[pie chart]
- --------------------------------------------------------------------------------
Asset Allocation
(as of October 31, 1996)
Corporate Bonds 56%
U.S. Treasury Securities 24%
Mortgage-Backed Securities 14%
Sovereign Governments & Agencies 5%
U.S. Government Agency Securities 1%
Percent of fund investments.
[mountain graph - data below]
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
Value on 10/31/96:
$20,468 Long-Term Bond
$21,913 Lehman Aggregate Bond Index
$14,179 Consumer Price Index*
$10,000
investment
made on 3/2/87
(Inception date)
Long-Term Bond Lehman Aggregate Bond Consumer Price Index
3/2/87 $10000 $10000 $10000
Mar-87 9890 9955 10045
Jun-87 9620 9777 10171
Sep-87 9109 9510 10299
Dec-87 9790 10062 10338
Mar-88 10207 10441 10436
Jun-88 10259 10564 10571
Sep-88 10455 10774 10732
Dec-88 10606 10856 10795
Mar-89 10642 10980 10956
Jun-89 11612 11855 11117
Sep-89 11651 11989 11198
Dec-89 12089 12435 11296
Mar-90 11657 12335 11529
Jun-90 12086 12786 11636
Sep-90 12036 12896 11888
Dec-90 12820 13548 11986
Mar-91 13086 13926 12094
Jun-91 13233 14154 12184
Sep-91 14123 14958 12291
Dec-91 15063 15717 12353
Mar-92 14739 15516 12479
Jun-92 15349 16143 12561
Sep-92 16027 16837 12659
Dec-92 15905 16882 12712
Mar-93 16596 17579 12864
Jun-93 17024 18045 12936
Sep-93 17547 18516 12998
Dec-93 17519 18527 13061
Mar-94 16949 17996 13186
Jun-94 16671 17810 13257
Sep-94 16706 17919 13383
Dec-94 16733 17987 13410
Mar-95 17621 18893 13563
Jun-95 18869 20044 13662
Sep-95 19252 20437 13725
Dec-95 20128 21308 13752
Mar-96 19637 20930 13949
Jun-96 19672 21050 14038
Sep-96 20003 21439 14136
Oct-96 20468 21913 14179
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Lehman Aggregate Bond Index's total return line does not.
*Source: Lipper Analytical Services, Inc.
9
- --------------------------------------------------------------------------------
LONG-TERM BOND
candidates for upgrades, which included debt issued by airlines, insurance
companies and media conglomerates.
Q: Despite the increase in BBB-rated corporate bonds, the fund's overall
holding of corporate securities declined during the fiscal year. Why?
A: We cut back on the fund's holdings of corporate securities because we
believe they have become overvalued compared to Treasury and government
bonds. Corporate bonds typically offer higher yields as compensation for
increased credit risk, but improving corporate credit quality has caused
the spreads between corporate and Treasury yields to narrow dramatically.
In fact, corporate/Treasury yield spreads are at their lowest levels since
1990. As a result, we've taken profits by selling some of the fund's
corporate securities, although they still constitute more than half of the
fund's portfolio.
Q: When the fund becomes part of the Benham Group at the beginning of 1997,
the fund's name will become "Benham Bond Fund." Why the change?
A: It gives us more flexibility to manage the fund. According to Securities
and Exchange Commission guidelines, a "long-term" fund must maintain an
average maturity of at least 10 years. We have historically kept the fund's
average maturity above this threshold, but we want the flexibility to lower
the fund's maturity to less than 10 years when market conditions warrant.
Although the name will change on January 1, the new policy won't take
effect until March 1.
Q: Looking ahead, what is your outlook for the bond market over the next six
months?
A: The U.S. economy has slowed to "trend" growth levels (an annual growth rate
of 2.0%-2.5%) in the last half of 1996, and the bond market has rallied
throughout October and November. If these economic conditions persist, we
expect the Fed to keep interest rates steady and bond yields to stabilize
over the next few months.
However, we're keeping an eye on inflation, especially labor costs. The
U.S. unemployment rate has reached historically low levels, and this has
led to some concern about wage pressures. Wages are about two-thirds of the
cost of doing business; unless businesses can offset rising labor costs
with the remarkable productivity gains they've achieved over the past five
years, we could see additional upward pressure on consumer prices in 1997.
Q: Given this outlook, what are your plans for the fund going forward?
A: For now, we intend to maintain the fund's neutral position, holding its
average maturity and duration steady. We will continue to underweight
corporate securities, which have become even more overvalued during the
recent bond rally, and look to expand our holdings of Treasury and
mortgage-backed securities.
Quality Diversification (as of October 31, 1996)
- -------------------------------------------------------------------------------
(Moody's Rating) % of fund investments
AAA 43%
AA 7%
A 29%
BBB 21%
----
100%
====
Weighted Average Maturity (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 11.0
Weighted average maturity indicates the average time until the principal on the
fund's bond portfolio is expected to be repaid, weighted by dollar amount.
Duration (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 5.0
Duration is a measure of the sensitivity of a portfolio to changes in interest
rates. As the duration of a fund increases, the impact of a change in interest
rates on the value of its portfolio also increases.
Long-Term Bond schedule of investments begins on page 14.
10
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS October 31, 1996
- --------------------------------------------------------------------------------
LIMITED-TERM BOND
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES--40.0%
$ 200 U.S. Treasury Notes,
5.625%, 6-30-97 $ 200
1,100 U.S. Treasury Notes,
6.125%, 3-31-98 1,108
100 U.S. Treasury Notes,
5.875%, 4-30-98 100
1,300 U.S. Treasury Notes,
6.00%, 9-30-98 1,307
300 U.S. Treasury Notes,
5.00%, 2-15-99 295
200 U.S. Treasury Notes,
6.625%, 6-30-01 204
--------------
(Cost $3,199) 3,214
--------------
MORTGAGE-BACKED
SECURITIES*--6.6%
275 FHLMC Series 1239 E
PAC REMIC, 6.80%,
1-15-16 275
260 FNMA Series 1991-21
G PAC REMIC,
6.00%, 12-25-19 258
--------------
(Cost $533) 533
--------------
OTHERASSET-BACKED
SECURITIES*--10.1%
200 Amresco Residential
Securities Mortgage
Loan Trust, 7.55%, 2-25-23 205
200 First Merchants Auto
Receivables Corp.,
Series 96B, Class A2,
6.80%, 5-15-01 203
200 NationsBank Auto
Owner Trust, 6.75%,
6-15-01 203
200 Standard Credit Card
Trust, Series 1995-2,
Cl A, 8.625%, 1-7-02 202
--------------
(Cost $799) 813
--------------
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
CORPORATE BONDS
Automobiles & Auto Parts--5.8%
$ 200 Ford Motor Credit
Co., 7.75%, 10-1-99 $ 208
250 General Motors Acceptance
Corp., MTN, 7.30%,
2-2-98 254
--------------
462
--------------
Banking--5.1%
200 Chase Manhattan Corp.,
8.80%, 2-1-00 201
200 Golden West Financial
Corp., 9.15%, 5-23-98 209
--------------
410
--------------
Financial Services--13.7%
100 Commercial Credit
Group Inc., 5.75%, 7-15-00 98
200 Franchise Finance Corp.,
7.00%, 11-30-00 201
275 Lehman Brothers Holdings,
Inc., MTN, 8.875%, 2-15-00 293
200 Paine Webber Group Inc.,
MTN, 7.96%, 4-28-00 208
300 Salomon Brothers Inc.,
VRN, 6.386%, 11-20-96,
resets monthly off the
1-month LIBOR plus
1.00% with no caps,
final maturity 2-27-97 301
--------------
1,101
--------------
Paper & Forest Products--2.5%
200 Boise Cascade Co.,
7.375%, 8-1-97 202
--------------
Real Estate--4.4%
150 Price REIT, Inc. (The),
7.25%, 11-1-00 151
200 Spieker Properties Inc.,
6.80%, 12-15-01 199
--------------
350
--------------
Retail (General Merchandise)--1.3%
100 Dayton Hudson Co.,
9.25%, 3-1-06, Call
Date 3-1-01 108
--------------
See Notes to Financial Statements
11
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (Continued) October 31, 1996
- --------------------------------------------------------------------------------
LIMITED-TERM BOND (Cont.)
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Tobacco Products--1.3%
$ 100 Philip Morris
Companies Inc.,
7.50%, 3-15-97 $ 101
Utilities--2.5%
200 Cincinnati Gas &
Electric Co., 5.80%, 2-15-99 198
--------------
Total Corporate Bonds--36.6% 2,932
--------------
(Cost $2,909)
SOVEREIGN GOVERNMENTS
& AGENCIES--3.8%
300 Republic of Italy, VRN,
5.594%, 1-27-97, resets
quarterly off the 3-month
LIBOR plus .0625% with
no caps, final maturity
7-26-99 301
--------------
(Cost $301)
TEMPORARY CASH
INVESTMENTS--2.9%
Repurchase Agreement,
Merrill Lynch & Co.,
Inc., (U.S. Treasury
obligations), in a joint
trading account at 5.50%,
dated 10-31-96, due 11-1-96
(Delivery value $233)
(Cost $233) 233
--------------
TOTAL INVESTMENT
SECURITIES--100.0% $ 8,026
==============
(Cost $7,974)
INTERMEDIATE-TERM BOND
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES--25.0%
$ 1,300 U.S. Treasury Notes,
6.125%, 3-31-98 $ 1,309
1,050 U.S. Treasury Notes,
6.00%, 9-30-98 1,055
250 U.S. Treasury Notes,
6.625%, 6-30-01 255
300 U.S. Treasury Notes,
6.375%, 9-30-01 304
200 U.S. Treasury Notes,
5.75%, 8-15-03 195
250 U.S. Treasury Notes,
6.50%, 8-15-05 253
300 U.S. Treasury Notes,
5.875%, 11-15-05 291
200 U.S. Treasury Notes,
7.00%, 7-15-06 209
--------------
(Cost $3,859) 3,871
--------------
MORTGAGE-BACKED
SECURITIES*--10.0%
777 FHLMC Pool #E00279,
6.50%, 2-1-09 767
300 FNMA Pool #250627,
8.00%, 7-1-26 307
494 GNMA Pool #002202,
7.00%, 4-20-26 482
--------------
(Cost $1,554) 1,556
--------------
OTHER ASSET-BACKED
SECURITIES*--7.9%
300 Amresco Residential
Securities Mortgage
Loan Trust, 7.55%, 2-25-23 307
300 First Merchants Auto
Receivables Corp.,
Series 96B, Class A2,
6.80%, 5-15-01 305
300 NationsBank Auto Owner
Trust, 6.75%, 6-15-01 304
300 Standard Credit Card
Trust, Series 1995-2, Cl A,
8.625%, 1-7-02 302
--------------
(Cost $1,198) 1,218
--------------
See Notes to Financial Statements
12
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
CORPORATE BONDS
Automobiles & Auto Parts--3.5%
$ 200 Ford Motor Credit Co.,
7.75%, 10-1-99 $ 208
300 General Motors Corp.
Global Notes, 9.625%,
12-1-00 333
--------------
541
--------------
Banking--13.6%
500 BankAmerica Corp.,
7.75%, 7-15-02 529
200 Chase Manhattan Corp.,
8.80%, 2-1-00 201
250 Citicorp, 7.125%, 5-15-06 253
250 Corestates Capital Corp.,
5.875%, 10-15-03 238
300 National Bank of Canada,
Series B, 8.125%, 8-15-04 320
350 Santander Financial
Issuances, Ltd., 7.00%,
4-1-06 350
200 Wells Fargo & Co.,
8.375%, 5-15-02 217
--------------
2,108
--------------
Communications Services--0.6%
100 Tele-Communications,
Inc., 8.25%, 1-15-03 100
--------------
Diversified Companies--1.9%
300 Hanson Overseas
BV, 6.75%, 9-15-05 295
--------------
Energy--3.3%
250 Coastal Corp.,
10.25%, 10-15-04 298
200 Texaco Capital Inc.,
9.45%, 3-1-00 220
--------------
518
--------------
Financial Services--6.2%
100 Commercial Credit Co.,
5.75%, 7-15-00 98
300 Franchise Finance Corp.,
7.00%, 11-30-00 302
250 Norwest Financial Inc.,
6.25%, 11-1-02 248
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
$ 300 Paine Webber Group Inc.,
MTN, 7.96%, 4-28-00 $ 312
--------------
960
--------------
Food & Beverage--1.3%
200 RJR Nabisco, Inc.,
8.75%, 4-15-04 202
--------------
Insurance--5.5%
300 Aetna Services, Inc.,
6.75%, 8-15-01 303
300 Delphi Financial Group, Inc.,
8.00%, 10-1-03 299
250 Nationwide Mutual
Insurance Co., 6.50%,
2-15-04 (Acquired 2-9-96;
Cost $252)+ 243
--------------
845
--------------
Media & Broadcast--1.7%
250 Time Warner Inc.,
8.11%, 8-15-06 258
--------------
Real Estate--4.2%
350 Price REIT, Inc. (The),
7.25%, 11-1-00 354
300 Spieker Properties Inc.,
6.80%, 12-15-01 298
--------------
652
--------------
Retail (General Merchandise)--4.4%
300 Dayton Hudson Co., 9.25%,
3-1-06, Call Date 3-1-01 325
200 Sears, Roebuck & Co., Inc.,
MTN, 8.29%, 6-10-02 216
125 Sears, Roebuck & Co., Inc.,
MTN, 8.23%, 10-21-04 135
--------------
676
--------------
Tobacco Products--2.3%
100 Philip Morris Companies
Inc., 7.50%, 3-15-97 101
250 Philip Morris Companies
Inc., 6.95%, 6-1-06,
Put Date 6-1-01 252
--------------
353
--------------
See Notes to Financial Statements
13
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (Continued) October 31, 1996
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM BOND (Cont.)
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Utilities--3.6%
$ 250 Idaho Power Co., 8.65%,
1-1-00 $ 266
300 Pacific Gas & Electric
Co., Series 93C, 6.25%,
8-1-03 294
--------------
560
--------------
Total Corporate Bonds--52.1% 8,068
--------------
(Cost $8,037)
SOVEREIGN GOVERNMENTS
& AGENCIES--4.0%
400 China Light &
Power, 7.50%, 4-15-06 405
200 Hydro-Quebec,
7.375%, 2-1-03 209
--------------
(Cost $603) 614
--------------
TEMPORARY CASH
INVESTMENTS--1.0%
Repurchase Agreement,
Merrill Lynch & Co., Inc.,
(U.S. Treasury obligations),
in a joint trading account,
at 5.50%, dated 10-31-96,
due 11-1-96 (Delivery
value $151) 151
--------------
(Cost $151)
TOTAL INVESTMENT
SECURITIES--100.0% $ 15,478
==============
(Cost $15,402)
- --------------------------------------------------------------------------------
LONG-TERM BOND
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES--23.5%
$ 2,000 U.S. Treasury Notes,
5.625%, 6-30-97 $ 2,003
4,000 U.S. Treasury Notes,
5.875%, 7-31-97 4,013
4,000 U.S. Treasury Notes,
5.75%, 9-30-97 4,010
5,000 U.S. Treasury Notes,
5.625%, 10-31-97 5,007
2,000 U.S. Treasury Notes,
5.125%, 2-28-98 1,987
3,000 U.S. Treasury Notes,
5.75%, 10-31-00 2,972
6,000 U.S. Treasury Notes,
5.50%, 12-31-00 5,884
3,500 U.S. Treasury Notes,
6.625%, 6-30-01 3,576
3,000 U.S. Treasury Notes,
7.00%, 7-15-06 3,135
--------------
(Cost $32,624) 32,587
--------------
U.S. GOVERNMENT AGENCY
SECURITIES--1.3%
2,000 Tennessee Valley Authority,
6.875%, 12-15-43,
Call Date 12-15-03 1,868
--------------
(Cost $1,854)
MORTGAGE-BACKED
SECURITIES*--14.4%
1,036 FHLMC Series 19 E PAC
REMIC, 8.00%, 8-15-19 1,055
1,000 FHLMC Series 116 F PAC
REMIC, 8.50%, 2-15-20 1,042
1,184 FNMA 89 Series 35 G
REMIC, 9.50%, 7-25-19 1,277
1,023 FNMA 90 Series 88 H PAC
REMIC, 7.75%, 9-25-19 1,034
1,252 FNMA 91 Series 21 G PAC
REMIC, 6.00%, 12-25-19 1,246
4,844 FNMA Pool #250452,
6.50%, 1-1-26 4,641
5,528 GNMA Pool #313107,
7.00%, 11-15-22 5,459
4,011 GNMA Pool #423865,
8.00%, 6-15-26 4,103
--------------
(Cost $19,407) 19,857
--------------
See Notes to Financial Statements
14
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
CORPORATE BONDS
Aerospace & Defense--3.0%
$ 2,000 Boeing Co.,
7.875%, 4-15-43 $ 2,152
2,000 Lockheed Martin Corp.,
7.25%, 5-15-06 2,050
--------------
4,202
--------------
Airlines--4.2%
3,355 Delta Air Lines Inc.,
Equipment Trust
Certificates, 7.541%,
10-11-11 3,364
2,000 United Air Lines,
10.67%, 5-1-04 2,370
--------------
5,734
--------------
Banking--12.5%
5,000 Citicorp Euro, 7.00%, 1-2-04 5,050
2,000 Corestates Capital
Corp., 5.875%, 10-15-03 1,907
3,000 First Union Corp., 8.77%,
11-15-04 3,173
5,000 National Bank of Canada,
8.125%, 8-15-04 5,331
2,000 Santander Financial
Issuances, Ltd., 6.375%,
2-15-11 1,862
--------------
17,323
--------------
Chemicals & Resins--4.7%
5,000 ARCO Chemical Co.,
10.25%, 11-1-10 6,462
--------------
Energy--6.4%
3,000 Coastal Corp. (The),
10.25%, 10-15-04 3,570
3,000 Columbia Gas Systems,
7.42%, 11-28-15 2,888
2,000 Texaco Capital Inc.,
8.625%, 4-1-32 2,340
--------------
8,798
--------------
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
Financial Services--5.1%
$ 4,000 Lehman Brothers
Holdings, Inc., 6.625%,
11-15-00 $ 3,990
3,000 Paine Webber Group Inc.,
MTN, 7.96%, 4-28-00 3,116
--------------
7,106
--------------
Insurance--3.9%
2,000 Delphi Financial Group,
Inc., 8.00%, 10-1-03 1,993
3,000 Lincoln National Corp.,
9.125%, 10-1-24 3,431
--------------
5,424
--------------
Media & Broadcast--3.6%
3,000 News America Holdings,
7.60%, 10-11-15 2,921
2,000 Time Warner Inc., 6.85%,
1-15-26, Put Date 1-15-03 1,990
--------------
4,911
--------------
Paper & Forest Products--0.9%
1,000 Georgia-Pacific Corp.,
9.50%, 12-1-11 1,185
--------------
Real Estate--2.2%
3,000 Spieker Properties Inc.,
MTN, 7.58%, 12-17-01 3,083
--------------
Telephone & Telegraph Apparatus--1.0%
1,500 Bell South Telecom,
7.00%, 12-1-95 1,448
--------------
Tobacco Products--1.5%
2,000 Philip Morris Companies
Inc., 7.25%, 9-15-01 2,045
--------------
Utilities--6.6%
5,000 Pacific Gas & Electric Co.,
5.50%, 6-1-99, Call
Date 1-6-97 4,913
4,000 Union Electric Co., 7.65%,
7-15-03 4,245
--------------
9,158
--------------
Total Corporate Bonds--55.6% 76,879
--------------
(Cost $75,380)
See Notes to Financial Statements
15
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (Continued) October 31, 1996
- --------------------------------------------------------------------------------
LONG-TERM BOND (Cont.)
- --------------------------------------------------------------------------------
Principal Amount Value
($ In Thousands)
- --------------------------------------------------------------------------------
SOVEREIGN GOVERNMENTS
& AGENCIES--4.9%
$ 3,000 Korea Electric Power,
6.375%, 12-1-03 $ 2,936
4,000 Province of Quebec
Bonds, 7.125%, 2-9-24 3,820
--------------
(Cost $6,685) 6,756
--------------
TEMPORARY CASH
INVESTMENTS--0.3%
Repurchase Agreement,
Merrill Lynch & Co., Inc.,
(U.S. Treasury obligations),
in a joint trading account
at 5.50%, dated 10-31-96,
due 11-1-96
(Delivery value $370) 370
--------------
(Cost $370)
TOTAL INVESTMENT
SECURITIES--100.0% $ 138,317
==============
(Cost $136,320)
NOTES TO SCHEDULES OF INVESTMENTS
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
LIBOR = London Interbank Offered Rate
MTN = Medium Term Note
resets = The frequency with which a fixed-income security's coupon changes,
based on current market conditions or an underlying index. The more frequently a
security resets, the less risk the investor is taking that the coupon will vary
significantly from current market rates.
VRN = Variable Rate Note, rates shown are effective 10-31-96. Interest reset
date is indicated and used in calculating the weighted average portfolio
maturity.
+Security was purchased under Rule 144A of the Securities
Act of 1933 and, unless registered under the Act or exempted from registration,
may only be sold to qualified institutional investors. The aggregate value of
restricted securities at October 31, 1996, was $243,125 which represented 1.6%
of the net assets of Intermediate-Term Bond.
*Final maturity indicated. Expected remaining average life used for purposes of
calculating the weighted average portfolio maturity.
See Notes to Financial Statements
16
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1996
Limited-Term Intermediate-Term Long-Term
Bond Bond Bond
---- ---- ----
($ In Thousands, Except Per-Share Amounts)
<S> <C> <C> <C> <C>
Assets
Investment securities, at value (identified
cost of $7,974, $15,402 and $136,320,
respectively) (Note 3).............. $ 8,026 $15,478 $138,317
Receivable for investments sold...... -- 255 2,354
Receivable for capital shares sold... -- 6 64
Interest receivable.................. 91 221 2,539
----------- ----------- -----------
8,117 15,960 143,274
----------- ----------- -----------
Liabilities
Disbursements in excess of
demand deposit cash................. 13 49 457
Payable for investments purchased.... -- 260 --
Payable for capital shares redeemed.. -- -- 11
Dividends payable.................... 8 15 142
Accrued management fees (Note 2)..... 4 10 97
----------- ----------- -----------
25 334 707
----------- ----------- -----------
Net Assets Applicable
to Outstanding Shares................... $ 8,092 $15,626 $142,567
=========== =========== ===========
Capital Shares, $.01 par value
(In Thousands)
Authorized........................... 100,000 100,000 100,000
=========== =========== ===========
Outstanding.......................... 815 1,577 14,801
=========== =========== ===========
Net Asset Value Per Share............... $ 9.93 $ 9.91 $ 9.63
=========== =========== ===========
Net Assets Consist Of:
Capital (par value and paid-in surplus) $ 8,038 $ 15,555 $ 139,266
Accumulated undistributed net
realized gain (loss) from investment
transactions........................ 2 (5) 1,304
Net unrealized appreciation on
investments (Note 3)................ 52 76 1,997
----------- ----------- -----------
$ 8,092 $15,626 $142,567
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
17
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Year Ended October 31, 1996
Limited-Term Intermediate-Term Long-Term
Bond Bond Bond
---- ---- ----
--------------------($ In Thousands)-----------------
Investment Income
Income:
<S> <C> <C> <C>
Interest............................. $ 484 $ 983 $10,174
--------- -------- ---------
Expenses:
Management fees (Note 2)............. 52 109 1,148
Directors' fees and expenses......... -- -- 2
--------- -------- ---------
52 109 1,150
--------- -------- ---------
Net investment income................... 432 874 9,024
--------- -------- ---------
Realized and Unrealized Gain (Loss)
on Investments (Note 3)
Net realized gain (loss) on investments. 13 (4) 1,341
Change in net unrealized
appreciation on investments.......... (31) (131) (3,546)
--------- -------- ---------
Net realized and unrealized (loss)
on investments.......................... (18) (135) (2,205)
--------- -------- ---------
Net Increase in Net Assets
Resulting from Operations............... $ 414 $ 739 $6,819
========= ======== =========
</TABLE>
See Notes to Financial Statements
18
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended October 31, 1996
and October 31, 1995
Limited-Term Intermediate-Term Long-Term
Bond Bond Bond
---- ---- ----
-------------------------($ In Thousands)------------------------
Increase (Decrease) in Net Assets 1996 1995 1996 1995 1996 1995
- --------------------------------- ---- ---- ---- ---- ---- ----
Operations
<S> <C> <C> <C> <C> <C> <C>
Net investment income ........... $ 432 $ 337 $ 874 $ 490 $ 9,024 $ 8,667
Net realized gain (loss) on
investment transactions......... 13 15 (4) 152 1,341 412
Change in net unrealized
appreciation (depreciation)
on investments.................. (31) 167 (131) 340 (3,546) 12,096
---------- --------- --------- --------- ---------- ----------
Net increase in net assets
resulting from operations....... 414 519 739 982 6,819 21,175
---------- --------- --------- --------- ---------- ----------
Distributions to Shareholders
From net investment income....... (432) (337) (874) (490) (9,024) (8,667)
From net realized gains
from investment transactions.... -- -- (132) -- (228) --
---------- --------- --------- --------- ---------- ----------
Decrease in net assets
from distributions.............. (432) (337) (1,006) (490) (9,252) (8,667)
---------- --------- --------- --------- ---------- ----------
Capital Share Transactions
Proceeds from shares sold........ 2,982 3,681 9,981 10,476 63,329 56,502
Proceeds from reinvestment
of distributions................ 413 325 895 456 8,559 7,979
Payments for shares redeemed..... (2,478) (1,370) (7,810) (2,859) (76,111) (48,778)
---------- --------- --------- --------- ---------- ----------
Net increase (decrease) in
net assets from capital
share transactions.............. 917 2,636 3,066 8,073 (4,223) 15,703
---------- --------- --------- --------- ---------- ----------
Net increase (decrease)
in net assets....................... 899 2,818 2,799 8,565 (6,656) 28,211
Net Assets
Beginning of year................ 7,193 4,375 12,827 4,262 149,223 121,012
---------- --------- --------- --------- ---------- ----------
End of year...................... $8,092 $7,193 $15,626 $12,827 $142,567 $149,223
========== ========= ========= ========= ========== ==========
Transactions in shares of the Funds:
(In thousands)
Sold............................. 300 377 1,005 1,072 6,596 6,052
Issued in reinvestment
of distributions................ 42 33 90 47 891 855
Redeemed......................... (249) (140) (792) (292) (7,937) (5,244)
---------- --------- --------- --------- ---------- ----------
Net increase (decrease).......... 93 270 303 827 (450) 1,663
========== ========= ========= ========= ========== ==========
</TABLE>
See Notes to Financial Statements
19
NOTES TO FINANCIAL STATEMENTS October 31, 1996
1. Organization and Summary of Significant Accounting Policies
Organization--
Twentieth Century Investors, Inc. (the Corporation) is registered
under the Investment Company Act of 1940 as an open-end diversified
management investment company. Limited-Term Bond, Intermediate-Term Bond
and Long-Term Bond (the Funds) are three of the sixteen series of funds
issued by the Corporation. The investment objective of Limited-Term Bond
is to seek income. The Fund intends to pursue this by investing in bonds
and other debt obligations and maintaining a weighted average maturity of
five years or less. The investment objective of Intermediate-Term Bond is
to seek a competitive level of income. The Fund intends to pursue this by
investing in bonds and other debt obligations and maintaining a weighted
average maturity of three to 10 years. The investment objective of
Long-Term Bond is to seek a high level of income. The Fund intends to
pursue this by investing in bonds and other debt obligations and
maintaining a weighted average maturity of 10 years or greater. On
September 3, 1996, the Funds implemented a multiple class structure
whereby the Funds are authorized to issue three classes of shares: the
Investor Class, the Service Class and the Advisor Class. The shares
outstanding prior to September 3, 1996, were designated as Investor Class
shares. The three classes of shares differ principally in their respective
shareholder servicing and distribution expenses and arrangements. All
shares of each fund represent an equal pro rata interest in the assets of
the class to which such shares belong, and have identical voting,
dividend, liquidation and other rights and the same terms and conditions,
except for class specific expenses and exclusive rights to vote on matters
affecting only individual classes. Sale of the Service and Advisor classes
had not commenced as of the report date. The following significant
accounting policies, related to all classes of the Funds, are in
accordance with accounting policies generally accepted in the investment
company industry.
Security Valuations--
Securities are valued through valuations obtained from a commercial
pricing service or at the mean of the most recent bid and asked prices.
When valuations are not readily available, securities are valued at fair
value as determined in accordance with procedures adopted by the board of
directors.
Security Transactions--
Security transactions are accounted for on the date purchased or sold.
Net realized gains and losses are determined on the identified cost basis,
which is also used for federal income tax purposes.
Investment Income--
Interest income is recorded on the accrual basis and includes
amortization of discounts and premiums.
Repurchase Agreements--
The Funds may enter into repurchase agreements with institutions that
the Funds' investment manager, Investors Research Corporation (IRC), has
determined are creditworthy pursuant to criteria adopted by the board of
directors. Each repurchase agreement is recorded at cost. The Funds
require that the securities purchased in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the Funds to
obtain those securities in the event of a default under the repurchase
agreement. IRC monitors, on a daily basis, the value of the securities
transferred to ensure that the value, including accrued interest, of the
securities under each repurchase agreement is equal to or greater than
amounts owed to the Funds under each repurchase agreement.
20
- --------------------------------------------------------------------------------
Joint Trading Account--
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the Funds, along with other registered investment companies
having management agreements with IRC, may transfer uninvested cash
balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
Income Tax Status--
It is the Funds' policy to distribute all taxable income and capital
gains to shareholders and to otherwise qualify as a regulated investment
company under provisions of the Internal Revenue Code. Accordingly, no
provision has been made for federal income taxes.
Distributions to Shareholders--
Distributions from net investment income are declared daily and
distributed monthly. Distributions from net realized gains are declared
and paid annually.
The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences are
primarily due to differences in the recognition of income and expense
items for financial statement and tax purposes.
Supplementary Information--
Certain officers and directors of the Corporation are also officers
and/or directors, and, as a group, controlling stockholders of Twentieth
Century Companies, Inc., the parent of the Corporation's investment
manager, IRC, the Corporation's distributor, Twentieth Century Securities
and the Corporation's transfer agent, Twentieth Century Services, Inc.
Use of Estimates--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of increases and decreases
in net assets from operations during the reporting period. Actual results
could differ from those estimates.
2. Transactions with Related Parties
The Corporation has entered into Management Agreements with IRC that
provides each Fund with investment advisory and management services in
exchange for a single, unified management fee per class. Additional fees
apply to the Advisor Class and Service Class shares as described in the
respective prospectuses. The Agreements provide that all expenses of the
Funds, except brokerage commissions, taxes, interest, expenses of those
directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by IRC. The fee is computed daily and paid monthly
based on each Fund's average daily closing net assets during the previous
month. The annual management fees for the Investor Class of Limited-Term
Bond, Intermediate-Term Bond and Long-Term Bond are .70%, .75%, and .80%,
respectively.
21
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued) October 31, 1996
3. Investment Transactions
Investment transactions (excluding short-term investments) for the
year ended October 31, 1996, were as follows:
<TABLE>
Limited-Term Intermediate- Long-Term
Bond Term Bond Bond
---- --------- ----
------------------($ In Thousands)----------------
Purchases
<S> <C> <C> <C>
U.S. Treasury & Agency Obligations $6,999 $9,213 $71,373
Other Debt Obligations 1,762 9,116 69,542
Proceeds From Sales
U.S. Treasury & Agency Obligations $5,461 $2,441 $59,995
Other Debt Obligations 2,284 9,368 84,010
</TABLE>
On October 31, 1996, the composition of unrealized appreciation and
(depreciation) of investment securities based on the aggregate cost of
investments for federal income tax purposes was as follows:
<TABLE>
Federal
Appreciation (Depreciation) Net Tax Cost
------------ -------------- --- --------
----------------------------($ In Thousands)-------------------
<S> <C> <C> <C> <C>
Limited-Term Bond $ 56 $ (4) $ 52 $ 7,974
Intermediate-Term Bond 160 (88) 72 15,406
Long-Term Bond 2,818 (821) 1,997 136,320
22
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
Limited-Term Bond
Years ended October 31, March 1, 1994
-------------------------(inception) through
1996 1995 October 31, 1994
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period............ $9.96 $9.68 $10.00
------- ---------- ----------
Income from
Investment Operations
Net Investment
Income....................... .56 .56 .31
Net Realized
and Unrealized
Gains (Losses)............... (.03) .28 (.32)
------- ---------- ----------
Total from
Investment Operations........ .53 .84 (.01)
------- ---------- ----------
Distributions
From Net
Investment Income............ (.56) (.557) (.312)
------- ---------- ----------
Net Asset Value,
End of Period.................. $9.93 $9.96 $9.68
======= ========== ==========
Total Return(1).............. 5.48% 8.89% (.08%)
Ratios/Supplemental Data
Ratio of Expenses
to Average Net Assets........ .68% .69% .70%(2)
Ratio of Net Investment
Income to Average
Net Assets................... 5.63% 5.70% 4.79%(2)
Portfolio
Turnover Rate................ 121% 116% 48%
Net Assets, End
of Period (in thousands)..... $8,092 $7,193 $4,375
- --------------------------------------------------------------------------------
</TABLE>
1 Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
2 Annualized
See Notes to Financial Statements
23
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
Intermediate-Term Bond
Years ended October 31, March 1, 1994
----------------------- (inception) through
1996 1995 October 31, 1994
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period............ $10.07 $9.53 $10.00
-------- ---------- ----------
Income from
Investment Operations
Net Investment
Income....................... .58 .59 .34
Net Realized
and Unrealized
Gains (Losses)............... (.06) .54 (.47)
-------- ---------- ----------
Total from
Investment Operations........ .52 1.13 (.13)
-------- ---------- ----------
Distributions
From Net
Investment Income............ (.58) (.587) (.337)
From Net Realized
Gains on Investment
Transactions................. (.10) -- --
-------- ---------- ----------
Total Distributions.......... (.68) (.587) (.337)
-------- ---------- ----------
Net Asset Value,
End of Period.................. $9.91 $10.07 $9.53
======== ========== ==========
Total Return(1).............. 5.36% 12.19% (1.24%)
Ratios/Supplemental Data
Ratio of Expenses
to Average Net Assets........ .74% .74% .75%(2)
Ratio of Net Investment
Income to Average
Net Assets................... 5.90% 6.05% 5.23%(2)
Portfolio
Turnover Rate................ 87% 133% 48%
Net Assets, End
of Period (in thousands)..... $15,626 $12,827 $4,262
- --------------------------------------------------------------------------------
1Total return assumes reinvestment of dividends and capital gains distributions,
if any. Total returns for periods less than one year are not annualized.
2Annualized
See Notes to Financial Statements
24
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
Long-Term Bond
Years Ended October 31,
-----------------------
1996 1995 1994 1993(1) 1992(1)
- ------------------------------------------------------------------------------------------------------
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period........... $9.78 $8.91 $10.21 $9.92 $9.56
------- -------- ---------- ---------- --------
Income from
Investment Operations
Net Investment
Income...................... .60 .61 .58 .66 .63
Net Realized
and Unrealized
Gains (Losses).............. (.14) .87 (1.12) 1.88 .35
------- -------- ---------- ---------- --------
Total from
Investment Operations....... .46 1.48 (.54) 2.54 .98
------- -------- ---------- ---------- --------
Distributions
From Net
Investment Income........... (.60) (.611) (.576) (.662) (.622)
From Net Realized
Gains on Investment
Transactions................ (.01) -- (.186) (1.587) --
------- -------- ---------- ---------- --------
Total Distributions......... (.61) (.611) (.762) (2.249) (.622)
------- -------- ---------- ---------- --------
Net Asset Value,
End of Period................. $9.63 $9.78 $8.91 $10.21 $9.92
======= ======== ========== ========== ========
Total Return(2)............. 4.91% 17.16% (5.47%) 11.81% 10.40%
Ratios/Supplemental Data
Ratio of Expenses
to Average Net Assets....... .79% .78% .88% 1.00% .98%(3)
Ratio of Net Investment
Income to Average
Net Assets.................. 6.18% 6.53% 6.07% 6.54% 6.30%
Portfolio
Turnover Rate............... 100% 105% 78% 113% 186%
Net Assets, End
of Period (in thousands).... $142,567 $149,223 $121,012 $172,120 $154,031
</TABLE>
- --------------------------------------------------------------------------------
1 The data presented has been restated to give effect to a 10 for 1 stock split
in the form of a stock dividend that occurred on November 13, 1993.
2 Total return assumes reinvestment of dividends and capital gains
distributions, if any.
3 Expenses are shown net of management fees waived by Investors Research
Corporation for low-balance account fees collected during the period.
See Notes to Financial Statements
25
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Board of Directors:
Twentieth Century Investors, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Limited-Term Bond Fund,
Intermediate-Term Bond Fund and Long-Term Bond Fund (three of the sixteen funds
comprising TWENTIETH CENTURY INVESTORS, INC.), as of October 31, 1996, and the
related statements of operations, the statements of changes in net assets and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and brokers. As to
securities purchased but not received, we requested confirmations from brokers,
and when replies were not received, we performed alternative auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Limited-Term Bond Fund, Intermediate-Term Bond Fund and Long-Term Bond Fund as
of October 31, 1996, and the results of their operations, changes in their net
assets and the financial highlights for each of the periods indicated in
conformity with generally accepted accounting principles.
/s/BAIRD, KURTZ & DOBSON
BAIRD, KURTZ & DOBSON
Kansas City, Missouri
November 20, 1996
26
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27
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28
[blank page]
TWENTIETH CENTURY INVESTORS, INC.
Investment Manager
INVESTORS RESEARCH CORPORATION
Kansas City, Missouri
This report and the financial
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.
Twentieth Century Mutual Funds
and The Benham Group
- ------------------------------
P.O. Box 419200
Kansas City, Missouri
64141-6200
- ------------------------------
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
- ------------------------------
Automated information line:
1-800-345-8765
- ------------------------------
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
- ------------------------------
Fax: 816-340-7962
- ------------------------------
Internet: www.twentieth-century.com
- ------------------------------
SH-BKT-6146 [recycled logo]
9612 Recycled
Twentieth Century Securities, Inc.
TWENTIETH CENTURY
Diversified
Bond Funds
Annual Report
October 31, 1996
Limited-Term Bond
Intermediate-Term Bond
Long-Term Bond
----------------------
TWENTIETH CENTURY
INVESTORS, INC.
