TWENTIETH CENTURY
Capital Portfolios
Annual Report
MARCH 31,
1996
[company logo]
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TABLE OF CONTENTS
Our Message to You ..................................................... 1
Investment Philosophy .................................................. 2
Period Overview ........................................................ 3
Investment Review
Value ............................................................. 4
Equity Income ..................................................... 7
Schedules of Investments
Value ............................................................. 10
Equity Income ..................................................... 12
Statements of Assets and Liabilities ................................... 15
Statements of Operations ............................................... 16
Statements of Changes in Net Assets .................................... 17
Notes to Financial Statements .......................................... 18
Financial Highlights ................................................... 21
Report of Independent Auditors ......................................... 23
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INDICES USED FOR PERFORMANCE COMPARISON (None are investment products available
for purchase.)
THE S&P 500 INDEX is an index created by Standard & Poor's Corporation that is
considered to represent the performance of the U.S. stock market generally.
THE 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. The S&P/Barra Value Index for
8/31/93, the closest date to the inception of the fund for which the index is
available, has been used as the starting point for the index in the graph and
the average annual total return.
THE LIPPER EQUITY INCOME FUND INDEX is a non-weighted index of the 30 largest
equity income mutual funds. The Lipper Equity Income Fund Index for 7/31/94, the
closest date to the inception of the fund for which the index is available, has
been used as the starting point for the index in the graph and the average
annual total return.
LIPPER ANALYTICAL SERVICES, INC., is an independent mutual fund ranking service.
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March 31, 1996
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OUR MESSAGE TO YOU
[photo of James E. Stowers and James E. Stowers III in left margin]
Twentieth Century's conservative equity funds--the Value Fund and Equity
Income Fund--both recorded solid performance for the 12 months ended March 31,
1996. In keeping with their conservative charters, both funds posted attractive
returns for the year. Although neither fund matched the robust performance of
the S&P 500, this is to be expected since these conservatively managed funds may
not keep pace in a strong market rally like that of the last year. Since
inception--September of 1993 for Value and August of 1994 for Equity Income,
both funds have outperformed their peer groups.
The performance of these funds is equally noteworthy for the low level of
volatility or price fluctuation both have consistently achieved in comparison
with other mutual funds with similar investment objectives. According to data
from Lipper Analytical Services, Value and Equity Income both rank in the least
volatile quartile of their peer group. This is significant because it suggests
that both funds are performing as they were designed to--providing the
opportunity for capital appreciation with less risk than is normally found in
many equity funds.
We believe these positive results are due in part to the investment
management principles and culture we've developed in 38 years of managing assets
entrusted to us by shareholders. Like other mutual funds at Twentieth Century,
Value and Equity Income are managed by teams, rather than individuals, in order
to provide continuity and depth of judgment. And, both funds adhere strictly to
their disciplines, regardless of changes in the market environment. We are
gratified by the results these two newer Twentieth Century funds have achieved
and remain committed to expanding the array of more conservative choices we can
offer investors.
Reflecting this commitment to expanding the range of mutual funds we offer,
we will complete our union with the Benham Group, a respected manager
specializing in fixed income funds, this fall. When our organizations are fully
integrated, we will be able to provide you with an even more extensive selection
of investment choices. As we combine Twentieth Century's investment management
resources with the expertise of the Benham team, we foresee many opportunities
to expand and improve the ways we serve investors in the months and years ahead.
Sincerely,
/s/James E. Stowers /s/James E. Stowers III
James E. Stowers James E. Stowers III
Chairman of the Board and Founder President
1
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INVESTMENT PHILOSOPHY
Conservative management is a staple of Twentieth Century Value and
Twentieth Century Equity Income. The funds' management team seeks out good,
quality businesses with sound balance sheets. The team also looks for dividend
yield when making purchases, since regular income can help offset the impact of
market downturns on fund performance. Finally, broad diversification across many
industries is stressed to prevent the performance of one sector from dominating
fund returns.
TWENTIETH CENTURY VALUE invests in the equity securities of seasoned,
established businesses that management 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 business' balance sheet
is solid, its securities are candidates for purchase. The management team may
secondarily look for income when making portfolio selections.
TWENTIETH CENTURY EQUITY INCOME purchases seasoned firms that pay steady
dividends, with the goal of providing shareholders a higher yield than the
aggregate yield of the stocks making up the S&P 500. The team may secondarily
search out stocks whose share prices are undervalued or fairly valued. The team
maintains a relatively large percentage of assets in convertible bonds and
convertible-preferred stocks. These are income-paying issues that may, at some
later date, be converted into equity securities at favorable prices. The prices
of convertibles usually do not fluctuate as much as those of equity securities,
but they generally pay higher interest and dividends than common stocks. Under
normal circumstances, Twentieth Century Equity Income can be expected to have
less share-price volatility than Twentieth Century Value.
PORTFOLIO MANAGERS
Peter Zuger
Phil Davidson
2
March 31, 1996
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PERIOD OVERVIEW
The year ended March 31, 1996, was a positive one for equities in almost
every market sector. However, particularly in the last six months, leadership of
the market has shifted rapidly. In the first half of the period, technology
stocks rallied strongly on tremendous demand and rapidly expanding earnings,
while financial stocks gained as interest rates declined. At that time, the more
moderately valued stocks the funds had invested in, while posting good
performance, lagged behind the overall market.
The environment became more favorable for the funds' conservative equity
strategies between September 30, 1995, and March 31, 1996. Several stocks in the
technology sector posted disappointing earnings in this period. Interest rates
also rose as some strong employment data emerged from a set of mixed economic
signals. At the same time, stocks of cyclical companies, which do well in an
improving economic climate, increased in value. For example, many paper and
energy stocks rose strongly.
Market leadership in early 1996 was primarily assumed by very large,
established companies--the kind that make up the Dow Jones Industrial index.
Rapid inflows of cash into stock mutual funds through most of the period
stimulated demand for these large capitalization issues, where the funds could
more easily deploy the cash. Given the shift to large-cap dominance, we believed
that considerable bargains emerged among mid-sized companies at the end of the
period.
Among retail stocks, a two-year decline in consumer demand has depressed
the prices of some of the sector's strongest and most established companies,
while many weaker firms have either lost market share or declared bankruptcy.
Although demand is still comparatively weak, several retailers demonstrated an
ability to survive a protracted downturn and appear to be well-positioned for
future improvements in the retail environment. As a result, their stock prices
performed well in early 1996.
In the most recent six months, we were encouraged that investors turned
their attention from more aggressive equities to better-quality, higher-yielding
or statistically undervalued stocks. Changes in the direction of the stock
market can be uncomfortable for investors, but they provide ample investment
opportunities for value or yield-oriented funds. In the past six months
especially, these shifts in market leadership have helped the funds maintain
their comparatively lower-risk profiles, while providing investors with the
opportunity for capital growth.
3
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VALUE
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Management Q & A
An interview with Peter Zuger and Phil Davidson, portfolio managers of the
Twentieth Century Value fund.
Q: HOW HAS THE FUND PERFORMED OVER THE PAST YEAR?
A: Twentieth Century Value had a 28.06% total return for the year ended March
31, 1996. That gain, much higher than the historic average annual return for
equity funds, reflects the powerful market rally that helped the S&P 500 Index
turn in a 32% gain for the 12-month period. During the year, the fund
underperformed its benchmark S&P/BARRA Value Index, which measures the
performance of stocks considered to be valued less than the market average. This
is mainly because the index has a large exposure to financial stocks, which
performed extremely well over the first half of the period. However, since its
September 1993 inception, Value's 17.94% gain has outpaced the return of both
the S&P/BARRA Value Index and the S&P 500 Index.
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AVERAGE ANNUAL TOTAL RETURNS
VALUE S&P/BARRA Value Index* S&P 500 Index*
------- ------------------------ -------------
Year ended 3/31/96 28.06% 32.94% 32.00%
Inception 9/1/93
to 3/31/96 17.94% 15.59% 17.02%
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$10,000 OVER LIFE OF FUND (AS OF MARCH 31, 1996)
[mountain graph]
$10,000 investment made 9/1/93 (Inception date)
S & P BARRA S & P 500 Value on 3/31/96:
VALUE VALUE INDEX* INDEX* ----------------
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9/1/93 $10,000 $10,000 $10,000 $15,310 - Value
9/30/93 $10,000 $9,996 $9,978
10/31/93 $10,120 $10,050 $10,171 $14,984 - S&P 500 Index
11/30/93 $10,000 $9,870 $10,040
12/31/93 $10,307 $10,038 $10,209 $14,539 - S&P/BARRA Value
1/31/94 $10,649 $10,506 $10,540 Index*
2/28/94 $10,448 $10,125 $10,224
3/31/94 $10,083 $9,709 $9,825
4/30/94 $10,265 $9,914 $9,938
5/30/94 $10,407 $10,079 $10,061
6/30/94 $10,270 $9,799 $9,867
7/31/94 $10,657 $10,131 $10,178
8/31/94 $10,983 $10,417 $10,560
9/30/94 $10,741 $10,051 $10,349
10/31/94 $10,844 $10,270 $10,565
11/30/94 $10,542 $9,854 $10,148
12/31/94 $10,718 $9,975 $10,347
1/31/95 $11,198 $10,245 $10,598
2/28/95 $11,677 $10,643 $10,981
3/31/95 $11,955 $10,937 $11,352
4/30/95 $12,283 $11,296 $11,669
5/31/95 $12,611 $11,799 $12,093
6/30/95 $12,744 $11,889 $12,432
7/31/95 $12,987 $12,299 $12,827
8/31/95 $13,075 $12,404 $12,823
9/30/95 $13,307 $12,835 $13,417
10/31/95 $13,174 $12,635 $13,350
11/30/96 $13,795 $13,297 $13,898
12/31/96 $14,234 $13,665 $14,222
1/31/96 $14,475 $14,074 $14,685
2/29/96 $14,716 $14,206 $14,788
3/31/96 $15,310 $14,539 $14,984
Past performance does not guarantee future results.
*Source: Lipper Analytical Services, Inc.
QUICK FUND FACTS
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VALUE
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STRATEGY:
Long-term capital growth with income
as a secondary objective through investing
in equity securities that management
believes are undervalued at
the time of purchase.
INCEPTION DATE:
September 1, 1993
SIZE:
$881.9 million
(as of March 31, 1996)
4
March 31, 1996
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VALUE
Q: WHAT WERE SOME OF THE IMPORTANT FACTORS CONTRIBUTING TO THE FUND'S
PERFORMANCE?
A: Our value-investing strategy leads us to invest in stocks that we think are
temporarily undervalued. Between April and September 1995, we limited our
holdings in sectors, such as technology and financial services, where we
considered the stocks expensive. Many of these stocks benefited from an
aggressive market rally. Since September, several technology and other
high-growth businesses have posted earnings below expectations. Avoiding these
stocks helped us sidestep the losses that occurred as a result of these
disappointments.
Toward the end of 1995, the fund developed notable positions in the energy,
paper, and chemical industries. Many companies in these industries experienced
price declines in mid-summer. Subsequently, we were able to purchase several
stocks at or near their lows. The rebound in some of these holdings, especially
paper and energy stocks, led the fund to a 14.94% gain during the last half of
the year--well ahead of the S&P 500 Index's 11.69% returns.
Q: THE FUND HAD A LARGE WEIGHTING IN ENERGY STOCKS FOR MOST OF THE YEAR. HOW HAS
THAT CONTRIBUTED TO PERFORMANCE?
A: Energy stocks hurt performance in the fall of 1995 because oil prices at the
time were flat or declining. But many energy companies have, in recent years,
significantly improved their balance sheets through cost cutting and other
restructuring efforts. We thought energy stocks were a bargain through most of
the period, but commodity-based businesses seldom attract Wall Street attention
unless the commodity's price is rising. The turnaround in oil prices this winter
led to strong gains for some statistically inexpensive companies.
Unocal Corp. is a good example. We believe the company has been
undervalued, but not because it is undesirable. Unocal has shored up its balance
sheet by cutting costs and selling off unprofitable businesses, and it has been
involved in several promising new projects in Southeast Asia. Like other energy
stocks, Unocal fell when oil and gas prices declined last fall. But a rebound in
oil and gas prices by winter made the stock a significant contributor in the
last half of the period. In fact, Unocal was our second-best performing issue in
1995's fourth quarter--behind only Baker Hughes, an oil services company.
Q: HOW HAVE THE FUND'S PAPER STOCKS PERFORMED?
A: These economically sensitive stocks declined in late 1995 when the economy
appeared to be softening, and we were able to buy several stocks in the
(continued on the next page)
TOP TEN HOLDINGS (AS OF MARCH 31, 1996)
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% of fund's
investments in
% of fund these holdings
investments 12 months ago
Giant Food Inc. 4.6% 2.1%
MAPCO Inc. 2.6% 2.3%
Mercantile Bancorporation Inc. 2.5% 2.1%
Browning-Ferris Industries, Inc. 2.4% --
WMX Technologies, Inc. 2.4% --
American Greetings Corp. Cl A 2.4% --
Cooper Industries, Inc. 2.3% 1.5%
Masco Corp. 2.3% --
Unilever PLC ORD 2.3% --
Air Products & Chemicals, Inc. 2.2% --
TOP FIVE INDUSTRIES (AS OF MARCH 31, 1996)
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% of fund's
investments in
% of fund these industries
investments 12 months ago
Energy (Production & Marketing) 15.8% 14.7%
Utilities 8.8% 5.4%
Chemicals & Resins 6.7% 6.4%
Publishing 6.1% 1.7%
Food & Beverage 5.6% 6.9%
5
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VALUE
sector at relatively low valuation levels. At period end, however, perception of
the economy has improved, and so have the prices on these stocks.
We've been careful, though, not to invest too much in stocks that require
an improvement in economic activity to gain in value. One of our holdings, for
example, is Westvaco, a company that provides higher-grade paper products. We
think its products have a higher profit margin and less cyclicality in their
pricing than a pure commodity product would.
Q: THE FUND HAS A SIZABLE STAKE IN RETAIL COMPANIES. WHAT ATTRACTS YOU TO THESE
STOCKS?
A: Retail sales have been poor for two years, as an oversupply of
outlets from the 1980s has run ahead of consumer demand in the '90s. But we saw
signs in the last half of 1995 that retail had reached a low point in its cycle.
Not only did retail sales stabilize, but investor expectations for the firms in
the industry were so low that even extremely well-run companies were, in our
opinion, significantly underpriced.
Q: HOW DO YOU DETERMINE WHETHER A COMPANY THAT HAS PERFORMED POORLY HAS
POTENTIAL TO RECOVER?
A: The key for us is to choose good companies with temporary problems,
especially problems caused by market trends or other external factors, rather
than companies facing fundamental problems with their businesses. We favor
financially stable companies with solid balance sheets, because weak companies
may not survive prolonged adversity. That means that we don't buy the least
expensive companies; we buy those with the best combination of stable to
improving fundamentals and low valuations. But it's worth noting that when
particular industries fall dramatically out of favor, as retail has, you may not
have to pay a premium for the better-quality companies.
Dillard Department Stores, for example, was selling at or near its five-year
lows for several months last year. At those prices, we believed the company was
very inexpensive. Dillard's is a high-quality company. It offers solid earnings
and cash flow as well as a leading market position. In our view, Dillard's will
survive the retail downturn, and may even increase its market share. Dillard's
was our worst-performing stock in 1995's fourth quarter, but we bought more
shares as it declined. By March 31, 1996, the stock enjoyed a rebound. We
trimmed our holdings as the stock reached what we believed to be fair
valuations.
Q: SIX MONTHS AGO, YOU DISCUSSED THE ROLE OF TAKEOVERS IN FUND PERFORMANCE. HAS
THAT CONTINUED TO BE A THEME?
A: There has been a lot of merger activity in the market in the past year. Since
mergers often involve undervalued companies, they contributed modestly to fund
performance. In the last report, we talked about how the Interstate Bakeries
takeover of Continental Baking aided fund returns. Over the past six months, a
takeover of Hayes Wheels Internation-al by Motor Wheels Corporation gave the
fund a solid boost. Takeovers aren't at the core of our strategy, but we are
always aware of the possibility.
Q: DOES THE FUND HAVE ANY FOREIGN HOLDINGS?
A: As of March 31, 1996, the fund had about 4% of assets in foreign stocks. We
seldom hold large positions outside the United States, but we will invest in
foreign stocks when we think they have better valuations than comparable
domestic stocks. To limit volatility, we typically invest in large, mature
companies in developed markets that offer good businesses at comparatively low
prices. At March 31, for example, the fund owned French oil giant Elf Aquitane.
Value's schedule of investments begins on page 10.
6
March 31, 1996
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EQUITY INCOME
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Management Q & A
An interview with Peter Zuger and Phil Davidson, portfolio managers of the
Twentieth Century Equity Income fund.
Q: HOW HAS THE FUND PERFORMED OVER THE PAST YEAR?
A: Twentieth Century Equity Income had a strong 25.67% return for the period.
This return is on par with the 25.89% performance of its benchmark, the Lipper
Equity Income Fund Index. That gain did not match the performance of the broad
market, as represented by the S&P 500 Index's 32% gain. However, the fund is
materially ahead of of the Lipper Equity Income Fund Index since inception. The
fund's 3.1% dividend yield at March 31, 1996, also continues to outpace the S&P
500 Index's 2.2% dividend yield for the same period.
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AVERAGE ANNUAL TOTAL RETURNS
Lipper Equity Income S&P 500
Equity Income Fund Index* Index*
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Year ended 3/31/96 25.67% 25.89% 32.00%
Inception 8/1/94
to 3/31/96 21.92% 19.11% 25.83%
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$10,000 OVER LIFE OF FUND (AS OF MARCH 31, 1996)
[mountain graph]
$10,000 investment made 8/1/94 (Inception date)
LIPPER
EQUITY EQUITY INCOME S & P 500 Equity Income on 3/31/96:
INCOME FUND INDEX* INDEX* ------------------------
------- ------------ ---------
8/1/94 $10,000 $10,000 $10,000 $13,912 - Equity Income
8/31/94 $10,360 $10,333 $10,314
9/30/94 $10,248 $10,137 $10,108 $14,635 - S&P 500 Index*
10/31/94 $10,349 $10,192 $10,319
11/30/94 $10,038 $9,810 $9,911 $13,385 - Lipper Equity
12/31/94 $10,053 $9,888 $10,106 Income Fund
1/31/95 $10,499 $10,064 $10,351 Index*
2/28/95 $10,884 $10,388 $10,725
3/31/95 $11,069 $10,632 $11,087
4/30/95 $11,417 $10,886 $11,397
5/31/95 $11,641 $11,220 $11,811
6/30/95 $11,809 $11,369 $12,142
7/31/95 $12,056 $11,680 $12,528
8/31/95 $12,097 $11,824 $12,524
9/30/95 $12,347 $12,191 $13,104
10/31/95 $12,285 $12,018 $13,039
11/30/95 $12,763 $12,520 $13,574
12/31/95 $13,031 $12,827 $13,890
1/31/96 $13,325 $13,120 $14,343
2/29/96 $13,506 $13,218 $14,443
3/31/96 $13,912 $13,385 $14,635
Past performance does not guarantee future results.
*Source: Lipper Analytical Services, Inc.
QUICK FUND FACTS
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EQUITY INCOME
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STRATEGY:
Current income with capital appreciation
as a secondary objective. Seeks a
yield that exceeds the yield of
securities in the
S&P 500 Index.
INCEPTION DATE:
August 1, 1994
SIZE:
$116.7 million
(as of March 31, 1996)
7
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EQUITY INCOME
Q: WHAT WERE THE PRIMARY FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE?
A: As a conservatively managed equity fund with an income focus, Equity Income
did not invest in the aggressive growth stocks that powered the S&P's gains in
mid-1995. However, many of these issues, particularly in a number of
technology-related fields, fell sharply between September 1995 and March 1996.
By not owning these more volatile stocks, the fund outperformed the S&P during
the last six months of the period.
Throughout the year we focused on sectors of the market where we found high
yields and where, in most cases, stock valuations were modest. We held sizable
stakes in energy, paper, and retail stocks. We were able to buy better-quality
companies in these sectors, such as paper company Union Camp or retailing giant
J.C. Penney, at yields close to 4%. This income helped keep performance
relatively stable, while rebounds in some sectors, particularly energy, elevated
our overall returns. Declining interest rates through most of the period, which
bolster the value of income-paying securities, also aided fund performance.
Q: HOW HAS THE FUND KEPT ITS YIELD ABOVE THAT OF THE S&P 500?
A: It is a part of the fund's strategy to provide a yield higher than that of
the S&P 500. Typically we try to accomplish this goal by owning stocks with
relatively high dividends, as well as convertible securities. But over the
course of the period, we became concerned that some traditionally high-yielding
investments, such as convertibles, telephone utilities and financial stocks,
were offering what we considered to be insufficient yields. For example, the
interest-rate rally of 1995 inflated the value and decreased the yield of
financial stocks. Also, in our view, convertibles became expensive because there
is more demand for these securities than there is supply. Typically the fund has
maintained a range of 20% to 40% of assets in convertibles. At the end of the
period, we were a little over 20%. In this environment, we are seeking higher
yields in other areas of the market.
Q: WHERE ARE YOU FINDING THE BEST YIELDS CURRENTLY?
A: Over the period, we found good yield opportunities in real-estate investment
trusts (also called REITs) and in some utility stocks. We built a position in
natural gas utilities, for example. These utilities have lagged the S&P 500
since 1993. However, some companies have trimmed their costs, strengthened their
balance sheets over the past year and have passed through their improved cash
flow to share- (continued on the next page)
TOP TEN HOLDINGS (AS OF MARCH 31, 1996)
- -------------------------------------------------------------
% of fund's
investments in
% of fund these holdings
investments 12 months ago
Giant Food Inc. 4.9% 2.2%
WMX Technologies, Inc., 2.00%,
1-24-05 (convertible bond) 4.4% --
Petrolite Corporation 3.3% 2.1%
Unocal Corp. $3.50
(convertible preferred stock) 2.9% 3.2%
National Presto Industries, Inc. 2.6% --
Mercantile Bancorporation Inc. 2.6% 2.2%
Albemarle Corp. 2.5% --
Seafield Capital Corp. 2.3% 3.4%
Atlantic Richfield Co. 2.3% --
Murphy Oil Corp. 2.3% --
TOP FIVE INDUSTRIES (AS OF MARCH 31, 1996)
- --------------------------------------------------------------
% of fund's
investments in
% of fund these industries
investments 12 months ago
Energy (Production & Marketing) 15.5% 11.5%
Utilities 15.0% 5.6%
Chemicals & Resins 8.2% 6.5%
Retail (Food & Drug) 6.9% 2.2%
Banking 6.4% 13.1%
8
March 31, 1996
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EQUITY INCOME
holders in the form of higher dividends. South Jersey Industries, for example,
has a dividend yield of about 6.5%. A number of natural gas companies also
enjoyed favorable rate orders from their regulators, which led to good
performance. It also helped that a frigid winter pushed up demand for natural
gas.
Very recently, we also added BellSouth, a regional Bell operating company,
in part for its yield. However, we are less attracted to the other Bell
operating companies, even though several of them offered high yields at the end
of the period. The telecommunications business is being deregulated, which often
means higher competition and lower earnings and dividend growth. Overall we
prefer to invest in companies where the long-term prospects appear more
favorable.
Q: WHAT ABOUT REAL ESTATE INVESTMENT TRUSTS (REITS)?
A: We have been hesitant about owning REITs in the past, mainly because their
exposure to real estate prices makes it difficult to compare their valuation
against industrial stocks. We have noticed in recent months, however, that the
spread between REIT yields and bond yields is unusually wide, which indicates
good value. We have also noticed modest but sustainable growth in the cash flows
of certain REITs. We now hold a 5.7% position in this field, diversified among
better-quality manufactured home REITs, shopping center REITs, and an apartment
REIT.
Q: WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 1996?
A: As the period ended, we were beginning to look closely at rebuilding our
positions in interest rate- sensitive stocks, such as financial services,
because climbing rates this year depressed prices in these sectors and created
some appealing values. As of March 31, our investment discipline uncovered some
good values in mid-sized stocks. For the past six months, the best-performing
stocks in the equity market were large, well-established companies like
Coca-Cola and General Electric. Investors selected these companies for their
high quality and stable returns, but we think they have left in their wake a
number of appealing values among mid-sized companies. In the banking sector, for
example, we've purchased shares of a few modest-sized, regional banks, like
First Virginia. In general, we will continue to search for stocks and
convertible securities that offer attractive yields and the prospect of capital
growth.
Equity Income's schedule of investments begins on page 12.
9
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SCHEDULES OF INVESTMENTS MARCH 31, 1996
VALUE
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Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS
Automobiles & Auto Parts--1.6%
67,100 Federal-Mogul Corp. $1,249,737
123,000 Ford Motor Co. 4,228,125
275,000 Hayes Wheels International, Inc. 8,318,750
----------
13,796,612
----------
Banking--4.2%
203,500 First Bell Bancorp, Inc. 2,759,969
243,000 First Virginia Banks, Inc. 9,811,125
145,000 Industrial Bancorp, Inc. 2,193,125
481,475 Mercantile Bancorporation Inc. 22,027,481
----------
36,791,700
----------
Building & Home Improvements--2.3%
707,000 Masco Corp. 20,503,000
----------
Chemicals & Resins--6.7%
360,000 Air Products & Chemicals, Inc. 19,665,000
316,000 Albemarle Corp. 7,070,500
649,000 Lubrizol Corp. 19,145,500
461,600 Petrolite Corporation 13,617,200
----------
59,498,200
----------
Communications Equipment--0.9%
220,000 Corning Inc. 7,700,000
----------
Consumer Products--2.3%
1,075,000 Unilever PLC ORD 20,027,261
----------
Control & Measurement--0.1%
25,000 Beckman Instruments, Inc. 975,000
----------
Energy (Production & Marketing)--15.8%
710,000 Apache Corp. 19,081,250
162,000 Atlantic Richfield Co. 19,278,000
450,000 Diamond Shamrock, Inc. 14,625,000
410,000 MAPCO Inc. 22,908,750
430,700 Murphy Oil Corp. 18,466,262
380,500 Pennzoil Co. 15,124,875
441,579 Societe Nationale Elf
Aquitaine ADR 14,958,489
454,000 Unocal Corp. 15,152,250
----------
139,594,876
----------
Environmental Services--4.8%
681,000 Browning-Ferris Industries, Inc. 21,451,500
670,000 WMX Technologies, Inc. 21,272,500
----------
42,724,000
----------
Food & Beverage--4.4%
763,000 Dean Foods Co. 19,075,000
908,700 Hudson Foods, Inc. 12,948,975
236,000 Savannah Foods & Industries, Inc. 2,566,500
98,000 Universal Foods Corp. 3,736,250
----------
38,326,725
----------
Healthcare--2.5%
260,000 Mallinckrodt Group Inc. 9,782,500
320,000 Seafield Capital Corp. 12,000,000
----------
21,782,500
----------
Industrial Equipment & Machinery--3.3%
527,000 Cooper Industries, Inc. 20,553,000
530,800 Gerber Scientific, Inc. 7,962,000
7,000 Watts Industries, Inc. 139,125
----------
28,654,125
----------
Insurance--4.7%
454,000 Argonaut Group, Inc. 14,215,875
370,800 Home Beneficial Corp. 9,501,750
427,900 NAC Re Corp. 13,960,237
140,000 Paul Revere Corp. 3,395,000
----------
41,072,862
----------
Metals & Mining--0.4%
131,400 Ashland Coal, Inc. 3,071,475
----------
Packaging & Containers--2.6%
384,000 ACX Technologies, Inc.1 6,960,000
512,500 Ball Corporation 15,887,500
----------
22,847,500
----------
Paper & Forest Products--4.9%
612,600 Chesapeake Corp. 18,531,150
272,600 Union Camp Corp. 13,527,775
382,500 Westvaco Corp. 11,235,937
----------
43,294,862
----------
Publishing--6.1%
764,000 American Greetings Corp. Cl A 21,153,250
376,100 Central Newspapers, Inc. 13,398,563
813,800 McClatchy Newspapers, Inc. 19,429,475
----------
53,981,288
----------
See Notes to Financial Statements
10
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
Restaurants--0.4%
140,000 Luby's Cafeterias, Inc. $3,237,500
----------
Retail (Apparel)--0.4%
241,000 Kellwood Co. 3,735,500
----------
Retail (Food & Drug)--4.6%
1,231,000 Giant Food Inc. 40,623,000
----------
Retail (General Merchandise)--3.7%
217,000 Dayton Hudson Corp. 18,417,875
452,000 Dillard Department Stores, Inc. 15,650,500
----------
34,068,375
----------
Tobacco Products--1.0%
329,000 Schweitzer Mauduit
International1 9,047,500
----------
Transportation--3.3%
431,600 Alexander & Baldwin, Inc. 10,304,450
865,200 Rollins Truck Leasing Corp. 8,976,450
200,000 XTRA Corp. 9,350,000
----------
28,630,900
----------
Utilities--8.8%
517,000 BellSouth Corp. 19,129,000
432,000 Florida Progress Corp. 14,742,000
343,000 Northern States Power Co.
(Minn.) 16,721,250
246,200 Potomac Electric Power 6,431,975
345,900 Sierra Pacific Resources 8,690,738
299,500 Union Electric Co. 12,279,500
----------
77,994,463
----------
Total Common Stocks--89.8% 791,979,224
(Cost $734,787,112)
CONVERTIBLE BONDS
Communications Equipment--2.0%
$24,165,000 Motorola Inc., 0.00%, 9-27-13 17,942,512
----------
Food & Beverage--1.2%
(pound)7,000,000 Allied Domecq plc, 6.75%, 7-7-08 10,448,840
----------
Total Convertible Bonds--3.2% 28,391,352
(Cost $28,300,040) ----------
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS
Repurchase Agreement (Goldman Sachs &
Co., Inc.), 5.30%, due 4-1-96; collateralized
by $20,415,000 par value U.S. Treasury
Bonds, 11.125%, due 8-15-03 $25,700,000
(Delivery value $25,711,351)
$15,000,000 Par value FNMA Discount
Note, 5.36%, 4-23-96 14,953,800
20,900,000 Units of Participation in
Provident Institutional Funds
(Temp Fund Portfolio) 20,900,000
----------
Total Temporary Cash
Investments--7.0% 61,553,800
(Cost $61,553,800) ----------
Total Investment Securities--100.0% $881,924,376
(Cost $824,640,952) ===========
FORWARD FOREIGN CURRENCY CONTRACTS
Contracts Settlement Unrealized
to Sell Dates Value (Loss)
- --------------- ---------- ---------- ----------
6,355,126 GBP 4/30/96 $9,700,528 $(48,680)
66,168,798 FRF 4/30/96 13,150,804 (86,618)
---------- -------
$22,851,332 $(135,298)
========== =======
(Receivable Amount $22,716,034)
FUTURES CONTRACTS
Expiration Underlying Face Unrealized
Purchased Date Amount at Value Gain
- -------------- ----------- --------------- ----------
93 S&P 500
Stock Index
Futures June 1996 $30,283,125 $7,608
=========== ======
See Notes to Financial Statements
11
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) March 31, 1996
EQUITY INCOME
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK
Banking--6.4%
58,000 First Bell Bancorp, Inc. $786,625
32,000 First Virginia Banks, Inc. 1,292,000
48,000 Industrial Bancorp, Inc. 726,000
60,000 Magna Group, Inc. 1,376,250
65,095 Mercantile Bancorporation Inc. 2,978,096
5,700 UMB Financial Corp. 213,038
----------
7,372,009
----------
Building & Home Improvements--0.7%
28,000 Masco Corp. 812,000
----------
Chemicals & Resins--8.2%
128,500 Albemarle Corp. 2,875,188
6,000 Dow Chemical Co. 521,250
75,000 Lubrizol Corp. 2,212,500
127,500 Petrolite Corporation 3,761,250
----------
9,370,188
----------
Consumer Products--2.6%
74,600 National Presto Industries, Inc. 2,984,000
----------
Energy (Production & Marketing)--9.7%
21,000 Apache Corp. 564,375
22,000 Atlantic Richfield Co. 2,618,000
107,000 BP Prudhoe Bay Royalty Trust 1,765,500
21,500 MAPCO Inc. 1,201,313
61,000 Murphy Oil Corp. 2,615,375
14,800 Pennzoil Co. 588,300
52,068 Societe Nationale Elf
Aquitaine ADR 1,763,803
----------
11,116,666
----------
Food & Beverage--1.4%
63,300 Dean Foods Co. 1,582,500
----------
Healthcare--2.3%
72,300 Seafield Capital Corp. 2,711,250
Industrial Equipment & Machinery--1.3%
38,000 Cooper Industries, Inc. 1,482,000
Insurance--3.6%
81,800 Argonaut Group, Inc. 2,561,363
63,300 Home Beneficial Corp. 1,622,062
----------
4,183,425
----------
Metals & Mining--2.0%
101,000 Ashland Coal, Inc. 2,360,875
----------
Paper & Forest Products--4.2%
70,200 Chesapeake Corp. 2,123,550
32,400 Union Camp Corp. 1,607,850
37,000 Westvaco Corp. 1,086,875
----------
4,818,275
----------
Publishing--2.4%
51,500 American Greetings Corp. Cl A 1,425,906
57,000 McClatchy Newspapers, Inc. 1,360,875
----------
2,786,781
----------
Real Estate--4.9%
88,100 ROC Communities Inc. 2,070,350
51,500 Sun Communities Inc. 1,403,375
139,500 Taubman Centers, Inc. 1,377,563
35,400 Urban Shopping Centers Inc. 787,650
----------
5,638,938
----------
Restaurants--1.0%
50,000 Luby's Cafeterias, Inc. 1,156,250
----------
Retail (Apparel)--0.2%
19,000 Kellwood Co. 294,500
----------
Retail (Food & Drug)--6.9%
170,200 Giant Food Inc. 5,616,600
80,000 Weis Markets, Inc. 2,410,000
----------
8,026,600
----------
Retail (General Merchandise)--1.7%
14,000 Dayton Hudson Corp. 1,188,250
16,000 Penney (J.C.) Company, Inc. 796,000
----------
1,984,250
----------
Tobacco Products--2.4%
85,000 DiMon Inc. 1,498,125
22,000 Schweitzer Mauduit International1 605,000
29,000 Universal Corp. 728,625
----------
2,831,750
----------
Transportation--1.2%
57,200 Alexander & Baldwin, Inc. 1,365,650
----------
Utilities--15.0%
38,500 BellSouth Corp. 1,424,500
23,500 CIPSCO, Inc. 907,687
58,000 Florida Progress Corp. 1,979,250
See Notes to Financial Statements
12
- --------------------------------------------------------------------------------
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
47,000 Northern States Power
Co. (Minn.) $2,291,250
60,000 ONEOK Inc. 1,432,500
50,000 Peoples Energy Corp. 1,618,750
78,200 Potomac Electric Power Co. 2,042,975
92,100 Sierra Pacific Resources 2,314,012
73,000 South Jersey Industries, Inc. 1,560,375
44,100 Union Electric Co. 1,808,100
----------
17,379,399
----------
Total Common Stocks--78.1% 90,257,306
(Cost $84,691,481) ----------
CONVERTIBLE PREFERRED STOCK
Communications Services--1.6%
35,000 Corning Inc., $3.00 1,903,125
----------
Energy (Production & Marketing)--4.0%
20,000 Diamond Shamrock, Inc. $2.50+ 1,270,000
59,000 Unocal Corp. $3.50+ 3,315,063
---------
4,585,063
---------
Real Estate--0.8%
44,500 Wellsford Residential Property
Trust $1.75 878,875
---------
Total Convertible Preferred Stocks--6.4% 7,367,063
(Cost $6,713,569) ---------
CONVERTIBLE BONDS
Communications Equipment--1.0%
$1,535,000 Motorola Inc., 0.00%, 9-27-13 1,139,737
---------
Electrical & Electronic Equipment--1.4%
1,500,000 General Signal Corp.,
5.75%, 6-1-02 1,569,375
---------
Energy (Production & Marketing)--1.8%
2,000,000 Ashland Inc., 6.75%, 7-1-14 2,035,000
---------
Environmental Services--4.4%
5,650,000 WMX Technologies, Inc.,
2.00%, 1-24-05 5,085,000
---------
Food & Beverage--2.1%
(pound)1,630,000 Allied Domecq plc, 6.75%, 7-7-08 2,433,087
---------
Industrial Equipment & Machinery--2.2%
$2,500,000 Cooper Industries, Inc.,
7.05%, 1-1-15 2,593,750
---------
Retail (General Merchandise)--1.3%
1,500,000 Price Co., 5.50%, 2-28-12 1,515,000
---------
Total Convertible Bonds--14.2% 16,370,949
(Cost $15,884,873) ----------
TEMPORARY CASH INVESTMENTS
Repurchase Agreement (Goldman Sachs
& Co., Inc.), 5.30%, due 4-1-96;
collateralized by $170,000 par value
U.S. Treasury Bonds, 8.875%, due
8-15-17 (Delivery value $200,088)
200,000
1,300,000 Units of Participation in
Provident Institutional Funds
(Temp Fund Portfolio) 1,300,000
---------
Total Temporary Cash Investments--1.3% 1,500,000
(Cost $1,500,000) ---------
Total Investment Securities--100.0% $115,495,318
(Cost $108,789,923) ===========
FORWARD FOREIGN CURRENCY CONTRACTS
Contracts Settlement Unrealized
to Sell Dates Value (Loss)
- ------------- ---------- ---------- ----------
1,435,826 GBP 4/30/96 $2,191,659 $(10,998)
7,943,194 FRF 4/30/96 1,578,680 (10,398)
--------- ------
$3,770,339 $(21,396)
========= ======
(Receivable Amount $3,748,943)
FUTURES CONTRACTS
Expiration Underlying Face Unrealized
Purchased Date Amount at Value (Loss)
- ------------- ---------- --------------- ----------
2 S&P 500
Stock Index
Futures June 1996 $651,250 $(3,540)
======== ========
See Notes to Financial Statements
13
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) March 31, 1996
NOTES TO SCHEDULES OF INVESTMENTS
ADR = American Depositary Receipt
GBP = British Pounds Sterling
FNMA = Federal National Mortgage Association
FRF = French Francs
1 Non-income producing
+The following securities were purchased under Rule 144A of the Securities Act
of 1933 and, unless registered under the Act or exempted from registration, may
only be sold to qualified institutional investors.
<TABLE>
<CAPTION>
March 31, 1996
------------------------
Fund/ Acquisition Average Market Percentage of
Issuer Date Cost Per Share Value Net Assets
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Income
Diamond Shamrock, Inc. $2.50 5-17-95 to
Convertible Preferred Stock 12-8-95 $52.34 $1,270,000 1.1%
Unocal Corp. $3.50 Convertible 8-1-94 to
Preferred Stock 9-26-95 $52.51 $3,315,063 2.9%
-----
4.0%
=====
</TABLE>
TAX MATTERS
The income dividends paid by the funds are taxable to most shareholders as
ordinary income. The portion of the ordinary income dividends (including net
short-term capital gains) attributable to the fiscal year ended March 31, 1996,
that qualified for the dividends received deduction for corporate shareholders
was 15% and 18% for the Value fund and Equity Income fund, respectively.
The Value fund and Equity Income fund have designated $3,390,639 and
$4,632, respectively, as a capital gain dividend for the purpose of the
dividends paid deduction.
See Notes to Financial Statements
14
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
EQUITY
MARCH 31, 1996 VALUE INCOME
ASSETS
<S> <C> <C>
Investment securities, at value (identified cost of
$824,640,952 and $108,789,923, respectively) (Note 3).... $881,924,376 $115,495,318
Cash....................................................... 2,249,064 629,626
Receivable for investments sold............................ 23,395,268 3,795,198
Receivable for variation on futures contracts (Note 1)..... 848,365 --
Receivable for capital shares sold......................... 21,219,941 --
Dividends and interest receivable.......................... 1,324,769 454,697
--------- -------
930,961,783 120,374,839
----------- -----------
LIABILITIES
Disbursements in excess of demand deposit cash............. 620,703 189,084
Payable for forward foreign currency exchange
contracts................................................ 135,298 21,396
Payable for investments purchased.......................... 47,325,446 3,310,183
Payable for capital shares redeemed........................ 307,065 63,213
Accrued management fees (Note 2)........................... 668,860 93,881
Other liabilities.......................................... 19,171 4,724
49,076,543 3,682,481
---------- ---------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $881,885,240 $116,692,358
============ ============
CAPITAL SHARES, $0.01 PAR VALUE
Authorized................................................. 700,000,000 300,000,000
=========== ===========
Outstanding................................................ 139,608,208 19,143,127
=========== ==========
NET ASSET VALUE PER SHARE..................................... $6.32 $6.10
===== =====
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus).................... $776,611,699 $105,015,353
Undistributed net investment income........................ 44,482 22,485
Accumulated undistributed net realized gain from
investment and foreign currency transactions............. 48,078,497 4,974,092
Net unrealized appreciation on investments
and translation of assets and liabilities
in foreign currencies (Note 3)........................... 57,150,562 6,680,428
---------- ---------
$881,885,240 $116,692,358
============ ============
</TABLE>
See Notes to Financial Statements
15
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
EQUITY
YEAR ENDED MARCH 31, 1996 VALUE INCOME
INVESTMENT INCOME
Income:
<S> <C> <C>
Dividends (net of foreign taxes withheld
of $68,439 and $11,967, respectively).................... $15,209,513 $2,575,445
Interest................................................... 3,387,482 1,228,449
--------- ---------
18,596,995 3,803,894
---------- ---------
Expenses:
Management fees (Note 2)................................... 5,747,940 831,887
Directors' fees and expenses............................... 6,570 950
----- ---
5,754,510 832,837
--------- -------
NET INVESTMENT INCOME......................................... 12,842,485 2,971,057
---------- ---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCIES (Notes 3 and 4)
Net realized gain during the year on:
Investments................................................ 92,183,052 11,460,824
Foreign currency transactions.............................. 1,174,695 176,890
--------- -------
93,357,747 11,637,714
---------- ----------
Change in net unrealized appreciation during the year on:
Investments................................................ 42,009,795 4,725,681
Translation of assets and liabilities
in foreign currencies.................................... 1,993 945
----- ---
42,011,788 4,726,626
---------- ---------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCIES............................ 135,369,535 16,364,340
----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS..................................... $148,212,020 $19,335,397
============ ===========
</TABLE>
See Notes to Financial Statements
16
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED MARCH 31, 1996 EQUITY
AND MARCH 31, 1995 VALUE INCOME
INCREASE IN NET ASSETS 1996 1995 1996 1995*
----------- --------- --------- -------
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income............................. $12,842,485 $4,012,652 $2,971,057 $587,229
Net realized gain on investments
and foreign currency transactions............... 93,357,747 8,280,849 11,637,714 425,930
Change in net unrealized appreciation
on investments and translation
of assets and liabilities in foreign currencies. 42,011,788 19,619,779 4,726,626 1,953,802
---------- ---------- --------- ---------
Net increase in net assets
resulting from operations....................... 148,212,020 31,913,280 19,335,397 2,966,961
----------- ---------- ---------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income........................ (12,842,485) (4,048,823) (2,971,057) (579,336)
In excess of net investment income................ (698,226) (26,182) (99,756) --
From net realized gains from
investment transactions......................... (47,886,954) (7,543,028) (6,912,073) (63,131)
------------ ----------- ----------- --------
Decrease in net assets from distributions......... (61,427,665) (11,618,033) (9,982,886) (642,467)
------------ ------------ ----------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold......................... 643,896,003 285,615,107 85,832,083 54,711,178
Proceeds from reinvestment of distributions....... 60,265,897 11,471,041 9,607,360 616,818
Payments for shares redeemed...................... (257,342,066) (56,898,648) (40,312,436) (5,439,650)
------------- ------------ ------------ -----------
Net increase in net assets from
capital share transactions...................... 446,819,834 240,187,500 55,127,007 49,888,346
----------- ----------- ---------- ----------
NET INCREASE IN NET ASSETS........................... 533,604,189 260,482,747 64,479,518 52,212,840
NET ASSETS
Beginning of period............................... 348,281,051 87,798,304 52,212,840 --
----------- ---------- ---------- ----------
End of period..................................... $881,885,240 $348,281,051 $116,692,358 $52,212,840
============ ============ ============ ===========
Undistributed (distributions in excess of)
net investment income........................... $44,482 $(170,736) $22,485 $(18,866)
======= ========== ======= =========
TRANSACTIONS IN SHARES OF THE FUNDS:
Sold.............................................. 108,909,750 54,767,393 14,703,393 10,551,588
Issued in reinvestment of distributions........... 10,332,725 2,317,309 1,672,244 118,631
Redeemed.......................................... (43,370,111) (10,961,921) (6,860,307) (1,042,422)
------------ ------------ ----------- -----------
Net increase...................................... 75,872,364 46,122,781 9,515,330 9,627,797
========== ========== ========= =========
*Period August 1, 1994 (inception) through March 31, 1995
</TABLE>
See Notes to Financial Statements
17
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
1. Organization and Summary of Significant Accounting Policies
Organization--
Twentieth Century Capital Portfolios, Inc. (the Corporation) is registered
under the Investment Company Act of 1940 as an open-end diversified management
investment company. Two series of shares, investing primarily in equity
securities, are currently issued as Twentieth Century Value and Twentieth
Century Equity Income (the Funds). The investment objective of Twentieth Century
Value is long-term capital growth. Income is a secondary objective. The
investment objective of Twentieth Century Equity Income is the production of
current income. Capital appreciation is a secondary objective. The following
significant accounting policies related to the Funds are in accordance with
accounting policies generally accepted in the investment company industry.
Security Valuations--
Portfolio securities traded primarily on a principal securities exchange
are valued at the last reported sales price, or the mean between the latest bid
and asked prices where no last sales price is available. Securities traded
over-the-counter are valued at the mean of the latest bid and asked prices or,
in the case of certain foreign securities, at the last reported sales price.
Debt securities not traded on a principal securities exchange are valued through
valuations obtained from a commercial pricing service or at the mean of the most
recent bid and asked prices. Short-term securities are valued at amortized cost,
which approximates value. When valuations are not readily available, securities
are valued at fair value as determined in good faith 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 or upon receipt of ex-dividend notification in the case of
certain foreign securities. Interest income is recognized on the accrual basis
and includes amortization of discounts and premiums.
Foreign Currency Transactions--
The accounting records of the Funds are maintained in U.S. dollars. All
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at prevailing exchange rates. Purchases and sales of
investment securities, dividend and interest income, and certain expenses are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
The Funds do not isolate that portion of the results of operations
resulting from changes in the foreign exchange rates on investments from the
fluctuations arising from changes in the market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss on
investments.
Net realized foreign currency exchange gains or losses arise from sales of
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 assets and
liabilities other than portfolio securities at the end of the reporting period,
resulting from changes in the exchange rates.
18
- --------------------------------------------------------------------------------
Forward Foreign Currency Exchange Contracts--
The Funds may enter into forward foreign currency exchange contracts for
the purpose of settling specific purchases or sales of securities denominated in
a foreign currency or to hedge the Funds' exposure to foreign currency exchange
rate fluctuations. The net U.S. dollar value of foreign currency underlying all
contractual commitments held by the Funds and the resulting unrealized
appreciation or depreciation are determined daily using prevailing exchange
rates. Forward contracts involve elements of market risk in excess of the amount
reflected in the Statements of Assets and Liabilities. The Funds bear the risk
of an unfavorable change in the foreign currency exchange rate underlying the
forward contract. Additionally, losses may arise if the counterparties do not
perform under the contract terms.
Futures Contracts--
The Funds may buy and sell stock index futures contracts in order to manage
each Fund's exposure to changes in market conditions. One of the risks of
entering into futures contracts may 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 (initial margin)
equal to a certain percentage of the contract value. Subsequent payments
(variation margin) are made or received in cash daily 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.
Repurchase Agreements--
Securities pledged as collateral for repurchase agreements are held by the
Federal Reserve Bank and are designated as being held on the Funds' behalf by
its custodian under a book-entry system. The Funds monitor the adequacy of the
collateral daily and can require the seller to provide additional collateral in
the event the market value of the securities pledged falls below the carrying
value of the repurchase agreement.
Income Tax Status--
It is the policy of the Funds to distribute all taxable income and
capital gains to shareholders and to otherwise qualify as a regulated
investment company under provisions of the Internal Revenue Code. Accordingly,
no provision has been made for federal or state taxes.
Distributions to Shareholders--
Distributions to shareholders are recorded on the ex-dividend date.
Distributions from net investment income are declared and paid quarterly.
Distributions from net realized gains are declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences are primarily due to differing
treatments for foreign currency transactions and wash sales.
Supplementary Information--
Certain officers and directors of the Corporation are also officers and/or
directors, and, as a group, controlling stockholders of Twentieth Century
Companies, Inc., the parent of the Corporation's investment manager, Investors
Research Corporation (IRC).
19
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED) March 31, 1996
2. Management Agreement
The Management Agreement with IRC provides for a monthly management fee
computed by multiplying the applicable fee for each Fund by the average daily
closing value of such Fund's net assets during the previous month. The Agreement
further provides that all expenses of the Funds, except brokerage commissions,
taxes, interest, expenses of those directors who are not considered "interested
persons" as defined in the Investment Company Act of 1940 (including counsel
fees) and extraordinary expenses, will be paid by IRC. The agreement may be
terminated by either party upon 60 days' written notice.
The current annual management fee for each Fund is 1%.
3. Investment Transactions
Investment transactions (excluding short-term investments) for the year
ended March 31, 1996, were as follows:
<TABLE>
<CAPTION>
PURCHASES PROCEEDS FROM SALES
-------------------------------------------- -----------------------------------------
COMMON PREFERRED OTHER DEBT COMMON PREFERRED OTHER DEBT
STOCKS STOCKS OBLIGATIONS STOCKS STOCKS OBLIGATIONS
------------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
VALUE $1,152,207,686 $10,510,349 $46,993,328 $782,185,689 $28,456,118 $37,485,476
EQUITY INCOME $135,680,409 $15,176,956 $34,308,267 $88,552,294 $14,362,650 $34,260,042
On March 31, 1996, the composition of unrealized appreciation and (depreciation) of investment securities
based on the aggregate cost of investments for federal income tax purposes was as follows:
</TABLE>
APPRECIATION (DEPRECIATION) NET FEDERAL TAX COST
------------- ------------- ----------- ----------------
VALUE $62,126,506 $(5,173,755) $56,952,751 $824,971,625
EQUITY INCOME $7,135,837 $(458,891) $6,676,946 $108,818,372
20
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period)
VALUE
September 1, 1993
Year Ended Year Ended (inception) through
March 31, 1996 March 31, 1995 March 31, 1994
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................... $5.46 $4.98 $5.01
----- ----- -----
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income*........................................ 0.13 0.12 0.08
Net Realized and Unrealized Gains on Investments and
Foreign Currency Transactions............................... 1.34 0.75 (0.04)
---- ---- ----
Total from Investment Operations.............................. 1.47 0.87 0.04
---- ---- ----
DISTRIBUTIONS
Distributions from Net Investment Income...................... (0.12) (0.12) (0.07)
Distributions in Excess of Net Investment Income.............. (0.01) -- --
Distributions from Net Realized Gains on Investment
Transactions................................................ (0.48) (0.27) --
----- ------ -----
Total Distributions........................................... (0.61) (0.39) (0.07)
----- ------ -----
NET ASSET VALUE, END OF PERIOD................................ $6.32 $5.46 $4.98
===== ===== =====
TOTAL RETURN1................................................. 28.06% 18.56% 0.83%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ............ 0.97% 1.00% 1.00%**
Ratio of Net Investment Income to Average Net Assets.......... 2.17% 2.65% 3.37%**
Portfolio Turnover Rate1...................................... 145% 94% 79%
Average Commission Paid per Share Traded...................... $0.0409 -- --
Net Assets End of Period...................................... $881,885,240 $348,281,051 $87,798,304
</TABLE>
1 Actual total return and portfolio turnover rate for period indicated.
* Computed using average shares outstanding throughout the period.
**Annualized
See Notes to Financial Statements
21
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED) (For a Share Outstanding Throughout the Period)
EQUITY INCOME
August 1, 1994
Year Ended (inception) through
March 31, 1996 March 31, 1995
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................... $5.42 $5.00
----- -----
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income*........................................ 0.20 0.09
Net Realized and Unrealized Gains on Investments and
Foreign Currency Transactions............................... 1.13 0.44
---- ----
Total from Investment Operations.............................. 1.33 0.53
---- ----
DISTRIBUTIONS
Distributions from Net Investment Income...................... (0.19) (0.09)
Distributions in Excess of Net Investment Income.............. (0.01) --
Distributions from Net Realized Gains on Investment
Transactions................................................ (0.45) (0.02)
------ ------
Total Distributions........................................... (0.65) (0.11)
------ ------
NET ASSET VALUE, END OF PERIOD................................ $6.10 $5.42
===== =====
TOTAL RETURN1................................................. 25.67% 10.69%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets............. 0.98% 1.00%**
Ratio of Net Investment Income to Average Net Assets.......... 3.51% 4.04%**
Portfolio Turnover Rate1...................................... 170% 45%
Average Commission Paid per Share Traded...................... $0.0378 --
Net Assets End of Period...................................... $116,692,358 $52,212,840
</TABLE>
1 Actual total return and portfolio turnover rate for period indicated.
* Computed using average shares outstanding throughout the period.
**Annualized
See Notes to Financial Statements
22
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REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Directors
Twentieth Century Capital Portfolios, Inc.
We have audited the accompanying statements of assets and liabilities of
Twentieth Century Capital Portfolios, Inc. (comprised of the Value and Equity
Income portfolios) (the Funds), including the schedules of investments, as of
March 31, 1996, the related statements of operations for the year then ended,
statements of changes in net assets for each of the two years then ended and
financial highlights for each of the two years then ended and for the period
from September 1, 1993 (inception) to March 31, 1994, for the Value portfolio
and the related statements of operations for the year then ended and statements
of changes in net assets and financial highlights for the year then ended and
for the period from August 1, 1994, (inception) to March 31, 1995, for the
Equity Income portfolio. These financial statements and financial highlights are
the responsibility of the Funds' 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 the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios comprising Twentieth Century Capital
Portfolios, Inc. at March 31, 1996, and the results of their operations, changes
in their net assets, and financial highlights for the periods indicated above,
in conformity with generally accepted accounting principles.
/s/Ernst & Young
Kansas City, Missouri
April 26, 1996
23
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IMPORTANT NOTICE FOR ALL IRA AND 403(B) SHAREHOLDERS
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)]
are subject to federal income tax withholding at the rate of 10% of the total
amount withdrawn, unless you elect not to have withholding apply. If you don't
want us to withhold on this amount, you may send us a written notice not to have
the federal income tax withheld. Your written notice is valid for six months
from the date of receipt at Twentieth Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount, unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Conversions/Redemptions form or an IRS Form W-4P. Call Twentieth Century for
either form. Your written election is valid for only six months from the date of
receipt at Twentieth Century. You may revoke your election at any time by
sending a written notice to us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
- --------------------------------------------------------------------------------
24
TWENTIETH CENTURY
TWENTIETH CENTURY CAPITAL PORTFOLIOS, INC. Capital Portfolios
Investment Manager Annual Report
INVESTORS RESEARCH CORPORATION March 31, 1996
Kansas City, Missouri
This report and the financial
statements it contains are
submitted for the general
information of our shareholders.
This report is not authorized
for distribution to prospective
investors unless preceded or
accompanied by an effective
prospectus.
[company logo]
Investments That WorkTM
- ----------------------------------------
P.O. Box 419200
Kansas City, Missouri
64141-6200
- ----------------------------------------
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
- ----------------------------------------
Automated information line:
1-800-345-8765
- ----------------------------------------
Telecommunications device for the deaf:
1-800-634-4113 or 816-753-1865
- ----------------------------------------
Fax: 816-340-7962
[company logo]
================================================================================
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SH-BKT-4676
9604 Recycled
Twentieth Century Securities, Inc.
