ANNUAL REPORT
[American Century logo]
American
Century(sm)
DECEMBER 31, 1996
TCI
PORTFOLIOS, INC.
TCI Value
[front cover]
TABLE OF CONTENTS
Our Message to You........................................................ 1
Performance & Portfolio Information....................................... 2
Management Q & A.......................................................... 3
Schedule of Investments................................................... 5
Statement of Assets and Liabilities....................................... 7
Statement of Operations................................................... 8
Statements of Changes in Net Assets....................................... 9
Notes to Financial Statements............................................. 10
Financial Highlights...................................................... 12
Independent Accountants' Report........................................... 13
Background Information
Portfolio Management Team............................................ 16
Investment Philosophy & Policies..................................... 16
Comparative Indices.................................................. 16
Glossary.................................................................. 17
Twentieth Century and the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
OUR MESSAGE TO YOU
[photo of James E. Stowers, Jr. & James E. Stowers III]
The year ended December 31, 1996, was eventful for TCI Value and our
company. The fund commenced operations on May 1, 1996. During the next eight
months, the fund's portfolio of mid-cap, value-oriented stocks generally kept
pace with the fund's benchmark, the S&P/BARRA Value Index.
On the corporate front, we completed the operational integration of
Twentieth Century and The Benham Group in mid-1996 and adopted American Century
Investments as our new company name. This name reflects our expanded identity
and the independent thinking common to Twentieth Century and Benham. As part of
the renaming process, TCI Portfolios, Inc. (the group of variable annuity funds
that includes TCI Value) will become American Century Variable Portfolios, Inc.
on May 1, 1997. Effective on the same date, this fund's name will change to
American Century VP Value. Important note: These name changes will not alter the
investment strategy or objectives of the fund.
Another significant change is reflected in the design and content of this
annual report, which is structured to provide more information in an
easier-to-read format. The new design adds a question and answer section with
the fund's portfolio managers. We hope this expanded format provides you with a
meaningful overview and perspective on how your fund performed for the period.
Thank you for investing with us.
Sincerely,
/s/James E. Stowers, Jr. /s/James E.Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder President and Chief Executive Officer
Annual Report Our Message to You 1
PERFORMANCE & PORTFOLIO INFORMATION
6 MONTHS(1) LIFE OF FUND(2)
CUMULATIVE TOTAL RETURNS(3) (as of December 31, 1996)
TCI Value ..................................... 9.27% 12.28%
S&P 500(4) .................................... 11.68% 15.05%
S&P/BARRA Value Index(4) ...................... 12.36% 13.51%
(1) Not annualized.
(2) The fund's inception date was 5/1/96. Cumulative total returns presented
are not annualized.
(3) Returns are defined in the Glossary on page 17.
(4) See page 16 for more information about these comparative performance
indices.
[line graph - data described below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 12/31/96
S&P/BARRA
TCI Value Value Index S&P 500
$10,000 $10,000 $10,000
$10,120 $10,151 $10,222
$10,275 $10,102 $10,302
$9,673 $9,676 $9,831
$9,974 $9,943 $10,016
$10,323 $10,369 $10,619
$10,484 $10,720 $10,897
$11,148 $11,540 $11,696
$11,228 $11,351 $11,505
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 return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the return
lines of the indices do not.
PORTFOLIO AT A GLANCE
12/31/96
Number of Companies 78
Price/Earnings Ratio (Median) 15
Portfolio Turnover 49%
See Glossary on page 17 for investment terms.
2 Performance & Portfolio Information American Century Investments
MANAGEMENT Q & A
An interview with Peter Zuger and Phil Davidson, lead managers on the TCI
Value investment team.
HOW DID THE FUND PERFORM OVER THE YEAR ENDED DECEMBER 31, 1996?
TCI Value's inception date was May 1, 1996, so its performance encompasses
only the eight months ended December 31, 1996. For this period, the fund's total
return was 12.28%, slightly lower than its benchmark and the U.S. stock market
in general. The fund's benchmark, the S&P/BARRA Value Index, posted a total
return of 13.51% and the total return of the S&P 500 was 15.05%.
WHY DID THE FUND UNDERPERFORM ITS BENCHMARK AND THE S&P 500?
The S&P 500, representing the stocks of the largest publicly traded
companies in the U.S., had an excellent year in 1996. For the last half of 1996,
there was a strong move to indexation--many investors wanted to own what was in
the S&P 500 and not much else. This created a gap in performance between the
stocks of large companies represented in the S&P 500 and everything else. TCI
Value, which has been more focused on mid-sized company stocks, lagged the S&P
500 and the S&P/BARRA Value Index, which also has a large company bias.
WHAT INVESTMENTS BOOSTED THE FUND'S PERFORMANCE DURING THE PERIOD?
Much of the fund's performance is explained by situations that are unique
to each of its holdings. The fund's best performer, Petrolite Corporation,
benefited from improved demand and from the fact that management is actively
considering selling the company. Petrolite manufactures chemicals used in the
extraction of oil and gas. Another top performer was McClatchy Newspapers, Inc.,
which benefited from declining newsprint costs and the completion of its
acquisition of the Raleigh News & Observer in North Carolina. Dayton Hudson
Corp., owner of Target and Mervyn's discount stores and three Midwestern
department store chains, was a strong retail holding. Sales at Target, which
accounts for two-thirds of Dayton's income, were strong and the company improved
the cost structure at its less profitable department stores.
WHERE HAVE THE DISAPPOINTMENTS BEEN?
The fund's worst performers were, we believe, affected by temporary
setbacks. The stock of Millennium Chemicals Inc., for instance, suffered after
it was spun off by its parent company, British-based Hanson PLC. Many of
Millennium's shareholders were British institutional funds that lost interest in
the company when its shares were listed on the New York Stock Exchange. Many
British investors prefer to remain in British stocks. This selling pressure
created an opportunity to buy a strong company at what we considered to be a
temporarily depressed price. Another underperforming stock was Browning-Ferris
Industries, Inc. The waste hauling and disposal company did not deliver the
growth rate in earnings that the market expected. As of the end of the period,
we believed the stock was still worth owning because it had a large share of a
market with high barriers to entry. A gradual repricing of contracts is also
expected to improve the profitability of the company's recycling business.
WHAT CHANGES HAVE YOU MADE TO THE PORTFOLIO DURING THE PAST SIX MONTHS?
The most significant change was a reduction in the fund's exposure to
energy stocks as their prices have become less attractive relative to other
alternatives.
On the other hand, the fund increased its holdings in the chemicals
industry. In general, our stock selection approach leads us to undervalued
stocks rather than industry sectors. However, sometimes undervalued stocks are
concentrated in a sector. This hap-
Annual Report Management Q & A 3
MANAGEMENT Q & A
pened during the period in the chemical industry, where many of the companies
are well financed and have good longer-term prospects. For various reasons, each
of the fund's additions experienced transitory pricing pressures, which
temporarily depressed their stock prices and created opportunities for the fund.
WHAT IS YOUR OUTLOOK FOR THE COMING YEAR?
In 1996, large company stocks outperformed mid-sized company stocks because
many investors favored the largest issues on the stock exchanges. That presents
some very attractive buying opportunities for value investors among
mid-capitalization companies. It also results in a performance gap between
large- and mid-capitalization stocks. At some point, we believe that gap is
going to close and the fund is well positioned to benefit from the boost in
performance we expect mid-cap stocks to enjoy. In the meantime, the fund holds
its own by being well diversified and by reducing volatility through careful
stock selection.
TOP TEN HOLDINGS % of fund investments
As of As of
12/31/96 6/30/96
Giant Food Inc. CI A 4.3% 4.4%
Dillard Department
Stores, Inc. CI A 2.8% 0.3%
Great Lakes Chemical Corp. 2.5% --
Cooper Industries, Inc. 2.5% 1.3%
Browning-Ferris Industries, Inc. 2.4% 2.7%
CSX Corp. 2.4% --
MAPCO Inc. 2.3% 2.5%
Petrolite Corporation 2.2% 1.3%
Millennium Chemicals Inc. 2.2% --
Reynolds Metals Co. 2.1% --
TOP FIVE INDUSTRIES % of fund investments
As of As of
12/31/96 6/30/96
Chemicals & Resins 12.2% 8.4%
Energy (Production & Marketing) 6.6% 14.2%
Utilities (Electric) 6.5% 9.0%
Industrial Equipment & Machinery 6.1% 3.4%
Publishing 5.9% 7.2%
4 Management Q & A American Century Investments
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS
AUTOMOBILES & AUTO PARTS--2.5%
1,400 Cooper Tire and Rubber Company $ 27,650
5,800 Echlin, Inc. 183,425
16,800 Superior Industries International, Inc. 388,500
------------
599,575
------------
BANKING--2.9%
7,400 First Virginia Banks, Inc. 354,275
6,400 Mercantile Bancorporation Inc. 328,800
------------
683,075
------------
CHEMICALS & RESINS--12.2%
3,400 Air Products & Chemicals, Inc. 235,025
6,500 Albemarle Corp. 117,812
4,200 Dow Chemical Co. 329,175
12,700 Great Lakes Chemical Corp. 593,725
10,500 Lubrizol Corp. 325,500
29,700 Millennium Chemicals Inc.(1) 527,175
6,600 Nalco Chemical Co. 238,425
11,300 Petrolite Corporation 531,100
------------
2,897,937
------------
COMMUNICATIONS SERVICES--4.6%
11,500 AT&T Corp. 480,125
7,200 BellSouth Corp. 290,700
13,300 Frontier Corp. 300,912
700 MCI Communications Corp. 22,881
------------
1,094,618
------------
CONSUMER PRODUCTS--2.7%
8,500 Tambrands, Inc. 347,437
11,900 Unilever plc ORD 288,665
------------
636,102
------------
ELECTRICAL & ELECTRONIC COMPONENTS--1.4%
8,800 AMP, Inc. 337,700
------------
ENERGY (PRODUCTION & MARKETING)--6.6%
4,400 Amoco Corp. 354,200
3,600 Elf Aquitaine SA ADR 162,900
1,500 Exxon Corp. 147,000
16,200 MAPCO Inc. 550,800
Shares Value
- --------------------------------------------------------------------------------
6,700 Murphy Oil Corp. $ 326,625
200 Texaco Inc. 19,625
------------
1,561,150
------------
ENVIRONMENTAL SERVICES--2.4%
22,000 Browning-Ferris Industries, Inc. 577,500
------------
FOOD & BEVERAGE--5.8%
17,430 Archer-Daniels-Midland Co. 383,460
3,800 Hormel Foods Corp. 102,600
800 Hudson Foods, Inc. 15,200
17,400 Ralcorp Holdings, Inc.(1) 367,575
2,200 Savannah Foods & Industries, Inc. 29,700
13,500 Universal Foods Corp. 475,875
------------
1,374,410
------------
HEALTHCARE--1.8%
6,500 Bausch & Lomb Inc. 227,500
4,800 Seafield Capital Corp. 187,800
------------
415,300
------------
INDUSTRIAL EQUIPMENT & MACHINERY--6.1%
13,900 Cooper Industries, Inc. 585,537
22,400 Gerber Scientific, Inc. 333,200
11,300 Keystone International, Inc. 227,413
12,800 Watts Industries, Inc. 305,600
------------
1,451,750
------------
INSURANCE--5.8%
7,200 Argonaut Group, Inc. 224,100
4,500 CNA Financial Corp.(1) 481,500
5,000 Home Beneficial Corp. 191,875
5,900 NAC Re Corp. 199,863
4,800 St. Paul Companies, Inc. 281,400
------------
1,378,738
------------
METALS & MINING--3.1%
8,700 Ashland Coal, Inc. 241,425
8,900 Reynolds Metals Co. 501,738
------------
743,163
------------
PACKAGING & CONTAINERS--2.2%
7,400 ACX Technologies, Inc.(1) 147,075
14,400 Ball Corporation 374,400
------------
521,475
------------
See Notes to Financial Statements
Annual Report Schedule of Investments 5
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
Shares Value
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--5.2%
12,000 Chesapeake Corp. $ 376,500
9,000 Rayonier, Inc. 345,375
4,800 Union Camp Corp. 229,200
9,800 Westvaco Corp. 281,750
------------
1,232,825
------------
PUBLISHING--5.9%
13,300 American Greetings Corp. Cl A 378,219
16,100 Banta Corp. 365,269
5,300 Central Newspapers, Inc. Cl A 233,200
12,200 McClatchy Newspapers, Inc. 427,000
------------
1,403,688
------------
RAILROAD--2.4%
13,300 CSX Corp. 561,925
------------
RETAIL (FOOD & DRUG)--5.9%
7,800 Albertson's, Inc. 277,875
29,700 Giant Food Inc. Cl A 1,024,650
2,900 Hannaford Brothers Co. 98,600
------------
1,401,125
------------
RETAIL (GENERAL MERCHANDISE)--3.9%
21,800 Dillard Department Stores, Inc. Cl A 673,075
3,600 Mercantile Stores Co., Inc. 177,750
2,000 Nordstrom, Inc. 70,875
------------
921,700
------------
TRANSPORTATION--2.7%
13,600 Rollins Truck Leasing Corp. 171,700
10,800 XTRA Corp. 468,450
------------
640,150
------------
UTILITIES (ELECTRIC)--6.5%
5,400 Florida Progress Corp. 174,150
13,500 Kansas City Power & Light Co. 384,750
1,300 New York State Electric & Gas Corp. 28,113
7,900 Northern States Power Co. (Minn.) 362,413
13,100 Potomac Electric Power Co. 337,325
6,300 Union Electric Co. 242,550
------------
1,529,301
------------
MISCELLANEOUS--2.2%
3,000 Juno Lighting, Inc. 47,625
3,500 Litton Industries, Inc.(1) 166,687
2,200 Motorola, Inc. 135,025
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
2,100 National Service Industries $ 78,487
2,000 Whirlpool Corp. 93,250
------------
521,074
------------
TOTAL COMMON STOCKS--94.8% 22,484,281
------------
(Cost $21,418,413)
CONVERTIBLE BONDS
COMMUNICATIONS EQUIPMENT--1.2%
$380,000 Motorola, Inc., 1.579%, 9-27-13(2) 292,125
------------
RETAIL (SPECIALTY)--0.2%
55,000 Jacobson Stores Inc.,
6.75%, 12-15-11 40,700
------------
TOTAL CONVERTIBLE BONDS--1.4% 332,825
------------
(Cost $326,175)
TEMPORARY CASH INVESTMENTS--3.8%
Repurchase Agreement,
J.P. Morgan Securities, Inc.,
(U.S. Treasury obligations), in a
joint trading account at 6.70%,
dated 12-31-96, due 1-2-97
(Delivery value $900,335) 900,000
------------
(Cost $900,000)
TOTAL INVESTMENT SECURITIES--100.0% $23,717,10
===========
(Cost $22,644,588)
FORWARD FOREIGN CURRENCY CONTRACTS
Contracts Settlement Unrealized
to Sell Date Value (Loss)
- -------------------------------------------------------------------
741,978 FRF 1-31-97 $ 143,203 $ (1,545)
========== ==========
(Value on Settlement Date $141,658)
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
FRF = French Franc
ORD = Foreign Ordinary Share
(1) Non-income producing
(2) This security is a zero-coupon bond. The effective yield to maturity at
December 31, 1996 is shown instead of a stated coupon rate. Zero-coupon
securities are purchased at a substantial discount from their value at
maturity.
See Notes to Financial Statements
6 Schedule of Investments American Century Investments
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<S> <C>
ASSETS
Investment securities, at value (identified cost of $22,644,588) (Note 3).............. $23,717,106
Cash .................................................................................. 799,023
Receivable for investments sold........................................................ 64,610
Receivable for capital shares sold..................................................... 608,459
Dividends and interest receivable...................................................... 42,369
-----------
25,231,567
-----------
LIABILITIES
Payable for forward foreign currency exchange contracts................................ 1,545
Payable for investments purchased...................................................... 1,318,991
Accrued management fees (Note 2)....................................................... 17,156
Other liabilities...................................................................... 12
-----------
1,337,704
-----------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES............................................ $23,893,863
===========
CAPITAL SHARES, $.01 PAR VALUE
Authorized............................................................................. 200,000,000
============
Outstanding............................................................................ 4,278,765
============
Net Asset Value Per Share.............................................................. $ 5.58
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)................................................ $22,307,305
Undistributed net investment income.................................................... 84,814
Accumulated undistributed net realized gain
from investments and foreign currency transactions................................ 430,732
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies (Note 3)............................. 1,071,012
------------
$23,893,863
============
</TABLE>
See Notes to Financial Statements
Annual Report Statement of Assets and Liabilities 7
STATEMENT OF OPERATIONS
MAY 1, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $589)................$ 165,970
Interest......................................................... 19,137
----------
185,107
----------
Expenses:
Management fees (Note 2)......................................... 62,187
Directors' fees and expenses..................................... 48
----------
62,235
----------
Net investment income................................................. 122,872
----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY (NOTE 3)
Net realized gain on:
Investments...................................................... 430,732
Foreign currency transactions.................................... 4,165
----------
434,897
----------
Change in net unrealized appreciation on:
Investments...................................................... 1,072,518
Translation of assets and liabilities in foreign currencies...... (1,506)
----------
1,071,012
----------
Net realized and unrealized gain on
investments and foreign currency...................................... 1,505,909
----------
Net Increase in Net Assets
Resulting from Operations.............................................$1,628,781
==========
See Notes to Financial Statements
8 Statement of Operations American Century Investments
STATEMENT OF CHANGES IN NET ASSETS
MAY 1, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
INCREASE IN NET ASSETS
OPERATIONS
Net investment income.............................................. $ 122,872
Net realized gain on investments and
foreign currency transactions................................. 434,897
Change in net unrealized appreciation
on investments and translation
of assets and liabilities in foreign currencies............... 1,071,012
-----------
Net increase in net assets resulting from operations............... 1,628,781
-----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income......................................... (42,223)
-----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.......................................... 23,361,157
Proceeds from reinvestment of distributions........................ 42,223
Payments for shares redeemed....................................... (1,096,075)
-----------
Net increase in net assets from capital share transactions......... 22,307,305
-----------
NET INCREASE IN NET ASSETS......................................... 23,893,863
-----------
NET ASSETS
Beginning of period................................................ --
-----------
End of period...................................................... $23,893,863
===========
Undistributed net investment income................................ $ 84,814
===========
TRANSACTIONS IN SHARES OF THE FUND
Sold .............................................................. 4,494,002
Issued in reinvestment of distributions............................ 8,257
Redeemed........................................................... (223,494)
-----------
Net increase....................................................... 4,278,765
===========
See Notes to Financial Statements
Annual Report Statement of Changes in Net Assets 9
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATION--TCI Portfolios, Inc. (the Corporation) is registered under
the Investment Company Act of 1940 as an open-end diversified management
investment company. TCI Value (the Fund) is one of the five series of funds
issued by the Corporation. The Fund's investment objective is long-term capital
growth. Income is a secondary objective. The Fund seeks to achieve its
investment objective by investing in securities that management believes to be
undervalued at the time of purchase. 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, depending on local convention or regulation. 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 recorded 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.
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, resulting from changes in the exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of portfolio securities are a component of
realized gain (loss) on investments and unrealized appreciation (depreciation)
on investments, respectively.
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.
FUTURES CONTRACTS--The Fund may enter into stock index futures contracts in
order to manage the Fund's exposure to changes in market conditions. One of the
risks of entering into futures contracts include the possibility that the change
in value of the contract may not correlate with the changes in value of the
underlying securities. Upon entering into a futures contract, the Fund is
required to deposit either cash or securities in an amount equal to a certain
percentage of the contract value (initial margin). Subsequent payments
(variation margin) are made or received daily, in cash, by the Fund. The
variation margin is equal to the daily change in the contract value and is
recorded as unrealized gains and losses. The Fund recognizes a realized gain or
loss when the contract is closed or expires. Net realized and unrealized gains
or losses occurring during the holding period of futures contracts are a
component of realized gain (loss) on investments and unrealized appreciation
(depreciation) on investments, respectively.
REPURCHASE AGREEMENTS--The Fund may enter into repurchase agreements with
institutions that the Fund's investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The Fund requires that the 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. ACIM monitors, on a daily basis, the value of the securities
transferred to ensure that the value, including accrued interest, of the
securities under each
10 Notes to Financial Statements American Century Investments
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
repurchase agreement is equal to or greater than amounts owed to the Fund under
each repurchase agreement.
JOINT TRADING ACCOUNT--Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having management agreements with ACIM and Benham
Management Corporation, 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 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 American Century Companies, Inc., the parent of the
Corporation's investment manager, ACIM, the Corporation's distributor, American
Century Investment Services, Inc., and the Corporation's transfer agent,
American Century Services Corporation.
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 ACIM 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
ACIM. 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
The aggregate cost of investment securities purchased (excluding short-term
investments) for the period May 1, 1996 (inception) through December 31, 1996,
totaled $26,142,002 for common stocks and $365,331 for other debt obligations.
Proceeds from investment securities sold (excluding short-term investments)
totaled $5,154,942 for common stocks and $39,939 for other debt obligations. On
December 31, 1996, accumulated net unrealized appreciation on investments, based
on the aggregate cost of investments of $22,661,869 for federal income tax
purposes, was $1,055,237, consisting of unrealized appreciation of $1,292,995
and unrealized depreciation of $237,758.
- ------------------------------------------------------------------------
4. SUBSEQUENT EVENTS
The following name changes became effective January 1, 1997:
<TABLE>
NEW NAMES FORMER NAMES
<S> <C> <C>
Investment Manager: American Century Investment Management, Inc. Investors Research Corporation
Parent Company: American Century Companies, Inc. Twentieth Century Companies, Inc.
Distributor: American Century Investment Services, Inc. Twentieth Century Securities, Inc.
Transfer Agent: American Century Services Corporation Twentieth Century Services, Inc.
</TABLE>
Annual Report Notes to Financial Statements 11
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Period Ended December 31
1996(1)
PER-SHARE DATA
Net Asset Value,
Beginning of Period.................................................... $5.00
-------
Income from Investment Operations
Net Investment Income ............................................ .05
Net Realized and Unrealized Gain
on Investment Transactions........................................ .56
-------
Total from
Investment Operations............................................. .61
-------
Distributions
From Net Investment Income........................................ (.03)
-------
Net Asset Value,
End of Period.......................................................... $5.58
=======
Total Return(2)................................................... 12.28%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets(3)......................................... 1.00%
Ratio of Net Investment Income
to Average Net Assets(3)......................................... 1.98%
Portfolio Turnover Rate.......................................... 49%
Average Commission Paid per
Investment Security Traded....................................... $.027
Net Assets, End
of Period (in thousands)......................................... $23,894
(1) May 1, 1996 (Inception) through December 31, 1996.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total return is not annualized.
(3) Annualized.
See Notes to Financial Statements
12 Financial Highlights American Century Investments
INDEPENDENT ACCOUNTANTS' REPORT
The Shareholders and Board of Directors
TCI Portfolios, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of TCI Value (a series of TCI PORTFOLIOS,
INC.) as of December 31, 1996, and the related statement of operations, the
statement of changes in net assets, and the financial highlights for the period
May 1, 1996 (inception) through December 31, 1996. 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 audit.
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
December 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 TCI
Value as of December 31, 1996, and the results of its operations, changes in its
net assets, and the financial highlights for the period indicated in conformity
with generally accepted accounting principles.
/s/ Baird, Kurtz & Dobson
Baird, Kurtz & Dobson
Kansas City, Missouri
January 21, 1997
Annual Report Independent Accountants' Report 13
NOTES
14 Notes American Century Investments
NOTES
Annual Report Notes 15
BACKGROUND INFORMATION
PORTFOLIO MANAGEMENT TEAM
Peter Zuger, Vice President & Portfolio Manager
Phil Davidson, Vice President & Portfolio Manager
INVESTMENT PHILOSOPHY & POLICIES
Conservative investment practices are the hallmark of American Century's
conservative equity funds. Broad diversification across many industries is
stressed to reduce the impact of one sector on fund performance. The team also
looks for dividend yield, since dividend income can help offset the impact of
market downturns on fund performance. American Century funds are managed by
teams, rather than by one "star" manager. We believe this enables us to make
better, more consistent management decisions.
TCI VALUE invests in the equity securities of seasoned, established
businesses that the fund's management team believes are temporarily undervalued.
This is determined by comparing a stock's share price with key financial
measures, including earnings, book value, cash flow and dividends. If the
stock's price relative to these measures is low and the company's balance sheet
is solid, its securities are candidates for purchase. The management team may
secondarily look for income when making portfolio selections.
COMPARATIVE INDICES
The indices listed below are used in the report to serve as a comparison
for the performance of the fund. They are not investment products available for
purchase.
The S&P 500 is an index created by Standard & Poor's Corporation that is
considered to represent the performance of the U.S. stock market. It is composed
primarily of large-capitalization stocks.
The S&P/BARRA Value index is a capitalization-weighted index consisting of
S&P 500 stocks that have lower price-to-book ratios and in general share other
characteristics associated with "value" stocks.
16 Background Information American Century Investments
GLOSSARY
PORTFOLIO STATISTICS
o PORTFOLIO TURNOVER--the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
o PRICE-TO-BOOK RATIO--a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result expressed as
a multiple instead of as a percentage. (Book value per share is calculated by
subtracting a company's liabilities from its assets, then dividing that value by
the number of outstanding shares.)
o PRICE/EARNINGS (P/E) RATIO--a stock value measurement calculated by dividing a
company's stock price by its earnings per share, with the result expressed as a
multiple instead of as a percentage. (Earnings per share is calculated by
dividing the after-tax earnings of a corporation by its outstanding shares.)
RETURNS
o TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o CUMULATIVE TOTAL RETURNS illustrate actual (not annualized) returns over
stated periods of time.
STOCKS
o BLUE-CHIP STOCKS--stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
o GROWTH STOCKS--stocks of companies that have experienced above average
earnings growth and appear likely to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech, computer
hardware and computer software companies.
o LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS--generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of more than $5 billion. These tend to be the stocks that
make up the Dow Jones Industrial Average and the S&P 500.
o MEDIUM-CAPITALIZATION ("MID-CAP") Stocks--generally considered to be stocks of
companies with a market capitalization (the total value of a company's
outstanding stock) of between $1 billion and $5 billion. These tend to be the
stocks that make up the S&P 400.
o SMALL-CAPITALIZATION ("SMALL-CAP") Stocks--generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of less than $1 billion. These tend to be the stocks that
make up the Russell 2000 Index.
o VALUE STOCKS--Stocks that are purchased because they are relatively
inexpensive. These stocks are typically characterized by low P/E ratios.
Annual Report Glossary 17
[American Century logo]
American
Century(sm)
P.O. Box 419385
Kansas City, Missouri
64141-6385
Person-to-Person Assistance:
1-800-345-3533 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-345-1833 or 816-753-0070
Fax: 816-340-4360
Internet: www.americancentury.com
TCI Portfolios, Inc.
Investment Manager
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the financial statements contained herein are submitted for the
general information of our shareholders. The report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
American Century Investment Services, Inc.
9701 [recycled logo]
SH-BKT-7586 Recycled
<PAGE>
ANNUAL REPORT
[american century logo]
American
Century(sm)
DECEMBER 31, 1996
TCI
PORTFOLIOS, INC.
TCI INTERNATIONAL
[front cover]
TABLE OF CONTENTS
Our Message to You.............................................................1
Performance & Portfolio Information............................................2
Management Q & A...............................................................3
Schedule of Investments........................................................5
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
Background Information
Portfolio Management Team................................................20
Investment Philosophy & Policies.........................................20
Comparative Indices......................................................20
How Currency Returns Affect
Fund Performance......................................................20
Glossary......................................................................21
Twentieth Century and the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
OUR MESSAGE TO YOU
[photo of James E. Stowers, Jr. and James E. Stowers III]
The year ended December 31, 1996, was notable for TCI International and our
company. The fund management team's stock selection approach, which focuses on
choosing fast-growing individual companies rather than making country or sector
allocation decisions, worked well in the global stock markets. During 1996, TCI
International significantly outperformed its benchmark index, the Morgan Stanley
Europe, Australia, Far East Index (EAFE(R)).
On the corporate front, we completed the operational integration of
Twentieth Century and The Benham Group and adopted American Century Investments
as our new company name. This new name reflects our expanded identity and the
independent thinking common to Twentieth Century and Benham. As part of the
renaming process, TCI Portfolios, Inc. (the group of variable annuity funds that
includes TCI International) will become American Century Variable Portfolios,
Inc. on May 1, 1997. Effective on the same date, this fund's name will change to
American Century VP International. Important note: These name changes will not
alter the investment strategy or objectives of the fund.
Another significant change already in place is reflected in the design and
content of this annual report, which is structured to provide more information
in an easier-to-read format. The new design adds a question and answer session
with a member of the fund's portfolio management team. We hope this expanded
format provides you with a meaningful overview and perspective on how your fund
performed for the period.
Thank you for investing with us.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder President and Chief Executive Officer
Annual Report Our Message to You 1
PERFORMANCE & PORTFOLIO INFORMATION
6 MONTHS(1) 1 YEAR LIFE OF FUND(2)
AVERAGE ANNUAL RETURNS
(as of December 31, 1996)
TCI INTERNATIONAL................ 6.62% 14.41% 7.73%
MSCI EAFE(R)Index................ 1.46% 6.05% 6.34%
S&P 500.......................... 11.68% 22.93% 23.38%
See pages 20 and 21 for more information about returns and the comparative
indices.
(1) Not annualized.
(2) The fund's inception date was 5/1/94.
[mountain graph data]
GROWTH OF $10,000 OVER LIFE OF FUND
- ------------------------------------------------------------------------------
Value on 12/31/96
- -----------------
DATE TCI INTERNATIONAL S&P 500 MACI EAFE(R)Index
--------- -------------------------------------------- -----------------------
5/1/94 $10,000 $10,000 $10,000
6/30/94 $9,780 $10,083 $9,882
9/30/94 $10,100 $10,093 $10,365
12/31/94 $9,500 $9,990 $10,363
3/31/95 $9,300 $10,176 $11,369
6/30/95 $9,880 $10,250 $12,451
9/30/95 $10,360 $10,677 $13,437
12/31/95 $10,660 $11,110 $14,246
3/31/96 $10,920 $11,431 $15,008
6/30/96 $11,439 $11,611 $15,678
9/30/96 $11,520 $11,597 $16,160
12/31/96 $12,196 $11,781 $17,510
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 return includes operating expenses (such as
transaction costs and management fees) that reduce returns, while the return
lines of the indices do not.
PORTFOLIO AT A GLANCE
- ------------------------------------------------------------------------------
12/31/96 12/31/95
Number of Companies 101 89
Price/Earnings Ratio (Median) 12.1 15.9
Portfolio Turnover 154% 214%
See Glossary on page 21 for investment terms.
2 Performance & Portfolio Information American Century Investments
MANAGEMENT Q & A
An interview with Ted Tyson, a manager with the TCI International
investment team.
HOW DID TCI INTERNATIONAL PERFORM FOR THE YEAR ENDED DECEMBER 31, 1996?
The fund outperformed its benchmark index. The fund's total return for the
period was 14.41%, compared with a 6.05% total return for EAFE(R).
WHY DID THE FUND OUTPERFORM ITS BENCHMARK?
Two main factors boosted the fund's performance compared with EAFE(R). In
Europe, our stock selection system led us to the strongest performing sectors
among large-company stocks -- automotive and pharmaceutical -- and kept us out
of markets where growth has stalled, such as Italy and Spain.
Also, we trimmed back the fund's Japanese holdings in the second half of
1996. The fund owned many larger Japanese companies at the beginning of the
period, and its holdings in pharmaceutical firms such as Sankyo, automotive
companies such as Toyota Motor Corp. and selected high technology firms
performed better than the Japan portion of EAFE(R) in general. However,
lackluster Japanese market conditions and a strengthening dollar dampened
potential gains. Overall, the return for the fund's Japanese holdings was
virtually flat in 1996, while EAFE(R)'s Japanese holdings posted a -15.38% total
return in U.S. dollar terms.
WHAT SIGNIFICANT CHANGES DID YOU MAKE TO THE FUND'S OVERALL POSITIONING?
The biggest change was reducing our Japanese holdings and redeploying those
assets to established companies in the United Kingdom and Germany. Corporate
earnings growth in these two nations improved strongly, partly due to economic
conditions and partly due to corporate restructurings. Other markets in Europe
offered less favorable economic environments and weaker corporate earnings
growth. Also, the fund kept a low exposure to southeast Asian companies in which
many other international funds invested. Companies located in countries with
slowing economies, such as Indonesia, Thailand and South Korea, didn't produce
the accelerating earnings we seek.
TOP TEN HOLDINGS % of fund investments
- ------------------------------------------------------------------------------
As of As of
12/31/96 6/30/96
Novartis 3.5% --
Daimler-Benz AG 2.8% --
HSBC Holdings plc 2.7% --
Granada Group plc 2.5% --
QLT Phototherapeutics, Inc. 2.5% 1.4%
Sankyo Co Ltd. 2.5% 2.2%
Talisman Energy, Inc. 2.3% --
Telecomunicacoes Brasilieras SA ADR 2.2% 2.1%
Volkswagen AG 2.0% --
Sony Corp. 2.0% --
TOP FIVE INDUSTRIES % of fund investments
- ------------------------------------------------------------------------------
As of As of
12/31/96 6/30/96
QLT Phototherapeutics, Inc. 2.5% 1.4%
Communications Services 10.2% 10.0%
Diversified Companies 8.9% 2.8%
Energy (Production & Marketing) 8.5% 4.1%
Automobiles & Auto Parts 8.0% 3.5%
Banking 7.7% 1.0%
Annual Report Management Q & A 3
MANAGEMENT Q & A
WHAT SPECIFIC HOLDINGS HAD A STRONG POSITIVE IMPACT ON THE FUND?
The stocks of German auto makers were strong contributors to performance.
Volkswagen and Daimler-Benz, for example, underwent significant restructurings
to lower costs. Volkswagen improved results by simplifying a diverse and
expensive production system while Daimler-Benz spent large sums over the past
four years developing new models. Those investments started to pay off during
the period. In financial services, we found significant growth in HSBC Holdings,
a bank holding company with market-leading banks in Hong Kong, Shanghai, London
and New York. The firm has enjoyed explosive growth in a highly profitable
business.
WHAT FACTORS, IF ANY, WERE NOT FAVORABLE TO FUND PERFORMANCE?
The fund did not participate in strong rallies in Latin America because,
other than Telecomunicacoes Brasilieras (Telebras) in Brazil, we did not find
companies with accelerating earnings. These markets are anticipating a
prospective recovery but until company earnings show proof of a recovery, we
will not be making additional investments. Telebras, however, performed very
well for the fund. Telebras is the Brazilian equivalent of AT&T, and it has
benefited from a rate restructuring and moves toward privatization.
CAN YOU GIVE EXAMPLES OF GLOBAL INVESTMENT TRENDS YOU ARE TRACKING?
We are watching two issues that, though they may not affect the fund's
investments today, could have a great impact in the future. First, we have
talked to several major oil companies in the former Soviet republics of
Kazakhstan and Azerbaijan about the status of their major oil fields.
Development of these oil fields may greatly influence what European countries
pay for energy in the future. Also, we have talked with U.S. and Japanese
executives in the steel and power industries about growth prospects in China.
China's growth may affect everything from the cost of bread globally to rates of
inflation around the world.
[bar graph data]
TCI INTERNATIONAL INVESTMENTS BY COUNTRY
(as of 12/31/96)
- ------------------------------------------------------------------------------
As of As of
12/31/96 6/30/96
Japan 19% 26%
U.K. 16% 4%
Canada 13% 9%
Germany 9% 7%
Switzerland 7% 10%
France 6% 7%
Netherlands 5% 3%
Hong Kong 4% 1%
Other* 21% 33%
*No other country represented more than 3% of the fund as of 12/31/96.
4 Management Q & A American Century Investments
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS
ARGENTINA--0.5%
22,000 Banco de Galicia ADR $ 533,500
(banking) ---------------
AUSTRALIA--3.0%
130,500 Crown Limited(1) 272,856
(leisure)
200,000 Email Ltd. 647,130
(diversified companies)
229,000 Santos Ltd. 928,480
(energy-production & marketing)
367,500 Southcorp Holdings Ltd. 1,168,650
(diversified companies) ---------------
3,017,116
---------------
BELGIUM--0.4%
7,100 Delhaize-Le Lion, S.A. 421,640
(retail-food & drug) ---------------
BERMUDA--0.6%
25,000APT Satellite Holdings ADR(1) 350,000
(communications services)
7,000 Central European Media
Enterprises Ltd. ADR(1) 220,500
(broadcasting & media) ---------------
570,500
---------------
CANADA--12.9%
35,000 Bank of Nova Scotia 1,170,923
(banking)
115,000 Canadian 88 Energy Corp.(1) 503,466
(energy-production & marketing)
26,000 Hollinger, Inc. 244,728
(publishing)
30,000 Imasco, Ltd. 735,498
(consumer products)
150,000 Meridian Gold Inc. (Installment Receipts)
(Acquired 7-24-96, Cost $273,493)(1)(2) 355,710
(metals & mining)
Shares Value
- --------------------------------------------------------------------------------
123,600 QLT Phototherapeutics, Inc.(1) 2,502,663
(biotechnology)
18,000 Quebecor Printing, Inc. 318,497
(publishing)
57,000 Renaissance Energy Ltd.(1) 1,940,204
(energy-production & marketing)
65,700 Rigel Energy Corp.(1) 651,966
(energy-production & marketing)
69,200 Talisman Energy, Inc.(1) 2,302,459
(energy-production & marketing)
26,000 Tarragon Oil & Gas Ltd.(1) 284,568
(energy-production & marketing)
133,800 TELUS Corp. 1,942,809
(communications services) ---------------
12,953,491
---------------
FINLAND--0.3%
4,200 Sampo Insurance Company Ltd. 331,593
(insurance) ---------------
FRANCE--5.9%
3,563 BIS SA 356,987
(business services & supplies)
17,000 Banque Nationale de Paris 657,726
(banking)
27,255 Cap Gemini Sogeti SA(1) 1,317,588
(computer software & services)
8,000 Compagnie Bancaire SA 946,435
(financial services)
8,000 Flamel Technologies ADR
(Acquired 12-31-96,
Cost $56,160)(1)(2) 61,000
(biotechnology)
4,000 LVMH (Moet Hennessy Louis Vuitton) 1,116,763
(food & beverage)
4,000 Pathe SA(1) 963,391
(broadcasting & media)
7,000 Sidel, SA 481,503
(industrial equipment & machinery) ---------------
5,901,393
---------------
See Notes to Financial Statements
Annual Report Schedule of Investments 5
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
Shares Value
-------------------------------------------------------------------------------
GERMANY--8.1%
1,100 Bayerische Motoren Werke
(BMW) AG $ 766,429
(automobile & auto parts)
41,000 Daimler-Benz AG(1) 2,822,078
(automobile & auto parts)
16,000 Deutsche Pfandbrief-und
Hypothekenbank AG 721,766
(banking)
1,700 Henkel KGaA(1) 81,192
(chemicals & resins)
8,703 IVG Holding AG 298,444
(real estate)
2,200 SCHMALBACH LUBECA AG(1) 540,000
(packaging & containers)
6,900 SGL Carbon 869,221
(chemicals & resins)
4,800 Volkswagen AG 1,994,805
(automobile & auto parts) ---------------
8,093,935
---------------
HONG KONG--4.0%
11,000 Asia Satellite Telecommunications
Holdings Ltd. ADR(1) 257,125
(communications services)
218,532 CDL Hotels International Limited 125,025
(leisure)
116,000 Citic Pacific Ltd. 673,398
(diversified companies)
137,500 Henderson China 312,884
(real estate)
124,954 HSBC Holdings plc 2,673,720
(financial services) ---------------
4,042,152
---------------
IRELAND--0.2%
36,222 Independent Newspapers 181,066
(publishing) ---------------
Shares Value
- --------------------------------------------------------------------------------
ITALY--1.5%
49,900 Mondadori (Arnoldo) Editore SpA 405,972
(publishing)
65,300 Saipem S.p.A. 300,260
(energy-services)
318,000 Telecom Italia Mobile SpA 803,379
(communications services) ---------------
1,509,611
---------------
JAPAN--19.0%
16,000 Acom Company Ltd. 680,910
(financial services)
9,000 Advantest Corp. 421,003
(electrical & electronic components)
23,000 Bridgestone Corp. 435,906
(automobiles & auto parts)
56,000 Canon, Inc. 1,235,010
(consumer products)
75,000 Fuji Heavy Industries 302,378
(automobiles & auto parts)
46,000 Hoya Corp. 1,803,067
(glass products)
38,000 Japan Synthetic Rubber Co. 248,794
(chemicals & resins)
51,000 Kokuyo Co. Ltd. 1,256,547
(paper & forest products)
68,000 Mitsubishi Heavy Industries Ltd. 538,939
(aerospace & defense)
74,000 Nikon Corp. 917,987
(diversified companies)
37,000 Nippon Kayaku Co. Ltd. 208,778
(pharmaceuticals)
12,587 Nippon Telegraph & Telephone 945,469
(communications services)
14,000 Promise Company Ltd. 687,457
(financial services)
84,000 Sanden Corp. 671,537
(automobile & auto parts)
88,000 Sankyo Co Ltd. 2,486,561
(pharmaceuticals)
50,000 Sharp Corp. 710,717
(electrical & electronic components)
See Notes to Financial Statements
6 Schedule of Investments American Century Investments
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
Shares Value
- --------------------------------------------------------------------------------
30,000 Sony Corp. $ 1,961,578
(electrical & electronic components)
4,000 Takefuji Corp. 287,733
(financial services)
85,000 Terumo 1,149,638
(medical equipment & supplies)
35,000 Toyota Motor Corp. 1,004,049
(automobile & auto parts)
28,000 Uni-Charm Corporation 685,045
(consumer products)
24,000 Yamaha Corp. 407,305
(diversified companies) ---------------
19,046,408
---------------
NETHERLANDS--5.2%
13,200 Akzo Nobel 1,802,465
(chemicals & resins)
7,049 Assurantieconcern Stad Rotterdam 278,566
(insurance)
58,000 New Holland N.V. ADR(1) 1,210,750
(machinery & equipment)
27,500 Stork 969,016
(machinery & equipment)
43,900 VNU Tijdschriftengroep Nederland 916,965
(publishing) ---------------
5,177,762
---------------
NORWAY--0.6%
23,000 Smedvig ASA Cl A 505,352
(energy-services)
5,750 Smedvig ASA Cl B(1) 118,216
(energy-services) ---------------
623,568
---------------
PORTUGAL--0.5%
17,000 Portugal Telecom, S.A. ADR 480,250
(communications services) ---------------
SOUTH AFRICA--1.0%
38,633 South African Breweries
(Acquired 10-4-96,
Cost $982,437)(2) 978,521
(food & beverage) ---------------
Shares Value
- --------------------------------------------------------------------------------
SPAIN--2.3%
60,000 Telefonica de Espana 1,392,717
(communications services)
6,100 Telefonica de Espana ADR 422,425
(communications services)
15,000 Cortefiel, S.A. 450,381
(retail-apparel) ---------------
2,265,523
---------------
SWEDEN--0.9%
54,000 Sparbanken Sverige AB Cl A 923,691
(banking) ---------------
SWITZERLAND--6.9%
141 Adecco SA 35,355
(business services & supplies)
300 Baloise Holding Ltd. 602,239
(insurance)
17,200 Credit Suisse Group 1,764,925
(banking)
1,500 SMH Swiss Corporation for
Microelectronics and
Watchmaking Industries Ltd. 923,507
(consumer products)
3,100 Novartis(1) 3,546,493
(pharmaceuticals) ---------------
6,872,519
---------------
THAILAND--0.1%
19,000 Siam Commercial Bank 137,756
(banking) ---------------
UNITED KINGDOM--15.5%
163,100 BBA Group plc 988,753
(diversified companies)
67,700 British Aerospace PLC 1,483,984
(aerospace & defense)
93,900 British-Borneo Petroleum
Syndicate plc 1,302,510
(energy-production & marketing)
165,213 Cable & Wireless plc 1,373,612
(communications services)
3,149 Cadbury Schweppes plc 26,559
(food & beverage)
See Notes to Financial Statements
Annual Report Schedule of Investments 7
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
Shares Value
- --------------------------------------------------------------------------------
89,000 Cairn Energy plc(1) $ 635,560
(energy-production & marketing)
170,000 Granada Group plc 2,508,042
(diversified companies)
18,900 Imperial Tobacco Group plc(1) 122,021
(tobacco)
154,000 Ladbroke Group plc 609,205
(leisure)
134,000 MFI Furniture Group plc 427,971
(retail-specialty)
89,000 Misys plc 1,701,685
(computer software & services)
188,000 Royal Bank of Scotland Group plc 1,814,188
(banking)
87,257 Siebe plc 1,616,807
(diversified companies)
80,513 Stagecoach Holdings plc 963,771
(transportation) ---------------
15,574,668
---------------
TOTAL COMMON STOCKS --89.4% 89,636,663
(Cost $80,177,622) ---------------
PREFERRED STOCKS
- --------------------------------------------------------------------------------
AUSTRALIA--0.1%
54,482 Village Roadshow Ltd. Cl A 148,131
(leisure) ---------------
BRAZIL--2.2%
29,200 Telecomunicacoes
Brasileiras SA ADR 2,233,800
(communications services) ---------------
GERMANY--0.8%
15,300 Henkel KGaA 767,981
(chemicals & resins) ---------------
TOTAL PREFERRED STOCKS--3.1% 3,149,912
(Cost $2,413,420) ---------------
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS(3)
- --------------------------------------------------------------------------------
$1,300,000 par value FHLB Discount
Note, 5.497%, 1-9-97 $ 1,298,466
$2,100,000 par value FNMA Discount
Note, 5.33%, 1-17-97 2,094,941
Repurchase Agreement (J.P. Morgan Securities, Inc.),
6.70%, due 1-2-97, collateralized
by $3,993,000 par value U.S.
Treasury Bonds, 7.75%, due 12-31-99
(Delivery value $4,101,526) 4,100,000
---------------
TOTAL TEMPORARY CASH INVESTMENTS--7.5% 7,493,407
(Cost $7,493,407) ---------------
TOTAL INVESTMENT SECURITIES--100.0% $100,279,982
(Cost $90,084,449) ===============
FORWARD FOREIGN CURRENCY CONTRACTS
- --------------------------------------------------------------------------------
Contracts Settlement Unrealized
to Sell Dates Value Gain (Loss)
- --------------------------------------------------------------------------------
8,732,431 FRF 1-31-97 $1,685,375 $(18,180)
3,946,061 DEM 1-31-97 2,567,228 (27,380)
322,049,706 JPY 1-31-97 2,785,745 29,179
2,652,638 NLG 1-31-97 1,537,752 (16,657)
2,969,868 CHF 1-31-97 2,222,905 (13,404)
--------------- --------------
$10,799,005 $(46,442)
=============== ==============
(Value on Settlement Dates $10,752,563)
See Notes to Financial Statements
8 Schedule of Investments American Century Investments
SCHEDULE OF INVESTMENTS
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
CHF = Swiss Franc
DEM = German Mark
FHLB = Federal Home Loan Banks
FNMA = Federal National Mortgage Association
FRF = French Franc
JPY = Japanese Yen
NLG = Netherlands Guilder
(1) Non-income producing
(2) 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 December 31, 1996, was $1,395,231 which represented 1.4% of net
assets.
(3) The rates for U.S. Government Agency discount notes are the yield to
maturity at December 31, 1996.
See Notes to Financial Statements
Annual Report Schedule of Investments 9
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value
(identified cost of $90,084,449) (Note 3) .................. $100,279,982
Foreign currency holdings, at value
(identified cost of $7,002) ................................ 6,920
Cash ............................................................ 228,310
Receivable for forward foreign
currency exchange contracts ................................ 29,179
Receivable for investments sold ................................. 2,182,081
Receivable for capital shares sold .............................. 36,489
Dividends and interest receivable ............................... 154,645
---------------
102,917,606
---------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for forward foreign currency exchange contracts ......... 75,621
Payable for investments purchased ............................... 1,266,472
Payable for capital shares redeemed ............................. 116,111
Accrued management fees (Note 2) ................................ 124,157
Other liabilities ............................................... 62
---------------
1,582,423
---------------
Net Assets Applicable to Outstanding Shares ..................... $101,335,183
===============
CAPITAL SHARES, $.01 PAR VALUE
- --------------------------------------------------------------------------------
Authorized ...................................................... 200,000,000
===============
Outstanding ..................................................... 17,004,837
===============
Net Asset Value Per Share ....................................... $5.96
===============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ......................... $ 87,088,606
Undistributed net investment income ............................. 1,422,517
Accumulated undistributed net realized
gain from investments and foreign
currency transactions ...................................... 2,674,107
Net unrealized appreciation on investments
and translation of assets and liabilities
in foreign currencies (Note 3) ............................. 10,149,953
---------------
$101,335,183
===============
See Notes to Financial Statements
10 Statement of Assets and Liabilities American Century Investments
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes
withheld of $135,874) ................................ $ 1,060,086
Interest .................................................. 373,907
---------------
1,433,993
---------------
Expenses:
Management fees (Note 2) .................................. 1,170,843
Directors' fees and expenses .............................. 735
---------------
1,171,578
---------------
Net investment income .......................................... 262,415
---------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY (NOTE 3)
- --------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments ............................................... 5,166,648
Foreign currency transactions ............................. (1,145,072)
---------------
4,021,576
---------------
Change in net unrealized appreciation on:
Investments ............................................... 7,101,578
Translation of assets and
liabilities in foreign currencies .................... (308,771)
---------------
6,792,807
---------------
Net realized and unrealized gain on
investments and foreign currency ............................... 10,814,383
---------------
Net Increase in Net Assets
Resulting from Operations ...................................... $11,076,798
===============
See Notes to Financial Statements
Annual Report Statement of Operations 11
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1996
AND DECEMBER 31, 1995
Increase in Net Assets 1996 1995
OPERATIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
Net investment income ........................ $262,415 $279,252
Net realized gain on investments
and foreign currency transactions ....... 4,021,576 1,951,797
Change in net unrealized appreciation
(depreciation) on investments and
translation of assets and liabilities
in foreign currencies ................... 6,792,807 3,873,069
--------------- ---------------
Net increase in net assets resulting
from operations ......................... 11,076,798 6,104,118
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From net investment income ................... (279,252) --
In excess of net investment income ........... (928,713) --
From net realized gains from
investment transactions ................. (402,655) --
--------------- ---------------
Decrease in net assets
from distributions ...................... (1,610,620) --
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Proceeds from shares sold .................... 84,797,362 67,407,052
Proceeds from reinvestment
of distributions ........................ 1,610,620 --
Payments for shares redeemed ................. (46,147,914) (39,895,430)
--------------- ---------------
Net increase in net assets from
capital share transactions .............. 40,260,068 27,511,622
--------------- ---------------
Net increase in net assets ................... 49,726,246 33,615,740
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of year ............................ 51,608,937 17,993,197
--------------- ---------------
End of year .................................. $101,335,183 $51,608,937
=============== ===============
Undistributed net investment income .......... $1,422,517 $1,142,475
=============== ===============
TRANSACTIONS IN SHARES OF THE FUND
- --------------------------------------------------------------------------------
Sold ......................................... 15,365,530 13,758,884
Issued in reinvestment of distributions ...... 292,840 --
Redeemed ..................................... (8,329,954) (7,872,880)
--------------- ---------------
Net increase ................................. 7,328,416 5,886,004
=============== ===============
</TABLE>
See Notes to Financial Statements
12 Statements of Changes in Net Assets American Century Investments
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--TCI Portfolios, Inc. (the Corporation) is registered under
the Investment Company Act of 1940 as an open-end diversified management
investment company. TCI International (the Fund) is one of the five series of
funds issued by the Corporation. The Fund's investment objective is capital
growth. The Fund seeks to achieve its investment objective by investing
primarily in an internationally diversified portfolio of equity securities that
are considered by management to have prospects for appreciation. The Fund will
invest primarily in securities of issuers located in developed markets. 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, depending on local convention or regulation. 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 recorded 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.
Net realized foreign currency exchange gains or losses arise from sales of
portfolio securities, 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 portfolio
securities and other assets and liabilities resulting from changes in the
exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of portfolio securities are a component of
realized gain (loss) on foreign currency transactions and unrealized
appreciation (depreciation) on translation of assets and liabilities in foreign
currencies, respectively.
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, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The Fund requires that the 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. ACIM 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.
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 purpos-
Annual Report Notes to Financial Statements 13
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
es. 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 American Century Companies, Inc., the parent of the
Corporation's investment manager, ACIM, the Corporation's distributor, American
Century Investment Services, Inc., and the Corporation's transfer agent,
American Century Services Corporation.
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 ACIM 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
ACIM. 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 1.5%.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
The aggregate cost of investment securities purchased (excluding short-term
investments) for the year ended December 31, 1996, totaled $145,395,731 for
common stocks and $667,198 for preferred stocks. Proceeds from investment
securities sold (excluding short-term investments) totaled $108,871,352 for
common stocks and $798,265 for preferred stocks. On December 31, 1996,
accumulated net unrealized appreciation on investments, based on the aggregate
cost of investments of $90,096,181 for federal income tax purposes, was
$10,183,801, consisting of unrealized appreciation of $11,255,220 and unrealized
depreciation of $1,071,419.
- --------------------------------------------------------------------------------
4. SUBSEQUENT EVENTS
The following name changes became effective January 1, 1997:
<TABLE>
NEW NAMES FORMER NAMES
<S> <C> <C>
INVESTMENT
MANAGER: American Century Investment Management, Inc. Investors Research Corporation
PARENT
COMPANY: American Century Companies, Inc. Twentieth Century Companies, Inc.
DISTRIBUTOR: American Century Investment Services, Inc. Twentieth Century Securities, Inc.
TRANSFER
AGENT: American Century Services Corporation Twentieth Century Services, Inc.
</TABLE>
14 Notes to Financial Statements American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
1996 1995 1994(1)
PER-SHARE DATA
- -----------------------------------------------------------------------------------------------
Net Asset Value,
<S> <C> <C> <C>
Beginning of Period........................................ $5.33 $4.75 $5.00
----- ----- -----
Income from Investment Operations
Net Investment Income(2) .............................. .02 .03 --
Net Realized and Unrealized Gain
(Loss) on Investment Transactions...................... .74 .55 (.25)
----- ----- -----
Total from
Investment Operations.................................. .76 .58 (.25)
----- ----- -----
Distributions
From Net Investment Income............................. (.03) -- --
In Excess of Net
Investment Income...................................... (.07) -- --
From Net Realized Gains
on Investment Transactions............................. (.03) -- --
----- ----- -----
Total Distributions.................................... (.13) -- --
----- ----- -----
Net Asset Value, End of Period............................ $5.96 $5.33 $4.75
===== ===== =====
Total Return(3)........................................ 14.41% 12.21% (5.00%)
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets.................................. 1.50% 1.50% 1.50%(4)
Ratio of Net Investment Income (Loss)
to Average Net Assets.................................. .31% .70% (.11%)(4)
Portfolio Turnover Rate................................ 154% 214% 157%
Average Commission Paid per
Investment Security Traded............................. $.022 $.002 --(5)
Net Assets, End
of Period (in thousands)............................... $101,335 $51,609 $17,993
(1) May 1, 1994 (Inception) through December 31, 1994.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
(5) Disclosure of average commission paid per investment security traded was
not required prior to the year ended December 31, 1995.
</TABLE>
See Notes to Financial Statements
Annual Report Financial Highlights 15
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS' REPORT
The Shareholders and Board of Directors
TCI Portfolios, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of TCI International (a series of TCI
PORTFOLIOS, INC.) as of December 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
December 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 TCI
International as of December 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
January 21, 1997
16 Independent Accountants' Report American Century Investments
NOTES
Annual Report Notes 17
NOTES
18 Notes American Century Investments
NOTES
Annual Report Notes 19
BACKGROUND INFORMATION
PORTFOLIO MANAGEMENT TEAM (AS OF 12/31/96)
Henrik Strabo, Vice President & Portfolio Manager
Theodore Tyson, Vice President & Portfolio Manager
Investment Philosophy & Policies
The philosophy behind American 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 market gains can occur in
unpredictable spurts and that missing even some of these opportunities may
significantly limit potential for gain. Finally, American Century funds are
managed by teams, rather than by one "star" manager. We believe this enables us
to make better, more consistent management decisions.
TCI INTERNATIONAL invests primarily in the equity securities of foreign
companies that exhibit accelerating earnings growth. The fund's diversified
holdings are not restricted by geography or industry segment. It will typically
have significant share-price fluctuations.
COMPARATIVE INDICES
The indices listed below are used in the report to serve as a comparison
for the performance of the fund. They are not investment products available for
purchase.
The S&P 500 is an index created by Standard & Poor's Corporation that is
considered to represent the performance of the U.S. stock market. It is composed
primarily of large-capitalization stocks.
The Morgan Stanley Europe, Australia, Far East Index (EAFE(R)) is a widely
followed group of stocks from 20 different countries.
HOW CURRENCY RETURNS AFFECT FUND PERFORMANCE
For U.S. investors, the total return from international stocks includes the
effects of currency fluctuations -- the movement of international currency
values in relation to the value of the U.S. dollar. Currency exchange rates come
into play when international stock income, gains and losses are converted into
U.S. dollars.
Changing currency values may have a significant impact on the total returns
of international stock funds. The value of the foreign investments held by
international stock funds may be reduced or increased by changes in currency
exchange rates. The U.S. dollar value of a foreign security generally decreases
when the value of the dollar rises against the foreign currency in which the
security is denominated. This tended to be the case in 1996 when the dollar
increased in value against most major foreign currencies. (The weakened foreign
currencies bought fewer dollars.) Conversely, the U.S. dollar value of a foreign
security tends to increase when the value of the dollar falls against the
foreign currency. (The stronger foreign currency buys more dollars.) In
addition, the value of fund assets may be affected by losses and other expenses
incurred in converting between U.S. dollars and various currencies in order to
purchase and sell foreign securities and by currency restrictions, exchange
control regulations, currency devaluations and political developments.
20 Background Information American Century Investments
GLOSSARY
RETURNS
o TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as year-by-year results.
For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on page 15.
PORTFOLIO STATISTICS
o PORTFOLIO TURNOVER -- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
o PRICE/EARNINGS (P/E) RATIO -- A stock value measurement calculated by dividing
a company's stock price by its earnings per share, with the result expressed as
a multiple instead of as a percentage. (Earnings per share is calculated by
dividing the after-tax earnings of a corporation by its outstanding shares.)
Annual Report Glossary 21
[american century logo]
American
Century(sm)
P.O. Box 419385
Kansas City, Missouri
64141-6385
Person-to-Person Assistance:
1-800-345-3533 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-345-1833 or 816-753-0070
Fax: 816-340-4360
Internet: www.americancentury.com
TCI PORTFOLIOS, INC.
Investment Manager
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
Kansas City, Missouri
This report and the financial statements contained herein are submitted for the
general information of our shareholders. The report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
American Century Investment Services, Inc.
9702 [recycled logo]
SH-BKT-7585 Recycled
<PAGE>
ANNUAL REPORT
[american century logo]
American
Century(sm)
DECEMBER 31, 1996
TCI
PORTFOLIOS, INC.
TCI Growth
[front cover]
TABLE OF CONTENTS
Our Message to You....................................................... 1
Performance & Portfolio Information...................................... 2
Management Q & A......................................................... 3
Schedule of Investments.................................................. 5
Statement of Assets and Liabilities...................................... 7
Statement of Operations.................................................. 8
Statements of Changes in Net Assets...................................... 9
Notes to Financial Statements............................................ 10
Financial Highlights..................................................... 13
Independent Accountants' Report.......................................... 14
Background Information
Portfolio Management Team........................................... 16
Investment Philosophy & Policies.................................... 16
Comparative Indices................................................. 16
Glossary................................................................. 17
Twentieth Century and the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
OUR MESSAGE TO YOU
[photo James E. Stowers, Jr. & James E. Stowers III]
The year ended December 31, 1996, was very difficult for TCI Growth. The
fund significantly underperformed the strong U.S. stock market and its peer
group of other growth funds. As a result, repositioning the fund became a
priority during the year. In July we installed a new management team, headed by
Glenn Fogle, a seasoned growth manager whose team manages Twentieth Century
Vista and Twentieth Century Giftrust. Glenn and his team restructured the fund's
portfolio to focus on a narrower list of smaller, faster-growing companies,
which we believe should provide improved results over time. However, the timing
of these changes worked against the fund since the market environment in 1996
favored larger companies with more predictable earnings. Looking ahead, we
believe the changes now in place leave TCI Growth well positioned for 1997 and
beyond.
Other important changes occurred in 1996. On the corporate front, we
completed the operational integration of Twentieth Century and The Benham Group
in mid-1996 and adopted American Century Investments as our new company name.
This name reflects our expanded identity and the independent thinking common to
Twentieth Century and Benham. As part of the renaming process, TCI Portfolios,
Inc. (the group of variable annuity funds that includes TCI Growth) will become
American Century Variable Portfolios, Inc. on May 1, 1997. Effective on the same
date, this fund's name is expected to change to American Century VP Capital
Appreciation. Important note: These name changes will not further alter the
investment strategy or objectives of the fund.
Another significant change is reflected in the design and content of this
annual report, which is structured to provide more information in an
easier-to-read format. The new design adds a question and answer section with
Glenn Fogle. We hope this expanded format provides you with a meaningful
overview and perspective on how your fund performed for the period.
Thank you for the continued confidence you've placed in us. We want to
assure you that we are bringing our resources to bear on the goal of providing
you with the competitive long-term returns you expect from a leading investment
manager. We are committed to achieving this result.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder President and Chief Executive Officer
Annual Report Our Message to You 1
<TABLE>
<CAPTION>
PERFORMANCE & PORTFOLIO INFORMATION
6 MONTHS(1) 1 YEAR 3 YEARS 5 YEARS LIFE OF FUND(2)
AVERAGE ANNUAL RETURNS(3)
(as of December 31, 1996)
<S> <C> <C> <C> <C> <C>
TCI Growth..................... -5.62% -4.32% 7.42% 6.17% 10.81%
S&P 500(4)..................... 11.68% 22.93% 19.64% 15.19% 16.57%
S&P 400(4)..................... 9.14% 19.20% 14.60% 13.93% 18.92%(5)
S&P MidCap 400/BARRA
Growth(4)...................... 7.37% 18.41% 11.92% 11.25% --
(1) Not annualized.
(2) The fund's inception date was November 20, 1987.
(3) Returns are defined in the Glossary on page 17.
(4) See page 16 for more information about these comparative performance
indices. Figures for the S&P MidCap 400/BARRA Growth are not available
prior to 1991.
(5) The Life of Fund figure for the S&P 400 is based on a comparison date of
November 30, 1987, the closest date available to the fund's November 20,
1987 inception date.
</TABLE>
PORTFOLIO AT A GLANCE
12/31/96 12/31/95
Number of Companies 55 124
Price/Earnings Ratio (Median) 45.6 22.8
Portfolio Turnover 182% 147%
[mountain graph data]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 12/31/96
S&P 400 $48,242
S&P 500 $42,488
TCI Growth $26,776
($10,000 investment made 11/30/87)
TCI Growth S&P 400 S&P 500
11/30/87 $10,000 $10,000 $10,000
$11,261 $10,773 $10,825
$11,346 $12,846 $12,198
$11,005 $13,021 $12,610
$12,680 $15,691 $14,692
$14,166 $17,649 $16,594
$15,601 $18,113 $17,099
$13,988 $16,746 $16,077
$16,033 $20,439 $18,363
$19,846 $25,135 $20,953
$17,708 $24,231 $20,816
$19,580 $28,129 $22,548
$20,528 $29,729 $23,641
$21,600 $32,055 $24,810
$20,072 $29,713 $23,979
$21,347 $30,906 $25,147
$25,502 $36,352 $30,213
$27,985 $40,471 $34,563
$28,371 $44,200 $38,044
12/31/96 $26,776 $48,242 $42,488
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 chart begins on November 30, 1987 because it is the date closest to the
fund's November 20, 1987 inception date for which S&P 400 return data is
available.
The line representing the fund's return includes operating expenses (such as
transaction costs and management fees) that reduce returns, while the return
lines of the indices do not.
See Glossary on page 17 for investment terms.
2 Performance & Portfolio Information American Century Investments
MANAGEMENT Q & A
An interview with Glenn Fogle, lead manager on the TCI Growth investment
team.
HOW DID TCI GROWTH PERFORM FOR THE YEAR ENDED DECEMBER 31, 1996?
The fund had a poor year; its total return was -4.32%. The fund's
benchmark, the S&P 500, returned 22.93% while the S&P 400 showed a 19.20% total
return and the S&P MidCap 400/BARRA Growth returned 18.41%. The performances of
the latter two indices are provided in this report to reflect the fund's
increased weighting in the growth stocks of mid-sized companies. The S&P 400
covers the 400 largest companies not included in the S&P 500 and is considered a
barometer of the performance of mid-capitalization companies. The BARRA Growth
index includes the half of the S&P 400 with the highest price-to-book ratios.
WHY DID THE FUND UNDERPERFORM THE MARKET AND ITS PEERS BY SUCH A WIDE MARGIN?
A combination of factors led to the fund's poor performance. As we
discussed in the fund's semiannual report, TCI Growth lagged both the market and
management's expectations during the first half of 1996. Accordingly, a new,
more aggressive management team assumed responsibility for the fund effective
July 1, 1996. My team, which also manages Vista and Giftrust, shifted the fund
into the stocks of smaller companies with faster earnings growth than had been
the norm for TCI Growth. This strategy worked well until mid-October, when many
investors asserted a strong preference for larger companies with relatively
predictable earnings. Many investors wanted to own what was in the S&P 500 and
not much else. This phenomenon, which arose in part from the spreading use of
indexing for fund management, resulted in a large performance gap between the
stocks of large- and mid-sized companies.
As a result, we faced an anomaly at year end: Large companies with
relatively slow growth outperformed smaller companies with much stronger growth.
At some point, we believe aggressive growth stocks will again take the lead from
more conservative ones but it is difficult to predict when that may occur. In
the meantime, we are sticking to our bottom-up system of picking companies with
strong earnings growth that show the potential for future share price
appreciation.
CAN YOU OFFER EXAMPLES OF STOCKS WHOSE PERFORMANCE HURT THE FUND, DESPITE STRONG
FUNDAMENTALS?
Unfortunately, I have several examples. PairGain Technologies, Inc. saw
earnings increase 85% for the 12 months ended September 30, 1996, but its stock
has been flat since June. The company manufactures devices that increase the
capacity of local telephone systems. Cascade Communications, which makes network
switches for large telecommuni-cations networks, had a 172% jump in earnings
during the year ended September 30, but its stock was down 40% from October
through year-end. The same story holds for many non-technology stocks. ABR
Information Services, Inc., an outsourcing company for health insurance
benefits, doubled its year-over-year earnings at September 30, 1996, yet its
stock fell 46% from October through December.
WHAT IS DEPRESSING THE PRICES OF THESE STOCKS?
Investors' fear that the earnings growth will not continue and investors'
unwillingness to pay the price for the stocks of fast-growing companies are
reasons why the stocks of mid-sized companies have lagged behind the stocks of
large-sized companies. Although the prices of many high growth companies have
been falling, they remain more expensive than the average S&P 500 stock. At
December 31, 1996, the average price-to-earnings multiple (P/E) of stocks on the
S&P 500 was 20.58, compared to a P/E of 45.60 for the average stock in TCI
Growth's portfolio. Of course, the stocks the fund owns are also growing
considerably faster than S&P 500 earnings, so we
Annual Report Management Q & A 3
MANAGEMENT Q & A
believe they ought to command a premium valuation. The silver lining for us is,
as growth stock prices fall, we are able to buy more "growth" for a lower price.
WHAT SIGNIFICANT CHANGES DID YOU MAKE TO THE PORTFOLIO DURING THE SIX MONTHS
ENDED DECEMBER 31, 1996?
The changes were considerable and served to bring the fund in line with the
aggressive growth style and strategies that our management team uses for Vista
and Giftrust. The following statistics help explain the changes. At June 30,
1996, the average revenue growth of companies represented in the fund was 30.9%
and the average earnings growth was 7.9%. At year-end, average revenue growth in
the portfolio had more than doubled to 66.3% while average earnings growth had
increased nearly 10 times to 74.6%. We also decreased the number of companies
owned from 98 to 55. Concentrating on successful companies is a hallmark of our
aggressive growth investment style. In summary, we think we are making the moves
necessary to position TCI Growth for above average long-term appreciation.
WHAT IS YOUR OUTLOOK FOR THE COMING YEAR?
We've seen periods in the past when our aggressive growth style was out of
favor and large company stocks perceived as relatively safe outperformed the
market. This is normal from time to time. However, lately it appears that the
dominance of "safer" stocks has attracted performance-driven money, pushing the
valuation of certain leading large-cap stocks far ahead of their underlying
fundamentals. At some point the price becomes so high that these stocks are no
longer relatively "safe." We are optimistic that the present cycle may have run
its course and that faster growing companies will once again outperform the
averages in 1997.
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 tends to put pressure on corporate earnings. Our
strategy is to own shares in companies that are in control of their destiny,
where demand is less dependent upon growth in the overall economy and where new
products or services are being introduced with limited competition. We expect
this strategy to improve returns for TCI Growth.
TOP TEN HOLDINGS % of fund investments
As of As of
12/31/96 6/30/96
Tellabs, Inc. 4.6% 2.9%
Vitesse Semiconductor Corp. 3.8% 1.0%
Cisco Systems Inc. 3.7% 2.7%
HBO & Co. 3.4% --
Boeing Co. 3.2% --
Boston Scientific Corp. 3.2% --
HFS, Inc. 2.7% --
McAfee Associates, Inc. 2.5% --
Centocor, Inc. 2.4% --
Vanstar Corp. 2.4% --
TOP FIVE INDUSTRIES % of fund investments
As of As of
12/31/96 6/30/96
Computer Software & Services 17.4% 10.4%
Communications Equipment 9.9% 12.6%
Computer Peripherals 8.2% 4.3%
Business Services & Supplies 7.8% 2.7%
Biotechnology 6.4% 4.5%
4 Management Q & A American Century Investments
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS
AEROSPACE & DEFENSE--3.2%
400,000 Boeing Co. $ 42,550,000
--------------
BIOTECHNOLOGY--6.4%
900,000 Centocor, Inc.(1) 32,231,250
1,050,000 ClinTrials Inc.(1)(2) 23,493,750
440,000 Quintiles Transnational Corp.(1) 28,985,000
--------------
84,710,000
--------------
BUSINESS SERVICES & SUPPLIES--7.8%
375,000 ABR Information Services, Inc.(1) 14,765,625
350,000 APAC Teleservices, Inc.(1) 13,431,250
400,000 Corrections Corp. of America(1) 12,250,000
500,000 Gartner Group, Inc.(1) 19,468,750
880,000 National TechTeam, Inc.(1)(2) 17,765,000
600,000 PMT Services, Inc.(1) 10,462,500
450,000 Robert Half International, Inc.(1) 15,468,750
--------------
103,611,875
--------------
COMMUNICATIONS EQUIPMENT--9.9%
400,000 Ascend Communications, Inc.(1) 24,850,000
360,000 Davox Corp.(1) 14,985,000
100,100 MRV Communications, Inc.(1) 2,183,431
950,000 PairGain Technologies, Inc.(1) 28,915,625
1,600,000 Tellabs, Inc.(1) 60,300,000
--------------
131,234,056
--------------
Communications Services--1.1%
650,000 LCI International, Inc.(1) 13,975,000
--------------
COMPUTER PERIPHERALS--8.2%
200,000 Cascade Communications(1) 11,050,000
775,000 Cisco Systems Inc.(1) 49,357,813
700,000 Encad, Inc.(1)(2) 28,700,000
600,000 Security Dynamics
Technologies, Inc.(1) 18,862,500
--------------
107,970,313
--------------
COMPUTER SOFTWARE & SERVICES--17.4%
400,000 Baan Co., N.V. ADR 13,875,000
(Acquired 6-7-95 through
6-30-95, Cost $5,829,078)(1)(3)
486,700 Computer Associates
International, Inc. 24,213,325
Shares Value
- --------------------------------------------------------------------------------
650,000 Envoy Corp.(1)(2) $ 24,496,875
750,000 HBO & Co. 44,531,250
750,000 McAfee Associates, Inc.(1) 32,859,375
330,000 Microsoft Corp.(1) 27,286,875
700,000 Systemsoft Corp.(1) 10,325,000
1,300,000 Vanstar Corp.(1) 31,850,000
400,000 Veritas Software Corp.(1) 19,800,000
--------------
229,237,700
--------------
COMPUTER SYSTEMS--1.6%
400,000 Dell Computer Corp.(1) 21,275,000
--------------
CONSUMER PRODUCTS--1.7%
820,000 Rexall Sundown, Inc.(1) 22,293,750
--------------
ELECTRICAL & ELECTRONIC COMPONENTS--5.3%
500,000 Sawtek Inc.(1) 19,656,250
1,100,000 Vitesse Semiconductor Corp.(1)(2) 50,118,750
--------------
69,775,000
--------------
ENERGY (SERVICES)--4.6%
650,000 Marine Drilling Companies, Inc.(1) 12,796,875
450,000 Petroleum Geo-Services A/S ADR(1) 17,550,000
480,000 Seacor Holdings, Inc.(1)(2) 30,240,000
--------------
60,586,875
--------------
FINANCIAL SERVICES--5.1%
400,000 AmeriCredit Corp.(1) 8,200,000
1,100,000 Amresco, Inc.(1) 29,287,500
700,000 Leasing Solutions, Inc.(1)(2) 18,200,000
266,666 Travelers Group, Inc. 12,099,970
--------------
67,787,470
--------------
HEALTHCARE--6.2%
750,000 Curative Technologies, Inc.(1)(2) 20,765,625
1,150,000 FPA Medical Management, Inc.(1)(2) 25,515,625
150,000 Quorum Health Group, Inc.(1) 4,443,750
1,150,000 Tenet Healthcare Corp.(1) 25,156,250
600,000 U.S. Diagnostic Inc.(1)(2) 5,587,500
--------------
81,468,750
--------------
LEISURE--3.1%
117,800 Doubletree Corp.(1) 5,271,550
600,000 HFS, Inc.(1) 35,850,000
--------------
41,121,550
--------------
See Notes to Financial Statements
Annual Report Schedule of Investments 5
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
MACHINERY & EQUIPMENT--2.0%
600,000 Dynatech Corp.(1) $ 26,475,000
--------------
MEDICAL EQUIPMENT & SUPPLIES--3.2%
700,000 Boston Scientific Corp.(1) 42,000,000
--------------
PERSONAL SERVICES--1.5%
600,000 Stewart Enterprises, Inc. Cl A 20,400,000
--------------
PHARMACEUTICALS--1.4%
500,000 Jones Medical Industries, Inc. 18,218,750
--------------
RESTAURANTS--1.9%
750,000 Papa John's International, Inc.(1) 25,453,125
--------------
RETAIL (SPECIALTY)--4.1%
795,100 Corporate Express, Inc.(1) 23,405,756
1,400,000 PETsMART, Inc.(1) 30,625,000
--------------
54,030,756
--------------
TOTAL COMMON STOCKS--95.7% 1,264,174,970
--------------
(Cost $1,108,174,099)
TEMPORARY CASH INVESTMENTS(4)
$6,700,000 par value FNMA Discount Note,
5.33%, 1-17-97 6,683,860
Repurchase Agreement, J.P. Morgan
Securities, Inc., (U.S. Treasury
obligations), in a joint trading
account at 6.70%, dated
12-31-96, due 1-2-97
(Delivery value $49,918,574) 49,900,000
--------------
TOTAL TEMPORARY CASH INVESTMENTS--4.3% 56,583,860
--------------
(Cost $56,583,860)
TOTAL INVESTMENT SECURITIES--100.0% $1,320,758,830
==============
(Cost $1,164,757,959)
See Notes to Financial Statements
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
FNMA = Federal National Mortgage Association
(1) Non-income producing
(2) Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as defined in the
Investment Company Act of 1940. See Note 4 in Notes to Financial Statements
summary of transactions for each issuer who is or was an affiliate at or
during the year ended December 31, 1996.
(3) 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 December 31, 1996, was $13,875,000, which
represented 1.1% of net assets.
(4) The rates for U.S. Government Agency discount notes are the yield to
maturity at December 31, 1996.
See Notes to Financial Statements
6 Schedule of Investments American Century Investments
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
ASSETS
<S> <C>
Investment securities, at value (identified cost of $1,164,757,959) (Note 3)......... $1,320,758,830
Receivable for investments sold...................................................... 819,171
Receivable for capital shares sold................................................... 1,691,944
Dividends and interest receivable.................................................... 59,286
--------------
1,323,329,231
--------------
LIABILITIES
Disbursements in excess of demand deposit cash....................................... 583,067
Payable for investments purchased.................................................... 4,860,172
Payable for capital shares redeemed.................................................. 2,889,791
Accrued management fees (Note 2)..................................................... 1,130,345
Other liabilities.................................................................... 805
--------------
9,464,180
--------------
Net Assets Applicable to Outstanding Shares.......................................... $1,313,865,051
==============
CAPITAL SHARES, $.01 PAR VALUE
Authorized........................................................................... 500,000,000
==============
Outstanding.......................................................................... 128,343,528
==============
Net Asset Value Per Share............................................................ $10.24
==============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus).............................................. $1,135,211,171
Accumulated undistributed net realized gain
from investments and foreign currency transactions.............................. 22,653,009
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies (Note 3)............................. 156,000,871
--------------
$1,313,865,051
==============
</TABLE>
See Notes to Financial Statements
Annual Report Statement of Assets and Liabilities 7
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT (LOSS)
INCOME:
<S> <C>
Dividends (net of foreign taxes withheld of $84,076)....................... $ 3,185,163
Interest.................................................................... 2,715,775
-------------
5,900,938
-------------
EXPENSES:
Management fees (Note 2).................................................... 14,401,981
Directors' fees and expenses................................................ 12,651
-------------
14,414,632
-------------
NET INVESTMENT (LOSS)............................................................ (8,513,694)
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY (NOTE 3)
NET REALIZED GAIN ON:
Investments................................................................. 24,101,750
Foreign currency transactions............................................... 8,670,499
-------------
32,772,249
-------------
CHANGE IN NET UNREALIZED APPRECIATION ON:
Investments................................................................. $(85,626,339)
Translation of assets and liabilities in foreign currencies................. (745,049)
-------------
(86,371,388)
-------------
NET REALIZED AND UNREALIZED (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY................................................. (53,599,139)
-------------
NET (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........................................................ $(62,112,833)
=============
</TABLE>
See Notes to Financial Statements
8 Statement of Operations American Century Investments
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
INCREASE (DECREASE) IN NET ASSETS 1996 1995
OPERATIONS
<S> <C> <C>
Net investment (loss)........................................................ $ (8,513,694) $ (2,898,945)
Net realized gain on investments
and foreign currency transactions....................................... 32,772,249 187,913,648
Change in net unrealized appreciation
on investments and translation
of assets and liabilities in foreign currencies......................... (86,371,388) 134,253,469
------------- --------------
Net increase (decrease) in net assets resulting from operations.............. (62,112,833) 319,268,172
------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income................................................... -- (1,019,296)
From net realized gains from investment transactions......................... (165,281,584) (133,044)
------------- --------------
Decrease in net assets from distributions.................................... (165,281,584) (1,152,340)
------------- --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.................................................... 364,518,011 812,061,191
Proceeds from reinvestment of distributions.................................. 165,281,584 1,152,340
Payments for shares redeemed................................................. (449,663,781) (672,782,929)
------------- --------------
Net increase in net assets from capital share transactions................... 80,135,814 140,430,602
------------- --------------
Net increase (decrease) in net assets........................................ (147,258,603) 458,546,434
NET ASSETS
Beginning of year............................................................ 1,461,123,654 1,002,577,220
------------- --------------
End of year.................................................................. $1,313,865,051 $1,461,123,654
============== ==============
Distributions in excess of net investment income............................. -- $ (751,266)
============== ==============
TRANSACTIONS IN SHARES OF THE FUND
Sold .............................................................. 31,440,930 75,063,678
Issued in reinvestment of distributions...................................... 16,949,976 126,492
Redeemed..................................................................... (41,183,203) (62,925,631)
------------- --------------
Net increase................................................................. 7,207,703 12,264,539
============= ==============
</TABLE>
See Notes to Financial Statements
Annual Report Statements of Changes in Net Assets 9
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATION-TCI Portfolios, Inc. (the Corporation) is registered under the
Investment Company Act of 1940 as an open-end diversified management investment
company. TCI Growth (the Fund) is one of the five series of funds issued by the
Corporation. The Fund's investment objective is capital growth. The Fund seeks
to achieve its investment objective by investing primarily in common stocks that
are considered by management to have better-than-average prospects for
appreciation. 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, depending on local convention or regulation. 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 recorded 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.
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, resulting from changes in the exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of investments are a component of realized
gain (loss) on investments and unrealized appreciation (depreciation) on
investments, respectively.
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, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The Fund requires that the 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. ACIM 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 ACIM and Benham
Management Corporation, may transfer uninvested cash balances into a joint
trading account. These balances are invested in one or more repurchase
agreements that are collaterized 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.
10 Notes to Financial Statements American Century Investments
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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 American Century Companies, Inc., the parent of the
Corporation's investment manager, ACIM, the Corporation's distributor, American
Century Investment Services, Inc., and the Corporation's transfer agent,
American Century Services Corporation.
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 ACIM 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
ACIM. 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
The aggregate cost of investment securities purchased (excluding short-term
investments) for the year ended December 31, 1996, totaled $2,533,139,407 for
common stocks. Proceeds from investment securities sold (excluding short-term
investments) totaled $2,619,606,683 for common stocks. On December 31, 1996,
accumulated net unrealized appreciation on investments, based on the aggregate
cost of investments of $1,165,118,628 for federal income tax purposes, was
$155,640,202, consisting of unrealized appreciation of $213,810,798 and
unrealized depreciation of $58,170,596.
Annual Report Notes to Financial Statements 11
NOTES TO FINANCIAL STATEMENTS
DECEMBER 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 December 31, 1996, follows:
<TABLE>
Share December 31, 1996
Balance Purchase Sales Realized Share Market
12/31/95 Cost Cost (Loss) Balance Value
ISSUER(1)
<S> <C> <C> <C> <C> <C>
ACC Corp. -- $ 25,367,907 $ 25,367,907 $ (2,723,471) -- --
AnnTaylor Stores Corp. -- 23,738,750 23,738,750 (8,697,304) -- --
Applix, Inc. -- 18,807,223 18,807,223 (2,732,193) -- --
Casino Data Systems -- 15,514,166 15,514,166 (5,217,091) -- --
ClinTrials Inc. -- 27,230,464 -- -- 1,050,000(2) $ 23,493,750
Curative Technologies, Inc. -- 15,857,839 -- -- 750,000 20,765,625
Encad, Inc. -- 28,977,164 -- -- 700,000 28,700,000
Envoy Corp. -- 18,022,044 -- -- 650,000 24,496,875
FPA Medical Management, Inc. -- 23,327,800 -- -- 1,150,000 25,515,625
Leasing Solutions, Inc. -- 20,239,641 -- -- 700,000 18,200,000
Microcom, Inc. 600,000 5,815,202 18,568,540 (7,207,277) -- --
National TechTeam, Inc. -- 22,790,557 -- -- 880,000 17,765,000
Seacor Holdings, Inc. -- 22,112,857 -- -- 480,000 30,240,000
U.S. Diagnostic Inc. -- 17,802,228 10,436,952 (326,479) 600,000 5,587,500
VTEL Corp. 670,000 -- 9,797,020 (2,500,404) -- --
Vitesse Semiconductor Corp. -- 23,937,176 -- -- 1,100,000 50,118,750
------------ ------------ ------------- ------------
$309,541,018 $122,230,558 $(29,404,219) $244,883,125
============ ============ ============= ============
(1) None of the securities produced income during period held.
(2) Includes adjustments for shares received from stock split and/or stock
spinoff during the year.
</TABLE>
- --------------------------------------------------------------------
5. SUBSEQUENT EVENTS
The following name changes became effective January 1, 1997:
<TABLE>
NEW NAMES FORMER NAMES
<S> <C> <C>
Investment Manager: American Century Investment Management, Inc. Investors Research Corporation
Parent Company: American Century Companies, Inc. Twentieth Century Companies, Inc.
Distributor: American Century Investment Services, Inc. Twentieth Century Securities, Inc.
Transfer Agent: American Century Services Corporation Twentieth Century Services, Inc.
</TABLE>
12 Notes to Financial Statements American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended December 31
1996 1995 1994 1993 1992
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year...................................... $12.06 $9.21 $9.32 $8.47 $8.64
------ ------ ------ ------ ------
Income from Investment Operations
Net Investment Income (Loss) ..................... (.06)(1) (.02) .01 .03 .02
Net Realized and Unrealized Gain
(Loss) on Investment Transactions................. (.40) 2.88 (.12) .84 (.14)
------ ------ ------ ------ ------
Total from
Investment Operations............................. (.46) 2.86 (.11) .87 (.12)
------ ------ ------ ------ ------
Distributions
From Net Investment Income........................ -- (.011) (.001) (.023) (.052)
From Net Realized Gains
on Investment Transactions........................ (1.36) -- -- -- (.003)
------ ------ ------ ------ ------
Total Distributions............................... (1.36) (.011) (.001) (.023) (.055)
------ ------ ------ ------ ------
Net Asset Value, End of Year........................... $10.24 $12.06 $9.21 $9.32 $8.47
====== ====== ======= ====== ======
Total Return(2)................................... (4.32%) 31.10% (1.17%) 10.30% (1.33%)
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets............................. 1.00% .99% 1.00% 1.00% 1.00%
Ratio of Net Investment Income (Loss)
to Average Net Assets............................. (.59%) (.23%) .11% .35% .32%
Portfolio Turnover Rate........................... 182% 147% 115% 87% 135%
Average Commission Paid per
Investment Security Traded........................ $.033 $.037 --(3) --(3) --(3)
Net Assets, End
of Year (in thousands)............................ $1,313,865 $1,461,124 $1,002,577 $755,689 $415,005
(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 investment security traded was
not required prior to the year ended December 31, 1995.
</TABLE>
See Notes to Financial Statements
Annual Report Financial Highlights 13
INDEPENDENT ACCOUNTANTS' REPORT
The Shareholders and Board of Directors
TCI Portfolios, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of TCI Growth (a series of TCI
PORTFOLIOS, INC.) as of December 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
December 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 TCI
Growth as of December 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
January 21, 1997
14 Independent Accountants' Report American Century Investments
NOTES
Annual Report Notes 15
BACKGROUND INFORMATION
PORTFOLIO MANAGEMENT TEAM
Glenn Fogle, Vice President & Portfolio Manager
John Seitzer, Portfolio Manager
INVESTMENT PHILOSOPHY & POLICIES
The philosophy behind American 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 market gains can occur in
unpredictable spurts and that missing even some of those opportunities may
significantly limit potential for gain. Finally, American Century funds are
managed by teams, rather than by one "star" manager. We believe this enables us
to make better, more consistent management decisions.
TCI GROWTH seeks capital growth over time by investing in growth companies
across all capitalization ranges. Since mid-1996, TCI Growth has invested mainly
in the securities of medium-sized firms with accelerating growth. Such a
strategy results in volatility over the short term and offers the potential for
long-term growth.
COMPARATIVE INDICES
The indices listed below are used in the report to serve as a comparison
for the performance of the fund. They are not investment products available for
purchase.
The S&P 500 is an index created by Standard & Poor's Corporation that is
considered to represent the performance of the U.S. stock market. It is composed
primarily of large-capitalization stocks.
The S&P 400 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.
The S&P MIDCAP 400/BARRA GROWTH is an index created by Standard & Poor's
Corporation and BARRA. The index divides the S&P 400 into two mutually exclusive
groups based on price-to-book ratios. The half of the S&P 400 with higher ratios
falls into the Growth index, while a value index tracks the performance of the
other half. Similar growth and value indices are available for the S&P 500.
16 Background Information American Century Investments
GLOSSARY
PORTFOLIO STATISTICS
o PORTFOLIO TURNOVER-- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
o PRICE-TO-BOOK RATIO --a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result expressed as
a multiple instead of as a percentage. (Book value per share is calculated by
subtracting a company's liabilities from its assets, then dividing that value by
the number of outstanding shares.)
o PRICE/EARNINGS (P/E) RATIO--a stock value measurement calculated by dividing a
company's stock price by its earnings per share, with the result expressed as a
multiple instead of as a percentage. (Earnings per share is calculated by
dividing the after-tax earnings of a corporation by its outstanding shares.)
RETURNS
o TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as year-by-year results.
For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on page 13.
STOCKS
o BLUE-CHIP STOCKS--stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
o GROWTH STOCKS--stocks of companies that have experienced above average
earnings growth and appear likely to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech, computer
hardware and computer software companies.
o LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS--generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of more than $5 billion. These tend to be the stocks that
make up the Dow Jones Industrial Average and the S&P 500.
o MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS--generally considered to be stocks of
companies with a market capitalization (the total value of a company's
outstanding stock) of between $1 billion and $5 billion. These tend to be the
stocks that make up the S&P 400.
o SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS--generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of less than $1 billion. These tend to be the stocks that
make up the Russell 2000 Index.
o VALUE STOCKS--Stocks that are purchased because they are relatively
inexpensive. These stocks are typically characterized by low P/E ratios.
Annual Report Glossary 17
[american century logo]
American
Century(sm)
P.O. Box 419385
Kansas City, Missouri
64141-6385
Person-to-Person Assistance:
1-800-345-3533 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-345-1833 or 816-753-0070
Fax: 816-340-4360
Internet: www.americancentury.com
TCI Portfolios, Inc.
Investment Manager
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the financial statements contained herein are submitted for the
general information of our shareholders. The report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
American Century Investment Services, Inc.
9701 [recycled logo]
SH-BKT-7584 Recycled
<PAGE>
ANNUAL REPORT
[american century logo]
American
Century(sm)
DECEMBER 31, 1996
TCI PORTFOLIOS, INC.
TCI BALANCED
[front cover]
TABLE OF CONTENTS
Our Message to You................................................ 1
Performance & Portfolio Information............................... 2
Management Q & A.................................................. 3
Schedule of Investments........................................... 5
Statement of Assets and Liabilities............................... 9
Statement of Operations........................................... 10
Statements of Changes in Net Assets............................... 11
Notes to Financial Statements..................................... 12
Financial Highlights.............................................. 14
Independent Accountants' Report .................................. 15
Background Information
Portfolio Management Team.................................... 16
Investment Philosophy & Policies............................. 16
Comparative Indices.......................................... 16
Glossary.......................................................... 17
Twentieth Century and the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
OUR MESSAGE TO YOU
[photo of James E. Stowers, Jr. and James E. Stowers III]
The year ended December 31, 1996, was a period of growth and change for TCI
Balanced and our company. The fund continued to provide long-term growth with
less volatility than more aggressive growth funds and it has been competitive
within its peer group. However, the fund's performance has lagged behind its
benchmark, a blended U.S. stock and bond index (see page 16 for a full
description). In an effort to improve the growth potential of the stock
portfolio, we brought in a new stock management team led by Jim Stowers III and
Bruce Wimberly, who also manage Twentieth Century Ultra. The fund's fixed-income
investment team, headed by Bud Hoops and Jeff Houston, remained the same.
On the corporate front, we completed the operational integration of
Twentieth Century and The Benham Group in mid-1996 and adopted American Century
Investments as our new company name. This new name reflects our expanded
identity and the independent thinking common to Twentieth Century and Benham. As
part of the renaming process, TCI Portfolios, Inc. (the group of variable
annuity funds that includes TCI Balanced) will become American Century Variable
Portfolios, Inc. on May 1, 1997. Effective on the same date, this fund's name
will change to American Century VP Balanced. Important note: These name changes
will not further alter the investment strategy or objectives of the fund.
Another significant change is reflected in the design and content of this
annual report, which is structured to provide more information in an
easier-to-read format. The new design adds a question and answer section with
the fund's portfolio managers. We hope this expanded format provides you with a
meaningful overview and perspective on how your fund performed for the period.
Thank you for the continued confidence you've placed in us. We want to
assure you that we are bringing our resources to bear on the goal of providing
you with the competitive long-term returns you expect from a leading investment
manager. We are committed to achieving this result.
Sincerely,
/s/James E. Stowers, Jr. /s/James E.Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder President and Chief Executive Officer
Annual Report Our Message to You 1
<TABLE>
<CAPTION>
PERFORMANCE & PORTFOLIO INFORMATION
6 MONTHS(1) 1 YEAR 3 YEARS 5 YEARS LIFE OF FUND(2)
AVERAGE ANNUAL RETURNS (as of December 31, 1996)
<S> <C> <C> <C> <C> <C>
TCI Balanced........................................ 6.67% 12.21% 10.99% 6.71% 10.23%
S&P 500............................................. 11.68% 22.93% 19.64% 15.19% 15.63%
Blended Index....................................... 8.72% 15.39% 14.02% 11.73% 12.58%
Lehman Intermediate Govt./Corp. Index............... 4.27% 4.05% 5.58% 6.53% 7.64%
See pages 16 and 17 for more information about returns and the comparative
indices.
(1) Not annualized.
(2) The fund's inception date was 5/1/91.
</TABLE>
[mountain graph data]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 12/31/96
Date TCI Balanced Blended Indexq S&P 500 Lehman
- --------------------------------------------------------------------------------
5/1/91 $10,000 $10,000 $10,000 $10,000
12/31/91 $12,554 $11,241 $11,234 $11,060
6/30/92 $11,349 $11,329 $11,160 $11,394
12/31/92 $11,795 $12,077 $12,089 $11,854
6/30/93 $12,246 $12,729 $12,675 $12,590
12/31/93 $12,702 $13,231 $13,302 $12,895
6/30/94 $12,379 $12,823 $12,856 $12,558
12/31/94 $12,780 $13,238 $13,482 $12,646
6/30/95 $14,388 $15,375 $16,198 $13,861
12/31/95 $15,479 $17,084 $18,531 $14,586
6/30/96 $16,283 $18,206 $20,397 $14,555
12/31/96 $17,369 $19,901 $22,779 $15,176
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 return includes operating expenses (such as
transaction costs and management fees) that reduce returns, while the return
lines of the indices do not.
[pie chart]
ASSET ALLOCATION (as of December 31, 1996
Common Stocks 59%
Corporate Bondfs 20%
U.S. Treasury Securities 13%
Mortgage & Other Asset-Backed Securities 5%
Other 3%
See Glossary on page 17 for investment terms.
2 Performance & Portfolio Information American Century Investments
MANAGEMENT Q & A
An interview with Jim Stowers III and Bud Hoops, lead managers of the TCI
Balanced equity and fixed income investment teams.
HOW DID THE FUND PERFORM FOR THE YEAR ENDED DECEMBER 31, 1996?
The fund performed as one would have expected in a year when U.S. stocks
posted large gains while U.S. bonds were hurt by rising interest rates. It was a
period in which the fund's "volatility cushion," the approximately 40% of assets
invested in intermediate-term U.S. bonds, softened the gains from the stock
portfolio. The fund's total return was 12.21%, compared to 22.93% for U.S.
stocks (the S&P 500), 4.05% for intermediate-term U.S. bonds (the Lehman
Intermediate Government/Corporate Index) and 15.39% for the blended index that
is the fund's benchmark (see page 16 for a full description).
WHY DID THE FUND UNDERPERFORM ITS BENCHMARK?
Because the performance of the benchmark was heavily influenced by the
exceptionally strong performance of the S&P 500, which represents 40% of the
blended index. The S&P 500 outperformed the majority of active equity managers
in 1996 due to the "flight to quality" (nervous investors focusing on the stocks
of large, established companies, such as those in the S&P 500) and the growing
popularity of "indexing" (investors seeking diversification and lower costs by
buying and holding the stocks that make up indices such as the S&P 500).
DID THE FUND MEET ITS OBJECTIVES?
Yes. TCI Balanced seeks to provide long-term growth with less volatility
than funds that are 100% invested in growth stocks, and that's what it has done.
However, as shown by the fund's relative returns against its benchmark, we
believe the fund can do a better job of meeting those objectives, particularly
in providing capital growth. That's why we changed the equity portfolio's
investment team in October to the Twentieth Century Ultra team headed by myself
and Bruce Wimberly.
WHAT OTHER SIGNIFICANT CHANGES DID YOU MAKE TO THE FUND'S EQUITY PORTFOLIO SINCE
THE SEMIANNUAL REPORT?
We sold some of the fund's energy stocks after their rapid appreciation to
maintain the fund's diversification. We also sold cyclical stocks, such as
equipment makers and auto producers, and replaced them with companies with more
consistent earnings profiles. Sectors that we expect to produce steady
TOP TEN EQUITY HOLDINGS % of equity portfolio
- --------------------------------------------------------------------------
As of As of
12/31/96 6/30/96
Intel Corp. 5.2% 1.5%
Global Marine Inc. 3.5% 2.8%
U.S. Robotics Corp. 3.5% 2.2%
BE Aerospace, Inc. 3.5% --
Warner-Lambert Co. 3.5% 1.4%
Falcon Drilling Company, Inc. 3.3% 2.3%
Western Digital Corp. 3.2% --
Johnson & Johnson 3.2% 3.0%
Parametric Technology Corp. 3.2% 2.4%
Oracle Systems Corp. 3.1% 2.7%
3
TOP FIVE INDUSTRIES % of equity portfolio
- --------------------------------------------------------------------------
As of As of
12/31/96 6/30/96
Pharmaceuticals 17.9% 11.6%
Computer Software & Services 13.1% 11.9%
Aerospace & Defense 9.8% 6.4%
Energy (Services) 9.1% 9.6%
Computer Peripherals 7.8% --
Annual Report Management Q & A 3
MANAGEMENT Q & A
results include healthcare, waste management and hotel/lodging.
Looking ahead, we expect to enhance returns by increasing the fund's
ownership of more rapidly growing mid-cap firms, blending these new holdings
with the fund's traditional holdings of larger, more established firms. We are
also working to improve our stock selection effectiveness -- doing a better job
of identifying successful companies that generate the type of accelerating
earnings growth we seek.
HOW DID THE FUND'S EQUITY PORTFOLIO PERFORM? WHAT FACTORS HAD AN IMPACT ON
PERFORMANCE?
In absolute terms, the equity portfolio's strength was the primary driver
behind the fund's overall return. The total return for the portfolio was 18.61%.
However, in relative terms the portfolio didn't quite keep up with its
benchmark, the S&P 500, which had an exceptional year and posted a total return
of 22.93%.
Even though the portfolio underperformed the S&P 500, it definitely had
bright spots. Three of the fund's larger technology holdings in 1996 -- Intel,
Microsoft and Oracle -- benefited from the "flight to quality" factor and posted
outstanding returns. The fund's energy holdings also performed well. From late
1995 through the first quarter of 1996, we built a significant position in
energy stocks, which generated strong returns in 1996 as oil prices rose. We
especially liked oil exploration companies that appeared as though they would
benefit from the increasing demand for oil. Examples included Global Marine and
Falcon Drilling, which were among the fund's top 10 equity holdings as of year
end.
HOW DID THE FUND'S FIXED INCOME PORTFOLIO PERFORM? WHAT FACTORS HAD AN IMPACT
ON PERFORMANCE?
In a bad bond year, the fixed-income portfolio did not contribute much to
fund performance. Economic uncertainty, the breakdown of federal budget deficit
reduction talks and inflation fears made 1996 a difficult year for bonds,
causing low returns. The portfolio produced a total return of 2.74%, compared
with 4.05% for its benchmark, the Lehman Intermediate Government/Corporate
Index. Bond yields soared and prices fell during the first and second quarters
when signs of stronger economic growth sparked inflation concerns. The bond
market rallied in the fourth quarter as inflation worries waned, but not enough
to turn a bad year into a good year.
FUND'S FIXED INCOME PORTFOLIO
- -----------------------------------------------------------------------------
As of As of
12/31/96 6/30/96
Portfolio Sensitivity to Interest Rates
- -----------------------------------------------------------------------------
Weighted Average Maturity 6.0 years 6.3 years
Duration 4.0 years 3.7 years
Portfolio Credit Quality % of fixed income portfolio
- ----------------------------------------------------------------------------
(S&P Ratings)
AAA 46% 48%
AA 7% 13%
A 32% 27%
BBB 15% 12%
-- --
100% 100%
=== ===
See Glossary on page 17.
4 Management Q & A American Century Investments
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS
AEROSPACE & DEFENSE--5.8%
160,400 BE Aerospace, Inc.(1) $ 4,380,925
26,700 Boeing Co. 2,840,212
24,400 Lockheed Martin Corp. 2,232,600
44,000 United Technologies Corp. 2,904,000
-------------
12,357,737
-------------
BANKING--3.7%
25,800 BankAmerica Corp. 2,573,550
27,680 Chase Manhattan Corp. 2,470,440
27,700 Citicorp 2,853,100
-------------
7,897,090
-------------
BROADCASTING--0.8%
37,100 Clear Channel Communications, Inc.(1) 1,340,238
9,900 SFX Broadcasting, Inc. Cl A(1) 293,288
-------------
1,633,526
-------------
CHEMICALS & RESINS--1.1%
59,100 Monsanto Co. 2,297,512
-------------
COMMUNICATIONS EQUIPMENT--2.1%
61,100 U.S. Robotics Corp.(1) 4,403,019
-------------
COMPUTER PERIPHERALS--4.6%
98,400 AMERICAN POWER Conversion Corp.(1) 2,687,550
36,800 Electronics for Imaging, Inc.(1) 3,013,000
71,500 Western Digital Corp.(1) 4,066,562
-------------
9,767,112
-------------
COMPUTER SOFTWARE & SERVICES--7.8%
21,000 American Management System, Inc.(1) 511,875
68,200 BMC Software, Inc.(1) 2,834,563
19,500 Compuware Corp.(1) 977,437
51,902 First Data Corp. 1,894,423
93,300 Oracle Systems Corp.(1) 3,889,444
77,300 Parametric Technology Corp.(1) 3,976,119
58,200 Saville Systems Ireland plc ADR(1) 2,342,550
-------------
16,426,411
-------------
Shares Value
- --------------------------------------------------------------------------------
COMPUTER SYSTEMS--2.4%
21,900 International Business Machines Corp. $ 3,306,900
71,200 Sun Microsystems, Inc.(1) 1,828,950
-------------
5,135,850
-------------
CONSTRUCTION--1.2%
47,700 Mastec, Inc.(1) 2,531,081
-------------
DIVERSIFIED COMPANIES--1.7%
36,800 General Electric Co. 3,638,600
-------------
ELECTRICAL & ELECTRONIC COMPONENTS--4.1%
50,200 Intel Corp. 6,573,062
39,100 Uniphase Corp.(1) 2,057,638
-------------
8,630,700
-------------
ENERGY (SERVICES)--5.4%
50,300 Diamond Offshore Drilling, Inc.(1) 2,867,100
106,800 Falcon Drilling Company, Inc.(1) 4,191,900
214,000 Global Marine Inc.(1) 4,413,750
-------------
11,472,750
-------------
ENVIRONMENTAL SERVICES--1.1%
73,900 Republic Industries, Inc.(1) 2,304,756
-------------
HEALTHCARE--1.2%
44,400 Cardinal Health, Inc. 2,586,300
-------------
LEISURE--1.4%
27,200 HFS, Inc.(1) 1,625,200
47,250 Promus Companies Inc.(1) 1,399,781
-------------
3,024,981
-------------
PHARMACEUTICALS--10.6%
50,200 American Home Products Corp. 2,942,975
81,000 Johnson & Johnson 4,029,750
41,900 Lilly (Eli) & Co. 3,058,700
39,300 Merck & Co., Inc. 3,114,525
1,386 Novartis ORD(1) 1,585,625
40,900 Pfizer, Inc. 3,389,588
57,900 Warner-Lambert Co. 4,342,500
-------------
22,463,663
-------------
See Notes to Finalcial Statements
Annual Report Schedule of Investments 5
SCHEDULE OF INVESTMENTS
DECEMBER 31 1996
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
RETAIL (SPECIALTY)--2.0%
49,300 TJX Companies, Inc. $ 2,335,588
55,300 U.S. Office Products Co.(1) 1,876,744
-------------
4,212,332
-------------
TEXTILES & APPAREL--1.2%
42,100 NIKE, Inc. 2,515,475
-------------
MISCELLANEOUS--1.1%
60,100 Flowers Industries, Inc. 1,292,150
18,500 Sonat Inc. 952,750
-------------
2,244,900
-------------
TOTAL COMMON STOCKS--59.3% 125,543,795
-------------
(Cost $100,206,015)
U.S. TREASURY SECURITIES
- --------------------------------------------------------------------------------
$7,150,000 U.S. Treasury Notes,
6.125%, 3-31-98 7,167,875
2,000,000 U.S. Treasury Notes,
6.00%, 9-30-98 2,003,120
2,000,000 U.S. Treasury Notes,
5.75%, 12-31-98 1,995,620
2,000,000 U.S. Treasury Notes,
6.375%, 5-15-99 2,018,120
500,000 U.S. Treasury Notes,
6.25%, 8-31-00 502,030
1,000,000 U.S. Treasury Notes,
6.125%, 9-30-00 999,690
500,000 U.S. Treasury Notes,
5.75%, 10-31-00 493,595
2,050,000 U.S. Treasury Notes,
5.625%, 11-30-00 2,013,490
2,000,000 U.S. Treasury Notes,
6.375%, 9-30-01 2,011,880
1,000,000 U.S. Treasury Notes,
6.25%, 10-31-01 1,000,940
1,000,000 U.S. Treasury Notes,
6.375%, 8-15-02 1,006,880
1,500,000 U.S. Treasury Notes,
5.75%, 8-15-03 1,455,465
500,000 U.S. Treasury Notes,
6.50%, 8-15-05 503,595
800,000 U.S. Treasury Notes,
5.875%, 11-15-05 772,000
Shares Value
- --------------------------------------------------------------------------------
$2,000,000 U.S. Treasury Notes,
7.00%, 7-15-06 $2,078,760
1,750,000 U.S. Treasury Notes,
6.50%, 10-15-06 1,763,398
-------------
TOTAL U.S. TREASURY SECURITIES--13.1% 27,786,458
-------------
(Cost $27,905,840)
MORTGAGE-BACKED SECURITIES(3)
- --------------------------------------------------------------------------------
1,588,050 FNMA Pool #248679,
5.50%, 12-1-08 1,514,873
1,788,958 FNMA Pool #250627,
8.00%, 7-1-26 1,824,844
1,965,158 GNMA Pool #002202,
7.00%, 4-20-26 1,917,188
-------------
TOTAL MORTGAGE-BACKED SECURITIES--2.5% 5,256,905
-------------
(Cost $5,233,636)
OTHER ASSET-BACKED SECURITIES(3)
- --------------------------------------------------------------------------------
1,000,000 First Merchants Auto Receivables
Corp., 6.80%, 5-15-01 1,016,280
2,000,000 NationsBank Auto Owner Trust,
6.75%, 6-15-01 2,029,920
1,000,000 Standard Credit Card Trust,
8.625%, 1-7-02,
Call Date 1-7-97 1,001,840
1,250,000 UCFC Home Equity Loan,
Series 1996-D1, Cl A4,
6.776%, 2-15-16 1,249,188
-------------
TOTAL OTHER ASSET-BACKED SECURITIES--2.5% 5,297,228
-------------
(Cost $5,243,468)
CORPORATE BONDS
- --------------------------------------------------------------------------------
BANKING--5.1%
1,000,000 Capital One Financial Corp.,
8.125%, 3-1-00 1,036,250
1,000,000 Chase Manhattan Corp.,
8.80%, 2-1-00 1,001,250
1,250,000 Citicorp,
7.125%, 5-15-06 1,259,375
1,750,000 Corestates Capital Corp.,
5.875%, 10-15-03 1,664,687
1,000,000 First USA, Inc.,
7.00%, 8-20-01 1,002,500
SEE NOTES TO FINANCIAL STATEMENTS
6 SCHEDULE OF INVESMENTS AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
DECEMBER 31 1996
Principal Amount Value
- --------------------------------------------------------------------------------
$1,000,000 First Union Corp.,
8.77%, 11-15-04 $1,046,250
1,200,000 MBNA Corp.,
6.875%, 6-1-05 1,180,500
1,000,000 NationsBank Corp.,
6.875%, 2-15-05 992,500
1,500,000 Santander Financial Issuances Ltd.,
7.00%, 4-1-06 1,494,375
-------------
10,677,687
-------------
COMMUNICATIONS SERVICES--0.7%
1,000,000 GTE Southwest,
5.82%, 12-1-99 987,500
500,000 Tele-Communications, Inc.,
8.25%, 1-15-03 506,875
-------------
1,494,375
-------------
FINANCIAL SERVICES--3.4%
1,000,000 AB Spintab, 7.50%, 8-14-49,
Call Date 8-14-06 (Acquired
9-20-96, Cost $977,250)(2) 1,006,250
1,000,000 Associates First Capital Corp.,
6.75%, 7-15-01 1,007,500
1,000,000 International Lease Finance,
6.20%, 5-1-00 991,250
1,500,000 Lehman Brothers Holdings, Inc.,
6.625%, 11-15-00 1,490,625
1,750,000 Norwest Financial, Inc.,
6.25%, 11-1-02 1,734,687
1,000,000 United Companies Financial Corp.,
7.70%, 1-15-04 998,750
-------------
7,229,062
-------------
INDUSTRIAL EQUIPMENT & MACHINERY--1.3%
1,250,000 Anixter International Inc.,
8.00%, 9-15-03 1,276,563
1,500,000 Comdisco Inc.,
6.375%, 11-30-01 1,477,500
-------------
2,754,063
-------------
INSURANCE--2.0%
1,200,000 Aetna Services Inc.,
6.75%, 8-15-01 1,207,500
Principal Amount Value
- --------------------------------------------------------------------------------
1,000,000 Nationwide Mutual Insurance Co.,
6.50%, 2-15-04 (Acquired
2-9-96, Cost $1,008,420)(2) 970,000
1,000,000 Travelers/Aetna P&C,
6.75%, 4-15-01 1,006,250
1,000,000 Underwriters Reinsurance Co.,
7.875%, 6-30-06 (Acquired
8-6-96, Cost $1,031,200)(2) 1,041,250
-------------
4,225,000
-------------
REAL ESTATE--1.0%
1,000,000 Price REIT, Inc. (The),
7.25%, 11-1-00 1,010,000
1,000,000 Spieker Properties, Inc.,
6.80%, 12-15-01 988,750
-------------
1,998,750
-------------
TOBACCO PRODUCTS--1.5%
1,000,000 PHILIP Morris Companies Inc.,
6.80%, 12-1-03 990,000
1,250,000 Philip Morris Companies Inc.,
6.95%, 6-1-06 1,267,187
1,000,000 RJR Nabisco, Inc.,
8.75%, 4-15-04 1,008,750
-------------
3,265,937
-------------
UTILITIES (ELECTRIC)--2.4%
1,350,000 China Light & Power Co. Ltd.,
7.50%, 4-15-06 1,363,500
1,000,000 Detroit Edison, MTN,
5.41%, 5-1-97 998,750
1,000,000 Kansas Power & Light Co.,
8.875%, 3-1-00 1,061,250
1,700,000 Pacific Gas & Electric,
6.25%, 8-1-03 1,657,500
-------------
5,081,000
-------------
UTILITIES (GAS)--1.0%
1,000,000 Consolidated Natural Gas,
9.375%, 2-1-97 1,002,500
1,000,000 Southwest Gas Corp.,
7.50%, 8-1-06 1,027,500
-------------
2,030,000
-------------
SEE NOTES TO FINANCIAL STATEMENTS
ANNUAL REPORT SCHEDULE OF INVESTMENTS 7
SCHEDULE OF INVESTMENTS
DECEMBER 31 1996
Principal Amount Value
- --------------------------------------------------------------------------------
Miscellaneous--1.9%
$ 1,000,000 General Motors Corp.,
7.00%, 6-15-03 $1,011,250
1,000,000 Hanson Overseas BV,
6.75%, 9-15-05 981,250
1,000,000 Sears, Roebuck & Co., MTN,
8.23%, 10-21-04 1,077,500
1,000,000 Time Warner Inc.,
8.11%, 8-15-06 1,028,750
-------------
4,098,750
-------------
TOTAL CORPORATE BONDS--20.3% 42,854,624
(Cost $42,941,069) -------------
SOVEREIGN GOVERNMENTS & AGENCIES
- --------------------------------------------------------------------------------
1,500,000 Korea Electric Power,
6.375%, 12-1-03 1,462,500
2,000,000 Province of Quebec,
6.50%, 1-17-06 1,932,500
-------------
TOTAL SOVEREIGN GOVERNMENTS & AGENCIES--1.6% 3,395,000
(Cost $3,499,830) -------------
TEMPORARY CASH INVESTMENTS--0.7%(4)
- -----------------------------------------------------------------------
$1,400,000 par value FHLMC Discount Note,
5.28%, 1-2-97 1,399,778
(Cost $1,399,778) -------------
TOTAL INVESTMENT SECURITIES--100.0% $211,533,788
(Cost $186,429,636) =============
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
MTN = Medium Term Note
ORD = Foreign Ordinary Share
(1) Non-income producing
(2) 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 December 31, 1996, was $3,017,500 which represented 1.4% of net
assets.
(3) Final maturity indicated. Expected remaining average life used for purposes
of calculating the weighted average portfolio maturity.
(4) The rates for U.S. Government Agency discount notes are
the yield to maturity at December 31, 1996.
See Notes to Financial Statements
8 Schedule of Investments American Century Investments
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
ASSETS
Investment securities, at value
(identified cost of $186,429,636) (Note 3) ................ $211,533,788
Cash ........................................................... 63,216
Receivable for investments sold ................................ 2,458,583
Receivable for capital shares sold ............................. 957,875
Dividends and interest receivable .............................. 1,312,524
-------------
216,325,986
-------------
LIABILITIES
Payable for investments purchased .............................. 681,148
Payable for capital shares redeemed ............................ 69,084
Accrued management fees (Note 2) ............................... 182,537
Other liabilities .............................................. 133
-------------
932,902
-------------
Net Assets Applicable to Outstanding Shares .................... $215,393,084
=============
CAPITAL SHARES, $.01 PAR VALUE
Authorized ..................................................... 200,000,000
=============
Outstanding .................................................... 28,559,573
=============
Net Asset Value Per Share ...................................... $7.54
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ........................ $179,279,651
Undistributed net investment income ............................ 1,399,954
Accumulated undistributed net realized
gain from investments and foreign
currency transactions ..................................... 9,609,607
Net unrealized appreciation on investments
and translation of assets and liabilities
in foreign currencies (Note 3) ............................ 25,103,872
-------------
$215,393,084
=============
See Notes to Financial Statements
Annual Report Statement of Assets and Liabilities 9
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
Income:
Interest .................................................. $5,289,821
Dividends (net of foreign
taxes withheld of $14,786) ........................... 1,047,851
-------------
6,337,672
-------------
Expenses:
Management fees (Note 2) .................................. 1,832,133
Directors' fees and expenses .............................. 1,620
-------------
1,833,753
-------------
Net investment income .......................................... 4,503,919
-------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY (NOTE 3)
Net realized gain on:
Investments ............................................... 9,691,158
Foreign currency transactions ............................. 180,529
-------------
9,871,687
-------------
Change in net unrealized appreciation on:
Investments ............................................... 7,504,102
Translation of assets and liabilities
in foreign currencies ................................ (21,444)
-------------
7,482,658
-------------
Net realized and unrealized gain on
investments and foreign currency ................................ 17,354,345
-------------
Net Increase in Net Assets
Resulting from Operations ....................................... $21,858,264
=============
See Notes to Financial Statements
10 Statement of Operations American Century Investments
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1996
AND DECEMBER 31, 1995
Increase in Net Assets 1996 1995
OPERATIONS
Net investment income .................. $4,503,919 $3,389,143
Net realized gain on
investments and foreign
currency transactions ............. 9,871,687 6,816,727
Change in net unrealized
appreciation on investments
and translation of assets
and liabilities in foreign
currencies ........................ 7,482,658 13,457,861
------------- -------------
Net increase in net assets
resulting from operations ......... 21,858,264 23,663,731
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............. (3,340,445) (3,317,076)
From net realized gains from
investment transactions ........... (4,846,873) --
------------- -------------
Decrease in net assets from
distributions ..................... (8,187,318) (3,317,076)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .............. 55,260,449 36,523,452
Proceeds from reinvestment
of distributions .................. 8,187,318 3,317,076
Payments for shares redeemed ........... (15,548,799) (11,464,097)
------------- -------------
Net increase in net assets
from capital share
transactions ...................... 47,898,968 28,376,431
------------- -------------
Net increase in net assets ............. 61,569,914 48,723,086
NET ASSETS
Beginning of year ...................... 153,823,170 105,100,084
------------- -------------
End of year ............................ $215,393,084 $153,823,170
============= =============
Undistributed net
investment income ................. $1,399,954 $62,692
============= =============
TRANSACTIONS IN SHARES OF THE FUND
Sold ................................... 7,704,328 5,501,320
Issued in reinvestment
of distributions .................. 1,168,206 494,003
Redeemed ............................... (2,170,655) (1,765,833)
------------- -------------
Net increase ........................... 6,701,879 4,229,490
============= =============
See Notes to Financial Statements
Annual Report Statements of Changes in Net Assets 11
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--TCI Portfolios, Inc. (the Corporation) is registered under
the Investment Company Act of 1940 as an open-end diversified management
investment company. TCI Balanced (the Fund) is one of the five series of funds
issued by the Corporation. The Fund's investment objective is capital growth and
current income. The Fund seeks to achieve its investment objective by
maintaining approximately 60% of the assets in common stocks that are considered
by management to have better-than-average prospects for appreciation and the
remaining assets in bonds and other fixed income securities. 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, depending on local convention or regulation. 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 recorded 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.
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, resulting from changes in the exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of investments are a component of realized
gain (loss) on investments and unrealized appreciation (depreciation) on
investments, respectively.
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, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The Fund requires that the 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. ACIM 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 ACIM and Benham
Management Corporation, may transfer uninvested cash balances into a joint
trading account. These balances are invested in one or more repurchase
agreements that are collaterized 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
12 Notes to Financial Statements American Century Investments
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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 quarterly.
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 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 American Century Companies, Inc., the parent of the
Corporation's investment manager, ACIM, the Corporation's distributor, American
Century Investment Services, Inc., and the Corporation's transfer agent,
American Century Services Corporation.
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 ACIM 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
ACIM. 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
The aggregate cost of investment securities purchased (excluding short-term
investments) for the year ended December 31, 1996, totaled $149,145,511 for
common stocks, $50,361,875 for U.S. Treasury and Agency obligations and
$63,609,439 for other debt obligations. Proceeds from investment securities sold
(excluding short-term investments) totaled $134,557,376 for common stocks,
$44,178,617 for U.S. Treasury and Agency obligations and $48,476,784 for other
debt obligations. On December 31, 1996, accumulated net unrealized appreciation
on investments, based on the aggregate cost of investments of $186,521,535 for
federal income tax purposes, was $25,012,253, consisting of unrealized
appreciation of $27,066,065 and unrealized depreciation of $2,053,812.
- --------------------------------------------------------------------------------
4. Subsequent Events
The following name changes became effective January 1, 1997:
<TABLE>
NEW NAMES FORMER NAMES
INVESTMENT
<S> <C> <C>
MANAGER: American Century Investment Management, Inc. Investors Research Corporation
PARENT
COMPANY: American Century Companies, Inc. Twentieth Century Companies, Inc.
DISTRIBUTOR: American Century Investment Services, Inc. Twentieth Century Securities, Inc.
TRANSFER
AGENT: American Century Services Corporation Twentieth Century Services, Inc.
</TABLE>
Annual Report Notes to Financial Statements 13
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended December 31
1996 1995 1994 1993 1992
PER-SHARE DATA
- ----------------------------------------------------------------------------------------------------
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Year ..................... $7.04 $5.96 $6.07 $5.74 $6.19
------- ------- ------- ------- -------
Income from Investment
Operations
Net Investment Income .............. .18 .17 .15 .11 .08
Net Realized and
Unrealized Gain
(Loss) on Investment
Transactions ....................... .65 1.08 (.11) .33 (.45)
------- ------- ------- ------- -------
Total from
Investment Operations .............. .83 1.25 .04 .44 (.37)
------- ------- ------- ------- -------
Distributions
From Net Investment Income ......... (.13) (.17) (.15) (.11) (.08)
From Net Realized Gains
on Investment Transactions ......... (.20) -- -- -- --
------- ------- ------- ------- -------
Total Distributions ................ (.33) (.17) (.15) (.11) (.08)
------- ------- ------- ------- -------
Net Asset Value, End of Year .......... $7.54 $7.04 $5.96 $6.07 $5.74
===== ===== ===== ===== =====
Total Return(1) ....................12.21% 21.12% .61% 7.68% (6.04%)
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .............. .99% .97% 1.00% 1.00% 1.00%
Ratio of Net Investment Income
to Average Net Assets .............. 2.43% 2.69% 2.49% 1.97% 1.91%
Portfolio Turnover Rate ............ 130% 87% 63% 68% 85%
Average Commission Paid per
Investment Security Traded ......... $.037 $.040 --(2) --(2) --(2)
Net Assets, End
of Year (in thousands) ............$215,393 $153,823 $105,100 $75,924 $34,382
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
(2) Disclosure of average commission paid per investment security traded was
not required prior to the year ended December 31, 1995.
</TABLE>
See Notes to Financial Statements
14 Financial Highlights American Century Investments
INDEPENDENT ACCOUNTANTS' REPORT
The Shareholders and Board of Directors
TCI Portfolios, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of TCI Balanced (a series of TCI
Portfolios, Inc.) as of December 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
December 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 TCI
Balanced as of December 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
January 21, 1997
Annual Report Independent Accountants' Report 15
BACKGROUND INFORMATION
PORTFOLIO MANAGEMENT TEAM
Equity Portfolio: Jim Stowers III, Bruce Wimberly
Fixed Income Portfolio: Bud Hoops, Jeff Houston
INVESTMENT PHILOSOPHY & POLICIES
The fund's investment philosophy focuses on four important principles:
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.
For the equity portfolio, the management team seeks to own highly
successful companies, which we define as those whose earnings and revenues are
growing at accelerating rates.
For the fixed income 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.
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.
TCI BALANCED seeks to provide long-term growth with less volatility than
funds that are 100% invested in growth stocks. 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.
COMPARATIVE INDICES
The indices listed below are used in the report to serve as a comparison
for the performance of the fund. They are not investment products available for
purchase.
The BLENDED INDEX is considered the benchmark for TCI Balanced. It combines
two widely known indices in proportion to the asset mix of the fund.
Accordingly, 60% of the index is represented by the S&P 500, which reflects the
60% of the fund's assets invested in equity securities. The remaining 40% of the
index is represented by the Lehman Intermediate Government/Corporate Index,
which reflects the 40% of the fund's assets invested in intermediate-term bonds
and other fixed income securities.
The LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE INDEX is considered to
represent the performance of a portfolio of intermediate-term U.S. government
and corporate bonds. The index includes the Lehman Government and Corporate Bond
Indices, which are composed of U.S. government, Treasury and agency securities
with one- to 10-year maturities, as well as corporate and Yankee bonds with one-
to 10-year maturities.
The S&P 500 is an index created by Standard & Poor's Corporation that is
considered to represent the performance of the U.S. stock market. It is composed
primarily of large-capitalization stocks.
16 Background Information American Century Investments
GLOSSARY
FIXED INCOME TERMS
o CREDIT QUALITY reflects the financial strength of a debt security issuer
and the likelihood of timely payment of interest and principal.
o DURATION is a measure of the sensitivity of a fixed income portfolio to
changes in interest rates. As the duration of a portfolio increases, the impact
of a change in interest rates on the value of the portfolio also increases.
o STANDARD & POOR'S (S&P) is an independent rating company, one of the two
best known in the U.S. (the other is Moody's). The credit ratings issued by S&P
and Moody's reflect the perceived financial strength (credit quality) of debt
issuers. Debt securities rated "investment grade" (deemed to be of high enough
credit quality to be appropriate investments for banks and other institutions)
by S&P are those rated BBB or higher (the highest rating is AAA).
o WEIGHTED AVERAGE MATURITY (WAM), another measurement of the sensitivity
of a fixed income portfolio to interest rate changes, indicates the average time
until the principal in the portfolio is expected to be repaid, weighted by
dollar amount. The longer the WAM, the more interest rate exposure and interest
rate sensitivity the portfolio has.
RETURNS
o TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that
would have produced the fund's cumulative total returns if the fund's
performance had been constant over the entire period. Average annual returns
smooth out variations in a fund's return; they are not the same as year-by-year
results. For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on page 14.
EQUITY TERMS
o BLUE-CHIP STOCKS -- generally considered to be the stocks of the most
established companies in American industry. They are generally large, fairly
stable companies that have demonstrated consistent earnings and usually have
long-term growth potential. Examples include General Electric and Coca-Cola.
o CYCLICAL STOCKS -- generally considered to be stocks whose price and
earnings fluctuations tend to follow the ups and downs of the business cycle.
Examples include the stocks of automobile manufacturers, steel producers and
textile operators.
o GROWTH STOCKS -- generally considered to be the stocks of companies that
have experienced above-average earnings growth and appear likely to continue
such growth. These stocks often sell at high P/E ratios. Examples can include
the stocks of high-tech, computer hardware and computer software companies.
o LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS -- generally considered to be
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of more than $5 billion. These tend to be the
stocks that make up the Dow Jones Industrial Average, the S&P 500 and the
Russell 1000 Index.
o MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS -- generally considered to be
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of between $1 billion and $5 billion. These tend to
be the stocks that make up the S&P 400.
o PRICE/EARNINGS (P/E) RATIO -- a stock value measurement calculated by
dividing a company's stock price by its earnings per share, with the result
expressed as a multiple instead of as a percentage. (Earnings per share is
calculated by dividing the after-tax earnings of a corporation by its
outstanding shares.)
o SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS -- generally considered to be
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of less than $1 billion. These tend to be the
stocks that make up the Nasdaq Composite Index and the Russell 2000 Index.
o VALUE STOCKS -- generally considered to be stocks that are purchased
because they are relatively inexpensive. These stocks are typically
characterized by low P/E ratios.
Annual Report Glossary 17
[american century logo]
American
Century(sm)
P.O. Box 419385
Kansas City, Missouri
64141-6385
Person-to-Person Assistance:
1-800-345-3533 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-345-1833 or 816-753-0070
Fax: 816-340-4360
Internet: www.americancentury.com
TCI PORTFOLIOS, INC.
Investment Manager
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
Kansas City, Missouri
This report and the financial statements contained herein are submitted for the
general information of our shareholders. The report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
American Century Investment Services, Inc.
9702 [recycled logo]
SH-BKT-7583 Recycled
<PAGE>
ANNUAL REPORT
[american century logo]
American
Century(sm)
DECEMBER 31, 1996
TCI PORTFOLIOS, INC.
TCI ADVANTAGE
[front cover]
TABLE OF CONTENTS
Our Message to You................................................ 1
Performance & Portfolio Information............................... 2
Management Q & A.................................................. 3
Schedule of Investments........................................... 5
Statement of Assets and Liabilities............................... 8
Statement of Operations........................................... 9
Statements of Changes in Net Assets............................... 10
Notes to Financial Statements..................................... 11
Financial Highlights.............................................. 13
Independent Accountants' Report................................... 14
Background Information
Portfolio Management Team.................................... 16
Investment Philosophy & Policies............................. 16
Comparative Indices.......................................... 16
Glossary.......................................................... 17
Twentieth Century and the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
OUR MESSAGE TO YOU
[photo of James E. Stowers, Jr. and James E. Stowers III]
The year ended December 31, 1996, was a period of growth and change for TCI
Advantage and our company. Though the fund continued to provide current income
and capital growth, its performance has lagged behind its benchmark, a blended
U.S. stock, bond and money market index (see page 16 for a full description). In
an effort to improve the growth potential of the stock portfolio, we brought in
a new stock management team led by Jim Stowers III and Bruce Wimberly, who also
manage Twentieth Century Ultra. The fund's fixed-income investment team, headed
by Bud Hoops and Jeff Houston, remained the same.
On the corporate front, we completed the operational integration of
Twentieth Century and The Benham Group in mid-1996 and adopted American Century
Investments as our new company name. This new name reflects our expanded
identity and the independent thinking common to Twentieth Century and Benham. As
part of the renaming process, TCI Portfolios, Inc. (the group of variable
annuity funds that includes TCI Advantage) will become American Century Variable
Portfolios, Inc. on May 1, 1997. Effective on the same date, this fund's name
will change to American Century VP Advantage. Important note: These name changes
will not further alter the investment strategy or objectives of the fund.
Another significant change is reflected in the design and content of this
annual report, which is structured to provide more information in an
easier-to-read format. The new design adds a question and answer section with
the fund's portfolio managers. We hope this expanded format provides you with a
meaningful overview and perspective on how your fund performed for the period.
Thank you for the continued confidence you've placed in us. We want to assure
you that we are bringing our resources to bear on the goal of providing you with
the competitive long-term returns you expect from a leading investment manager.
We are committed to achieving this result.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder President and Chief Executive Officer
Annual Report Our Message to You 1
<TABLE>
PERFORMANCE & PORTFOLIO INFORMATION
6 MONTHS(1) 1 YEAR 3 YEARS 5 YEARS LIFE OF FUND(2)
AVERAGE ANNUAL RETURNS
(as of December 31, 1996)
<S> <C> <C> <C> <C> <C>
TCI Advantage.................. 5.29% 9.25% 8.82% 5.79% 7.88%
S&P 500........................ 11.68% 22.93% 19.64% 15.19% 15.85%
Blended Index.................. 6.81% 11.83% 11.01% 9.43% 10.14%
Lehman Intermediate Govt.
Bond Index ................. 4.07% 4.06% 5.37% 6.23% 7.37%
See pages 16 and 17 for more information about returns and the comparative
indices.
</TABLE>
(1) Not annualized.
(2) The fund's inception date was 8/1/91.
[mountain graph data]
GROWTH OF $10,000 OVER LIFE OF FUND
- -----------------------------------
Value on 12/31/96
- -----------------
Date TCI Advantage Blended Indexq S&P 500 Lehman
- --------------------------------------------------------------------------------
8/1/91 $10,000 $10,000 $10,000 $10,000
12/31/91 $11,381 $10,749 $10,940 $10,862
6/30/92 $10,571 $10,879 $10,868 $11,165
12/31/92 $10,953 $11,453 $11,773 $11,615
6/30/93 $11,350 $11,981 $12,343 $12,286
12/31/93 $11,702 $12,369 $12,954 $12,564
6/30/94 $11,519 $12,113 $12,520 $12,263
12/31/94 $11,823 $12,443 $13,130 $12,345
6/30/95 $12,983 $14,011 $15,775 $13,459
12/31/95 $13,803 $15,248 $18,049 $14,124
6/30/96 $14,323 $16,033 $19,864 $14,122
12/31/96 $15,080 $17,251 $22,184 $14,697
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 return includes operating expenses (such as
transaction costs and management fees) that reduce returns, while the return
lines of the indices do not.
[pie chart]
ASSET ALLOCATION (as of December 31, 1996)
- ------------------------------------------
Common Stocks 40%
U.S. Treasury Securities 38%
Short-Term Cash Investments 21%
Other 1%
See Glossary on page 17 for investment terms.
2 Performance & Portfolio Information American Century Investments
MANAGEMENT Q & A
An interview with Jim Stowers III and Bud Hoops, lead managers of the TCI
Advantage equity and fixed income investment teams.
HOW DID THE FUND PERFORM FOR THE YEAR ENDED DECEMBER 31, 1996?
In absolute terms, the fund met its objectives and enjoyed its second-best
year since it began operations in 1991. Boosted by the performance of its equity
portfolio, the fund's total return was 9.25%, second only to 1995 when the
combination of strong stock and bond returns pushed the fund to a 16.75% total
return.
In relative terms, the fund didn't keep pace with the 11.83% return for the
blended index that is the fund's benchmark (see page 16 for a full description).
WHY DID THE FUND UNDERPERFORM ITS BENCHMARK?
Because the performance of the benchmark was heavily influenced by the
exceptionally strong performance of the S&P 500, which represents 40% of the
blended index. The S&P 500 outperformed the majority of active equity managers
in 1996 due to the "flight to quality" (nervous investors focusing on the stocks
of large, established companies, such as those in the S&P 500) and the growing
popularity of "indexing" (investors seeking diversification and lower costs by
buying and holding the stocks that make up indices such as the S&P 500).
YOU SAID THE FUND MET ITS OBJECTIVES. HOW SO?
TCI Advantage seeks to provide current income and capital growth, and it
met both objectives in 1996. However, as shown by the fund's relative returns
against its benchmark, we believe the fund can do a better job of meeting those
objectives, particularly in providing capital growth. That's why we changed the
equity portfolio's investment team in October to the Twentieth Century Ultra
team headed by myself and Bruce Wimberly.
WHAT OTHER SIGNIFICANT CHANGES DID YOU MAKE TO THE FUND'S EQUITY PORTFOLIO
SINCE THE SEMIANNUAL REPORT?
We sold some of the fund's energy stocks after their rapid appreciation to
maintain the fund's diversification. We also sold cyclical stocks, such as
equipment makers and auto producers, and replaced them with companies with more
consistent earnings profiles. Sectors that we expect to produce steady results
include healthcare, waste management and hotel/lodging.
TOP TEN EQUITY HOLDINGS % of equity portfolio
- --------------------------------------------------------------------------------
As of As of
12/31/96 6/30/96
Intel Corp. 5.0% 1.5%
U.S. Robotics Corp. 3.6% 2.3%
BE Aerospace, Inc. 3.5% --
Global Marine Inc. 3.5% 2.8%
Warner-Lambert Co. 3.5% 1.4%
Falcon Drilling Company, Inc. 3.4% 2.4%
Western Digital Corp. 3.3% --
Johnson & Johnson 3.2% 2.9%
Parametric Technology Corp. 3.2% 2.3%
Oracle Systems Corp. 3.1% 2.6%
TOP FIVE INDUSTRIES % of equity portfolio
- --------------------------------------------------------------------------------
As of As of
12/31/96 6/30/96
Pharmaceuticals 17.9% 11.6%
Computer Software & Services 13.1% 11.8%
Aerospace & Defense 9.8% 6.3%
Energy (Services) 9.1% 9.7%
Computer Peripherals 7.8% --
Annual Report Management Q & A 3
MANAGEMENT Q & A
Looking ahead, we expect to enhance returns by increasing the fund's
ownership of more rapidly growing mid-cap firms, blending these new holdings
with the fund's traditional holdings of larger, more established firms. We are
also working to improve our stock selection effectiveness -- doing a better job
of identifying successful companies that generate the type of accelerating
earnings growth we seek.
HOW DID THE FUND'S EQUITY PORTFOLIO PERFORM? WHAT FACTORS HAD AN IMPACT ON
PERFORMANCE?
In absolute terms, the equity portfolio's strength was the primary driver
behind the fund's overall return. The total return for the portfolio was 19.06%.
However, in relative terms the portfolio didn't quite keep up with its
benchmark, the S&P 500, which had an exceptional year and posted a total return
of 22.93%.
Even though the portfolio underperformed the S&P 500, it definitely had
bright spots. Three of the fund's larger technology holdings in 1996 -- Intel,
Microsoft and Oracle -- benefited from the "flight to quality" factor and posted
outstanding returns. The fund's energy holdings also performed well. From late
1995 through the first quarter of 1996, we built a significant position in
energy stocks, which generated strong returns in 1996 as oil prices rose. We
especially liked oil exploration companies that appeared as though they would
benefit from the increasing demand for oil. Examples included Global Marine and
Falcon Drilling, which were among the fund's top 10 equity holdings as of year
end.
HOW DID THE FUND'S FIXED INCOME PORTFOLIO PERFORM? WHAT FACTORS HAD AN
IMPACT ON PERFORMANCE?
In a bad bond year, the fixed-income portfolio did not contribute much to
fund performance. The total return for the cash portfolio was 3.88%, while the
total return for the bond portfolio was 2.39%. Neither matched the 4.06% total
return of the fund's bond benchmark, the Lehman Intermediate Government Bond
Index.
To put the returns in perspective, 1996 joined 1990 and 1994 as one of the
worst bond years of the 1990s. Economic uncertainty, the breakdown of federal
budget deficit reduction talks and inflation concerns caused the low returns.
Bond yields soared and prices fell during the first and second quarters when
signs of stronger economic growth sparked inflation fears. The bond market
rallied in the fourth quarter as inflation worries waned, but not enough to turn
a bad year into a good year.
FUND'S FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
As of As of
12/31/96 6/30/96
Portfolio Sensitivity to Interest Rates
- --------------------------------------------------------------------------------
Weighted Average Maturity 4.9 years 4.8 years
Duration 3.9 years 3.7 years
Portfolio Credit Quality % of fixed income portfolio
(S&P Rating)
- --------------------------------------------------------------------------------
AAA 100% 100%
See Glossary on page 17.
4 Management Q & A American Century Investments
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS
AEROSPACE & DEFENSE--3.9%
12,700 BE Aerospace, Inc.(1) $ 346,869
2,000 Boeing Co. 212,750
1,900 Lockheed Martin Corp. 173,850
3,600 United Technologies Corp. 237,600
-------------
971,069
-------------
BANKING--2.5%
2,000 BankAmerica Corp. 199,500
2,224 Chase Manhattan Corp. 198,492
2,200 Citicorp 226,600
-------------
624,592
-------------
BROADCASTING--0.5%
2,900 Clear Channel Communications, Inc.(1) 104,762
800 SFX Broadcasting, Inc. Cl A(1) 23,700
-------------
128,462
-------------
CHEMICALS & RESINS--0.7%
4,700 Monsanto Co. 182,713
-------------
COMMUNICATIONS EQUIPMENT--1.4%
4,900 U.S. Robotics Corp.(1) 353,106
-------------
COMPUTER PERIPHERALS--3.1%
7,700 American Power Conversion Corp.(1) 210,306
2,900 Electronics for Imaging, Inc.(1) 237,438
5,700 Western Digital Corp.(1) 324,188
-------------
771,932
-------------
Computer Software & Services--5.2%
1,800 American Management System, Inc.(1) 43,875
5,400 BMC Software, Inc.(1) 224,437
1,500 Compuware Corp.(1) 75,187
4,136 First Data Corp. 150,964
7,400 Oracle Systems Corp.(1) 308,488
6,100 Parametric Technology Corp.(1) 313,769
4,600 Saville Systems Ireland plc ADR(1) 185,150
-------------
1,301,870
-------------
Shares Value
- --------------------------------------------------------------------------------
COMPUTER SYSTEMS--1.7%
1,800 International Business Machines Corp. 271,800
5,800 Sun Microsystems, Inc.(1) 148,988
-------------
420,788
-------------
CONSTRUCTION--0.8%
3,700 Mastec, Inc.(1) 196,331
-------------
DIVERSIFIED COMPANIES--1.2%
2,900 General Electric Co. 286,737
-------------
ELECTRICAL & ELECTRONIC COMPONENTS--2.7%
3,800 Intel Corp. 497,562
3,100 Uniphase Corp.(1) 163,138
-------------
660,700
-------------
ENERGY (SERVICES)--3.6%
3,900 Diamond Offshore Drilling, Inc.(1) 222,300
8,500 Falcon Drilling Company, Inc.(1) 333,625
16,800 Global Marine Inc.(1) 346,500
-------------
902,425
-------------
ENVIRONMENTAL SERVICES--0.7%
5,800 Republic Industries, Inc.(1) 180,888
-------------
HEALTHCARE--0.8%
3,450 Cardinal Health, Inc. 200,962
-------------
LEISURE--1.0%
2,100 HFS, Inc.(1) 125,475
4,000 Promus Companies Inc.(1) 118,500
-------------
243,975
-------------
PHARMACEUTICALS--7.2%
4,000 American Home Products Corp. 234,500
6,400 Johnson & Johnson 318,400
3,300 Lilly (Eli) & Co. 240,900
3,100 Merck & Co., Inc. 245,675
106 Novartis ORD(1) 121,267
3,300 Pfizer, Inc. 273,488
4,600 Warner-Lambert Co. 345,000
-------------
1,779,230
-------------
See Notes to Financial Statements
Annual Report Schedule of Investments 5
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
Retail (Specialty)--1.3%
3,800 TJX Companies, Inc. $ 180,025
4,300 U.S. Office Products Co.(1) 145,931
-------------
325,956
-------------
TEXTILES & APPAREL--0.8%
3,400 NIKE, Inc. 203,150
-------------
MISCELLANEOUS--0.7%
4,700 Flowers Industries, Inc. 101,050
1,500 Sonat Inc. 77,250
-------------
178,300
-------------
TOTAL COMMON STOCKS--39.8% 9,913,186
(Cost $7,673,147) -------------
U.S. TREASURY SECURITIES
$1,250,000 U.S. Treasury Notes,
6.125%, 3-31-98 1,253,125
350,000 U.S. Treasury Notes,
6.00%, 9-30-98 350,546
700,000 U.S. Treasury Notes,
5.125%, 11-30-98 690,375
1,000,000 U.S. Treasury Notes,
7.75%, 1-31-00 1,046,880
1,000,000 U.S. Treasury Notes,
5.75%, 10-31-00 987,190
200,000 U.S. Treasury Notes,
5.625%, 11-30-00 196,438
400,000 U.S. Treasury Notes,
6.625%, 6-30-01 406,500
250,000 U.S. Treasury Notes,
6.375%, 9-30-01 251,485
1,250,000 U.S. Treasury Notes,
5.75%, 8-15-03 1,212,887
500,000 U.S. Treasury Notes,
7.875%, 11-15-04 545,780
2,000,000 U.S. Treasury Notes,
6.50%, 8-15-05 2,014,380
200,000 U.S. Treasury Notes,
5.875%, 11-15-05 193,000
350,000 U.S. Treasury Notes,
6.50%, 10-15-06 352,680
-------------
TOTAL U.S. TREASURY SECURITIES--38.2% 9,501,266
(Cost $9,550,277) -------------
Principal Amount Value
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES--0.7%(2)
173,801 FHLMC Series 1465-BPAC REMIC,
4.50%, 10-15-01 173,561
(Cost $173,702) -------------
SHORT-TERM CASH INVESTMENTS(3)
$1,100,000 par value FHLB Discount Note,
5.497%, 1-9-97 1,098,702
$1,700,000 par value FHLMC Discount Note,
5.28%, 1-6-97 1,698,749
Repurchase Agreement, Goldman Sachs
& Co., Inc., (U.S. Treasury obligations),
in a joint trading account at 6.52%,
dated 12-31-96, due 1-2-97
(Delivery value $1,200,435) 1,200,000
Repurchase Agreement, J.P. Morgan
Securities, Inc., (U.S. Treasury obligations),
in a joint trading account at 6.70%,
dated 12-31-96, due 1-2-97
(Delivery value $1,200,447) 1,200,000
Repurchase Agreement, Morgan Stanley
Group, Inc., (U.S. Treasury obligations),
in a joint trading account at 6.25%,
dated 12-31-96, due 1-2-97
(Delivery value $100,035) 100,000
-------------
TOTAL SHORT-TERM CASH
INVESTMENTS--21.3% 5,297,451
(Cost $5,297,451) -------------
TOTAL INVESTMENT SECURITIES--100.0% $24,885,464
(Cost $22,694,577) =============
See Notes to Financial Statements
6 Schedule of Investments American Century Investments
SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
FHLB = Federal Home Loan Banks
FHLMC = Federal Home Loan Mortgage Corporation
ORD = Foreign Ordinary Share
(1) Non-income producing
(2) Final maturity indicated. Expected remaining average life used for purposes
of calculating the weighted average portfolio maturity.
(3) The rates for U.S. Government Agency discount notes are the yield to
maturity at December 31, 1996.
See Notes to Financial Statements
Annual Report Schedule of Investments 7
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value
(identified cost of $22,694,577) (Note 3) .................. $24,885,464
Cash .......................................................... 90,620
Receivable for investments sold ............................... 176,250
Receivable for capital shares sold ............................ 324
Dividends and interest receivable ............................. 168,945
-------------
25,321,603
-------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for investments purchased ............................. 52,756
Payable for capital shares redeemed ........................... 17,422
Accrued management fees (Note 2) .............................. 21,502
Other liabilities ............................................. 15
-------------
91,695
-------------
Net Assets Applicable to Outstanding Shares ................... $25,229,908
=============
CAPITAL SHARES, $.01 PAR VALUE
- --------------------------------------------------------------------------------
Authorized .................................................... 200,000,000
=============
Outstanding ................................................... 4,011,706
=============
Net Asset Value Per Share ..................................... $ 6.29
=============
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) ....................... $21,486,332
Undistributed net investment income ........................... 211,117
Accumulated undistributed net realized gain from investments and
foreign currency transactions .............................. 1,341,599
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies (Note 3) ...... 2,190,860
-------------
$25,229,908
=============
See Notes to Financial Statements
8 Statement of Assets and Liabilities American Century Investments
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Income:
Interest ................................................. $ 902,005
Dividends (net of foreign taxes withheld of $1,477) ...... 95,355
-------------
997,360
-------------
Expenses:
Management fees (Note 2) ................................. 238,392
Directors' fees and expenses ............................. 207
-------------
238,599
-------------
Net investment income ......................................... 758,761
-------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY (NOTE 3)
- --------------------------------------------------------------------------------
Net realized gain on:
Investments .............................................. 1,348,347
Foreign currency transactions ............................ 19,845
-------------
1,368,192
-------------
Change in net unrealized appreciation on:
Investments .............................................. 50,752
Translation of assets and liabilities in
foreign currencies .................................... (2,427)
-------------
48,325
-------------
Net realized and unrealized gain on
investments and foreign currency .............................. 1,416,517
-------------
Net Increase in Net Assets
Resulting from Operations ..................................... $2,175,278
==============
See Notes to Financial Statements
Annual Report Statement of Operations 9
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1996
AND DECEMBER 31, 1995
Increase in Net Assets 1996 1995
OPERATIONS
- --------------------------------------------------------------------------------
Net investment income ................. $ 758,761 $ 761,374
Net realized gain on investments
and foreign currency
transactions ..................... 1,368,192 1,257,216
Change in net unrealized appreciation
on investments and translation of
assets and liabilities in foreign
currencies ....................... 48,325 1,502,164
------------- -------------
Net increase in net assets resulting
from operations .................. 2,175,278 3,520,754
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From net investment income ............ (583,561) (762,109)
From net realized gains from investment
transactions ..................... (1,133,859) --
------------- -------------
Decrease in net assets from
distributions .................... (1,717,420) (762,109)
------------- -------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Proceeds from shares sold ............. 1,450,803 1,177,622
Proceeds from reinvestment of
distributions .................... 1,717,420 762,109
Payments for shares redeemed .......... (2,433,460) (3,074,036)
------------- -------------
Net increase (decrease) in net assets from
capital share transactions ............ 734,763 (1,134,305)
------------- -------------
Net increase in net assets ............ 1,192,621 1,624,340
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of year ..................... 24,037,287 22,412,947
------------- -------------
End of year ........................... $25,229,908 $24,037,287
============= =============
Undistributed net investment
income ...........................$ 211,117 $ 18,848
============= =============
TRANSACTIONS IN SHARES OF THE FUND
- --------------------------------------------------------------------------------
Sold ................................... 238,512 201,029
Issued in reinvestment of
distributions ..................... 288,203 127,772
Redeemed ............................... (398,378) (535,680)
------------- -------------
Net increase (decrease) ................ 128,337 (206,879)
============= =============
See Notes to Financial Statements
10 Statements of Changes in Net Assets American Century Investments
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--TCI Portfolios, Inc. (the Corporation) is registered under
the Investment Company Act of 1940 as an open-end diversified management
investment company. TCI Advantage (the Fund) is one of the five series of funds
issued by the Corporation. The Fund's investment objective is current income and
capital growth. The Fund seeks to achieve its investment objective by investing
in three types of securities. The Fund's investment manager intends to invest
approximately 20% of the Fund's assets in cash or cash equivalents, 40% in fixed
income securities with a weighted average maturity of three to 10 years and 40%
in equity securities that are considered by management to have
better-than-average prospects for appreciation. 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, depending on local convention or regulation. 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 recorded 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.
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, resulting from changes in the exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of portfolio securities are a component of
realized gain (loss) on investments and unrealized appreciation (depreciation)
on investments, respectively.
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, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The Fund requires that the 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. ACIM 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 ACIM and Benham
Management Corporation, 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.
Annual Report Notes to Financial Statements 11
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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 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 American Century Companies, Inc., the parent of the
Corporation's investment manager, ACIM, the Corporation's distributor, American
Century Investment Services, Inc., and the Corporation's transfer agent,
American Century Services Corporation.
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 ACIM 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
ACIM. 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
The aggregate cost of investment securities purchased (excluding short-term
investments) for the year ended December 31, 1996, totaled $11,492,371 for
common stocks and $3,702,094 for U.S. Treasury and Agency obligations. Proceeds
from investment securities sold (excluding short-term investments) totaled
$12,517,118 for common stocks and $2,631,586 for U.S. Treasury and Agency
obligations. On December 31, 1996, accumulated net unrealized appreciation on
investments, based on the aggregate cost of investments of $22,696,077 for
federal income tax purposes, was $2,189,387, consisting of unrealized
appreciation of $2,370,416 and unrealized depreciation of $181,029.
- --------------------------------------------------------------------------------
4. SUBSEQUENT EVENTS
The following name changes became effective January 1, 1997:
<TABLE>
NEW NAMES FORMER NAMES
<S> <C> <C>
INVESTMENT
MANAGER: American Century Investment Management, Inc. Investors Research Corporation
PARENT
COMPANY: American Century Companies, Inc. Twentieth Century Companies, Inc.
DISTRIBUTOR: American Century Investment Services, Inc. Twentieth Century Securities, Inc.
TRANSFER
AGENT: American Century Services Corporation Twentieth Century Services, Inc.
</TABLE>
12 Notes to Financial Statements American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended December 31
1996 1995 1994 1993 1992
PER-SHARE DATA
- --------------------------------------------------------------------------------------------------------
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Year ..................... $6.19 $5.48 $5.57 $5.32 $5.64
------- ------- ------- ------- -------
Income from Investment Operations
Net Investment Income .............. .20 .20 .15 .11 .11
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .. .34 .71 (.09) .25 (.32)
------- ------- ------- ------- -------
Total from
Investment Operations .............. .54 .91 .06 .36 (.21)
------- ------- ------- ------- -------
Distributions
From Net Investment Income ......... (.15) (.20) (.15) (.11) (.11)
From Net Realized Gains
on Investment Transactions ......... (.29) -- -- -- --
------- ------- ------- ------- -------
Total Distributions ................ (.44) (.20) (.15) (.11) (.11)
------- ------- ------- ------- -------
Net Asset Value, End of Year .......... $6.29 $6.19 $5.48 $5.57 $5.32
======= ======= ======= ======= =======
Total Return(1) .................... 9.25% 16.75% 1.03% 6.82% (3.75%)
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets .............. .98% .95% 1.00% 1.00% 1.00%
Ratio of Net Investment Income
to Average Net Assets .............. 3.10% 3.32% 2.65% 2.07% 2.32%
Portfolio Turnover Rate ............ 80% 99% 57% 77% 85%
Average Commission Paid per
Investment Security Traded ......... $.038 $.041 --(2) --(2) --(2)
Net Assets, End
of Year (in thousands) .............$25,230 $24,037 $22,413 $20,959 $16,580
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
(2) Disclosure of average commission paid per investment security traded was
not required prior to the year ended December 31, 1995.
</TABLE>
See Notes to Financial Statements
Annual Report Financial Highlights 13
INDEPENDENT ACCOUNTANTS' REPORT
The Shareholders and Board of Directors
TCI Portfolios, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of TCI Advantage (a series of TCI
Portfolios, Inc.) as of December 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, evidencesupporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 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 TCI
Advantage as of December 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
January 21, 1997
14 Independent Accountants' Report American Century Investments
NOTES
Annual Report Notes 15
BACKGROUND INFORMATION
PORTFOLIO MANAGEMENT TEAM
Equity Portfolio: Jim Stowers III, Bruce Wimberly
Fixed Income Portfolio: Bud Hoops, Jeff Houston
INVESTMENT PHILOSOPHY & POLICIES
The fund's investment philosophy focuses on four important principles:
We attempt to keep the fund's equity and bond portfolios fully invested at
their respective percentages (see below), 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.
For the equity portfolio, the management team seeks to own highly
successful companies, which we define as those whose earnings and revenues are
growing at accelerating rates.
For the fixed income portfolio, "quality first" is the rule. The management
team seeks only investment-grade bonds and money market securities--those rated
in the top four quality categories by nationally recognized statistical
organizations.
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.
TCI ADVANTAGE seeks to provide current income and capital growth. Under
normal market conditions the fund keeps about 40% of its assets in quality,
intermediate-term U.S. bonds, 20% in U.S. government money market securities and
the remaining 40% in the stocks of firms with accelerating growth rates.
COMPARATIVE INDICES
The indices listed below are used in the report to serve as a comparison
for the performance of the fund. They are not investment products available for
purchase.
The BLENDED INDEX is considered the benchmark for TCI Advantage. It
combines three widely known indices in proportion to the asset mix of the fund.
Accordingly, 40% of the index is represented by the Lehman Intermediate
Government Bond Index, which reflects the 40% of the fund's assets invested in
intermediate-term bonds. Another 20% of the index is represented by a
three-month Treasury bill index, which reflects the 20% invested in U.S.
government money market securities. The remaining 40% of the index is
represented by the S&P 500, which reflects the 40% of the fund's assets invested
in equity securities.
The LEHMAN INTERMEDIATE GOVERNMENT BOND INDEX is considered to represent
the performance of a high-quality portfolio of intermediate-term U.S. Treasury
and government agency bonds. The index is composed of over 800 U.S. Treasury and
government agency securities with an average maturity of three to five years.
The S&P 500 is an index created by Standard & Poor's Corporation that is
considered to represent the performance of the U.S. stock market. It is composed
primarily of large-capitalization stocks.
16 Background Information American Century Investments
GLOSSARY
FIXED INCOME TERMS
o CREDIT QUALITY reflects the financial strength of a debt security issuer
and the likelihood of timely payment of interest and principal.
o DURATION is a measure of the sensitivity of a fixed income portfolio to
changes in interest rates. As the duration of a portfolio increases, the impact
of a change in interest rates on the value of the portfolio also increases.
o STANDARD & POOR'S (S&P) is an independent rating company, one of the two
best known in the U.S. (the other is Moody's). The credit ratings issued by S&P
and Moody's reflect the perceived financial strength (credit quality) of debt
issuers. Debt securities rated "investment grade" (deemed to be of high enough
credit quality to be appropriate investments for banks and other institutions)
by S&P are those rated BBB or higher (the highest rating is AAA).
o WEIGHTED AVERAGE MATURITY (WAM), another measurement of the sensitivity
of a fixed income portfolio to interest rate changes, indicates the average time
until the principal in the portfolio is expected to be repaid, weighted by
dollar amount. The longer the WAM, the more interest rate exposure and interest
rate sensitivity the portfolio has.
RETURNS
o TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that
would have produced the fund's cumulative total returns if the fund's
performance had been constant over the entire period. Average annual returns
smooth out variations in a fund's return; they are not the same as year-by-year
results. For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on page 13.
EQUITY TERMS
o BLUE-CHIP STOCKS -- generally considered to be the stocks of the most
established companies in American industry. They are generally large, fairly
stable companies that have demonstrated consistent earnings and usually have
long-term growth potential. Examples include General Electric and Coca-Cola.
o CYCLICAL STOCKS -- generally considered to be stocks whose price and
earnings fluctuations tend to follow the ups and downs of the business cycle.
Examples include the stocks of automobile manufacturers, steel producers and
textile operators.
o GROWTH STOCKS -- generally considered to be the stocks of companies that
have experienced above-average earnings growth and appear likely to continue
such growth. These stocks often sell at high P/E ratios. Examples can include
the stocks of high-tech, computer hardware and computer software companies.
o LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS -- generally considered to be
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of more than $5 billion. These tend to be the
stocks that make up the Dow Jones Industrial Average, the S&P 500 and the
Russell 1000 Index.
o MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS -- generally considered to be
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of between $1 billion and $5 billion. These tend to
be the stocks that make up the S&P 400.
o PRICE/EARNINGS (P/E) RATIO -- a stock value measurement calculated by
dividing a company's stock price by its earnings per share, with the result
expressed as a multiple instead of as a percentage. (Earnings per share is
calculated by dividing the after-tax earnings of a corporation by its
outstanding shares.)
o SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS -- generally considered to be
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of less than $1 billion. These tend to be the
stocks that make up the Nasdaq Composite Index and the Russell 2000 Index.
o VALUE STOCKS -- generally considered to be stocks that are purchased
because they are relatively inexpensive. These stocks are typically
characterized by low P/E ratios.
Annual Report Glossary 17
[american century logo]
American
Century(sm)
P.O. Box 419385
Kansas City, Missouri
64141-6385
Person-to-Person Assistance:
1-800-345-3533 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-345-1833 or 816-753-0070
Fax: 816-340-4360
Internet: www.americancentury.com
TCI PORTFOLIOS, INC.
Investment Manager
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
Kansas City, Missouri
This report and the financial statements contained herein are submitted for the
general information of our shareholders. The report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
American Century Investment Services, Inc.
9702 [recycled logo]
SH-BKT-7582 Recycled