SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
File No. 2-14213
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 116 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
File No. 811-0816
Amendment No. 116 [X]
(Check appropriate box or boxes.)
AMERICAN CENTURY MUTUAL FUNDS, INC.
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(Exact Name of Registrant as Specified in Charter)
4500 MAIN STREET, KANSAS CITY, MO 64111
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (816) 531-5575
DAVID C. TUCKER, ESQ., 4500 MAIN STREET, 9TH FLOOR, KANSAS CITY, MO 64111
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(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: April 1, 2006
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on April 1, 2006 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
April 1, 2006
American Century Investments
prospectus
AMERICAN CENTURY-MASON STREET
SMALL CAP GROWTH
THE FUND IS AVAILABLE FOR PURCHASE ONLY THROUGH FINANCIAL INTERMEDIARIES BY
INVESTORS WHO SEEK ADVICE FROM THEM. THE FUND IS CLOSED TO OTHER INVESTORS, BUT
THOSE INVESTORS WITH OPEN ACCOUNTS MAY MAKE ADDITIONAL INVESTMENTS AND REINVEST
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS AS LONG AS SUCH ACCOUNTS REMAIN OPEN.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
American Century Investment
Services, Inc., Distributor
[american century investments logo and text logo]
Table of Contents
AN OVERVIEW OF THE FUND . . . . . . . . . . . . . . . . . . 2
FUND PERFORMANCE HISTORY . . . . . . . . . . . . . . . . . .3
FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . 5
OBJECTIVES, STRATEGIES AND RISKS . . . . . . . . . . . . . .7
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . .9
INVESTING DIRECTLY WITH AMERICAN CENTURY . . . . . . . . . 11
INVESTING THROUGH A FINANCIAL INTERMEDIARY . . . . . . . . 13
ADDITIONAL POLICIES AFFECTING YOUR INVESTMENT . . . . . . .18
SHARE PRICE AND DISTRIBUTIONS . . . . . . . . . . . . . . .22
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . .24
MULTIPLE CLASS INFORMATION . . . . . . . . . . . . . . . . 26
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . 27
[graphic of triangle]
THIS SYMBOL IS USED THROUGHOUT THE BOOK TO HIGHLIGHT DEFINITIONS OF KEY
INVESTMENT TERMS AND TO PROVIDE OTHER HELPFUL INFORMATION.
American Century Investment Services, Inc., Distributor
©2006 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
AN OVERVIEW OF THE FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The fund seeks long-term capital growth.
WHAT ARE THE FUND'S PRIMARY INVESTMENT STRATEGIES AND PRINCIPAL RISKS?
The fund will normally invest at least 80% of the value of its net assets (plus
any borrowings for investment purposes) in common stocks of U.S. companies with
market capitalizations that do not exceed the maximum market capitalization of
any security in the S&P SmallCap 600® Index. Securities are selected for their
above-average growth potential giving consideration to factors such as company
management, growth rate of revenues and earnings, opportunities for margin
expansion and strong financial characteristics.
The fund's principal risks include:
* GROWTH STOCKS - Investments in growth stocks may involve special risks and
their prices may fluctuate more dramatically than the overall stock market.
* MARKET RISK - The value of the fund's shares will go up and down based on
the performance of the companies whose securities it owns and other factors
generally affecting the securities market.
* PRICE VOLATILITY - The value of the fund's shares may fluctuate
significantly in the short term.
* PRINCIPAL LOSS - At any given time your shares may be worth more or less
than the price you paid for them. In other words, it is possible to lose
money by investing in the fund.
* SMALL CAP STOCKS - The smaller companies in which the fund invests may
present greater opportunities for capital growth than larger companies, but
also may present greater risks.
* FOREIGN SECURITIES - The fund may invest in foreign securities, which can
be riskier than investing in U.S. securities.
A more detailed description of the fund's investment strategies and risks may be
found under the heading OBJECTIVES, STRATEGIES AND RISKS, which begins on page
7.
[graphic of triangle]
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT, AND IT IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OR ANY
OTHER GOVERNMENT AGENCY.
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2
FUND PERFORMANCE HISTORY
Annual Total Returns
The following bar chart shows the performance of the fund's A Class shares for
each full calendar year in the life of the class. It indicates the volatility of
the fund's historical returns from year to year. Account fees and sales charges,
if applicable, are not reflected in the chart below. If they had been included,
returns would have been lower than those shown. The returns of the fund's other
classes of shares will differ from those shown in the chart, depending on the
expenses of those classes.
SMALL CAP GROWTH - A CLASS(1)
(1) SMALL CAP GROWTH ACQUIRED ALL THE NET ASSETS OF THE MASON STREET SMALL
CAP GROWTH FUND ON MARCH 31, 2006, PURSUANT TO A PLAN OF REORGANIZATION
APPROVED BY THE ACQUIRED FUND'S SHAREHOLDERS ON MARCH 23, 2006. PERFORMANCE
INFORMATION PRIOR TO MARCH 31, 2006 IS THAT OF THE MASON STREET SMALL CAP
GROWTH FUND.
The highest and lowest quarterly returns for the periods reflected in the bar
chart are:
HIGHEST LOWEST
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Small Cap Growth 22.02% (4Q 2001) -22.46% (3Q 2001)
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Average Annual Total Returns
The following table shows the average annual total returns of Small Cap Growth's
A Class shares calculated three different ways. Additional tables show the
average annual total returns of the fund's other share classes calculated before
the impact of taxes. Returns assume the deduction of all sales loads, charges
and other fees associated with a particular class. Your actual returns may vary
depending on the circumstances of your investment. Because the Investor,
Institutional, C and R Classes are new, they are not included.
Return Before Taxes shows the actual change in the value of fund shares over the
time periods shown, but does not reflect the impact of taxes on fund
distributions or the sale of fund shares. The two after-tax returns take into
account taxes that may be associated with owning fund shares. Return After Taxes
on Distributions is a fund's actual performance, adjusted by the effect of taxes
on distributions made by the fund during the periods shown. Return After Taxes
on Distributions and Sale of Fund Shares is further adjusted to reflect the tax
impact on any change in the value of fund shares as if they had been sold on the
last day of the period.
After-tax returns are calculated using the historical highest federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor's tax situation and may differ from
those shown. After-tax returns shown are not relevant to investors who hold fund
shares through tax-deferred arrangements such as 401(k) plans or IRAs. After-tax
returns are shown only for A Class shares. After-tax returns for other share
classes will vary.
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3
The benchmark is an unmanaged index that has no operating costs and is included
in each table for performance comparison. The S&P SmallCap 600 Index consists of
600 domestic stocks chosen for market size, liquidity and industry group
representation. The Russell 2000® measures the performance of the 2,000
smallest companies in the Russell 3000® Index. The Russell 2000® Growth
Index measures the performance of those Russell 2000 Index companies (the
2,000 smallest of the 3,000 largest publicly traded U.S. companies, based
on total market capitalization) with higher price-to-book ratios and higher
forecasted growth rates.
CLASS A(1)
FOR THE CALENDAR YEAR LIFE OF
ENDED DECEMBER 31, 2005 1 YEAR 5 YEARS CLASS(2)(3)
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Return Before Taxes 5.17% 4.70% 12.32%
Return After Taxes on Distributions 3.41% 4.21% 10.56%
Return After Taxes on Distributions
and Sale of Fund Shares 5.10% 3.99% 9.85%
S&P SmallCap 600 Index 7.68% 10.76% 11.05%
(reflects no deduction
for fees, expenses or taxes)
Russell 2000(R) Growth Index 4.15% 2.28% 1.26%(4)
(reflects no deduction for
fees, expenses or taxes)
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(1) SMALL CAP GROWTH ACQUIRED ALL THE NET ASSETS OF THE MASON STREET SMALL
CAP GROWTH FUND ON MARCH 31, 2006, PURSUANT TO A PLAN OF REORGANIZATION
APPROVED BY THE ACQUIRED FUND'S SHAREHOLDERS ON MARCH 23, 2006. PERFORMANCE
INFORMATION PRIOR TO MARCH 31, 2006 IS THAT OF THE MASON STREET SMALL CAP
GROWTH FUND.
(2) THE INCEPTION DATE FOR THE A CLASS WAS JULY 12, 1999.
(3) ANNUALIZED.
(4) Since July 14, 1999, the date closest to the fund's inception for which
data is available.
CLASS B(1)
FOR THE CALENDAR YEAR LIFE OF
ENDED DECEMBER 31, 2005 1 YEAR 5 YEARS CLASS(2)(3)
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Return Before Taxes 4.79% 4.75% 12.46%
S&P SmallCap 600 Index 7.68% 10.76% 11.05%
(reflects no deduction for
fees, expenses or taxes)
Russell 2000(R) Growth Index 4.15% 2.28% 1.26%(4)
(reflects no deduction for
fees, expenses or taxes)
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(1) SMALL CAP GROWTH ACQUIRED ALL THE NET ASSETS OF THE MASON STREET SMALL
CAP GROWTH FUND ON MARCH 31, 2006, PURSUANT TO A PLAN OF REORGANIZATION
APPROVED BY THE ACQUIRED FUND'S SHAREHOLDERS ON MARCH 23, 2006. PERFORMANCE
INFORMATION PRIOR TO MARCH 31, 2006 IS THAT OF THE MASON STREET SMALL CAP
GROWTH FUND.
(2) THE INCEPTION DATE FOR THE B CLASS WAS JULY 12, 1999.
(3) ANNUALIZED
(4) SINCE JULY 14, 1999, THE DATE CLOSEST TO THE FUND'S INCEPTION FOR WHICH
DATA IS AVAILABLE.
Performance information is designed to help you see how fund returns can vary.
Keep in mind that past performance (before and after taxes) does not predict how
a fund will perform in the future.
For current performance information, please call us or visit
americancentury.com.
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4
FEES AND EXPENSES
The following tables describe the fees and expenses you may pay if you buy and
hold shares of the fund.
INVESTOR INSTITUTIONAL A B C R
CLASS CLASS CLASS CLASS CLASS CLASS
------------------------------------------------------------------------------------
Maximum Sales None None 5.75% None None None
Charge (Load)
Imposed on
Purchases
(as a percentage
of offering price)
------------------------------------------------------------------------------------
Maximum Deferred None None None(1) 5.00%(2) 1.00%(3) None
Sales Charge
Load)
(as a percentage
of the original
offering price for
B Class shares
or the lower of
the original
offering price or
redemption
proceeds
for A and C
Class shares)
------------------------------------------------------------------------------------
Maximum Account $25(4) None None None None None
Maintenance Fee
------------------------------------------------------------------------------------
(1) INVESTMENTS OF $1 MILLION OR MORE IN A CLASS SHARES MAY BE SUBJECT TO
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% IF THE SHARES ARE REDEEMED
WITHIN ONE YEAR OF THE DATE OF PURCHASE.
(2) THIS CHARGE IS 5.00% DURING THE FIRST YEAR AFTER PURCHASE, DECLINES
OVER THE NEXT FIVE YEARS AS SHOWN ON PAGE 15, AND IS ELIMINATED AFTER SIX
YEARS.
(3) THE CHARGE IS 1.00% DURING THE FIRST YEAR AFTER PURCHASE AND IS
ELIMINATED THEREAFTER.
(4) APPLIES ONLY TO INVESTORS WHOSE TOTAL ELIGIBLE INVESTMENTS WITH
AMERICAN CENTURY ARE LESS THAN $10,000. SEE Account Maintenance Fee UNDER
Investing Directly with American Century FOR MORE DETAILS.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
DISTRIBUTION TOTAL ANNUAL
MANAGEMENT AND SERVICE OTHER FUND OPERATING
FEE(1) (12B-1) FEES(2) EXPENSES(3) EXPENSES
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Investor 1.30% 0.00% 0.00% 1.30%
Class
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Institutional 1.10% 0.00% 0.00% 1.10%
Class
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A Class 1.30% 0.25%(4) 0.00% 1.55%
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B Class 1.30% 1.00%(5) 0.00% 2.30%
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C Class 1.30% 1.00% 0.00% 2.30%
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R Class 1.30% 0.50% 0.00% 1.80%
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(1) THE FUND PAYS THE ADVISOR A SINGLE, UNIFIED MANAGEMENT FEE FOR
ARRANGING ALL SERVICES NECESSARY FOR THE FUND TO OPERATE. THE FUND HAS A
STEPPED FEE SCHEDULE. AS A RESULT, THE FUND'S UNIFIED MANAGEMENT FEE RATE
GENERALLY DECREASES AS STRATEGY ASSETS INCREASE AND INCREASES AS STRATEGY
ASSETS DECREASE. FOR MORE INFORMATION ABOUT THE UNIFIED MANAGEMENT FEE,
INCLUDING AN EXPLANATION OF STRATEGY ASSETS, SEE The Investment Advisor
UNDER Management.
(2) THE 12B-1 FEE IS DESIGNED TO PERMIT INVESTORS TO PURCHASE SHARES
THROUGH BROKER-DEALERS, BANKS, INSURANCE COMPANIES AND OTHER FINANCIAL
INTERMEDIARIES. THE FEE MAY BE USED TO COMPENSATE SUCH FINANCIAL
INTERMEDIARIES FOR DISTRIBUTION AND OTHER SHAREHOLDER SERVICES. FOR MORE
INFORMATION, SEE Multiple Class Information AND Service, Distribution and
Administrative Fees, PAGE 26.
(3) OTHER EXPENSES, WHICH INCLUDE THE FEES AND EXPENSES OF THE FUND'S
INDEPENDENT DIRECTORS AND THEIR LEGAL COUNSEL, AS WELL AS INTEREST, ARE
EXPECTED TO BE LESS THAN 0.005% FOR THE CURRENT FISCAL YEAR.
(4) AMERICAN CENTURY HAS AGREED TO A TWO-YEAR WAIVER OF RULE 12B-1 FEES
FOR CERTAIN CLASSES OF THE FUND. TAKING INTO ACCOUNT THESE WAIVERS, THE
DISTRIBUTION AND SERVICE (12B-1) FEES AND TOTAL ANNUAL FUND OPERATING
EXPENSES WOULD BE 0.10% AND 1.40%, RESPECTIVELY.
(5) AMERICAN CENTURY HAS AGREED TO A TWO-YEAR WAIVER OF RULE 12B-1 FEES
FOR CERTAIN CLASSES OF THE FUND. TAKING INTO ACCOUNT THESE WAIVERS, THE
DISTRIBUTION AND SERVICE (12B-1) FEES AND TOTAL ANNUAL FUND OPERATING
EXPENSES WOULD BE 0.75% AND 2.05%, RESPECTIVELY.
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5
EXAMPLE
The examples in the tables below are intended to help you compare the costs of
investing in the fund with the costs of investing in other mutual funds. Of
course, your actual costs may be higher or lower. Assuming you . . .
* invest $10,000 in the fund
* redeem all of your shares at the end of the periods shown below
* earn a 5% return each year
* incur the same operating expenses as shown above
. . . your cost of investing in the fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Investor $132 $410 $710 $1,558
Class
--------------------------------------------------------------------------------
Institutional $112 $349 $604 $1,334
Class
--------------------------------------------------------------------------------
A Class $709 $1,008 $1,344 $2,290
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B Class $608 $969 $1,284 $2,407
--------------------------------------------------------------------------------
C Class $231 $712 $1,219 $2,607
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R Class $182 $563 $968 $2,098
--------------------------------------------------------------------------------
The table above reflects a deduction for charges payable upon redemption. You
would pay the following expenses if you did not redeem your shares and thus did
not incur such charges:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Investor $132 $410 $710 $1,558
Class
--------------------------------------------------------------------------------
Institutional $112 $349 $604 $1,334
Class
--------------------------------------------------------------------------------
A Class $709 $1,008 $1,344 $2,290
--------------------------------------------------------------------------------
B Class $208 $669 $1,184 $2,407
--------------------------------------------------------------------------------
C Class $231 $712 $1,219 $2,607
--------------------------------------------------------------------------------
R Class $182 $563 $968 $2,098
--------------------------------------------------------------------------------
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6
OBJECTIVES, STRATEGIES AND RISKS
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The fund seeks long-term capital growth.
HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVE?
The fund will normally invest at least 80% of the value of its net assets (plus
any borrowings for investment purposes) in common stocks of U.S. companies with
market capitalizations that do not exceed the maximum market capitalization of
any security in the S&P SmallCap 600® Index at the time of purchase. The fund
also may invest in equity securities of companies with stock market
capitalizations less than $500 million at the time of investment (microcap
companies). Securities are selected for their above-average growth potential
giving consideration to factors such as company management, growth rate of
revenues and earnings, opportunities for margin expansion and strong financial
characteristics.
On occasion, the fund may purchase companies with a market capitalization of
more than the largest company in the Index. Additionally, the market cap of
companies in the fund and the Index will change over time due to market forces
and periodic rebalancing of the Index. The fund will not sell a stock just
because the company has grown to a market capitalization of more than the
largest company in the S&P SmallCap 600® Index.
The fund may sell securities for a variety of reasons such as to secure gains,
limit losses or redeploy assets into more promising opportunities.
Although the fund's equity investments consist primarily of securities of U.S.
issuers, the fund may invest up to 20% of its net assets in the equity
securities of issuers from countries outside the United States , including (i)
foreign securities denominated in a foreign currency and not publicly traded in
the U.S. and (ii) U. S. currency denominated foreign securities, including
depositary receipts and depositary shares issued by U.S. banks (American
Depositary Receipts or ADRs) and U.S. broker-dealers (American Depositary
Shares). The fund's foreign investments may include securities of issuers in
countries with emerging markets or economies. Investments in foreign securities
present some unique risks that are more fully described in the fund's statement
of additional information.
The fund's investments in equity securities may include common stocks, preferred
stocks, warrants, and securities convertible into common or preferred stocks. To
a lesser degree, the fund may invest in other types of securities and use other
investment strategies that may include debt securities, index/structured
securities, high-yield/high-risk bonds, options, futures, forwards, swaps and
other types of derivatives and exchange traded funds, securities purchased on a
when-issued, delayed delivery or forward commitment basis, and pass-through
securities (including mortgage- and asset-backed securities). Futures contracts,
a type of derivative security, can help the fund's cash assets remain liquid
while performing like stocks. The fund has a policy governing futures contracts
and similar derivative securities to help manage the risks of these types of
investments. A complete description of the derivatives policy is included in the
statement of additional information.
In the event of exceptional market or economic conditions, the fund may, as a
temporary defensive measure, invest all or a substantial portion of its assets
in cash or high quality short term debt securities, including money market
reserves. To the extent the fund assumes a defensive position, it will not be
pursuing its objective of capital growth.
A description of the policies and procedures with respect to the disclosure of
the fund's portfolio securities is available in the statement of additional
information.
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7
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
The value of a fund's shares depends on the value of the stocks and other
securities it owns. The value of the individual securities a fund owns will go
up and down depending on the performance of the companies that issued them,
general market and economic conditions, and investor confidence.
Growth stocks are typically priced higher than other stocks, in relation to
earnings and other measures, because investors believe they have more growth
potential. This potential may or may not be realized and growth stock prices
tend to fluctuate more dramatically than the overall stock market.
Small cap stocks may involve greater risks because smaller companies often have
a limited track record, narrower markets and more limited managerial and
financial resources than larger, more established companies. The prices of these
stocks tend to be more volatile and the issuers face greater risk of business
failure.
Microcap stocks may involve greater risks because the prices of microcap
securities are generally even more volatile and their markets are even less
liquid relative to both small cap and large cap securities.
Market performance tends to be cyclical, and, in the various cycles, certain
investment styles may fall in and out of favor. If the market is not favoring a
fund's style, the fund's gains may not be as big as, or its losses may be bigger
than, other equity funds using different investment styles.
Although the portfolio managers intend to invest the fund's assets primarily in
U.S. stocks, the funds may invest in securities of foreign companies. Foreign
investment involves additional risks, including fluctuations in currency
exchange rates, less stable political and economic structures, reduced
availability of public information, and lack of uniform financial reporting and
regulatory practices similar to those that apply in the United States. These
factors make investing in foreign securities generally riskier than investing in
U.S. stocks. To the extent a fund invests in foreign securities, the overall
risk of that fund could be affected.
The fund's performance also may be impacted by investments in initial public
offerings (IPOs). IPOs may present greater risks than other investments in
stocks because the issuers have no track record as public companies. The impact
of IPO investments may be substantial and positive for a relatively small fund
during periods when the IPO market is strong. IPOs may have less performance
impact as a fund's assets grow.
At any given time your shares may be worth more or less than the price you paid
for them. In other words, it is possible to lose money by investing in the
funds.
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8
MANAGEMENT
WHO MANAGES THE FUND?
The Board of Directors, investment advisor and fund management team play key
roles in the management of the fund.
THE BOARD OF DIRECTORS
The Board of Directors oversees the management of the fund and meets at least
quarterly to review reports about fund operations. Although the Board of
Directors does not manage the fund, it has hired an investment advisor to do so.
More than three-fourths of the directors are independent of the fund's advisor;
that is, they have never been employed by and have no financial interest in the
advisor or any of its affiliated companies (other than as shareholders of
American Century funds).
THE INVESTMENT ADVISOR
The fund's investment advisor is American Century Investment Management, Inc.
(the advisor). The advisor has been managing mutual funds since 1958 and is
headquartered at 4500 Main Street, Kansas City, Missouri 64111.
The advisor is responsible for managing the investment portfolios of the fund
and directing the purchase and sale of its investment securities. The advisor
also arranges for transfer agency, custody and all other services necessary for
the fund to operate. The advisor has hired Mason Street Advisors, LLC (MSA), a
wholly owned company of The Northwestern Mutual Life Insurance Company
(Northwestern Mutual), to make the day-to-day investment decisions for the fund.
MSA performs this function under the supervision of the advisor and the fund's
Board of Directors. MSA and its predecessor, Northwestern Mutual Investment
Services, LLC, have served as investment advisor to the fund and its predecessor
fund since its inception. The personnel and related facilities of Northwestern
Mutual and MSA are utilized by MSA in performing its investment advisory
functions. The address of MSA is 720 East Wisconsin Avenue, Milwaukee, Wisconsin
53202.
For the services it provides to the fund, the advisor receives a unified
management fee based on a percentage of the daily net assets of each specific
class of shares of the fund(1). The amount of the fee is calculated daily and
paid monthly in arrears. Out of that fee, the advisor pays all expenses of
managing and operating the fund except brokerage expenses, taxes, interest, fees
and expenses of the independent directors (including legal counsel fees), and
extraordinary expenses. A portion of the management fee may be paid by the
fund's advisor to unaffiliated third parties who provide recordkeeping and
administrative services that would otherwise be performed by an affiliate of the
advisor.
For funds with a stepped fee schedule, the rate of the fee is determined by
applying a fee rate calculation formula. This formula takes into account all of
the advisor's assets under management in the fund's investment strategy
("strategy assets") to calculate the appropriate fee rate for the fund. The
strategy assets include the fund's assets and the assets of other clients of the
advisor that are not in the American Century family of mutual funds (such as
subadvised funds and separate accounts) but that have the same investment team
and investment strategy. The use of strategy assets, rather than fund assets, in
calculating the fee rate for a particular fund could allow a fund to realize
scheduled cost savings more quickly if the advisor acquires additional assets
under management within a strategy in addition to the fund's assets. However, it
is possible that the strategy assets for a fund will not include
(1) The fund acquired all the net assets of the Mason Street Small Cap Growth
Fund on March 31, 2006, pursuant to a plan of reorganization approved by
the acquired fund's shareholders on March 23, 2006. For the fiscal year
ended March 31, 2005, the acquired fund paid its advisor, Mason Street
Advisors, LLC, an advisory fee equal to 0.85% of the fund's average daily
net assets. This advisory fee is not directly comparable to American
Century's unified fee, which includes substantially all expenses of
operating the fund.
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9
assets of other client accounts. In addition, if there are such assets, they may
not be sufficient to result in a lower fee rate. Small Cap Growth's Investor, A,
B, C and R Class will pay the advisor a unified management fee of 1.30% of its
pro rata share of the first $1 billion of the strategy assets and 1.10% of its
pro rata share over $1 billion of the strategy assets. Small Cap Growth's
Institutional Class will pay the advisor a unified management fee of 1.10% of
its pro rata share of the first $1 billion of the strategy assets and 0.90% of
its pro rata share over $1 billion of the strategy assets.
THE FUND MANAGEMENT TEAM
The advisor provides investment advisory and management services for the fund.
The advisor has, in turn, hired MSA to make the day-to-day investment decisions
for the fund. MSA performs this function under the supervision of the advisor
and the fund's Board of Directors.
The portfolio manager on the investment team who is primarily responsible for
the day-to-day management of the fund is:
WILLIAM R. WALKER
Mr. Walker, Managing Director of MSA, has been a member of the team that manages
Small Cap Growth and its predecessor fund since its inception in 1997. He joined
Northwestern Mutual in 1984. Mr. Walker has a bachelor of science degree from
Marquette University and an MBA from Miami University of Oxford, Ohio. He is a
CFA charterholder.
The statement of additional information provides additional information about
the other accounts managed by the portfolio manager, if any, the structure of
his compensation, and his ownership of fund securities.
FUNDAMENTAL INVESTMENT POLICIES
Fundamental investment policies contained in the statement of additional
information and the investment objectives of the fund may not be changed without
shareholder approval. The Board of Directors and/or the advisor may change any
other policies and investment strategies.
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10
INVESTING DIRECTLY WITH AMERICAN CENTURY
SERVICES AUTOMATICALLY AVAILABLE TO YOU
Most accounts automatically will have access to the services listed under WAYS
TO MANAGE YOUR ACCOUNT when the account is opened. If you do not want these
services, see CONDUCTING BUSINESS IN WRITING. If you have questions about the
services that apply to your account type, please call us.
CONDUCTING BUSINESS IN WRITING
If you prefer to conduct business in writing only, you can indicate this on the
account application. If you choose this option, you must provide written
instructions to invest, exchange and redeem. All account owners must sign
transaction instructions (with signatures guaranteed for redemptions in excess
of $100,000). By choosing this option, you are not eligible to enroll for
exclusive online account management to waive the account maintenance fee. See
ACCOUNT MAINTENANCE FEE in this section. If you want to add online and telephone
services later, you can complete an Investor Service Options form.
ACCOUNT MAINTENANCE FEE
If you hold Investor Class shares of any American Century fund, or Institutional
Class shares of the American Century Diversified Bond fund, in an American
Century account (i.e., not a financial intermediary or retirement plan account),
we may charge you a $12.50 semiannual account maintenance fee if the value of
those shares is less than $10,000. We will determine the amount of your total
eligible investments twice per year, generally the last Friday in October and
April. If the value of those investments is less than $10,000 at that time, we
will automatically redeem shares in one of your accounts to pay the $12.50 fee.
Please note that you may incur tax liability as a result of the redemption. In
determining your total eligible investment amount, we will include your
investments in all PERSONAL ACCOUNTS (including American Century Brokerage
accounts) registered under your Social Security number. We will not charge the
fee as long as you choose to manage your accounts exclusively online. You may
enroll for exclusive online account management on our Web site. To find out more
about exclusive online account management, visit americancentury.com/info/demo.
[graphic of triangle]
PERSONAL ACCOUNTS INCLUDE INDIVIDUAL ACCOUNTS, JOINT ACCOUNTS, UGMA/UTMA
ACCOUNTS, PERSONAL TRUSTS, COVERDELL EDUCATION SAVINGS ACCOUNTS, IRAS
(INCLUDING TRADITIONAL, ROTH, ROLLOVER, SEP-, SARSEP- AND SIMPLE-IRAS),
AND CERTAIN OTHER RETIREMENT ACCOUNTS. IF YOU HAVE ONLY BUSINESS,
BUSINESS RETIREMENT, EMPLOYER-SPONSORED OR AMERICAN CENTURY BROKERAGE
ACCOUNTS, YOU ARE CURRENTLY NOT SUBJECT TO THIS FEE, BUT YOU MAY BE
SUBJECT TO OTHER FEES.
WIRE PURCHASES
CURRENT INVESTORS: If you would like to make a wire purchase into an existing
account, your bank will need the following information. (To invest in a new
fund, please call us first to set up the new account.)
* American Century's bank information: Commerce Bank N.A., Routing No.
101000019, Account No. 2804918
* Your American Century account number and fund name
* Your name
* The contribution year (for IRAs only)
NEW INVESTORS: To make a wire purchase into a new account, please complete an
application prior to wiring money.
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11
WAYS TO MANAGE YOUR ACCOUNT
ONLINE
--------------------------------------------------------------------------------
americancentury.com
OPEN AN ACCOUNT: If you are a current or new investor, you can open an account
by completing and submitting our online application. Current investors also can
open an account by exchanging shares from another American Century account.
EXCHANGE SHARES: Exchange shares from another American Century account.
MAKE ADDITIONAL INVESTMENTS: Make an additional investment into an established
American Century account if you have authorized us to invest from your bank
account.
SELL SHARES*: Redeem shares and proceeds will be electronically transferred to
your authorized bank account.
* ONLINE REDEMPTIONS UP TO $25,000 PER DAY.
IN PERSON
--------------------------------------------------------------------------------
If you prefer to handle your transactions in person, visit one of our Investor
Centers and a representative can help you open an account, make additional
investments, and sell or exchange shares.
* 4500 Main Street, Kansas City, Missouri - 8 a.m. to 5 p.m., Monday - Friday
* 4917 Town Center Drive, Leawood, Kansas - 8 a.m. to 5 p.m., Monday - Friday,
8 a.m. to noon, Saturday
* 1665 Charleston Road, Mountain View, California - 8 a.m. to 5 p.m., Monday -
Friday
BY TELEPHONE
--------------------------------------------------------------------------------
INVESTOR SERVICES REPRESENTATIVE: 1-800-345-2021
INSTITUTIONAL SERVICE REPRESENTATIVE: 1-800-345-3533
BUSINESS, NOT-FOR-PROFIT AND EMPLOYER-SPONSORED RETIREMENT PLANS: 1-800-345-3533
AUTOMATED INFORMATION LINE: 1-800-345-8765
OPEN AN ACCOUNT: If you are a current investor, you can open an account by
exchanging shares from another American Century account.
EXCHANGE SHARES: Call or use our Automated Information Line if you have
authorized us to accept telephone instructions. The Automated Information Line
is available only to Investor Class shareholders.
MAKE ADDITIONAL INVESTMENTS: Call or use our Automated Information Line if you
have authorized us to invest from your bank account. The Automated Information
Line is available only to Investor Class shareholders.
SELL SHARES: Call a Service Representative.
BY MAIL OR FAX
--------------------------------------------------------------------------------
P.O. Box 419200, Kansas City, MO 64141-6200 - Fax: 816-340-7962
OPEN AN ACCOUNT: Send a signed, completed application and check or money order
payable to American Century Investments.
EXCHANGE SHARES: Send written instructions to exchange your shares from one
American Century account to another.
MAKE ADDITIONAL INVESTMENTS: Send your check or money order for at least $50
with an investment slip or $250 without an investment slip. If you don't have an
investment slip, include your name, address and account number on your check or
money order.
SELL SHARES: Send written instructions or a redemption form to sell shares. Call
a Service Representative to request a form.
AUTOMATICALLY
--------------------------------------------------------------------------------
OPEN AN ACCOUNT: Not available.
EXCHANGE SHARES: Send written instructions to set up an automatic exchange of
your shares from one American Century account to another.
MAKE ADDITIONAL INVESTMENTS: With the automatic investment service, you can
purchase shares on a regular basis. You must invest at least $50 per month per
account.
SELL SHARES: You may sell shares automatically by establishing Check-A-Month or
Automatic Redemption plans.
SEE ADDITIONAL POLICIES AFFECTING YOUR INVESTMENT FOR MORE INFORMATION ABOUT
INVESTING WITH US.
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12
INVESTING THROUGH A FINANCIAL INTERMEDIARY
The fund's A, B, C and R Classes are intended for purchase by participants in
employer-sponsored retirement or savings plans and for persons purchasing shares
through FINANCIAL INTERMEDIARIES that provide various administrative and
distribution services.
[graphic of triangle]
FINANCIAL INTERMEDIARIES INCLUDE BANKS, BROKER-DEALERS, INSURANCE
COMPANIES, PLAN SPONSORS AND FINANCIAL PROFESSIONALS.
Although each class of shares represents an interest in the same fund, each has
a different cost structure, as described below. Which class is right for you
depends on many factors, including how long you plan to hold the shares, how
much you plan to invest, the fee structure of each class, and how you wish to
compensate your financial professional for the services provided to you. Your
financial professional can help you choose the option that is most appropriate.
The following chart provides a summary description of these classes.
A CLASS B CLASS
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Initial sales charge(1) No initial sales charge
--------------------------------------------------------------------------------
Generally no contingent Contingent deferred sales charge
deferred sales charge(2) on redemptions within six years
--------------------------------------------------------------------------------
12b-1 fee of 0.25% 12b-1 fee of 1.00%
--------------------------------------------------------------------------------
No conversion feature Convert to A Class shares eight
years after purchase
--------------------------------------------------------------------------------
Generally more appropriate Aggregate purchases limited
for long-term investors to amounts less than $100,000
--------------------------------------------------------------------------------
C CLASS R CLASS
--------------------------------------------------------------------------------
No initial sales charge No initial sales charge
--------------------------------------------------------------------------------
Contingent deferred sales charge No contingent deferred
on redemptions within 12 months sales charge
--------------------------------------------------------------------------------
12b-1 fee of 1.00% 12b-1 fee of 0.50%
--------------------------------------------------------------------------------
No conversion feature No conversion feature
--------------------------------------------------------------------------------
Aggregate purchases limited to amounts Generally offered through qualified
less than $1,000,000; generally more retirement plans and other
appropriate for short-term investors fee-based arrangements
--------------------------------------------------------------------------------
(1) THE SALES CHARGE FOR A CLASS SHARES DECREASES DEPENDING ON THE SIZE OF
YOUR INVESTMENT, AND MAY BE WAIVED FOR SOME PURCHASES. THERE IS NO SALES
CHARGE FOR PURCHASES OF $1,000,000 OR MORE.
(2) A CONTINGENT DEFERRED SALES CHARGE (CDSC) OF 1.00% WILL BE CHARGED ON
CERTAIN PURCHASES OF $1,000,000 OR MORE THAT ARE REDEEMED WITHIN ONE YEAR
OF PURCHASE.
CALCULATION OF SALES CHARGES
The information regarding sales charges provided herein is included free of
charge and in a clear and prominent format at americancentury.com in the
INVESTORS USING ADVISORS and INVESTMENT PROFESSIONALS portions of the Web site.
From the description of A, B or C Class shares, a hyperlink will take you
directly to this disclosure.
A Class
A Class shares are sold at their offering price, which is net asset value plus
an initial sales charge. This sales charge varies depending on the amount of
your investment, and is deducted from your purchase before it is invested. The
sales charges and the amounts paid to your financial professional are:
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13
AMOUNT PAID TO
SALES CHARGE SALES CHARGE FINANCIAL ADVISOR
AS A % OF AS A % OF NET AS A % OF
PURCHASE AMOUNT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
--------------------------------------------------------------------------------
Less than $50,000 5.75% 6.10% 5.00%
--------------------------------------------------------------------------------
$50,000 - $99,999 4.75% 4.99% 4.00%
--------------------------------------------------------------------------------
$100,000 - $249,999 3.75% 3.90% 3.25%
--------------------------------------------------------------------------------
$250,000 - $499,999 2.50% 2.56% 2.00%
--------------------------------------------------------------------------------
$500,000 - $999,999 2.00% 2.04% 1.75%
--------------------------------------------------------------------------------
$1,000,000 - $3,999,999 0.00% 0.00% 1.00%(1)
--------------------------------------------------------------------------------
$4,000,000 - $9,999,999 0.00% 0.00% 0.50%(1)
--------------------------------------------------------------------------------
$10,000,000 or more 0.00% 0.00% 0.25%(1)
--------------------------------------------------------------------------------
(1) FOR PURCHASES OVER $1,000,000 BY QUALIFIED RETIREMENT PLANS, NO
UPFRONT AMOUNT WILL BE PAID TO FINANCIAL PROFESSIONALS.
There is no front-end sales charge for purchases of $1,000,000 or more, but if
you redeem your shares within one year of purchase you will pay a 1.00% deferred
sales charge, subject to the exceptions listed below. No sales charge applies to
reinvested dividends.
Reductions and Waivers of Sales Charges for A Class
You may qualify for a reduction or waiver of certain sales charges, but you or
your financial professional must provide certain information, including the
account numbers of any accounts to be aggregated, to American Century at the
time of purchase in order to take advantage of such reduction or waiver.
You and your immediate family (your spouse and your children under the age of
21) may combine investments to reduce your A Class sales charge in the following
ways:
ACCOUNT AGGREGATION. Investments made by you and your immediate family may be
aggregated at each account's current market value if made for your own
account(s) and/or certain other accounts, such as:
* Certain trust accounts
* Solely controlled business accounts
* Single-participant retirement plans
* Endowments or foundations established and controlled by you or an
immediate family member
For purposes of aggregation, only investments made through individual-level
accounts, rather than accounts aggregated at the intermediary level, may be
included.
CONCURRENT PURCHASES. You may combine simultaneous purchases in A, B or C Class
shares of any two or more American Century Advisor Funds (funds that offer A, B
and C Class shares) to qualify for a reduced A Class sales charge.
RIGHTS OF ACCUMULATION. You may take into account the current value of your
existing holdings in A, B or C Class shares of any American Century Advisor Fund
to determine your A Class sales charge.
LETTER OF INTENT. A Letter of Intent allows you to combine all non-money market
fund purchases of all A, B and C Class shares you intend to make over a 13-month
period to determine the applicable sales charge. Such purchases will be valued
at their historical cost for this purpose. At your request, purchases made
during the previous 90 days may be included; however, capital appreciation,
capital gains and reinvested dividends do not apply toward these combined
purchases. A portion of your account will be held in escrow to cover additional
A Class sales charges that will be due if your total investments over the
13-month period do not qualify for the applicable sales charge reduction.
------
14
WAIVERS FOR CERTAIN INVESTORS. The sales charge on A Class shares may be waived
for:
* Purchases by registered representatives and other employees of certain
financial intermediaries (and their immediate family members) having selling
agreements with the advisor or distributor
* Wrap accounts maintained for clients of certain financial intermediaries
who have entered into selling agreements with American Century
* Present or former officers, directors and employees (and their families)
of American Century
* Qualified retirement plan purchases
* IRA Rollovers from any American Century Advisor Fund held in a qualified
retirement plan
* Certain other investors as deemed appropriate by American Century
B Class
B Class shares are sold at their net asset value without an initial sales
charge. For sales of B Class shares, the amount paid to your financial
professional is 4.00% of the amount invested. If you redeem your shares within
six years of purchase date, you will pay a contingent deferred sales charge
(CDSC) as set forth below. The purpose of the CDSC is to permit the fund's
distributor to recoup all or a portion of the up-front payment made to your
financial professional. There is no CDSC on shares acquired through reinvestment
of dividends or capital gains.
REDEMPTION DURING CDSC AS A % OF ORIGINAL PURCHASE PRICE
--------------------------------------------------------------------------------
1st year 5.00%
--------------------------------------------------------------------------------
2nd year 4.00%
--------------------------------------------------------------------------------
3rd year 3.00%
--------------------------------------------------------------------------------
4th year 3.00%
--------------------------------------------------------------------------------
5th year 2.00%
--------------------------------------------------------------------------------
6th year 1.00%
--------------------------------------------------------------------------------
After 6th year None
--------------------------------------------------------------------------------
B Class shares (which carry a 1.00% 12b-1 fee) will automatically convert to A
Class shares (which carry a 0.25% 12b-1 fee) in the month of the eight-year
anniversary of the purchase date.
C Class
C Class shares are sold at their net asset value without an initial sales
charge. For sales of C Class shares, the amount paid to your financial
professional is 1.00% of the amount invested. If you redeem your shares within
12 months of purchase, you will pay a CDSC of 1.00% of the original purchase
price or the current market value at redemption, whichever is less. The purpose
of the CDSC is to permit the fund's distributor to recoup all or a portion of
the up-front payment made to your financial professional.
The CDSC will not be charged on shares acquired through reinvestment of
dividends or distributions or increases in the net asset value of shares.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE (CDSC)
To minimize the amount of the CDSC you may pay when you redeem shares, the fund
will first redeem shares acquired through reinvested dividends and capital gain
distributions, which are not subject to a CDSC. Shares that have been in your
account long enough that they are not subject to a CDSC are redeemed next. For
any remaining redemption amount, shares will be sold in the order they were
purchased (earliest to latest).
------
15
CDSC WAIVERS
Any applicable CDSC may be waived in the following cases:
* redemptions through systematic withdrawal plans not exceeding annually:
* 12% of the lesser of the original purchase cost or current market
value for A Class shares
* 12% of the original purchase cost for B Class shares
* 12% of the lesser of the original purchase cost or current market
value for C Class shares
* distributions from IRAs due to attainment of age 59-1/2 for A Class shares
and for C Class shares
* required minimum distributions from retirement accounts upon reaching age
70-1/2
* tax-free returns of excess contributions to IRAs
* redemptions due to death or post-purchase disability
* exchanges, unless the shares acquired by exchange are redeemed within the
original CDSC period
* IRA Rollovers from any American Century Advisor Fund held in a qualified
retirement plan, for A Class shares only
* if no broker was compensated for the sale
REINSTATEMENT PRIVILEGE
Within 90 days of a redemption of any A or B Class shares, you may reinvest all
of the redemption proceeds in A Class shares of any American Century Advisor
Fund at the then-current net asset value without paying an initial sales charge.
Any CDSC you paid on an A Class redemption that you are reinvesting will be
credited to your account. You or your financial professional must notify the
fund's transfer agent in writing at the time of the reinvestment to take
advantage of this privilege, and you may use it only once.
EXCHANGING SHARES
You may exchange shares of the fund for shares of the same class of another
American Century Advisor Fund without a sales charge if you meet the following
criteria:
* The exchange is for a minimum of $100
* For an exchange that opens a new account, the amount of the exchange must
meet or exceed the minimum account size requirement for the fund receiving
the exchange
For purposes of computing any applicable CDSC on shares that have been
exchanged, the holding period will begin as of the date of purchase of the
original fund owned. Exchanges from a money market fund are subject to a sales
charge on the fund being purchased, unless the money market fund shares were
acquired by exchange from a fund with a sales charge or by reinvestment of
dividends or capital gains distributions.
EXCHANGES BETWEEN FUNDS (C CLASS)
You may exchange C Class shares of a fund for C Class shares of any other
American Century fund. You may not exchange from the C Class to any other class.
We will not charge a Contingent Deferred Sales Charge (CDSC) on the shares you
exchange, regardless of the length of time you have owned them. When you do
redeem shares that have been exchanged, the CDSC will be based on the date you
purchased the original shares.
------
16
BUYING AND SELLING SHARES
Your ability to purchase, exchange, redeem and transfer shares will be affected
by the policies of the financial intermediary through which you do business.
Some policy differences may include
* minimum investment requirements
* exchange policies
* fund choices
* cutoff time for investments
* trading restrictions
In addition, your financial intermediary may charge a transaction fee for the
purchase or sale of fund shares. Those charges are retained by the financial
intermediary and are not shared with American Century or the fund. Please
contact your intermediary or plan sponsor for a complete description of its
policies. Copies of the fund's annual report, semiannual report and statement of
additional information are available from your financial intermediary or plan
sponsor.
The fund has authorized certain financial intermediaries to accept orders on the
fund's behalf. American Century has selling agreements with these financial
intermediaries requiring them to track the time investment orders are received
and to comply with procedures relating to the transmission of orders. Orders
must be received by the financial intermediary on the fund's behalf before the
time the net asset value is determined in order to receive that day's share
price. If those orders are transmitted to American Century and paid for in
accordance with the selling agreement, they will be priced at the net asset
value next determined after your request is received in the form required by the
financial intermediary.
SEE ADDITIONAL POLICIES AFFECTING YOUR INVESTMENT FOR MORE INFORMATION ABOUT
INVESTING WITH US.
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17
ADDITIONAL POLICIES AFFECTING YOUR INVESTMENT
MINIMUM INITIAL INVESTMENT AMOUNTS
To open an account, the minimum initial investment amounts are $2,000 for a
Coverdell Education Savings Account (CESA), and $2,500 for all other accounts.
ELIGIBILITY FOR INSTITUTIONAL CLASS SHARES
The Institutional Class shares are made available for purchase by large
institutional shareholders such as bank trust departments, corporations,
retirement plans, endowments, foundations and financial advisors that meet the
fund's minimum investment requirements. Institutional Class shares are not
available for purchase by insurance companies for variable annuity and variable
life products.
MINIMUM INITIAL INVESTMENT AMOUNTS (INSTITUTIONAL CLASS)
The minimum initial investment amount is $5 million ($3 million for endowments
and foundations) per fund. If you invest with us through a financial
intermediary, this requirement may be met if your financial intermediary
aggregates your investments with those of other clients into a single group, or
omnibus, account that meets the minimum. The minimum investment requirement may
be waived if you, or your financial intermediary if you invest through an
omnibus account, have an aggregate investment in our family of funds of $10
million or more ($5 million for endowments and foundations). In addition,
financial intermediaries or plan recordkeepers may require retirement plans to
meet certain other conditions, such as plan size or a minimum level of assets
per participant, in order to be eligible to purchase Institutional Class shares.
REDEMPTIONS
If you sell your B or C Class or, in certain cases, A Class shares within a
certain time after their purchase, you will pay a sales charge the amount of
which is contingent upon the amount of time you have held your shares, as
described above.
Your redemption proceeds will be calculated using the NET ASSET VALUE (NAV) next
determined after we receive your transaction request in good order.
[graphic of triangle]
A FUND'S NET ASSET VALUE, OR NAV, IS THE PRICE OF THE FUND'S SHARES.
However, we reserve the right to delay delivery of redemption proceeds up to
seven days. For example, each time you make an investment with American Century,
there is a seven-day holding period before we will release redemption proceeds
from those shares, unless you provide us with satisfactory proof that your
purchase funds have cleared. Investments by wire generally require only a
one-day holding period. If you change your address, we may require that any
redemption request made within 15 days be submitted in writing and be signed by
all authorized signers with their signatures guaranteed. If you change your bank
information, we may impose a 15-day holding period before we will transfer or
wire redemption proceeds to your bank. Please remember, if you request
redemptions by wire, $10 will be deducted from the amount redeemed. Your bank
also may charge a fee.
In addition, we reserve the right to honor certain redemptions with securities,
rather than cash, as described in the next section.
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18
SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS
If, during any 90-day period, you redeem fund shares worth more than $250,000
(or 1% of the value of a fund's assets if that amount is less than $250,000), we
reserve the right to pay part or all of the redemption proceeds in excess of
this amount in readily marketable securities instead of in cash. The portfolio
managers would select these securities from the fund's portfolio.
We will value these securities in the same manner as we do in computing the
fund's net asset value. We may provide these securities in lieu of cash without
prior notice. Also, if payment is made in securities, you may have to pay
brokerage or other transaction costs to convert the securities to cash.
If your redemption would exceed this limit and you would like to avoid being
paid in securities, please provide us with an unconditional instruction to
redeem at least 15 days prior to the date on which the redemption transaction is
to occur. The instruction must specify the dollar amount or number of shares to
be redeemed and the date of the transaction. This minimizes the effect of the
redemption on a fund and its remaining investors.
REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS
If your account balance falls below the minimum initial investment amount for
any reason other than as a result of market fluctuation, we will notify you and
give you 90 days to meet the minimum. If you do not meet the deadline, American
Century reserves the right to redeem the shares in the account and send the
proceeds to your address of record. Please note that you may incur tax liability
as a result of the redemption. For Institutional Class shares, we reserve the
right to convert your shares to Investor Class shares of the same fund. The
Investor Class shares have a unified management fee that is 0.20% higher than
the Institutional Class. A, B, and C Class shares redeemed in this manner may be
subject to a sales charge if held less than the applicable time period. You also
may incur tax liability as a result of the redemption.
SIGNATURE GUARANTEES
A signature guarantee - which is different from a notarized signature - is a
warranty that the signature presented is genuine. We may require a signature
guarantee for the following transactions.
* You have chosen to conduct business in writing only and would like to
redeem over $100,000.
* Your redemption or distribution check, Check-A-Month or automatic
redemption is made payable to someone other than the account owners.
* Your redemption proceeds or distribution amount is sent by EFT (ACH or
wire) to a destination other than your personal bank account.
* You are transferring ownership of an account over $100,000.
* You change your address and request a redemption over $100,000 within 15
days.
* You change your bank information and request a redemption within 15 days.
We reserve the right to require a signature guarantee for other transactions, at
our discretion.
MODIFYING OR CANCELING AN INVESTMENT
Investment instructions are irrevocable. That means that once you have mailed or
otherwise transmitted your investment instruction, you may not modify or cancel
it. The fund reserves the right to suspend the offering of shares for a period
of time and to reject any specific investment (including a purchase by
exchange). Additionally, we may refuse a purchase if, in our judgment, it is of
a size that would disrupt the management of a fund.
------
19
ABUSIVE TRADING PRACTICES
Short-term trading and other so-called market timing practices are not defined
or explicitly prohibited by any federal or state law. However, short-term
trading and other abusive trading practices may disrupt portfolio management
strategies and harm fund performance. If the cumulative amount of short-term
trading activity is significant relative to a fund's net assets, the fund may
incur trading costs that are higher than necessary as securities are first
purchased then quickly sold to meet the redemption request. In such case, the
fund's performance could be negatively impacted by the increased trading costs
created by short-term trading if the additional trading costs are significant.
Because of the potentially harmful effects of abusive trading practices, the
fund's Board of Directors has approved American Century's abusive trading
policies and procedures, which are designed to reduce the frequency and effect
of these activities in our funds. These policies and procedures include
monitoring trading activity, imposing trading restrictions on certain accounts,
imposing redemption fees on certain funds, and using fair value pricing when
current market prices are not readily available. Although these efforts are
designed to discourage abusive trading practices, they cannot eliminate the
possibility that such activity will occur. American Century seeks to exercise
its judgment in implementing these tools to the best of its ability in a manner
that it believes is consistent with shareholder interests.
American Century uses a variety of techniques to monitor for and detect abusive
trading practices. These techniques may vary depending on the type of fund, the
class of shares or whether the shares are held directly or indirectly with
American Century. They may change from time to time as determined by American
Century in its sole discretion. To minimize harm to the funds and their
shareholders, we reserve the right to reject any purchase order (including
exchanges) from any shareholder we believe has a history of abusive trading or
whose trading, in our judgment, has been or may be disruptive to the funds. In
making this judgment, we may consider trading done in multiple accounts under
common ownership or control.
Currently, for shares held directly with American Century, we may deem the sale
of all or a substantial portion of a shareholder's purchase of fund shares to be
abusive if the sale is made
* within seven days of the purchase, or
* within 30 days of the purchase, if it happens more than once per year.
To the extent practicable, we try to use the same approach for defining abusive
trading for shares held through financial intermediaries. American Century
reserves the right, in its sole discretion, to identify other trading practices
as abusive and to modify its monitoring and other practices as necessary to deal
with novel or unique abusive trading practices.
In addition, American Century reserves the right to accept purchases and
exchanges in excess of the trading restrictions discussed above if it believes
that such transactions would not be inconsistent with the best interests of fund
shareholders or this policy.
American Century's policies do not permit us to enter into arrangements with
fund shareholders that permit such shareholders to engage in frequent purchases
and redemptions of fund shares. Due to the complexity and subjectivity involved
in identifying abusive trading activity and the volume of shareholder
transactions American Century handles, there can be no assurance that American
Century's efforts will identify all trades or trading practices that may be
considered abusive. In addition, American Century's ability to monitor trades
that are placed by individual shareholders within group, or omnibus, accounts
maintained by financial intermediaries is severely limited because American
Century generally does not have access to the underlying shareholder account
information. However, American Century monitors aggregate trades placed in
omnibus accounts and seeks to work with financial intermediaries to discourage
shareholders from engaging in abusive trading practices and to impose
restrictions on excessive trades. There may be limitations on the ability of
financial intermediaries to impose restrictions on the trading practices of
their clients. As a result, American Century's ability to monitor and discourage
abusive trading practices in omnibus accounts may be limited.
------
20
YOUR RESPONSIBILITY FOR UNAUTHORIZED TRANSACTIONS
American Century and its affiliated companies use procedures reasonably designed
to confirm that telephone, electronic and other instructions are genuine. These
procedures include recording telephone calls, requesting personalized security
codes or other information, and sending confirmation of transactions. If we
follow these procedures, we are not responsible for any losses that may occur
due to unauthorized instructions. For transactions conducted over the Internet,
we recommend the use of a secure Internet browser. In addition, you should
verify the accuracy of your confirmation statements immediately after you
receive them.
A NOTE ABOUT MAILINGS TO SHAREHOLDERS
To reduce the amount of mail you receive from us, we may deliver a single copy
of certain investor documents (such as shareholder reports and prospectuses) to
investors who share an address, even if accounts are registered under different
names. If you prefer to receive multiple copies of these documents individually
addressed, please call us or your financial professional. For American Century
Brokerage accounts, please call 1-888-345-2071.
RIGHT TO CHANGE POLICIES
We reserve the right to change any stated investment requirement, including
those that relate to purchases, exchanges and redemptions. We also may alter,
add or discontinue any service or privilege. Changes may affect all investors or
only those in certain classes or groups. In addition, from time to time we may
waive a policy on a case-by-case basis, as the advisor deems appropriate.
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21
SHARE PRICE AND DISTRIBUTIONS
SHARE PRICE
American Century will price the fund shares you purchase, exchange or redeem at
the net asset value (NAV) next determined after your order is received and
accepted by the fund's transfer agent, or other financial intermediary with the
authority to accept orders on the fund's behalf. We determine the NAV of each
fund as of the close of regular trading (usually 4 p.m. Eastern time) on the New
York Stock Exchange (NYSE) on each day the NYSE is open. On days when the NYSE
is closed (including certain U.S. national holidays), we do not calculate the
NAV. A fund's NAV is the current value of the fund's assets, minus any
liabilities, divided by the number of shares outstanding.
The fund values portfolio securities for which market quotations are readily
available at their market price. As a general rule, equity securities listed on
a U.S. exchange are valued at the last current reported sale price as of the
time of valuation. Securities listed on the NASDAQ National Market System
(Nasdaq) are valued at the Nasdaq Official Closing Price (NOCP), as determined
by Nasdaq, or lacking an NOCP, at the last current reported sale price as of the
time of valuation. The fund may use pricing services to assist in the
determination of market value. Unlisted securities for which market quotations
are readily available are valued at the last quoted sale price or the last
quoted ask price, as applicable, except that debt obligations with 60 days or
less remaining until maturity may be valued at amortized cost. Exchange-traded
options, futures and options on futures are valued at the settlement price as
determined by the appropriate clearing corporation.
If the fund determines that the market price for a portfolio security is not
readily available or that the valuation methods mentioned above do not reflect
the security's fair value, such security is valued at its fair value as
determined in good faith by, or in accordance with procedures adopted by, the
fund's board or its designee (a process referred to as "fair valuing" the
security). Circumstances that may cause the fund to fair value a security
include, but are not limited to:
* for funds investing in foreign securities, if, after the close of the
foreign exchange on which a portfolio security is principally traded, but
before the close of the NYSE, an event occurs that may materially affect the
value of the security;
* for funds that invest in debt securities, a debt security has been
declared in default; or
* trading in a security has been halted during the trading day.
If such circumstances occur, the fund will fair value the security if the fair
valuation would materially impact the fund's NAV. While fair value
determinations involve judgments that are inherently subjective, these
determinations are made in good faith in accordance with procedures adopted by
the fund's board.
The effect of using fair value determinations is that the fund's NAV will be
based, to some degree, on security valuations that the board or its designee
believes are fair rather than being solely determined by the market.
With respect to any portion of the fund's assets that are invested in one or
more open-end management investment companies that are registered with the SEC
(known as registered investment companies, or RICs), the fund's NAV will be
calculated based upon the NAVs of such RICs. These RICs are required by law to
explain the circumstances under which they will use fair value pricing and the
effects of using fair value pricing in their prospectuses.
------
22
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day.
Trading of securities in foreign markets may not take place every day the NYSE
is open. Also, trading in some foreign markets and on some electronic trading
networks may take place on weekends or holidays when the fund's NAV is not
calculated. So, the value of the fund's portfolio may be affected on days when
you will not be able to purchase, exchange or redeem fund shares.
DISTRIBUTIONS
Federal tax laws require the fund to make distributions to its shareholders in
order to qualify as a regulated investment company. Qualification as a regulated
investment company means that the fund should not be subject to state or federal
income tax on amounts distributed. The distributions generally consist of
dividends and interest received by a fund, as well as CAPITAL GAINS realized by
a fund on the sale of its investment securities.
[graphic of triangle]
CAPITAL GAINS ARE INCREASES IN THE VALUES OF CAPITAL ASSETS, SUCH AS
STOCK, FROM THE TIME THE ASSETS ARE PURCHASED.
The fund generally pays distributions from net income and capital gains, if any,
once a year in December. It may make more frequent distributions, if necessary,
to comply with Internal Revenue Code provisions.
You will participate in fund distributions when they are declared, starting the
next business day after your purchase is effective. For example, if you purchase
shares on a day that a distribution is declared, you will not receive that
distribution. If you redeem shares, you will receive any distribution declared
on the day you redeem. If you redeem all shares, we will include any
distributions received with your redemption proceeds.
Participants in tax-deferred retirement plans must reinvest all distributions.
For investors investing through taxable accounts, we will reinvest distributions
unless you elect to have dividends and/or capital gains sent to another American
Century account, to your bank electronically, or to your home address or to
another person or address by check.
------
23
TAXES
The tax consequences of owning shares of the fund will vary depending on whether
you own them through a taxable or tax-deferred account. Tax consequences result
from distributions by the fund of dividend and interest income it has received
or capital gains it has generated through its investment activities. Tax
consequences also may result when investors sell fund shares after the net asset
value has increased or decreased.
Tax-Deferred Accounts
If you purchase fund shares through a tax-deferred account, such as an IRA or a
qualified employer-sponsored retirement or savings plan, income and capital
gains distributions usually will not be subject to current taxation but will
accumulate in your account under the plan on a tax-deferred basis. Likewise,
moving from one fund to another fund within a plan or tax-deferred account
generally will not cause you to be taxed. For information about the tax
consequences of making purchases or withdrawals through a tax-deferred account,
please consult your plan administrator, your summary plan description or a tax
advisor.
Taxable Accounts
If you own fund shares through a taxable account, you may be taxed on your
investments if the fund makes distributions or if you sell your fund shares.
Taxability of Distributions
Fund distributions may consist of income, such as dividends and interest earned
by a fund from its investments, or capital gains generated by a fund from the
sale of investment securities. Distributions of income are taxed as ordinary
income, unless they are designated as QUALIFIED DIVIDEND INCOME and you meet a
minimum required holding period with respect to your shares of the fund, in
which case distributions of income are taxed as long-term capital gains.
[graphic of triangle]
QUALIFIED DIVIDEND INCOME IS A DIVIDEND RECEIVED BY A FUND FROM THE
STOCK OF A DOMESTIC OR QUALIFYING FOREIGN CORPORATION, PROVIDED THAT THE
FUND HAS HELD THE STOCK FOR A REQUIRED HOLDING PERIOD.
For capital gains and for income distributions designated as qualified dividend
income, the following rates apply:
TAX RATE FOR 10% TAX RATE FOR
TYPE OF DISTRIBUTION AND 15% BRACKETS ALL OTHER BRACKETS
--------------------------------------------------------------------------------
Short-term capital gains Ordinary Income Ordinary Income
--------------------------------------------------------------------------------
Long-term capital gains (more than 1 year)
and Qualified Dividend Income 5% 15%
--------------------------------------------------------------------------------
If a fund's distributions exceed its taxable income and capital gains realized
during the tax year, all or a portion of the distributions made by the fund in
that tax year will be considered a return of capital. A return of capital
distribution is generally not subject to tax, but will reduce your cost basis in
the fund and result in higher realized capital gains (or lower realized capital
losses) upon the sale of fund shares.
------
24
The tax status of any distributions of capital gains is determined by how long a
fund held the underlying security that was sold, not by how long you have been
invested in the fund, or whether you reinvest your distributions in additional
shares or take them in cash. For taxable accounts, American Century or your
financial intermediary will inform you of the tax status of fund distributions
for each calendar year in an annual tax mailing.
Distributions also may be subject to state and local taxes. Because everyone's
tax situation is unique, you may want to consult your tax professional about
federal, state and local tax consequences.
Taxes on Transactions
Your redemptions - including exchanges to other American Century funds - are
subject to capital gains tax. The table above can provide a general guide for
your potential tax liability when selling or exchanging fund shares. Short-term
capital gains are gains on fund shares you held for 12 months or less. Long-term
capital gains are gains on fund shares you held for more than 12 months. If your
shares decrease in value, their sale or exchange will result in a long-term or
short-term capital loss. However, you should note that loss realized upon the
sale or exchange of shares held for six months or less will be treated as a
long-term capital loss to the extent of any distribution of long-term capital
gain to you with respect to those shares. If a loss is realized on the
redemption of fund shares, the reinvestment in additional fund shares within 30
days before or after the redemption may be subject to the wash sale rules of the
Internal Revenue Code. This may result in a postponement of the recognition of
such loss for federal income tax purposes.
If you have not certified to us that your Social Security number or tax
identification number is correct and that you are not subject to withholding, we
are required to withhold and pay to the IRS the applicable federal withholding
tax rate on taxable dividends, capital gains distributions and redemption
proceeds.
Buying a Dividend
Purchasing fund shares in a taxable account shortly before a distribution is
sometimes known as buying a dividend. In taxable accounts, you must pay income
taxes on the distribution whether you reinvest the distribution or take it in
cash. In addition, you will have to pay taxes on the distribution whether the
value of your investment decreased, increased or remained the same after you
bought the fund shares.
The risk in buying a dividend is that a fund's portfolio may build up taxable
gains throughout the period covered by a distribution, as securities are sold at
a profit. The fund distributes those gains to you, after subtracting any losses,
even if you did not own the shares when the gains occurred.
If you buy a dividend, you incur the full tax liability of the distribution
period, but you may not enjoy the full benefit of the gains realized in the
fund's portfolio.
------
25
MULTIPLE CLASS INFORMATION
American Century offers six classes of shares of the fund: Investor Class,
Institutional Class, A Class, B Class, C Class and R Class.
The classes have different fees, expenses and/or minimum investment
requirements. The difference in the fee structures between the classes is the
result of their separate arrangements for shareholder and distribution services.
It is not the result of any difference in advisory or custodial fees or other
expenses related to the management of the fund's assets, which do not vary by
class. Different fees and expenses will affect performance.
Except as described herein, all classes of shares of a fund have identical
voting, dividend, liquidation and other rights, preferences, terms and
conditions. The only differences among the classes are (a) each class may be
subject to different expenses specific to that class; (b) each class has a
different identifying designation or name; (c) each class has exclusive voting
rights with respect to matters solely affecting such class; (d) each class may
have different exchange privileges; (e) the Institutional Class may provide for
automatic conversion from that class into shares of the Investor Class of the
same fund; and (f) the B Class provides for automatic conversion from that class
into shares of the A Class of the same fund after eight years.
Service, Distribution and Administrative Fees
Investment Company Act Rule 12b-1 permits mutual funds that adopt a written plan
to pay certain expenses associated with the distribution of their shares out of
fund assets. Each class, except Investor Class and Institutional Class, offered
by this prospectus has a 12b-1 plan. The plans provide for the fund to pay
annual fees of 0.25% for A Class, 1.00% for B and C Class, and 0.50% for R Class
to the distributor for certain ongoing shareholder and administrative services
and for distribution services, including past distribution services. The
distributor pays all or a portion of such fees to the financial intermediaries
that make the classes available. Because these fees are used to pay for services
that are not related to prospective sales of the fund, each class will continue
to make payments under its plan even if it is closed to new investors. Because
these fees are paid out of the fund's assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
other types of sales charges. The higher fees for B and C Class shares may cost
you more over time than paying the initial sales charge for A Class shares. For
additional information about the plans and their terms, see MULTIPLE CLASS
STRUCTURE in the statement of additional information.
Certain financial intermediaries perform recordkeeping and administrative
services for their clients that would otherwise be performed by American
Century's transfer agent. In some circumstances, the advisor will pay such
service providers a fee for performing those services. Also, the advisor and the
fund's distributor may make payments for various additional services or other
expenses out of their profits or other available sources. Such payments may be
made for one or more of the following: (1) distribution services, which include
expenses incurred by intermediaries for their sales activities with respect to
the fund, such as preparing, printing and distributing sales literature and
advertising materials and compensating registered representatives or other
employees of such intermediary for their sales activities; (2) shareholder
services, such as providing individual and custom investment advisory services
to clients of the intermediary; and (3) marketing and promotional services,
including business planning assistance, educating personnel about the fund, and
sponsorship of sales meetings, which may include covering costs of providing
speakers, meals and other entertainment. The distributor may sponsor seminars
and conferences designed to educate intermediaries about the fund and may cover
the expenses associated with attendance at such meetings, including travel
costs. These payments and activities are intended to provide an incentive to
intermediaries to sell the fund by ensuring that they are educated about the
fund, and to help such intermediaries defray costs associated with offering the
fund. The amount of any payments described by this paragraph is determined by
the advisor or the distributor, and all such amounts are paid out of the
available assets of the advisor and distributor, and not by you or the fund. As
a result, the total expense ratio of the fund will not be affected by any such
payments.
------
26
FINANCIAL HIGHLIGHTS
UNDERSTANDING THE FINANCIAL HIGHLIGHTS
The tables on the next few pages itemize what contributed to the changes in
share price during the most recently ended fiscal year. They also show the
changes in share price for this period in comparison to changes over the last
five fiscal years (or a shorter period if the share class is not five years
old). Because the Investor, Institutional, C and R Classes are new, financial
information is not available for those classes.
On a per-share basis, each table includes as appropriate
* share price at the beginning of the period
* investment income and capital gains or losses
* distributions of income and capital gains paid to investors
* share price at the end of the period
Each table also includes some key statistics for the period as appropriate
* TOTAL RETURN - the overall percentage of return of the fund, assuming the
reinvestment of all distributions
* EXPENSE RATIO - the operating expenses of the fund as a percentage of
average net assets
* NET INCOME RATIO - the net investment income of the fund as a percentage
of average net assets
* PORTFOLIO TURNOVER - the percentage of the fund's investment portfolio
that is replaced during the period
The Financial Highlights that follow have been audited by PricewaterhouseCoopers
LLP, independent registered public accounting firm, except for the six-month
period ended September 30, 2005, which have not been audited.
------
27
SMALL CAP GROWTH
A Class
Small Cap Growth acquired all the net assets of the Mason Street Small Cap
Growth Fund on March 31, 2006, pursuant to a plan of reorganization approved
by the acquired fund's shareholders on March 23, 2006. Performance information
prior to March 31, 2006 is that of the Mason Street Small Cap Growth Fund.
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
-----------------------------------------------------------------------------------------------------
2005(1) 2005 2004 2003 2002 2001
-----------------------------------------------------------------------------------------------------
PER-SHARE DATA
-----------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $15.27 $14.38 $10.11 $13.38 $11.61 $17.59
-----------------------------------------------------------------------------------------------------
Income From Investment Operations
--------------------------------------
Net Investment (Income) Loss (0.06)(2) (0.15)(2) (0.15)(2) (0.12)(2) (0.11) (0.13)(2)
--------------------------------------
Net Realized and Unrealized 2.18 1.75 4.42 (3.15) 1.88 (3.36)
Gain (Losses) on Investments
-----------------------------------------------------------------------------------------------------
Total From Investment Operations 2.12 1.60 4.27 (3.27) 1.77 (3.49)
-----------------------------------------------------------------------------------------------------
Less Distributions
--------------------------------------
Distributions from Realized - (0.71) - - - (2.49)
Gains on Investments
-----------------------------------------------------------------------------------------------------
Total Distributions - (0.71) - - - (2.49)
-----------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $17.39 $15.27 $14.38 $10.11 $13.38 $11.61
=====================================================================================================
TOTAL RETURN(3) 13.88%(4) 10.99% 42.24% (24.44)% 15.25% (20.91)%
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.87%(5) 2.03% 2.21% 2.29% 2.46% 2.36%
--------------------------------------
Ratio of Net Expenses
to Average Net Assets 1.40%(5) 1.40% 1.40% 1.40% 1.40% 1.40%
--------------------------------------
Ratio of Net Investment
Income (Loss)
to Average Net Assets (0.39)%(5) (1.05)% (1.16)% (1.10)% (0.89)% (0.79)%
--------------------------------------
Portfolio Turnover Rate 31.68% 85.96% 97.52% 48.87% 57.86% 81.87%
--------------------------------------
Net Assets, End of Period
(in thousands) $46,898 $33,791 $23,914 $14,623 $13,997 $10,111
-----------------------------------------------------------------------------------------------------
(1) FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2005 (UNAUDITED).
(2) CALCULATED BASED ON AVERAGE SHARES OUTSTANDING.
(3) TOTAL RETURN INCLUDES DEDUCTIONS FOR MANAGEMENT AND OTHER FUND
EXPENSES; EXCLUDES DEDUCTIONS FOR SALES LOADS AND CONTINGENT DEFERRED SALES
CHARGES. RETURNS INCLUDE FEE WAIVERS IN EFFECT. IN THE ABSENCE OF FEE
WAIVERS, TOTAL RETURN WOULD BE REDUCED.
(4) REFLECTS TOTAL RETURN FOR THE PERIOD; NOT ANNUALIZED.
(5) COMPUTED ON AN ANNUALIZED BASIS.
------
28
SMALL CAP GROWTH
B Class
Small Cap Growth acquired all the net assets of the Mason Street Small Cap
Growth Fund on March 31, 2006, pursuant to a plan of reorganization approved
by the acquired fund's shareholders on March 23, 2006. Performance information
prior to March 31, 2006 is that of the Mason Street Small Cap Growth Fund.
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
-------------------------------------------------------------------------------------------------------
2005(1) 2005 2004 2003 2002 2001
-------------------------------------------------------------------------------------------------------
PER-SHARE DATA
-------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $14.81 $14.06 $9.95 $13.25 $11.58 $17.57
-------------------------------------------------------------------------------------------------------
Income From Investment Operations
--------------------------------------
Net Investment (Income) Loss (0.11)(2) (0.24)(2) (0.23)(2) (0.19)(2) (0.11) (0.23)(2)
--------------------------------------
Net Realized and Unrealized 2.11 1.70 4.34 (3.11) 1.78 (3.35)
Gain (Losses) on Investments
-------------------------------------------------------------------------------------------------------
Total From Investment Operations 2.00 1.46 4.11 (3.30) 1.67 (3.58)
-------------------------------------------------------------------------------------------------------
Less Distributions
--------------------------------------
Distributions From Realized - (0.71) - - - (2.41)
Gains on Investments
-------------------------------------------------------------------------------------------------------
Total Distributions - (0.71) - - - (2.41)
-------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $16.81 $14.81 $14.06 $9.95 $13.25 $11.58
=======================================================================================================
TOTAL RETURN(3) 13.50%(4) 10.23% 41.31% (24.91)% 14.42% (21.40)%
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 2.52%(5) 2.68% 2.86% 2.94% 3.11% 3.01%
--------------------------------------
Ratio of Net Expenses
to Average Net Assets 2.05%(5) 2.05% 2.05% 2.05% 2.05% 2.05%
--------------------------------------
Ratio of Net Investment
Income (Loss)
to Average Net Assets (0.72)%(5) (1.70)% (1.81)% (1.74)% (1.54)% (1.44)%
--------------------------------------
Portfolio Turnover Rate 31.68% 85.96% 97.52% 48.87% 57.86% 81.87%
--------------------------------------
Net Assets, End of Period
(in thousands) $7,749 $6,986 $6,066 $3,674 $3,525 $2,400
-------------------------------------------------------------------------------------------------------
(1) FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2005 (UNAUDITED).
(2) CALCULATED BASED ON AVERAGE SHARES OUTSTANDING.
(3) TOTAL RETURN INCLUDES DEDUCTIONS FOR MANAGEMENT AND OTHER FUND
EXPENSES; EXCLUDES DEDUCTIONS FOR SALES LOADS AND CONTINGENT DEFERRED SALES
CHARGES. RETURNS INCLUDE FEE WAIVERS IN EFFECT. IN THE ABSENCE OF FEE
WAIVERS, TOTAL RETURN WOULD BE REDUCED.
(4) REFLECTS TOTAL RETURN FOR THE PERIOD; NOT ANNUALIZED.
(5) COMPUTED ON AN ANNUALIZED BASIS.
------
29
MORE INFORMATION ABOUT THE FUND IS CONTAINED IN THESE DOCUMENTS
Annual and Semiannual Reports
Annual and semiannual reports contain more information about the fund's
investments and the market conditions and investment strategies that
significantly affected the fund's performance during the most recent fiscal
period.
Statement of Additional Information (SAI)
The SAI contains a more detailed, legal description of the fund's operations,
investment restrictions, policies and practices. The SAI is incorporated by
reference into this prospectus. This means that it is legally part of this
prospectus, even if you don't request a copy.
You may obtain a free copy of the SAI or annual and semiannual reports, and ask
questions about the fund or your accounts, online at americancentury.com, by
contacting American Century at the address or telephone numbers listed below or
by contacting your financial intermediary.
You also can get information about the fund (including the SAI) from the
Securities and Exchange Commission (SEC). The SEC charges a duplicating fee to
provide copies of this information.
IN PERSON SEC Public Reference Room, Washington, D.C.
Call 202-942-8090 for location and hours.
ON THE INTERNET * EDGAR database at sec.gov
* By email request at publicinfo@sec.gov
BY MAIL SEC Public Reference Section
Washington, D.C. 20549-0102
This prospectus shall not constitute an offer to sell securities of a fund in
any state, territory, or other jurisdiction where the fund's shares have not
been registered or qualified for sale, unless such registration or qualification
is not required, or under any circumstances in which such offer or solicitation
would be unlawful.
FUND REFERENCE FUND CODE
--------------------------------------------------------------------------------
American Century-Mason Street Small Cap Growth
Investor Class 995
--------------------------------------------------------------------------------
Institutional Class 395
--------------------------------------------------------------------------------
A Class 195
--------------------------------------------------------------------------------
B Class 305
--------------------------------------------------------------------------------
C Class 495
--------------------------------------------------------------------------------
R Class 295
--------------------------------------------------------------------------------
Investment Company Act File No. 811-0816
AMERICAN CENTURY INVESTMENTS
P.O. Box 419786
Kansas City, Missouri 64141-6786
1-800-378-9878
americancentury.com
0604
SH-PRS-47873
April 1, 2006
American Century
Investments
prospectus
AMERICAN CENTURY-MASON STREET
MID CAP GROWTH
THE FUND IS AVAILABLE FOR PURCHASE ONLY THROUGH FINANCIAL INTERMEDIARIES BY
INVESTORS WHO SEEK ADVICE FROM THEM. THE FUND IS CLOSED TO OTHER INVESTORS, BUT
THOSE INVESTORS WITH OPEN ACCOUNTS MAY MAKE ADDITIONAL INVESTMENTS AND REINVEST
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS AS LONG AS SUCH ACCOUNTS REMAIN OPEN.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
American Century Investment
Services, Inc., Distributor
[american century investments logo and text logo]
Table of Contents
AN OVERVIEW OF THE FUND . . . . . . . . . . . . . . . . . . 2
FUND PERFORMANCE HISTORY . . . . . . . . . . . . . . . . . .3
FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . 5
OBJECTIVES, STRATEGIES AND RISKS . . . . . . . . . . . . . .7
BASICS OF FIXED-INCOME INVESTING . . . . . . . . . . . . . .9
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . 11
INVESTING DIRECTLY WITH AMERICAN CENTURY . . . . . . . . . 13
INVESTING THROUGH A FINANCIAL INTERMEDIARY . . . . . . . . 12
ADDITIONAL POLICIES AFFECTING YOUR INVESTMENT . . . . . . .18
SHARE PRICE AND DISTRIBUTIONS . . . . . . . . . . . . . . .22
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . .24
MULTIPLE CLASS INFORMATION . . . . . . . . . . . . . . . . 26
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . 27
[graphic of triangle]
THIS SYMBOL IS USED THROUGHOUT THE BOOK TO HIGHLIGHT DEFINITIONS OF KEY
INVESTMENT TERMS AND TO PROVIDE OTHER HELPFUL INFORMATION.
American Century Investment Services, Inc., Distributor
©2006 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
AN OVERVIEW OF THE FUND
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?
The fund seeks long-term capital growth.
WHAT ARE THE FUND'S PRIMARY INVESTMENT STRATEGIES AND PRINCIPAL RISKS?
The fund will normally invest at least 80% of the value of its net assets (plus
any borrowings for investment purposes) in stocks of U.S. companies with market
capitalizations in the range represented by the S&P MidCap 400® Index. The fund
invests primarily in stocks of small and mid-sized companies selected for their
above-average growth potential giving consideration to factors such as company
management, growth rate of revenues and earnings, opportunities for margin
expansion and strong financial characteristics.
The fund's principal risks include:
* GROWTH STOCKS - Investments in growth stocks may involve special risks and
their prices may fluctuate more dramatically than the overall stock market.
* MARKET RISK - The value of the fund's shares will go up and down based on
the performance of the companies whose securities it owns and other factors
generally affecting the securities market.
* PRICE VOLATILITY - The value of the fund's shares may fluctuate
significantly in the short term.
* PRINCIPAL LOSS - At any given time your shares may be worth more or less
than the price you paid for them. In other words, it is possible to lose
money by investing in the fund.
* MID CAP STOCKS - The mid-sized companies in which the fund invests may
present greater opportunities for capital growth than larger companies, but
also may present greater risks.
* FOREIGN SECURITIES - The fund may invest in foreign securities, which can
be riskier than investing in U.S. securities.
A more detailed description of the fund's investment strategies and risks may be
found under the heading OBJECTIVES, STRATEGIES AND RISKS, which begins on page
7.
[graphic of triangle]
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT, AND IT IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OR ANY
OTHER GOVERNMENT AGENCY.
------
2
FUND PERFORMANCE HISTORY
Annual Total Returns
The following bar chart shows the performance of the fund's A Class shares for
each full calendar year in the life of the class. It indicates the volatility of
the fund's historical returns from year to year. Account fees and sales charges,
if applicable, are not reflected in the chart below. If they had been included,
returns would have been lower than those shown. The returns of the fund's other
classes of shares will differ from those shown in the chart, depending on the
expenses of those classes.
MID CAP GROWTH - A CLASS(1)
(1) MID CAP GROWTH ACQUIRED ALL THE NET ASSETS OF THE MASON STREET
AGGRESSIVE GROWTH FUND ON MARCH 31, 2006, PURSUANT TO A PLAN OF
REORGANIZATION APPROVED BY THE ACQUIRED FUND'S SHAREHOLDERS ON MARCH 15,
2006. PERFORMANCE INFORMATION PRIOR TO MARCH 31, 2006 IS THAT OF THE
MASON STREET AGGRESSIVE GROWTH FUND.
The highest and lowest quarterly returns for the periods reflected in the bar
chart are:
HIGHEST LOWEST
--------------------------------------------------------------------------------
Mid Cap Growth 34.81% (4Q 1999) -23.14% (3Q 2001)
--------------------------------------------------------------------------------
Average Annual Total Returns
The following table shows the average annual total returns of Mid Cap Growth's A
Class shares calculated three different ways. Additional tables show the average
annual total returns of the fund's other share classes calculated before the
impact of taxes. Returns assume the deduction of all sales loads, charges and
other fees associated with a particular class. Your actual returns may vary
depending on the circumstances of your investment. Because the Investor,
Institutional, C and and R Classes are new, they are not included.
Return Before Taxes shows the actual change in the value of fund shares over the
time periods shown, but does not reflect the impact of taxes on fund
distributions or the sale of fund shares. The two after-tax returns take into
account taxes that may be associated with owning fund shares. Return After Taxes
on Distributions is a fund's actual performance, adjusted by the effect of taxes
on distributions made by the fund during the periods shown. Return After Taxes
on Distributions and Sale of Fund Shares is further adjusted to reflect the tax
impact on any change in the value of fund shares as if they had been sold on the
last day of the period.
After-tax returns are calculated using the historical highest federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor's tax situation and may differ from
those shown. After-tax returns shown are not relevant to investors who hold fund
shares through tax-deferred arrangements such as 401(k) plans or IRAs. After-tax
returns are shown only for A Class shares. After-tax returns for other share
classes will vary.
------
3
The benchmark is an unmanaged index that has no operating costs and is included
in each table for performance comparison. The S&P MidCap 400 Index measures the
performance of the mid-range sector of the U.S. stock market. The Russell
Midcap(R) Growth Index measures the performance of those Russell Midcap Index
companies (the 800 smallest of the 1,000 largest publicly traded U.S. companies,
based on total market capitalization) with higher price-to-book ratios and
higher forecasted growth values.
CLASS A(1)
FOR THE CALENDAR YEAR LIFE OF
ENDED DECEMBER 31, 2005 1 YEAR 5 YEARS CLASS(2)(3)
--------------------------------------------------------------------------------
Return Before Taxes 0.32% -2.12% 9.51%
Return After Taxes on Distributions -0.99% -2.69% 7.94%
Return After Taxes on Distributions
and Sale of Fund Shares 1.96% -1.89% 7.75%
S&P MidCap 400 Index 12.56% 8.60% 14.43%
(reflects no deduction for
fees, expenses or taxes)
Russell Midcap(R) Growth Index 12.10% 1.38% 9.10%
(reflects no deduction for
fees, expenses or taxes)
--------------------------------------------------------------------------------
(1) MID CAP GROWTH ACQUIRED ALL THE NET ASSETS OF THE MASON STREET
AGGRESSIVE GROWTH FUND ON MARCH 31, 2006, PURSUANT TO A PLAN OF
REORGANIZATION APPROVED BY THE ACQUIRED FUND'S SHAREHOLDERS ON MARCH 15,
2006. PERFORMANCE INFORMATION PRIOR TO MARCH 31, 2006 IS THAT OF THE
MASON STREET AGGRESSIVE GROWTH FUND.
(2) THE INCEPTION DATE FOR THE A CLASS WAS MARCH 31, 1997.
(3) ANNUALIZED.
CLASS B(1)
FOR THE CALENDAR YEAR LIFE OF
ENDED DECEMBER 31, 2005 1 YEAR 5 YEARS CLASS(2)(3)
--------------------------------------------------------------------------------
Return Before Taxes -0.05% -2.12% 9.40%
S&P MidCap 400 Index 12.56% 8.60% 14.43%
(reflects no deduction for
fees, expenses or taxes)
Russell Midcap(R) Growth Index 12.10% 1.38% 9.10%
(reflects no deduction for
fees, expenses or taxes)
--------------------------------------------------------------------------------
(1) MID CAP GROWTH ACQUIRED ALL THE NET ASSETS OF THE MASON STREET
AGGRESSIVE GROWTH FUND ON MARCH 31, 2006, PURSUANT TO A PLAN OF
REORGANIZATION APPROVED BY THE ACQUIRED FUND'S SHAREHOLDERS ON MARCH 15,
2006. PERFORMANCE INFORMATION PRIOR TO MARCH 31, 2006 IS THAT OF THE
MASON STREET AGGRESSIVE GROWTH FUND.
(2) THE INCEPTION DATE FOR THE B CLASS WAS MARCH 31, 1997.
(3) ANNUALIZED.
Performance information is designed to help you see how fund returns can vary.
Keep in mind that past performance (before and after taxes) does not predict how
a fund will perform in the future.
For current performance information, please call us or visit
americancentury.com.
------
4
FEES AND EXPENSES
The following tables describe the fees and expenses you may pay if you buy and
hold shares of the fund.
INVESTOR INSTITUTIONAL A B C R
CLASS CLASS CLASS CLASS CLASS CLASS
----------------------------------------------------------------------------------
Maximum Sales None None 5.75% None None None
Charge (Load)
Imposed on
Purchases
(as a percentage
of offering price)
----------------------------------------------------------------------------------
Maximum Deferred None None None(1) 5.00%(2) 1.00%(3) None
Sales Charge
(Load)
(as a percentage
of the original
offering price for
B Class shares
or the lower of
the original
offering price or
redemption
proceeds for A
and C Class
shares)
----------------------------------------------------------------------------------
Maximum
Account
Maintenance
Fee $25(4) None None None None None
----------------------------------------------------------------------------------
(1) INVESTMENTS OF $1 MILLION OR MORE IN A CLASS SHARES MAY BE SUBJECT TO
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% IF THE SHARES ARE REDEEMED
WITHIN ONE YEAR OF THE DATE OF PURCHASE.
(2) THIS CHARGE IS 5.00% DURING THE FIRST YEAR AFTER PURCHASE, DECLINES
OVER THE NEXT FIVE YEARS AS SHOWN ON PAGE 15, AND IS ELIMINATED AFTER SIX
YEARS.
(3) THE CHARGE IS 1.00% DURING THE FIRST YEAR AFTER PURCHASE AND IS
ELIMINATED THEREAFTER.
(4) APPLIES ONLY TO INVESTORS WHOSE TOTAL ELIGIBLE INVESTMENTS WITH
AMERICAN CENTURY ARE LESS THAN $10,000. SEE Account Maintenance Fee UNDER
Investing Directly with American Century FOR MORE DETAILS.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
DISTRIBUTION TOTAL ANNUAL
MANAGEMENT AND SERVICE OTHER FUND OPERATING
FEE(1) (12B-1) FEES(2) EXPENSES(3) EXPENSES
--------------------------------------------------------------------------------
Investor 1.05% 0.00% 0.00% 1.05%
Class
--------------------------------------------------------------------------------
Institutional 0.85% 0.00% 0.00% 0.85%
Class
--------------------------------------------------------------------------------
A Class 1.05% 0.25% 0.00% 1.30%
--------------------------------------------------------------------------------
B Class 1.05% 1.00%(4) 0.00% 2.05%
--------------------------------------------------------------------------------
C Class 1.05% 1.00% 0.00% 2.05%
--------------------------------------------------------------------------------
R Class 1.05% 0.50% 0.00% 1.55%
--------------------------------------------------------------------------------
(1) THE FUND PAYS THE ADVISOR A SINGLE, UNIFIED MANAGEMENT FEE FOR
ARRANGING ALL SERVICES NECESSARY FOR THE FUND TO OPERATE. THE FUND HAS A
STEPPED FEE SCHEDULE. AS A RESULT, THE FUND'S UNIFIED MANAGEMENT FEE RATE
GENERALLY DECREASES AS STRATEGY ASSETS INCREASE AND INCREASES AS STRATEGY
ASSETS DECREASE. FOR MORE INFORMATION ABOUT THE UNIFIED MANAGEMENT FEE,
INCLUDING AN EXPLANATION OF STRATEGY ASSETS, SEE The Investment Advisor
UNDER Management.
(2) THE 12B-1 FEE IS DESIGNED TO PERMIT INVESTORS TO PURCHASE SHARES
THROUGH BROKER-DEALERS, BANKS, INSURANCE COMPANIES AND OTHER FINANCIAL
INTERMEDIARIES. THE FEE MAY BE USED TO COMPENSATE SUCH FINANCIAL
INTERMEDIARIES FOR DISTRIBUTION AND OTHER SHAREHOLDER SERVICES. FOR MORE
INFORMATION, SEE Multiple Class Information AND Service, Distribution and
Administrative Fees, PAGE 26.
(3) OTHER EXPENSES, WHICH INCLUDE THE FEES AND EXPENSES OF THE FUND'S
INDEPENDENT DIRECTORS AND THEIR LEGAL COUNSEL, AS WELL AS INTEREST, ARE
EXPECTED TO BE LESS THAN 0.005% FOR THE CURRENT FISCAL YEAR.
(4) AMERICAN CENTURY HAS AGREED TO A TWO-YEAR WAIVER OF RULE 12B-1 FEES
FOR CERTAIN CLASSES OF THE FUND. TAKING INTO ACCOUNT THESE WAIVERS, THE
DISTRIBUTION AND SERVICE (12B-1) FEES AND TOTAL ANNUAL FUND OPERATING
EXPENSES WOULD BE 0.90% AND 1.95%, respectively.
------
5
EXAMPLE
The examples in the tables below are intended to help you compare the costs of
investing in the fund with the costs of investing in other mutual funds. Of
course, your actual costs may be higher or lower. Assuming you . . .
* invest $10,000 in the fund
* redeem all of your shares at the end of the periods shown below
* earn a 5% return each year
* incur the same operating expenses as shown above
. . . your cost of investing in the fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Investor $107 $333 $577 $1,277
Class
--------------------------------------------------------------------------------
Institutional $87 $271 $470 $1,045
Class
--------------------------------------------------------------------------------
A Class $700 $963 $1,247 $2,053
--------------------------------------------------------------------------------
B Class $598 $923 $1,184 $2,170
--------------------------------------------------------------------------------
C Class $207 $638 $1,094 $2,356
--------------------------------------------------------------------------------
R Class $157 $487 $840 $1,832
--------------------------------------------------------------------------------
The table above reflects a deduction for charges payable upon redemption. You
would pay the following expenses if you did not redeem your shares and thus did
not incur such charges:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Investor $107 $333 $577 $1,277
Class
--------------------------------------------------------------------------------
Institutional $87 $271 $470 $1,045
Class
--------------------------------------------------------------------------------
A Class $700 $963 $1247 $2053
--------------------------------------------------------------------------------
B Class $198 $623 $1,084 $2,170
--------------------------------------------------------------------------------
C Class $207 $638 $1,094 $2,356
--------------------------------------------------------------------------------
R Class $157 $487 $840 $1,832
--------------------------------------------------------------------------------
------
6
OBJECTIVES, STRATEGIES AND RISKS
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The fund seeks long-term capital growth.
HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVES?
The fund will normally invest at least 80% of the value of its net assets (plus
any borrowings for investment purposes) in stocks of U.S. companies with market
capitalizations in the range represented by the S&P Mid Cap 400® Index at the
time of purchase. The fund invests primarily in stocks of companies selected for
their above-average growth potential giving consideration to factors such as
company management, growth rate of revenues and earnings, opportunities for
margin expansion and strong financial characteristics.
The fund may sell securities for a variety of reasons such as to secure gains,
limit losses or redeploy assets into more promising opportunities. However, the
fund will not sell a stock just because a mid-sized company in which it invests
has grown into a large-sized company.
Although the fund's equity investments consist primarily of securities of U.S.
issuers, the fund may invest up to 20% of its net assets in the equity
securities of issuers from countries outside the United States , including (i)
foreign securities denominated in a foreign currency and not publicly traded in
the U.S. and (ii) U. S. currency denominated foreign securities, including
depositary receipts and depositary shares issued by U.S. banks (American
Depositary Receipts or ADRs) and U.S. broker-dealers (American Depositary
Shares). The fund's foreign investments may include securities of issuers in
countries with emerging markets or economies. Investments in foreign securities
present some unique risks that are more fully described in the fund's statement
of additional information.
The fund's investments in equity securities may include common stocks, preferred
stocks, warrants, and securities convertible into common or preferred stocks. To
a lesser degree, the fund may invest in other types of securities and use other
investment strategies that may include debt securities, index/structured
securities, high-yield/high-risk bonds, options, futures, forwards, swaps and
other types of derivatives and exchange traded funds, securities purchased on a
when-issued, delayed delivery or forward commitment basis, and pass-through
securities (including mortgage- and asset-backed securities). Futures contracts,
a type of derivative security, can help the fund's cash assets remain liquid
while performing like stocks. The fund has a policy governing futures contracts
and similar derivative securities to help manage the risks of these types of
investments. A complete description of the derivatives policy is included in the
statement of additional information.
In the event of exceptional market or economic conditions, the fund may, as a
temporary defensive measure, invest all or a substantial portion of its assets
in cash or high quality short term debt securities, including money market
reserves. To the extent the fund assumes a defensive position, it will not be
pursuing its objective of capital growth.
A description of the policies and procedures with respect to the disclosure of
the fund's portfolio securities is available in the statement of additional
information.
------
7
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
The value of a fund's shares depends on the value of the stocks and other
securities it owns. The value of the individual securities a fund owns will go
up and down depending on the performance of the companies that issued them,
general market and economic conditions, and investor confidence.
Growth stocks are typically priced higher than other stocks, in relation to
earnings and other measures, because investors believe they have more growth
potential. This potential may or may not be realized and growth stock prices
tend to fluctuate more dramatically than the overall stock market.
Mid-cap stocks may involve greater risks because the value of securities of
medium size, less well-known issuers can be more volatile than that of
relatively larger issuers and can react differently to issuer, political,
market, and economic developments than the market as a whole and other types of
stocks.
Market performance tends to be cyclical, and, in the various cycles, certain
investment styles may fall in and out of favor. If the market is not favoring a
fund's style, the fund's gains may not be as big as, or its losses may be bigger
than, other equity funds using different investment styles.
Although the portfolio managers intend to invest the funds' assets primarily in
U.S. stocks, the funds may invest in securities of foreign companies. Foreign
investment involves additional risks, including fluctuations in currency
exchange rates, less stable political and economic structures, reduced
availability of public information, and lack of uniform financial reporting and
regulatory practices similar to those that apply in the United States. These
factors make investing in foreign securities generally riskier than investing in
U.S. stocks. To the extent a fund invests in foreign securities, the overall
risk of that fund could be affected.
The fund's performance also may be impacted by investments in initial public
offerings (IPOs). IPOs may present greater risks than other investments in
stocks because the issuers have no track record as public companies. The impact
of IPO investments may be substantial and positive for a relatively small fund
during periods when the IPO market is strong. IPOs may have less performance
impact as a fund's assets grow.
At any given time your shares may be worth more or less than the price you paid
for them. In other words, it is possible to lose money by investing in the
funds.
------
8
MANAGEMENT
WHO MANAGES THE FUND?
The Board of Directors, investment advisor and fund management team play key
roles in the management of the fund.
THE BOARD OF DIRECTORS
The Board of Directors oversees the management of the fund and meets at least
quarterly to review reports about fund operations. Although the Board of
Directors does not manage the fund, it has hired an investment advisor to do so.
More than three-fourths of the directors are independent of the fund's advisor;
that is, they have never been employed by and have no financial interest in the
advisor or any of its affiliated companies (other than as shareholders of
American Century funds).
THE INVESTMENT ADVISOR
The fund's investment advisor is American Century Investment Management, Inc.
(the advisor). The advisor has been managing mutual funds since 1958 and is
headquartered at 4500 Main Street, Kansas City, Missouri 64111.
The advisor is responsible for managing the investment portfolios of the fund
and directing the purchase and sale of its investment securities. The advisor
also arranges for transfer agency, custody and all other services necessary for
the fund to operate. The advisor has hired Mason Street Advisors, LLC (MSA), a
wholly owned company of The Northwestern Mutual Life Insurance Company
(Northwestern Mutual), to make the day-to-day investment decisions for the fund.
MSA performs this function under the supervision of the advisor and the fund's
Board of Directors. MSA and its predecessor, Northwestern Mutual Investment
Services, LLC, have served as investment advisor to the fund and its predecessor
fund since its inception. The personnel and related facilities of Northwestern
Mutual and MSA are utilized by MSA in performing its investment advisory
functions. The address of MSA is 720 East Wisconsin Avenue, Milwaukee, Wisconsin
53202.
For the services it provides to the fund, the advisor receives a unified
management fee based on a percentage of the daily net assets of each specific
class of shares of the fund(1). The amount of the fee is calculated daily and
paid monthly in arrears. Out of that fee, the advisor pays all expenses of
managing and operating the fund except brokerage expenses, taxes, interest, fees
and expenses of the independent directors (including legal counsel fees), and
extraordinary expenses. A portion of the management fee may be paid by the
fund's advisor to unaffiliated third parties who provide recordkeeping and
administrative services that would otherwise be performed by an affiliate of the
advisor.
For funds with a stepped fee schedule, the rate of the fee is determined by
applying a fee rate calculation formula. This formula takes into account all of
the advisor's assets under management in the fund's investment strategy
("strategy assets") to calculate the appropriate fee rate for the fund. The
strategy assets include the fund's assets and the assets of other clients of the
advisor that are not in the American Century family of mutual funds (such as
subadvised funds and separate accounts) but that have the same investment team
and investment strategy. The use of strategy assets, rather than fund assets, in
calculating the fee rate for a particular fund could allow a fund to realize
scheduled cost savings more quickly if the advisor acquires additional assets
under management within a strategy in addition to the fund's assets. However, it
is possible that the strategy assets for a fund will not include
(1) The fund acquired all the net assets of the Mason Street Aggressive Growth
Fund on March 31, 2006, pursuant to a plan of reorganization approved by
the acquired fund's shareholders on March 15, 2006. For the fiscal year
ended March 31, 2005, the acquired fund paid its advisor, Mason Street
Advisors, LLC, an advisory fee equal to 0.75% of the fund's average daily
net assets. This advisory fee is not directly comparable to American
Century's unified fee, which includes substantially all expenses of
operating the fund.
------
9
assets of other client accounts. In addition, if there are such assets, they may
not be sufficient to result in a lower fee rate. Mid Cap Growth's Investor, A,
B, C and R Class will pay the advisor a unified management fee of 1.20% of its
pro rata share of the first $500 million of the strategy assets and 1.00% of its
pro rata share over $500 million of the strategy assets. Mid Cap Growth's
Institutional Class will pay the advisor a unified management fee of 1.00% of
its pro rata share of the first $500 million of the strategy assets and 0.80% of
its pro rata share over $500 million of the strategy assets.
THE FUND MANAGEMENT TEAM
The advisor provides investment advisory and management services for the fund.
The advisor has, in turn, hired MSA to make the day-to-day investment decisions
for the fund. MSA performs this function under the supervision of the advisor
and the fund's Board of Directors.
The portfolio manager on the investment team who is primarily responsible for
the day-to-day management of the fund:
WILLIAM R. WALKER
Mr. Walker, Managing Director of MSA, has been a member of the team that manages
Mid Cap Growth and its predecessor fund since its inception in 1997. He joined
Northwestern Mutual in 1984. Mr. Walker has a bachelor of science degree from
Marquette University and an MBA from Miami University of Oxford, Ohio. He is a
CFA charterholder.
The statement of additional information provides additional information about
the other accounts managed by the portfolio manager, if any, the structure of
his compensation, and his ownership of fund securities.
FUNDAMENTAL INVESTMENT POLICIES
Fundamental investment policies contained in the statement of additional
information and the investment objectives of the fund may not be changed without
shareholder approval. The Board of Directors and/or the advisor may change any
other policies and investment strategies.
------
10
INVESTING DIRECTLY WITH AMERICAN CENTURY
SERVICES AUTOMATICALLY AVAILABLE TO YOU
Most accounts automatically will have access to the services listed under WAYS
TO MANAGE YOUR ACCOUNT when the account is opened. If you do not want these
services, see CONDUCTING BUSINESS IN WRITING. If you have questions about the
services that apply to your account type, please call us.
CONDUCTING BUSINESS IN WRITING
If you prefer to conduct business in writing only, you can indicate this on the
account application. If you choose this option, you must provide written
instructions to invest, exchange and redeem. All account owners must sign
transaction instructions (with signatures guaranteed for redemptions in excess
of $100,000). By choosing this option, you are not eligible to enroll for
exclusive online account management to waive the account maintenance fee. See
ACCOUNT MAINTENANCE FEE in this section. If you want to add online and telephone
services later, you can complete an Investor Service Options form.
ACCOUNT MAINTENANCE FEE
If you hold Investor Class shares of any American Century fund, or Institutional
Class shares of the American Century Diversified Bond fund, in an American
Century account (i.e., not a financial intermediary or retirement plan account),
we may charge you a $12.50 semiannual account maintenance fee if the value of
those shares is less than $10,000. We will determine the amount of your total
eligible investments twice per year, generally the last Friday in October and
April. If the value of those investments is less than $10,000 at that time, we
will automatically redeem shares in one of your accounts to pay the $12.50 fee.
Please note that you may incur tax liability as a result of the redemption. In
determining your total eligible investment amount, we will include your
investments in all PERSONAL ACCOUNTS (including American Century Brokerage
accounts) registered under your Social Security number. We will not charge the
fee as long as you choose to manage your accounts exclusively online. You may
enroll for exclusive online account management on our Web site. To find out more
about exclusive online account management, visit americancentury.com/info/demo.
[graphic of triangle]
PERSONAL ACCOUNTS INCLUDE INDIVIDUAL ACCOUNTS, JOINT ACCOUNTS, UGMA/UTMA
ACCOUNTS, PERSONAL TRUSTS, COVERDELL EDUCATION SAVINGS ACCOUNTS, IRAS
(INCLUDING TRADITIONAL, ROTH, ROLLOVER, SEP-, SARSEP- AND SIMPLE-IRAS),
AND CERTAIN OTHER RETIREMENT ACCOUNTS. IF YOU HAVE ONLY BUSINESS,
BUSINESS RETIREMENT, EMPLOYER-SPONSORED OR AMERICAN CENTURY BROKERAGE
ACCOUNTS, YOU ARE CURRENTLY NOT SUBJECT TO THIS FEE, BUT YOU MAY BE
SUBJECT TO OTHER FEES.
WIRE PURCHASES
CURRENT INVESTORS: If you would like to make a wire purchase into an existing
account, your bank will need the following information. (To invest in a new
fund, please call us first to set up the new account.)
* American Century's bank information: Commerce Bank N.A., Routing No.
101000019, Account No. 2804918
* Your American Century account number and fund name
* Your name
* The contribution year (for IRAs only)
NEW INVESTORS: To make a wire purchase into a new account, please complete an
application prior to wiring money.
------
11
WAYS TO MANAGE YOUR ACCOUNT
ONLINE
--------------------------------------------------------------------------------
americancentury.com
OPEN AN ACCOUNT: If you are a current or new investor, you can open an account
by completing and submitting our online application. Current investors also can
open an account by exchanging shares from another American Century account.
EXCHANGE SHARES: Exchange shares from another American Century account.
MAKE ADDITIONAL INVESTMENTS: Make an additional investment into an established
American Century account if you have authorized us to invest from your bank
account.
SELL SHARES*: Redeem shares and proceeds will be electronically transferred to
your authorized bank account.
* Online redemptions up to $25,000 per day.
IN PERSON
--------------------------------------------------------------------------------
If you prefer to handle your transactions in person, visit one of our Investor
Centers and a representative can help you open an account, make additional
investments, and sell or exchange shares.
* 4500 Main Street, Kansas City, Missouri - 8 a.m. to 5 p.m., Monday - Friday
* 4917 Town Center Drive, Leawood, Kansas - 8 a.m. to 5 p.m., Monday - Friday,
8 a.m. to noon, Saturday
* 1665 Charleston Road, Mountain View, California - 8 a.m. to 5 p.m., Monday -
Friday
BY TELEPHONE
--------------------------------------------------------------------------------
INVESTOR SERVICES REPRESENTATIVE: 1-800-345-2021
INSTITUTIONAL SERVICE REPRESENTATIVE: 1-800-345-3533
BUSINESS, NOT-FOR-PROFIT AND EMPLOYER-SPONSORED RETIREMENT PLANS: 1-800-345-3533
AUTOMATED INFORMATION LINE: 1-800-345-8765
OPEN AN ACCOUNT: If you are a current investor, you can open an account by
exchanging shares from another American Century account.
EXCHANGE SHARES: Call or use our Automated Information Line if you have
authorized us to accept telephone instructions. The Automated Information Line
is available only to Investor Class shareholders.
MAKE ADDITIONAL INVESTMENTS: Call or use our Automated Information Line if you
have authorized us to invest from your bank account. The Automated Information
Line is available only to Investor Class shareholders.
SELL SHARES: Call a Service Representative.
BY MAIL OR FAX
--------------------------------------------------------------------------------
P.O. Box 419200, Kansas City, MO 64141-6200 - Fax: 816-340-7962
OPEN AN ACCOUNT: Send a signed, completed application and check or money order
payable to American Century Investments.
EXCHANGE SHARES: Send written instructions to exchange your shares from one
American Century account to another.
MAKE ADDITIONAL INVESTMENTS: Send your check or money order for at least $50
with an investment slip or $250 without an investment slip. If you don't have an
investment slip, include your name, address and account number on your check or
money order.
SELL SHARES: Send written instructions or a redemption form to sell shares. Call
a Service Representative to request a form.
AUTOMATICALLY
--------------------------------------------------------------------------------
OPEN AN ACCOUNT: Not available.
EXCHANGE SHARES: Send written instructions to set up an automatic exchange of
your shares from one American Century account to another.
MAKE ADDITIONAL INVESTMENTS: With the automatic investment service, you can
purchase shares on a regular basis. You must invest at least $50 per month per
account.
SELL SHARES: You may sell shares automatically by establishing Check-A-Month or
Automatic Redemption plans.
SEE ADDITIONAL POLICIES AFFECTING YOUR INVESTMENT FOR MORE INFORMATION ABOUT
INVESTING WITH US.
------
12
INVESTING THROUGH A FINANCIAL INTERMEDIARY
The fund's A, B, C and R Classes are intended for purchase by participants in
employer-sponsored retirement or savings plans and for persons purchasing shares
through FINANCIAL INTERMEDIARIES that provide various administrative and
distribution services.
[graphic of triangle]
FINANCIAL INTERMEDIARIES INCLUDE BANKS, BROKER-DEALERS, INSURANCE
COMPANIES, PLAN SPONSORS AND FINANCIAL PROFESSIONALS.
Although each class of shares represents an interest in the same fund, each has
a different cost structure, as described below. Which class is right for you
depends on many factors, including how long you plan to hold the shares, how
much you plan to invest, the fee structure of each class, and how you wish to
compensate your financial professional for the services provided to you. Your
financial professional can help you choose the option that is most appropriate.
The following chart provides a summary description of these classes.
A CLASS B CLASS
--------------------------------------------------------------------------------
Initial sales charge(1) No initial sales charge
--------------------------------------------------------------------------------
Generally no contingent Contingent deferred sales charge
deferred sales charge(2) on redemptions within six years
--------------------------------------------------------------------------------
12b-1 fee of 0.25% 12b-1 fee of 1.00%
--------------------------------------------------------------------------------
No conversion feature Convert to A Class shares
eight years after purchase
--------------------------------------------------------------------------------
Generally more appropriate Aggregate purchases limited
for long-term investors to amounts less than $100,000
--------------------------------------------------------------------------------
C CLASS R CLASS
--------------------------------------------------------------------------------
No initial sales charge No initial sales charge
--------------------------------------------------------------------------------
Contingent deferred sales charge No contingent deferred
on redemptions within 12 months sales charge
--------------------------------------------------------------------------------
12b-1 fee of 1.00% 12b-1 fee of 0.50%
--------------------------------------------------------------------------------
No conversion feature No conversion feature
--------------------------------------------------------------------------------
Aggregate purchases limited to
amounts less than $1,000,000; Generally offered through qualified
generally more appropriate retirement plans and other
for short-term investors fee-based arrangements
--------------------------------------------------------------------------------
(1) THE SALES CHARGE FOR A CLASS SHARES DECREASES DEPENDING ON THE SIZE OF
YOUR INVESTMENT, AND MAY BE WAIVED FOR SOME PURCHASES. THERE IS NO SALES
CHARGE FOR PURCHASES OF $1,000,000 OR MORE.
(2) A CONTINGENT DEFERRED SALES CHARGE (CDSC) OF 1.00% WILL BE CHARGED ON
CERTAIN PURCHASES OF $1,000,000 OR MORE THAT ARE REDEEMED WITHIN ONE YEAR
OF PURCHASE.
CALCULATION OF SALES CHARGES
The information regarding sales charges provided herein is included free of
charge and in a clear and prominent format at americancentury.com in the
INVESTORS USING ADVISORS and INVESTMENT PROFESSIONALS portions of the Web site.
From the description of A, B or C Class shares, a hyperlink will take you
directly to this disclosure.
A Class
A Class shares are sold at their offering price, which is net asset value plus
an initial sales charge. This sales charge varies depending on the amount of
your investment, and is deducted from your purchase before it is invested. The
sales charges and the amounts paid to your financial professional are:
------
13
SALES CHARGE AMOUNT PAID TO
SALES CHARGE AS A % OF NET FINANCIAL ADVISOR
AS A % OF AMOUNT AS A % OF
PURCHASE AMOUNT OFFERING PRICE INVESTED OFFERING PRICE
--------------------------------------------------------------------------------
Less than $50,000 5.75% 6.10% 5.00%
--------------------------------------------------------------------------------
$50,000 - $99,999 4.75% 4.99% 4.00%
--------------------------------------------------------------------------------
$100,000 - $249,999 3.75% 3.90% 3.25%
--------------------------------------------------------------------------------
$250,000 - $499,999 2.50% 2.56% 2.00%
--------------------------------------------------------------------------------
$500,000 - $999,999 2.00% 2.04% 1.75%
--------------------------------------------------------------------------------
$1,000,000 - $3,999,999 0.00% 0.00% 1.00%(1)
--------------------------------------------------------------------------------
$4,000,000 - $9,999,999 0.00% 0.00% 0.50%(1)
--------------------------------------------------------------------------------
$10,000,000 or more 0.00% 0.00% 0.25%(1)
--------------------------------------------------------------------------------
(1) FOR PURCHASES OVER $1,000,000 BY QUALIFIED RETIREMENT PLANS, NO
UPFRONT AMOUNT WILL BE PAID TO FINANCIAL PROFESSIONALS.
There is no front-end sales charge for purchases of $1,000,000 or more, but if
you redeem your shares within one year of purchase you will pay a 1.00% deferred
sales charge, subject to the exceptions listed below. No sales charge applies to
reinvested dividends.
Reductions and Waivers of Sales Charges for A Class
You may qualify for a reduction or waiver of certain sales charges, but you or
your financial professional must provide certain information, including the
account numbers of any accounts to be aggregated, to American Century at the
time of purchase in order to take advantage of such reduction or waiver.
You and your immediate family (your spouse and your children under the age of
21) may combine investments to reduce your A Class sales charge in the following
ways:
ACCOUNT AGGREGATION. Investments made by you and your immediate family may be
aggregated at each account's current market value if made for your own
account(s) and/or certain other accounts, such as:
* Certain trust accounts
* Solely controlled business accounts
* Single-participant retirement plans
* Endowments or foundations established and controlled by you or an
immediate family member
For purposes of aggregation, only investments made through individual-level
accounts, rather than accounts aggregated at the intermediary level, may be
included.
CONCURRENT PURCHASES. You may combine simultaneous purchases in A, B or C Class
shares of any two or more American Century Advisor Funds (funds that offer A, B
and C Class shares) to qualify for a reduced A Class sales charge.
RIGHTS OF ACCUMULATION. You may take into account the current value of your
existing holdings in A, B or C Class shares of any American Century Advisor Fund
to determine your A Class sales charge.
LETTER OF INTENT. A Letter of Intent allows you to combine all non-money market
fund purchases of all A, B and C Class shares you intend to make over a 13-month
period to determine the applicable sales charge. Such purchases will be valued
at their historical cost for this purpose. At your request, purchases made
during the previous 90 days may be included; however, capital appreciation,
capital gains and reinvested dividends do not apply toward these combined
purchases. A portion of your account will be held in escrow to cover additional
A Class sales charges that will be due if your total investments over the
13-month period do not qualify for the applicable sales charge reduction.
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14
WAIVERS FOR CERTAIN INVESTORS. The sales charge on A Class shares may be waived
for:
* Purchases by registered representatives and other employees of certain
financial intermediaries (and their immediate family members) having selling
agreements with the advisor or distributor
* Wrap accounts maintained for clients of certain financial intermediaries
who have entered into selling agreements with American Century
* Present or former officers, directors and employees (and their families)
of American Century
* Qualified retirement plan purchases
* IRA Rollovers from any American Century Advisor Fund held in a qualified
retirement plan
* Certain other investors as deemed appropriate by American Century
B Class
B Class shares are sold at their net asset value without an initial sales
charge. For sales of B Class shares, the amount paid to your financial
professional is 4.00% of the amount invested. If you redeem your shares within
six years of purchase date, you will pay a contingent deferred sales charge
(CDSC) as set forth below. The purpose of the CDSC is to permit the fund's
distributor to recoup all or a portion of the up-front payment made to your
financial professional. There is no CDSC on shares acquired through reinvestment
of dividends or capital gains.
REDEMPTION DURING CDSC AS A % OF ORIGINAL PURCHASE PRICE
--------------------------------------------------------------------------------
1st year 5.00%
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2nd year 4.00%
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3rd year 3.00%
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4th year 3.00%
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5th year 2.00%
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6th year 1.00%
--------------------------------------------------------------------------------
After 6th year None
--------------------------------------------------------------------------------
B Class shares (which carry a 1.00% 12b-1 fee) will automatically convert to A
Class shares (which carry a 0.25% 12b-1 fee) in the month of the eight-year
anniversary of the purchase date.
C Class
C Class shares are sold at their net asset value without an initial sales
charge. For sales of C Class shares, the amount paid to your financial
professional is 1.00% of the amount invested. If you redeem your shares within
12 months of purchase, you will pay a CDSC of 1.00% of the original purchase
price or the current market value at redemption, whichever is less. The purpose
of the CDSC is to permit the fund's distributor to recoup all or a portion of
the up-front payment made to your financial professional.
The CDSC will not be charged on shares acquired through reinvestment of
dividends or distributions or increases in the net asset value of shares.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE (CDSC)
To minimize the amount of the CDSC you may pay when you redeem shares, the fund
will first redeem shares acquired through reinvested dividends and capital gain
distributions, which are not subject to a CDSC. Shares that have been in your
account long enough that they are not subject to a CDSC are redeemed next. For
any remaining redemption amount, shares will be sold in the order they were
purchased (earliest to latest).
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15
CDSC WAIVERS
Any applicable CDSC may be waived in the following cases:
* redemptions through systematic withdrawal plans not exceeding annually:
* 12% of the lesser of the original purchase cost or current market
value for A Class shares
* 12% of the original purchase cost for B Class shares
* 12% of the lesser of the original purchase cost or current market
value for C Class shares
* distributions from IRAs due to attainment of age 59-1/2 for A Class shares
and for C Class shares
* required minimum distributions from retirement accounts upon reaching age
70-1/2
* tax-free returns of excess contributions to IRAs
* redemptions due to death or post-purchase disability
* exchanges, unless the shares acquired by exchange are redeemed within the
original CDSC period
* IRA Rollovers from any American Century Advisor Fund held in a qualified
retirement plan, for A Class shares only
* if no broker was compensated for the sale
REINSTATEMENT PRIVILEGE
Within 90 days of a redemption of any A or B Class shares, you may reinvest all
of the redemption proceeds in A Class shares of any American Century Advisor
Fund at the then-current net asset value without paying an initial sales charge.
Any CDSC you paid on an A Class redemption that you are reinvesting will be
credited to your account. You or your financial professional must notify the
fund's transfer agent in writing at the time of the reinvestment to take
advantage of this privilege, and you may use it only once.
EXCHANGING SHARES
You may exchange shares of the fund for shares of the same class of another
American Century Advisor Fund without a sales charge if you meet the following
criteria:
* The exchange is for a minimum of $100
* For an exchange that opens a new account, the amount of the exchange must
meet or exceed the minimum account size requirement for the fund receiving
the exchange
For purposes of computing any applicable CDSC on shares that have been
exchanged, the holding period will begin as of the date of purchase of the
original fund owned. Exchanges from a money market fund are subject to a sales
charge on the fund being purchased, unless the money market fund shares were
acquired by exchange from a fund with a sales charge or by reinvestment of
dividends or capital gains distributions.
EXCHANGES BETWEEN FUNDS (C CLASS)
You may exchange C Class shares of a fund for C Class shares of any other
American Century fund. You may not exchange from the C Class to any other class.
We will not charge a Contingent Deferred Sales Charge (CDSC) on the shares you
exchange, regardless of the length of time you have owned them. When you do
redeem shares that have been exchanged, the CDSC will be based on the date you
purchased the original shares.
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16
BUYING AND SELLING SHARES
Your ability to purchase, exchange, redeem and transfer shares will be affected
by the policies of the financial intermediary through which you do business.
Some policy differences may include
* minimum investment requirements
* exchange policies
* fund choices
* cutoff time for investments
* trading restrictions
In addition, your financial intermediary may charge a transaction fee for the
purchase or sale of fund shares. Those charges are retained by the financial
intermediary and are not shared with American Century or the fund. Please
contact your intermediary or plan sponsor for a complete description of its
policies. Copies of the fund's annual report, semiannual report and statement of
additional information are available from your financial intermediary or plan
sponsor.
The fund has authorized certain financial intermediaries to accept orders on the
fund's behalf. American Century has selling agreements with these financial
intermediaries requiring them to track the time investment orders are received
and to comply with procedures relating to the transmission of orders. Orders
must be received by the financial intermediary on the fund's behalf before the
time the net asset value is determined in order to receive that day's share
price. If those orders are transmitted to American Century and paid for in
accordance with the selling agreement, they will be priced at the net asset
value next determined after your request is received in the form required by the
financial intermediary.
SEE ADDITIONAL POLICIES AFFECTING YOUR INVESTMENT FOR MORE INFORMATION ABOUT
INVESTING WITH US.
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17
ADDITIONAL POLICIES AFFECTING YOUR INVESTMENT
MINIMUM INITIAL INVESTMENT AMOUNTS
To open an account, the minimum initial investment amounts are $2,000 for a
Coverdell Education Savings Account (CESA), and $2,500 for all other accounts.
ELIGIBILITY FOR INSTITUTIONAL CLASS SHARES
The Institutional Class shares are made available for purchase by large
institutional shareholders such as bank trust departments, corporations,
retirement plans, endowments, foundations and financial advisors that meet the
fund's minimum investment requirements. Institutional Class shares are not
available for purchase by insurance companies for variable annuity and variable
life products.
MINIMUM INITIAL INVESTMENT AMOUNTS (INSTITUTIONAL CLASS)
The minimum initial investment amount is $5 million ($3 million for endowments
and foundations) per fund. If you invest with us through a financial
intermediary, this requirement may be met if your financial intermediary
aggregates your investments with those of other clients into a single group, or
omnibus, account that meets the minimum. The minimum investment requirement may
be waived if you, or your financial intermediary if you invest through an
omnibus account, have an aggregate investment in our family of funds of $10
million or more ($5 million for endowments and foundations). In addition,
financial intermediaries or plan recordkeepers may require retirement plans to
meet certain other conditions, such as plan size or a minimum level of assets
per participant, in order to be eligible to purchase Institutional Class shares.
REDEMPTIONS
If you sell your B or C Class or, in certain cases, A Class shares within a
certain time after their purchase, you will pay a sales charge the amount of
which is contingent upon the amount of time you have held your shares, as
described above.
Your redemption proceeds will be calculated using the NET ASSET VALUE (NAV) next
determined after we receive your transaction request in good order.
[graphic of triangle]
A FUND'S NET ASSET VALUE, OR NAV, IS THE PRICE OF THE FUND'S SHARES.
However, we reserve the right to delay delivery of redemption proceeds up to
seven days. For example, each time you make an investment with American Century,
there is a seven-day holding period before we will release redemption proceeds
from those shares, unless you provide us with satisfactory proof that your
purchase funds have cleared. Investments by wire generally require only a
one-day holding period. If you change your address, we may require that any
redemption request made within 15 days be submitted in writing and be signed by
all authorized signers with their signatures guaranteed. If you change your bank
information, we may impose a 15-day holding period before we will transfer or
wire redemption proceeds to your bank. Please remember, if you request
redemptions by wire, $10 will be deducted from the amount redeemed. Your bank
also may charge a fee.
In addition, we reserve the right to honor certain redemptions with securities,
rather than cash, as described in the next section.
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18
SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS
If, during any 90-day period, you redeem fund shares worth more than $250,000
(or 1% of the value of a fund's assets if that amount is less than $250,000), we
reserve the right to pay part or all of the redemption proceeds in excess of
this amount in readily marketable securities instead of in cash. The portfolio
managers would select these securities from the fund's portfolio.
We will value these securities in the same manner as we do in computing the
fund's net asset value. We may provide these securities in lieu of cash without
prior notice. Also, if payment is made in securities, you may have to pay
brokerage or other transaction costs to convert the securities to cash.
If your redemption would exceed this limit and you would like to avoid being
paid in securities, please provide us with an unconditional instruction to
redeem at least 15 days prior to the date on which the redemption transaction is
to occur. The instruction must specify the dollar amount or number of shares to
be redeemed and the date of the transaction. This minimizes the effect of the
redemption on a fund and its remaining investors.
REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS
If your account balance falls below the minimum initial investment amount for
any reason other than as a result of market fluctuation, we will notify you and
give you 90 days to meet the minimum. If you do not meet the deadline, American
Century reserves the right to redeem the shares in the account and send the
proceeds to your address of record. Please note that you may incur tax liability
as a result of the redemption. For Institutional Class shares, we reserve the
right to convert your shares to Investor Class shares of the same fund. The
Investor Class shares have a unified management fee that is 0.20% higher than
the Institutional Class. A, B, and C Class shares redeemed in this manner may be
subject to a sales charge if held less than the applicable time period. You also
may incur tax liability as a result of the redemption.
SIGNATURE GUARANTEES
A signature guarantee - which is different from a notarized signature - is a
warranty that the signature presented is genuine. We may require a signature
guarantee for the following transactions.
* You have chosen to conduct business in writing only and would like to
redeem over $100,000.
* Your redemption or distribution check, Check-A-Month or automatic
redemption is made payable to someone other than the account owners.
* Your redemption proceeds or distribution amount is sent by EFT (ACH or
wire) to a destination other than your personal bank account.
* You are transferring ownership of an account over $100,000.
* You change your address and request a redemption over $100,000 within 15
days.
* You change your bank information and request a redemption within 15 days.
We reserve the right to require a signature guarantee for other transactions, at
our discretion.
MODIFYING OR CANCELING AN INVESTMENT
Investment instructions are irrevocable. That means that once you have mailed or
otherwise transmitted your investment instruction, you may not modify or cancel
it. The fund reserves the right to suspend the offering of shares for a period
of time and to reject any specific investment (including a purchase by
exchange). Additionally, we may refuse a purchase if, in our judgment, it is of
a size that would disrupt the management of a fund.
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19
ABUSIVE TRADING PRACTICES
Short-term trading and other so-called market timing practices are not defined
or explicitly prohibited by any federal or state law. However, short-term
trading and other abusive trading practices may disrupt portfolio management
strategies and harm fund performance. If the cumulative amount of short-term
trading activity is significant relative to a fund's net assets, the fund may
incur trading costs that are higher than necessary as securities are first
purchased then quickly sold to meet the redemption request. In such case, the
fund's performance could be negatively impacted by the increased trading costs
created by short-term trading if the additional trading costs are significant.
Because of the potentially harmful effects of abusive trading practices, the
fund's Board of Directors has approved American Century's abusive trading
policies and procedures, which are designed to reduce the frequency and effect
of these activities in our funds. These policies and procedures include
monitoring trading activity, imposing trading restrictions on certain accounts,
imposing redemption fees on certain funds, and using fair value pricing when
current market prices are not readily available. Although these efforts are
designed to discourage abusive trading practices, they cannot eliminate the
possibility that such activity will occur. American Century seeks to exercise
its judgment in implementing these tools to the best of its ability in a manner
that it believes is consistent with shareholder interests.
American Century uses a variety of techniques to monitor for and detect abusive
trading practices. These techniques may vary depending on the type of fund, the
class of shares or whether the shares are held directly or indirectly with
American Century. They may change from time to time as determined by American
Century in its sole discretion. To minimize harm to the funds and their
shareholders, we reserve the right to reject any purchase order (including
exchanges) from any shareholder we believe has a history of abusive trading or
whose trading, in our judgment, has been or may be disruptive to the funds. In
making this judgment, we may consider trading done in multiple accounts under
common ownership or control.
Currently, for shares held directly with American Century, we may deem the sale
of all or a substantial portion of a shareholder's purchase of fund shares to be
abusive if the sale is made
* within seven days of the purchase, or
* within 30 days of the purchase, if it happens more than once per year.
To the extent practicable, we try to use the same approach for defining abusive
trading for shares held through financial intermediaries. American Century
reserves the right, in its sole discretion, to identify other trading practices
as abusive and to modify its monitoring and other practices as necessary to deal
with novel or unique abusive trading practices.
In addition, American Century reserves the right to accept purchases and
exchanges in excess of the trading restrictions discussed above if it believes
that such transactions would not be inconsistent with the best interests of fund
shareholders or this policy.
American Century's policies do not permit us to enter into arrangements with
fund shareholders that permit such shareholders to engage in frequent purchases
and redemptions of fund shares. Due to the complexity and subjectivity involved
in identifying abusive trading activity and the volume of shareholder
transactions American Century handles, there can be no assurance that American
Century's efforts will identify all trades or trading practices that may be
considered abusive. In addition, American Century's ability to monitor trades
that are placed by individual shareholders within group, or omnibus, accounts
maintained by financial intermediaries is severely limited because American
Century generally does not have access to the underlying shareholder account
information. However, American Century monitors aggregate trades placed in
omnibus accounts and seeks to work with financial intermediaries to discourage
shareholders from engaging in abusive trading practices and to impose
restrictions on excessive trades. There may be limitations on the ability of
financial intermediaries to impose restrictions on the trading practices of
their clients. As a result, American Century's ability to monitor and discourage
abusive trading practices in omnibus accounts may be limited.
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20
YOUR RESPONSIBILITY FOR UNAUTHORIZED TRANSACTIONS
American Century and its affiliated companies use procedures reasonably designed
to confirm that telephone, electronic and other instructions are genuine. These
procedures include recording telephone calls, requesting personalized security
codes or other information, and sending confirmation of transactions. If we
follow these procedures, we are not responsible for any losses that may occur
due to unauthorized instructions. For transactions conducted over the Internet,
we recommend the use of a secure Internet browser. In addition, you should
verify the accuracy of your confirmation statements immediately after you
receive them.
A NOTE ABOUT MAILINGS TO SHAREHOLDERS
To reduce the amount of mail you receive from us, we may deliver a single copy
of certain investor documents (such as shareholder reports and prospectuses) to
investors who share an address, even if accounts are registered under different
names. If you prefer to receive multiple copies of these documents individually
addressed, please call us or your financial professional. For American Century
Brokerage accounts, please call 1-888-345-2071.
RIGHT TO CHANGE POLICIES
We reserve the right to change any stated investment requirement, including
those that relate to purchases, exchanges and redemptions. We also may alter,
add or discontinue any service or privilege. Changes may affect all investors or
only those in certain classes or groups. In addition, from time to time we may
waive a policy on a case-by-case basis, as the advisor deems appropriate.
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21
SHARE PRICE AND DISTRIBUTIONS
SHARE PRICE
American Century will price the fund shares you purchase, exchange or redeem at
the net asset value (NAV) next determined after your order is received and
accepted by the fund's transfer agent, or other financial intermediary with the
authority to accept orders on the fund's behalf. We determine the NAV of each
fund as of the close of regular trading (usually 4 p.m. Eastern time) on the New
York Stock Exchange (NYSE) on each day the NYSE is open. On days when the NYSE
is closed (including certain U.S. national holidays), we do not calculate the
NAV. A fund's NAV is the current value of the fund's assets, minus any
liabilities, divided by the number of shares outstanding.
The fund values portfolio securities for which market quotations are readily
available at their market price. As a general rule, equity securities listed on
a U.S. exchange are valued at the last current reported sale price as of the
time of valuation. Securities listed on the NASDAQ National Market System
(Nasdaq) are valued at the Nasdaq Official Closing Price (NOCP), as determined
by Nasdaq, or lacking an NOCP, at the last current reported sale price as of the
time of valuation. The fund may use pricing services to assist in the
determination of market value. Unlisted securities for which market quotations
are readily available are valued at the last quoted sale price or the last
quoted ask price, as applicable, except that debt obligations with 60 days or
less remaining until maturity may be valued at amortized cost. Exchange-traded
options, futures and options on futures are valued at the settlement price as
determined by the appropriate clearing corporation.
If the fund determines that the market price for a portfolio security is not
readily available or that the valuation methods mentioned above do not reflect
the security's fair value, such security is valued at its fair value as
determined in good faith by, or in accordance with procedures adopted by, the
fund's board or its designee (a process referred to as "fair valuing" the
security). Circumstances that may cause the fund to fair value a security
include, but are not limited to:
* for funds investing in foreign securities, if, after the close of the
foreign exchange on which a portfolio security is principally traded, but
before the close of the NYSE, an event occurs that may materially affect the
value of the security;
* for funds that invest in debt securities, a debt security has been
declared in default; or
* trading in a security has been halted during the trading day.
If such circumstances occur, the fund will fair value the security if the fair
valuation would materially impact the fund's NAV. While fair value
determinations involve judgments that are inherently subjective, these
determinations are made in good faith in accordance with procedures adopted by
the fund's board.
The effect of using fair value determinations is that the fund's NAV will be
based, to some degree, on security valuations that the board or its designee
believes are fair rather than being solely determined by the market.
With respect to any portion of the fund's assets that are invested in one or
more open-end management investment companies that are registered with the SEC
(known as registered investment companies, or RICs), the fund's NAV will be
calculated based upon the NAVs of such RICs. These RICs are required by law to
explain the circumstances under which they will use fair value pricing and the
effects of using fair value pricing in their prospectuses.
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22
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day.
Trading of securities in foreign markets may not take place every day the NYSE
is open. Also, trading in some foreign markets and on some electronic trading
networks may take place on weekends or holidays when the fund's NAV is not
calculated. So, the value of the fund's portfolio may be affected on days when
you will not be able to purchase, exchange or redeem fund shares.
DISTRIBUTIONS
Federal tax laws require the fund to make distributions to its shareholders in
order to qualify as a regulated investment company. Qualification as a regulated
investment company means that the fund should not be subject to state or federal
income tax on amounts distributed. The distributions generally consist of
dividends and interest received by a fund, as well as CAPITAL GAINS realized by
a fund on the sale of its investment securities.
[graphic of triangle]
CAPITAL GAINS ARE INCREASES IN THE VALUES OF CAPITAL ASSETS, SUCH AS
STOCK, FROM THE TIME THE ASSETS ARE PURCHASED.
The fund generally pays distributions from net income and capital gains, if any,
once a year in December. It may make more frequent distributions, if necessary,
to comply with Internal Revenue Code provisions.
You will participate in fund distributions when they are declared, starting the
next business day after your purchase is effective. For example, if you purchase
shares on a day that a distribution is declared, you will not receive that
distribution. If you redeem shares, you will receive any distribution declared
on the day you redeem. If you redeem all shares, we will include any
distributions received with your redemption proceeds.
Participants in tax-deferred retirement plans must reinvest all distributions.
For investors investing through taxable accounts, we will reinvest distributions
unless you elect to have dividends and/or capital gains sent to another American
Century account, to your bank electronically, or to your home address or to
another person or address by check.
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23
TAXES
The tax consequences of owning shares of the fund will vary depending on whether
you own them through a taxable or tax-deferred account. Tax consequences result
from distributions by the fund of dividend and interest income it has received
or capital gains it has generated through its investment activities. Tax
consequences also may result when investors sell fund shares after the net asset
value has increased or decreased.
Tax-Deferred Accounts
If you purchase fund shares through a tax-deferred account, such as an IRA or a
qualified employer-sponsored retirement or savings plan, income and capital
gains distributions usually will not be subject to current taxation but will
accumulate in your account under the plan on a tax-deferred basis. Likewise,
moving from one fund to another fund within a plan or tax-deferred account
generally will not cause you to be taxed. For information about the tax
consequences of making purchases or withdrawals through a tax-deferred account,
please consult your plan administrator, your summary plan description or a tax
advisor.
Taxable Accounts
If you own fund shares through a taxable account, you may be taxed on your
investments if the fund makes distributions or if you sell your fund shares.
Taxability of Distributions
Fund distributions may consist of income, such as dividends and interest earned
by a fund from its investments, or capital gains generated by a fund from the
sale of investment securities. Distributions of income are taxed as ordinary
income, unless they are designated as QUALIFIED DIVIDEND INCOME and you meet a
minimum required holding period with respect to your shares of the fund, in
which case distributions of income are taxed as long-term capital gains.
[graphic of triangle]
QUALIFIED DIVIDEND INCOME IS A DIVIDEND RECEIVED BY A FUND FROM THE
STOCK OF A DOMESTIC OR QUALIFYING FOREIGN CORPORATION, PROVIDED THAT THE
FUND HAS HELD THE STOCK FOR A REQUIRED HOLDING PERIOD.
For capital gains and for income distributions designated as qualified dividend
income, the following rates apply:
TAX RATE FOR 10% TAX RATE FOR
TYPE OF DISTRIBUTION AND 15% BRACKETS ALL OTHER BRACKETS
--------------------------------------------------------------------------------
Short-term capital gains Ordinary Income Ordinary Income
--------------------------------------------------------------------------------
Long-term capital gains (more than 1 year)
and Qualified Dividend Income 5% 15%
--------------------------------------------------------------------------------
If a fund's distributions exceed its taxable income and capital gains realized
during the tax year, all or a portion of the distributions made by the fund in
that tax year will be considered a return of capital. A return of capital
distribution is generally not subject to tax, but will reduce your cost basis in
the fund and result in higher realized capital gains (or lower realized capital
losses) upon the sale of fund shares.
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24
The tax status of any distributions of capital gains is determined by how long a
fund held the underlying security that was sold, not by how long you have been
invested in the fund, or whether you reinvest your distributions in additional
shares or take them in cash. For taxable accounts, American Century or your
financial intermediary will inform you of the tax status of fund distributions
for each calendar year in an annual tax mailing.
Distributions also may be subject to state and local taxes. Because everyone's
tax situation is unique, you may want to consult your tax professional about
federal, state and local tax consequences.
Taxes on Transactions
Your redemptions - including exchanges to other American Century funds - are
subject to capital gains tax. The table above can provide a general guide for
your potential tax liability when selling or exchanging fund shares. Short-term
capital gains are gains on fund shares you held for 12 months or less. Long-term
capital gains are gains on fund shares you held for more than 12 months. If your
shares decrease in value, their sale or exchange will result in a long-term or
short-term capital loss. However, you should note that loss realized upon the
sale or exchange of shares held for six months or less will be treated as a
long-term capital loss to the extent of any distribution of long-term capital
gain to you with respect to those shares. If a loss is realized on the
redemption of fund shares, the reinvestment in additional fund shares within 30
days before or after the redemption may be subject to the wash sale rules of the
Internal Revenue Code. This may result in a postponement of the recognition of
such loss for federal income tax purposes.
If you have not certified to us that your Social Security number or tax
identification number is correct and that you are not subject to withholding, we
are required to withhold and pay to the IRS the applicable federal withholding
tax rate on taxable dividends, capital gains distributions and redemption
proceeds.
Buying a Dividend
Purchasing fund shares in a taxable account shortly before a distribution is
sometimes known as buying a dividend. In taxable accounts, you must pay income
taxes on the distribution whether you reinvest the distribution or take it in
cash. In addition, you will have to pay taxes on the distribution whether the
value of your investment decreased, increased or remained the same after you
bought the fund shares.
The risk in buying a dividend is that a fund's portfolio may build up taxable
gains throughout the period covered by a distribution, as securities are sold at
a profit. The fund distributes those gains to you, after subtracting any losses,
even if you did not own the shares when the gains occurred.
If you buy a dividend, you incur the full tax liability of the distribution
period, but you may not enjoy the full benefit of the gains realized in the
fund's portfolio.
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25
MULTIPLE CLASS INFORMATION
American Century offers six classes of shares of the fund: Investor Class,
Institutional Class, A Class, B Class, C Class and R Class.
The classes have different fees, expenses and/or minimum investment
requirements. The difference in the fee structures between the classes is the
result of their separate arrangements for shareholder and distribution services.
It is not the result of any difference in advisory or custodial fees or other
expenses related to the management of the fund's assets, which do not vary by
class. Different fees and expenses will affect performance.
Except as described herein, all classes of shares of a fund have identical
voting, dividend, liquidation and other rights, preferences, terms and
conditions. The only differences among the classes are (a) each class may be
subject to different expenses specific to that class; (b) each class has a
different identifying designation or name; (c) each class has exclusive voting
rights with respect to matters solely affecting such class; (d) each class may
have different exchange privileges; (e) the Institutional Class may provide for
automatic conversion from that class into shares of the Investor Class of the
same fund; and (f) the B Class provides for automatic conversion from that class
into shares of the A Class of the same fund after eight years.
Service, Distribution and Administrative Fees
Investment Company Act Rule 12b-1 permits mutual funds that adopt a written plan
to pay certain expenses associated with the distribution of their shares out of
fund assets. Each class, except Investor Class and Institutional Class, offered
by this prospectus has a 12b-1 plan. The plans provide for the fund to pay
annual fees of 0.25% for A Class, 1.00% for B and C Class, and 0.50% for R Class
to the distributor for certain ongoing shareholder and administrative services
and for distribution services, including past distribution services. The
distributor pays all or a portion of such fees to the financial intermediaries
that make the classes available. Because these fees are used to pay for services
that are not related to prospective sales of the fund, each class will continue
to make payments under its plan even if it is closed to new investors. Because
these fees are paid out of the fund's assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
other types of sales charges. The higher fees for B and C Class shares may cost
you more over time than paying the initial sales charge for A Class shares. For
additional information about the plans and their terms, see Multiple Class
Structure in the statement of additional information.
Certain financial intermediaries perform recordkeeping and administrative
services for their clients that would otherwise be performed by American
Century's transfer agent. In some circumstances, the advisor will pay such
service providers a fee for performing those services. Also, the advisor and the
fund's distributor may make payments for various additional services or other
expenses out of their profits or other available sources. Such payments may be
made for one or more of the following: (1) distribution services, which include
expenses incurred by intermediaries for their sales activities with respect to
the fund, such as preparing, printing and distributing sales literature and
advertising materials and compensating registered representatives or other
employees of such intermediary for their sales activities; (2) shareholder
services, such as providing individual and custom investment advisory services
to clients of the intermediary; and (3) marketing and promotional services,
including business planning assistance, educating personnel about the fund, and
sponsorship of sales meetings, which may include covering costs of providing
speakers, meals and other entertainment. The distributor may sponsor seminars
and conferences designed to educate intermediaries about the fund and may cover
the expenses associated with attendance at such meetings, including travel
costs. These payments and activities are intended to provide an incentive to
intermediaries to sell the fund by ensuring that they are educated about the
fund, and to help such intermediaries defray costs associated with offering the
fund. The amount of any payments described by this paragraph is determined by
the advisor or the distributor, and all such amounts are paid out of the
available assets of the advisor and distributor, and not by you or the fund. As
a result, the total expense ratio of the fund will not be affected by any such
payments.
------
26
FINANCIAL HIGHLIGHTS
UNDERSTANDING THE FINANCIAL HIGHLIGHTS
The tables on the next few pages itemize what contributed to the changes in
share price during the most recently ended fiscal year. They also show the
changes in share price for this period in comparison to changes over the last
five fiscal years (or a shorter period if the share class is not five years
old). Because the Investor, Institutional, C and R Classes are new, financial
information is not available for those classes.
On a per-share basis, each table includes as appropriate
* share price at the beginning of the period
* investment income and capital gains or losses
* distributions of income and capital gains paid to investors
* share price at the end of the period
Each table also includes some key statistics for the period as appropriate
* TOTAL RETURN - the overall percentage of return of the fund, assuming the
reinvestment of all distributions
* EXPENSE RATIO - the operating expenses of the fund as a percentage of
average net assets
* NET INCOME RATIO - the net investment income of the fund as a percentage
of average net assets
* PORTFOLIO TURNOVER - the percentage of the fund's investment portfolio
that is replaced during the period
The Financial Highlights that follow have been audited by PricewaterhouseCoopers
LLP, independent registered public accounting firm, except for the six-month
period ended September 30, 2005, which have not been audited.
------
27
MID CAP GROWTH
A Class
Mid Cap Growth acquired all the net assets of the Mason Street Aggressive Growth
Fund on March 31, 2006, pursuant to a plan of reorganization approved by the
acquired fund's shareholders on March 15, 2006. Performance information prior to
March 31, 2006 is that of the Mason Street Aggressive Growth Fund.
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
-------------------------------------------------------------------------------------------------------
2005(1) 2005 2004 2003 2002 2001
-------------------------------------------------------------------------------------------------------
PER-SHARE DATA
-------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $13.50 $12.78 $9.83 $12.93 $13.70 $23.23
-------------------------------------------------------------------------------------------------------
Income From Investment Operations
--------------------------------------
Net Investment Income (Loss) (0.04)(2) (0.10)(2) (0.09)(2) (0.09)(2) (0.09) (0.11)(2)
--------------------------------------
Net Realized and 0.88 0.82 3.04 (3.01) 0.43 (5.69)
Unrealized Gains
(Losses) on Investments
-------------------------------------------------------------------------------------------------------
Total From 0.84 0.72 2.95 (3.10) 0.34 (5.80)
Investment Operations
-------------------------------------------------------------------------------------------------------
Less Distributions
--------------------------------------
Distributions From Realized - - - - (1.11) (3.73)
Gains on Investments
-------------------------------------------------------------------------------------------------------
Total Distributions - - - - (1.11) (3.73)
-------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.34 $13.50 $12.78 $9.83 $12.93 $13.70
=======================================================================================================
TOTAL RETURN(3) 6.22%(4) 5.63% 30.01% (23.98)% 2.54% (28.33)%
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.33%(5) 1.36% 1.40% 1.55% 1.55% 1.45%
--------------------------------------
Ratio of Net Expenses
to Average Net Assets 1.30%(5) 1.30% 1.30% 1.30% 1.30% 1.30%
--------------------------------------
Ratio of Net Investment
Income (Loss)
to Average Net Assets (0.32)%(5) (0.79)% (0.74)% (0.86)% (0.61)% (0.55)%
--------------------------------------
Portfolio Turnover Rate 53.75% 69.69% 71.78% 34.94% 68.02% 63.63%
--------------------------------------
Net Assets, End of Period
(in thousands) $173,151 $163,069 $148,862 $105,728 $66,062 $62,587
-------------------------------------------------------------------------------------------------------
(1) FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2005 (UNAUDITED).
(2) CALCULATED BASED ON AVERAGE SHARES OUTSTANDING.
(3) TOTAL RETURN INCLUDES DEDUCTIONS FOR MANAGEMENT AND OTHER FUND
EXPENSES; EXCLUDES DEDUCTIONS FOR SALES LOADS AND CONTINGENT DEFERRED
SALES CHARGES. RETURNS INCLUDE FEE WAIVERS IN EFFECT. IN THE ABSENCE OF FEE
WAIVERS, TOTAL RETURN WOULD BE REDUCED.
(4) REFLECTS TOTAL RETURN FOR THE PERIOD; NOT ANNUALIZED.
(5) COMPUTED ON AN ANNUALIZED BASIS.
------
28
MID CAP GROWTH
B Class
Mid Cap Growth acquired all the net assets of the Mason Street Aggressive Growth
Fund on March 31, 2006, pursuant to a plan of reorganization approved by the
acquired fund's shareholders on March 15, 2006. Performance information prior to
March 31, 2006 is that of the Mason Street Aggressive Growth Fund.
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
-------------------------------------------------------------------------------------------------------
2005(1) 2005 2004 2003 2002 2001
-------------------------------------------------------------------------------------------------------
PER-SHARE DATA
-------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $12.86 $12.25 $9.49 $12.55 $13.43 $22.86
-------------------------------------------------------------------------------------------------------
Income From Investment Operations
--------------------------------------
Net Investment Income (Loss) (0.08)(2) (0.18)(2) (0.16)(2) (0.16)(2) (0.09) (0.24)(2)
--------------------------------------
Net Realized and 0.84 0.79 2.92 (2.90) 0.32 (5.59)
Unrealized Gains (Losses)
on Investments
-------------------------------------------------------------------------------------------------------
Total From 0.76 0.61 2.76 (3.06) 0.23 (5.83)
Investment Operations
-------------------------------------------------------------------------------------------------------
Less Distributions
--------------------------------------
Distributions From Realized - - - - (1.11) (3.60)
Gains on Investments
-------------------------------------------------------------------------------------------------------
Total Distributions - - - - (1.11) (3.60)
-------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.62 $12.86 $12.25 $9.49 $12.55 $13.43
=======================================================================================================
TOTAL RETURN(3) 5.91%(4) 4.98% 29.08% (24.38)% 1.75% (28.78)%
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 2.06%(5) 2.04% 2.05% 2.20% 2.20% 2.10%
--------------------------------------
Ratio of Net Expenses
to Average Net Assets 1.95%(5) 1.95% 1.95% 1.95% 1.95% 1.95%
--------------------------------------
Ratio of Net Investment
Income (Loss)
to Average Net Assets (0.65)%(5) (1.44)% (1.40)% (1.52)% (1.26)% (1.20)%
--------------------------------------
Portfolio Turnover Rate 53.75% 69.69% 71.78% 34.94% 68.02% 63.63%
--------------------------------------
Net Assets, End of Period
(in thousands) $9,276 $9,839 $10,128 $7,978 $10,302 $9,645
-------------------------------------------------------------------------------------------------------
(1) FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2005 (UNAUDITED).
(2) CALCULATED BASED ON AVERAGE SHARES OUTSTANDING.
(3) TOTAL RETURN INCLUDES DEDUCTIONS FOR MANAGEMENT AND OTHER FUND
EXPENSES; EXCLUDES DEDUCTIONS FOR SALES LOADS AND CONTINGENT DEFERRED
SALES CHARGES. RETURNS INCLUDE FEE WAIVERS IN EFFECT. IN THE ABSENCE OF FEE
WAIVERS, TOTAL RETURN WOULD BE REDUCED.
(4) REFLECTS TOTAL RETURN FOR THE PERIOD; NOT ANNUALIZED.
(5) COMPUTED ON AN ANNUALIZED BASIS.
------
29
MORE INFORMATION ABOUT THE FUND IS CONTAINED IN THESE DOCUMENTS
Annual and Semiannual Reports
Annual and semiannual reports contain more information about the fund's
investments and the market conditions and investment strategies that
significantly affected the fund's performance during the most recent fiscal
period.
Statement of Additional Information (SAI)
The SAI contains a more detailed, legal description of the fund's operations,
investment restrictions, policies and practices. The SAI is incorporated by
reference into this prospectus. This means that it is legally part of this
prospectus, even if you don't request a copy.
You may obtain a free copy of the SAI or annual and semiannual reports, and ask
questions about the fund or your accounts, online at americancentury.com, by
contacting American Century at the address or telephone numbers listed below or
by contacting your financial intermediary.
You also can get information about the fund (including the SAI) from the
Securities and Exchange Commission (SEC). The SEC charges a duplicating fee to
provide copies of this information.
IN PERSON SEC Public Reference Room
Washington, D.C.
Call 202-942-8090 for location and hours.
ON THE INTERNET * EDGAR database at sec.gov
* By email request at publicinfo@sec.gov
BY MAIL SEC Public Reference Section
Washington, D.C. 20549-0102
This prospectus shall not constitute an offer to sell securities of a fund in
any state, territory, or other jurisdiction where the fund's shares have not
been registered or qualified for sale, unless such registration or qualification
is not required, or under any circumstances in which such offer or solicitation
would be unlawful.
FUND REFERENCE FUND CODE
--------------------------------------------------------------------------------
American Century-Mason Street Mid Cap Growth
Investor Class 904
--------------------------------------------------------------------------------
Institutional Class 326
--------------------------------------------------------------------------------
A Class 126
--------------------------------------------------------------------------------
B Class 386
--------------------------------------------------------------------------------
C Class 426
--------------------------------------------------------------------------------
R Class 296
--------------------------------------------------------------------------------
Investment Company Act File No. 811-0816
AMERICAN CENTURY INVESTMENTS
P.O. Box 419786
Kansas City, Missouri 64141-6786
1-800-378-9878
americancentury.com
0604
SH-PRS-47872
April 1, 2006
American Century Investments
statement of additional information
American Century Mutual Funds, Inc.
Balanced Fund
Capital Growth Fund
Capital Value Fund
Focused Growth Fund
Fundamental Equity Fund
Giftrust® Fund
Growth Fund
Heritage Fund
American Century-Mason Street Mid Cap Growth Fund
New Opportunities Fund
New Opportunities II Fund
Select Fund
American Century-Mason Street Small Cap Growth
Ultra® Fund
Veedot® Fund
Vista(SM) Fund
THIS STATEMENT OF ADDITIONAL INFORMATION ADDS TO THE DISCUSSION IN THE FUNDS'
PROSPECTUSES DATED MARCH 1, 2006 AND APRIL 1, 2006, BUT IS NOT A PROSPECTUS.
THE STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
FUNDS' CURRENT PROSPECTUSES. IF YOU WOULD LIKE A COPY OF A PROSPECTUS, PLEASE
CONTACT US AT ONE OF THE ADDRESSES OR TELEPHONE NUMBERS LISTED ON THE BACK COVER
OR VISIT AMERICAN CENTURY'S WEB SITE AT AMERICANCENTURY.COM.
THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE CERTAIN
INFORMATION THAT APPEARS IN THE FUNDS' ANNUAL AND SEMIANNUAL REPORTS, WHICH ARE
DELIVERED TO ALL INVESTORS. YOU MAY OBTAIN A FREE COPY OF THE FUNDS' ANNUAL OR
SEMIANNUAL REPORTS BY CALLING 1-800-345-2021.
American Century Investment
Services, Inc., Distributor
[american century investments logo and text logo]
American Century Investment Services, Inc., Distributor
©2006 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
Table of Contents
The Funds' History. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Fund Investment Guidelines. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Capital Growth, Focused Growth, Fundamental Equity, Giftrust,
Growth, Heritage, Mid Cap Growth, New Opportunities, New
Opportunities II, Select, Small Cap Growth, Ultra, Veedot, Vista. . . 4
Balanced. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Capital Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Fund Investments and Risks. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Investment Strategies and Risks . . . . . . . . . . . . . . . . . . . 5
Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . 24
Portfolio Turnover. . . . . . . . . . . . . . . . . . . . . . . . . . 26
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
The Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . 31
Ownership of Fund Shares. . . . . . . . . . . . . . . . . . . . . . . 34
Code of Ethics. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Proxy Voting Guidelines . . . . . . . . . . . . . . . . . . . . . . . 35
Disclosure of Portfolio Holdings. . . . . . . . . . . . . . . . . . . 36
The Funds' Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . 40
Service Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Investment Advisor. . . . . . . . . . . . . . . . . . . . . . . . . . 48
Subadvisor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Portfolio Managers. . . . . . . . . . . . . . . . . . . . . . . . . . 54
Transfer Agent and Administrator. . . . . . . . . . . . . . . . . . . 62
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Custodian Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Independent Registered Public Accounting Firm . . . . . . . . . . . . 62
Brokerage Allocation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Capital Growth, Capital Value, Focused Growth, Fundamental
Equity, Giftrust, Growth, Heritage, Mid Cap Growth,
New Opportunities, New Opportunities II, Select,
Small Cap Growth, Ultra, Veedot, Vista and
the Equity Portion of Balanced. . . . . . . . . . . . . . . . . . . . 63
The Fixed-Income Portion of Balanced. . . . . . . . . . . . . . . . . 64
Regular Broker-Dealers. . . . . . . . . . . . . . . . . . . . . . . . 64
Information about Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . 65
Multiple Class Structure. . . . . . . . . . . . . . . . . . . . . . . 66
Buying and Selling Fund Shares. . . . . . . . . . . . . . . . . . . . 76
Valuation of a Fund's Securities. . . . . . . . . . . . . . . . . . . 76
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Federal Income Tax. . . . . . . . . . . . . . . . . . . . . . . . . . 78
State and Local Taxes . . . . . . . . . . . . . . . . . . . . . . . . 79
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Explanation of Fixed-Income Securities Ratings. . . . . . . . . . . . . . . . 80
------
1
THE FUNDS' HISTORY
American Century Mutual Funds, Inc. is a registered open-end management
investment company that was organized in 1957 as a Delaware corporation under
the name Twentieth Century Investors, Inc. On July 2, 1990, the company
reorganized as a Maryland corporation, and in January 1997 it changed its name
to American Century Mutual Funds, Inc. Throughout this statement of additional
information we refer to American Century Mutual Funds, Inc. as the corporation.
For accounting and performance purposes, the Mid Cap Growth fund is the
post-reorganization successor to the Mason Street Aggressive Growth fund, and
the Small Cap Growth fund is the post-reorganization successor to the Mason
Street Small Cap Growth fund. All references to fees and expenses paid by the
Mid Cap Growth fund and the Small Cap Growth fund prior to April 1, 2006, are
for the fiscal year ended March 31, and represent amounts paid by the Mason
Street Aggressive Growth and Mason Street Small Cap Growth funds.
Each fund described in this statement of additional information is a separate
series of the corporation and operates for many purposes as if it were an
independent company. Each fund has its own investment objective, strategy,
management team, assets, and tax identification and stock registration numbers.
FUND TICKER SYMBOL INCEPTION DATE
--------------------------------------------------------------------------------
Balanced
Investor Class TWBIX 10/20/1988
--------------------------------------------------------------------------------
Institutional Class ABINX 05/01/2000
--------------------------------------------------------------------------------
Advisor Class TWBAX 01/06/1997
--------------------------------------------------------------------------------
Capital Growth
Investor Class ACLIX 07/29/2005
--------------------------------------------------------------------------------
Institutional Class APLIX 07/29/2005
--------------------------------------------------------------------------------
A Class ACCGX 02/27/2004
--------------------------------------------------------------------------------
B Class ACGBX 02/27/2004
--------------------------------------------------------------------------------
C Class ACPGX 02/27/2004
--------------------------------------------------------------------------------
R Class APWRX 07/29/2005
--------------------------------------------------------------------------------
Capital Value
Investor Class ACTIX 03/31/1999
--------------------------------------------------------------------------------
Institutional Class ACPIX 03/01/2002
--------------------------------------------------------------------------------
Advisor Class ACCVX 05/14/2003
--------------------------------------------------------------------------------
Focused Growth
Investor Class AFSIX 02/28/2005
--------------------------------------------------------------------------------
Fundamental Equity
Investor Class AFDIX 07/29/2005
--------------------------------------------------------------------------------
Institutional Class AFEIX 07/29/2005
--------------------------------------------------------------------------------
A Class AFDAX 11/30/2004
--------------------------------------------------------------------------------
B Class AFDBX 11/30/2004
--------------------------------------------------------------------------------
C Class AFDCX 11/30/2004
--------------------------------------------------------------------------------
R Class AFDRX 07/29/2005
--------------------------------------------------------------------------------
Giftrust
Investor Class TWGTX 11/25/1983
--------------------------------------------------------------------------------
Growth
Investor Class TWCGX 10/31/1958
--------------------------------------------------------------------------------
Institutional Class TWGIX 06/16/1997
--------------------------------------------------------------------------------
C Class TWGCX 11/28/2001
--------------------------------------------------------------------------------
R Class AGWRX 08/29/2003
--------------------------------------------------------------------------------
Advisor Class TCRAX 06/04/1997
--------------------------------------------------------------------------------
Heritage
Investor Class TWHIX 11/10/1987
--------------------------------------------------------------------------------
Institutional Class ATHIX 06/16/1997
--------------------------------------------------------------------------------
C Class AHGCX 06/26/2001
--------------------------------------------------------------------------------
Advisor Class ATHAX 07/11/1997
--------------------------------------------------------------------------------
------
2
FUND TICKER SYMBOL INCEPTION DATE
--------------------------------------------------------------------------------
Mid Cap Growth
Investor Class ACOVX 04/03/2006
--------------------------------------------------------------------------------
Institutional Class ACMIX 04/03/2006
--------------------------------------------------------------------------------
A Class MAGAX 03/31/1997
--------------------------------------------------------------------------------
B Class MAGHX 03/31/1997
--------------------------------------------------------------------------------
C Class ACMLX 04/03/2006
--------------------------------------------------------------------------------
R Class ACMRX 04/03/2006
--------------------------------------------------------------------------------
New Opportunities
Investor Class TWNOX 12/26/1996
--------------------------------------------------------------------------------
New Opportunities II
Investor Class ANOIX 06/01/2001
--------------------------------------------------------------------------------
Institutional Class N/A N/A
--------------------------------------------------------------------------------
A Class ANOAX 01/31/2003
--------------------------------------------------------------------------------
B Class ANOBX 01/31/2003
--------------------------------------------------------------------------------
C Class ANOCX 01/31/2003
--------------------------------------------------------------------------------
Select
Investor Class TWCIX 10/31/1958
--------------------------------------------------------------------------------
Institutional Class TWSIX 03/13/1997
--------------------------------------------------------------------------------
A Class AASLX 01/31/2003
--------------------------------------------------------------------------------
B Class ABSLX 01/31/2003
--------------------------------------------------------------------------------
C Class ACSLX 01/31/2003
--------------------------------------------------------------------------------
R Class ASERX 07/29/2005
--------------------------------------------------------------------------------
Advisor Class TWCAX 08/08/1997
--------------------------------------------------------------------------------
Small Cap Growth
Investor Class AXWVX 04/03/2006
--------------------------------------------------------------------------------
Institutional Class ACWIX 04/03/2006
--------------------------------------------------------------------------------
A Class MSASX 07/12/1999
--------------------------------------------------------------------------------
B Class MSBSX 07/12/1999
--------------------------------------------------------------------------------
C Class ACWCX 04/03/2006
--------------------------------------------------------------------------------
R Class ACWRX 04/03/2006
--------------------------------------------------------------------------------
Ultra
Investor Class TWCUX 11/02/1981
--------------------------------------------------------------------------------
Institutional Class TWUIX 11/14/1996
--------------------------------------------------------------------------------
C Class TWCCX 10/29/2001
--------------------------------------------------------------------------------
R Class AULRX 08/29/2003
--------------------------------------------------------------------------------
Advisor Class TWUAX 10/02/1996
--------------------------------------------------------------------------------
Veedot
Investor Class AMVIX 11/30/1999
--------------------------------------------------------------------------------
Institutional Class AVDIX 08/01/2000
--------------------------------------------------------------------------------
Vista
Investor Class TWCVX 11/25/1983
--------------------------------------------------------------------------------
Institutional Class TWVIX 11/14/1996
--------------------------------------------------------------------------------
C Class TWVCX 07/18/2001
--------------------------------------------------------------------------------
R Class AVTRX 07/29/2005
--------------------------------------------------------------------------------
Advisor Class TWVAX 10/02/1996
--------------------------------------------------------------------------------
------
3
FUND INVESTMENT GUIDELINES
This section explains the extent to which the funds' advisor, American Century
Investment Management, Inc., can use various investment vehicles and strategies
in managing each fund's assets. Descriptions of the investment techniques and
risks associated with each appear in the section, INVESTMENT STRATEGIES AND
RISKS, which begins on page 5. In the case of the funds' principal investment
strategies, these descriptions elaborate upon discussions contained in the
prospectuses.
Each fund, other than Focused Growth and Veedot, is diversified as defined in
the Investment Company Act of 1940 (the Investment Company Act). Diversified
means that, with respect to 75% of its total assets, each fund will not invest
more than 5% of its total assets in the securities of a single issuer or own
more than 10% of the outstanding voting securities of a single issuer.
Focused Growth and Veedot are nondiversified. Nondiversified means that a fund
may invest a greater portion of its assets in a smaller number of securities
than a diversified fund. Although Veedot's portfolio managers expect that it
will ordinarily satisfy the requirements of a diversified fund, its
nondiversified status gives it more flexibility to invest heavily in the most
attractive companies identified by the fund's methodology.
To meet federal tax requirements for qualification as a regulated investment
company, each fund must limit its investments so that at the close of each
quarter of its taxable year
(1) no more than 25% of its total assets are invested in the securities of
a single issuer (other than the U.S. government or a regulated investment
company), and
(2) with respect to at least 50% of its total assets, no more than 5% of
its total assets are invested in the securities of a single issuer.
CAPITAL GROWTH, FOCUSED GROWTH, FUNDAMENTAL EQUITY, GIFTRUST, GROWTH, HERITAGE,
MID CAP GROWTH, NEW OPPORTUNITIES, NEW OPPORTUNITIES II, SELECT, SMALL CAP
GROWTH, ULTRA, VEEDOT AND VISTA
In general, within the restrictions outlined here and in the funds'
prospectuses, the portfolio managers have broad powers to decide how to invest
fund assets, including the power to hold them uninvested.
Investments are varied according to what is judged advantageous under changing
economic conditions. It is the advisor's policy to retain maximum flexibility in
management without restrictive provisions as to the proportion of one or another
class of securities that may be held, subject to the investment restrictions
described on the following pages. It is the advisor's intention that each fund
will generally consist of domestic and foreign common stocks, convertible debt
securities and equity-equivalent securities. However, subject to the specific
limitations applicable to a fund, the funds' management teams may invest the
assets of each fund in varying amounts in other instruments and may use other
techniques, such as those reflected in the FUND INVESTMENTS AND RISKS section,
when such a course is deemed appropriate in order to pursue a fund's investment
objective. Senior securities that, in the opinion of the portfolio managers, are
high-grade issues also may be purchased for defensive purposes.
So long as a sufficient number of acceptable securities are available, the
portfolio managers intend to keep the funds fully invested, regardless of the
movement of stock or bond prices, generally. However, should a fund's investment
methodology fail to identify sufficient acceptable securities, or for any other
reason including the desire to take a temporary defensive position, the funds
may invest up to 100% of their assets in U.S. government securities. With regard
to Veedot, the portfolio managers intend to keep the fund fully invested so long
as the methodology identifies sufficient accelerating securities whose share
price patterns suggest their stock prices are likely to increase in value. In
most circumstances, each fund's actual level of cash and cash equivalents will
be less than 10%. The managers may use futures contracts as a way to expose each
fund's cash assets to the market while maintaining liquidity. As mentioned in
the prospectuses, the managers may not leverage a fund's portfolio; so there is
no greater market risk to the funds than if they purchase stocks. See DERIVATIVE
SECURITIES, page 7, SHORT-TERM SECURITIES, page 11 and FUTURES AND OPTIONS, page
12.
------
4
BALANCED
In general, within the restrictions outlined here and in the fund's prospectus,
the portfolio managers have broad powers to decide how to invest fund assets,
including the power to hold them uninvested. As a matter of fundamental policy,
the managers will invest approximately 60% of the fund's portfolio in equity
securities and the remainder in bonds and other fixed-income securities. The
equity portion of the fund generally will be invested in equity securities of
companies comprising the 1,500 largest publicly traded companies in the United
States. The fund's investment approach may cause its equity portion to be more
heavily invested in some industries than in others. However, it may not invest
more than 25% of its total assets in companies whose principal business
activities are in the same industry. In addition, as a diversified investment
company, its investments in a single issue are limited, as described above in
FUND INVESTMENT GUIDELINES. The portfolio managers also may purchase foreign
securities, convertible securities, equity-equivalent securities, non-leveraged
futures contracts and similar securities, and short-term securities.
The fixed-income portion of the fund generally will be invested in a diversified
portfolio of high-grade government, corporate, asset-backed and similar
securities. There are no maturity restrictions on the fixed-income securities in
which the fund invests, but under normal conditions the weighted average
maturity for the fixed-income portion of the fund will be in the 3-to-10-year
range. The managers will actively manage the portfolio, adjusting the
portfolio's weighted average maturity in response to expected changes in
interest rates. During periods of rising interest rates, or when rates are
expected to rise, a shorter weighted average maturity may be adopted in order to
reduce the effect of bond price declines on the fund's net asset value. When
interest rates are falling, or expected to fall, and bond prices rising, or
expected to rise, a longer weighted average portfolio maturity may be adopted.
The restrictions on the quality of the fixed-income securities the fund may
purchase are described in the prospectus. For a description of the fixed-income
securities rating system, see EXPLANATION OF FIXED-INCOME SECURITIES RATINGS, on
page 80.
CAPITAL VALUE
The portfolio managers will invest primarily in stocks of medium to large
companies that the managers believe are undervalued at the time of purchase. The
portfolio managers will usually purchase common stocks of U.S. and foreign
companies, but they can purchase other types of securities as well, such as
domestic and foreign preferred stocks, convertible securities, equity-equivalent
securities, notes, bonds and other debt securities.
FUND INVESTMENTS AND RISKS
INVESTMENT STRATEGIES AND RISKS
This section describes investment vehicles and techniques the portfolio managers
can use in managing a fund's assets. It also details the risks associated with
each, because each investment vehicle and technique contributes to a fund's
overall risk profile.
Foreign Securities
Mid Cap Growth and Small Cap Growth may invest up to 20% of their assets in
equity securities of foreign issuers. The other funds may invest an unlimited
portion of their total assets in the securities of foreign issuers, when these
securities meet its standards of selection. These funds may invest in common
stocks, convertible securities, preferred stocks, bonds, notes and other debt
securities of foreign issuers, foreign governments and their agencies.
Securities of foreign issuers may trade in the U.S. or foreign securities
markets.
The funds may purchase foreign securities of issuers whose principal business
activities are located in developed and emerging market countries. The funds
consider developed countries to include Australia, Austria, Belgium, Bermuda,
Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy,
Japan, Luxembourg, The Netherlands, New Zealand, Norway, Portugal, Singapore,
Spain, Sweden, Switzerland, the United Kingdom and the United States.
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Investments in foreign securities may present certain risks, including:
CURRENCY RISK - The value of the foreign investments held by the funds may be
significantly affected by changes in currency exchange rates. The dollar value
of a foreign security generally decreases when the value of the dollar rises
against the foreign currency in which the security is denominated and tends to
increase when the value of the dollar falls against such currency. In addition,
the value of fund assets may be affected by losses and other expenses incurred
in converting between various currencies in order to purchase and sell foreign
securities, and by currency restrictions, exchange control regulation, currency
devaluations and political developments.
POLITICAL AND ECONOMIC RISK - The economies of many of the countries in which
the funds invest are not as developed as the economy of the United States and
may be subject to significantly different forces. Political or social
instability, expropriation, nationalization, confiscatory taxation and
limitations on the removal of funds or other assets also could adversely affect
the value of investments. Further, the funds may find it difficult or be unable
to enforce ownership rights, pursue legal remedies or obtain judgments in
foreign courts.
REGULATORY RISK - Foreign companies generally are not subject to the regulatory
controls imposed on U.S. issuers and, in general, there is less publicly
available information about foreign securities than is available about domestic
securities. Many foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic companies. Income from foreign
securities owned by the funds may be reduced by a withholding tax at the source,
which would reduce dividend income payable to shareholders.
MARKET AND TRADING RISK - Brokerage commission rates in foreign countries, which
generally are fixed rather than subject to negotiation as in the United States,
are likely to be higher. The securities markets in many of the countries in
which the funds invest will have substantially less trading volume than the
principal U.S. markets. As a result, the securities of some companies in these
countries may be less liquid and more volatile than comparable U.S. securities.
Furthermore, one securities broker may represent all or a significant part of
the trading volume in a particular country, resulting in higher trading costs
and decreased liquidity due to a lack of alternative trading partners. There
generally is less government regulation and supervision of foreign stock
exchanges, brokers and issuers, which may make it difficult to enforce
contractual obligations.
CLEARANCE AND SETTLEMENT RISK - Foreign securities markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in clearance and settlement could result in temporary periods when assets
of the funds are uninvested and no return is earned. The inability of the funds
to make intended security purchases due to clearance and settlement problems
could cause the funds to miss attractive investment opportunities. Inability to
dispose of portfolio securities due to clearance and settlement problems could
result either in losses to the funds due to subsequent declines in the value of
the portfolio security or, if the fund has entered into a contract to sell the
security, liability to the purchaser.
OWNERSHIP RISK - Evidence of securities ownership may be uncertain in many
foreign countries. As a result, there is a risk that a fund's trade details
could be incorrectly or fraudulently entered at the time of the transaction,
resulting in a loss to the fund.
Convertible Securities
A convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular time period
at a specified price or formula. A convertible security entitles the holder to
receive the interest paid or accrued on debt or the dividend paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion or exchange, such securities ordinarily provide a
stream of income with generally higher yields than common stocks of the same or
similar issuers, but lower than the yield on non-convertible debt. Of course,
there can be no assurance of current income because issuers of convertible
securities may default on their obligations. In addition,
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there can be no assurance of capital appreciation because the value of the
underlying common stock will fluctuate. Because of the conversion feature, the
managers consider some convertible securities to be equity equivalents.
The price of a convertible security will normally fluctuate in some proportion
to changes in the price of the underlying asset. A convertible security is
subject to risks relating to the activities of the issuer and/or general market
and economic conditions. The stream of income typically paid on a convertible
security may tend to cushion the security against declines in the price of the
underlying asset. However, the stream of income causes fluctuations based upon
changes in interest rates and the credit quality of the issuer. In general, the
value of a convertible security is a function of (1) its yield in comparison
with yields of other securities of comparable maturity and quality that do not
have a conversion privilege and (2) its worth, at market value, if converted or
exchanged into the underlying common stock. The price of a convertible security
often reflects such variations in the price of the underlying common stock in a
way that a non-convertible security does not. At any given time, investment
value generally depends upon such factors as the general level of interest
rates, the yield of similar nonconvertible securities, the financial strength of
the issuer and the seniority of the security in the issuer's capital structure.
A convertible security may be subject to redemption at the option of the issuer
at a predetermined price. If a convertible security held by a fund is called for
redemption, the fund would be required to permit the issuer to redeem the
security and convert it to underlying common stock or to cash, or would sell the
convertible security to a third party, which may have an adverse effect on the
fund. A convertible security may feature a put option that permits the holder of
the convertible security to sell that security back to the issuer at a
predetermined price. A fund generally invests in convertible securities for
their favorable price characteristics and total return potential and normally
would not exercise an option to convert unless the security is called or
conversion is forced.
Short Sales
A fund may engage in short sales for cash management purposes only if, at the
time of the short sale, the fund owns or has the right to acquire securities
equivalent in kind and amount to the securities being sold short.
In a short sale, the seller does not immediately deliver the securities sold and
is said to have a short position in those securities until delivery occurs. To
make delivery to the purchaser, the executing broker borrows the securities
being sold short on behalf of the seller. While the short position is
maintained, the seller collateralizes its obligation to deliver the securities
sold short in an amount equal to the proceeds of the short sale plus an
additional margin amount established by the Board of Governors of the Federal
Reserve. If a fund engages in a short sale, the fund's custodian will segregate
cash, cash equivalents or other appropriate liquid securities on its records in
an amount sufficient to meet the purchase price. There will be certain
additional transaction costs associated with short sales, but the fund will
endeavor to offset these costs with income from the investment of the cash
proceeds of short sales.
Portfolio Lending
In order to realize additional income, a fund may lend its portfolio securities.
Such loans may not exceed one-third of the fund's total assets valued at market
except
* through the purchase of debt securities in accordance with its investment
objectives, policies and limitations, or
* by engaging in repurchase agreements with respect to portfolio securities.
Derivative Securities
To the extent permitted by its investment objectives and policies, each of the
funds may invest in securities that are commonly referred to as derivative
securities. Generally, a derivative security is a financial arrangement the
value of which is based on, or derived from, a traditional security, asset, or
market index. Certain derivative securities are described more accurately as
index/structured securities. Index/structured securities are derivative
securities
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7
whose value or performance is linked to other equity securities (such as
depositary receipts), currencies, interest rates, indices or other financial
indicators (reference indices).
Some derivative securities, such as mortgage-related and other asset-backed
securities, are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities.
There are many different types of derivative securities and many different ways
to use them. Futures and options are commonly used for traditional hedging
purposes to attempt to protect a fund from exposure to changing interest rates,
securities prices, or currency exchange rates and for cash management purposes
as a low-cost method of gaining exposure to a particular securities market
without investing directly in those securities.
No fund may invest in a derivative security unless the reference index or the
instrument to which it relates is an eligible investment for the fund. For
example, a security whose underlying value is linked to the price of oil would
not be a permissible investment because the funds may not invest in oil and gas
leases or futures.
The return on a derivative security may increase or decrease, depending upon
changes in the reference index or instrument to which it relates.
There are risks associated with investing in derivative securities, including:
* the risk that the underlying security, interest rate, market index or
other financial asset will not move in the direction the portfolio managers
anticipate;
* the possibility that there may be no liquid secondary market, or the
possibility that price fluctuation limits may be imposed by the exchange,
either of which may make it difficult or impossible to close out a position
when desired;
* the risk that adverse price movements in an instrument can result in a
loss substantially greater than a fund's initial investment; and
* the risk that the counterparty will fail to perform its obligations.
The funds' Board of Directors has reviewed the advisor's policy regarding
investments in derivative securities. That policy specifies factors that must be
considered in connection with a purchase of derivative securities and provides
that a fund may not invest in a derivative security if it would be possible for
a fund to lose more money than the notional value of the investment. The policy
also establishes a committee that must review certain proposed purchases before
the purchases can be made. The advisor will report on fund activity in
derivative securities to the Board of Directors as necessary.
Swap Agreements
Each fund may invest in swap agreements, consistent with its investment
objective and strategies. A fund may enter into a swap agreement in order to,
for example, attempt to obtain or preserve a particular return or spread at a
lower cost than obtaining a return or spread through purchases and/or sales of
instruments in other markets; protect against currency fluctuations; attempt to
manage duration to protect against any increase in the price of securities the
fund anticipates purchasing at a later date; or gain exposure to certain markets
in the most economical way possible.
Swap agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments, which may be adjusted for an interest factor. The
gross returns to be exchanged or "swapped" between the parties are generally
calculated with respect to a "notional amount," i.e., the return on or increase
in value of a particular dollar amount invested at a particular interest rate,
in a particular foreign currency, or in a "basket" of securities representing a
particular index. Forms of swap agreements include, for example, interest rate
swaps, under which fixed- or floating-rate interest payments on a specific
principal amount are exchanged and total return swaps, under which one party
agrees to pay the other the total return of a defined underlying asset (usually
an index, stock, bond or defined portfolio of loans and mortgages) in exchange
for fee payments, often a variable stream of cashflows based on LIBOR. The funds
may enter into credit default swap agreements to hedge an existing position by
purchasing or selling credit protection. Credit default
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8
swaps enable an investor to buy/sell protection against a credit event of a
specific issuer. The seller of credit protection against a security or basket of
securities receives an up-front or periodic payment to compensate against
potential default event(s). The fund may enhance returns by selling protection
or attempt to mitigate credit risk by buying protection. Market supply and
demand factors may cause distortions between the cash securities market and the
credit default swap market.
Whether a fund's use of swap agreements will be successful depends on the
advisor's ability to predict correctly whether certain types of investments are
likely to produce greater returns than other investments. Interest rate swaps
could result in losses if interest rate changes are not correctly anticipated by
the fund. Total return swaps could result in losses if the reference index,
security, or investments do not perform as anticipated by the fund. Credit
default swaps could result in losses if the fund does not correctly evaluate the
creditworthiness of the issuer on which the credit default swap is based.
Because they are two-party contracts and because they may have terms of greater
than seven days, swap agreements may be considered to be illiquid. Moreover, a
fund bears the risk of loss of the amount expected to be received under a swap
agreement in the event of the default or bankruptcy of a swap agreement
counterparty. The funds will enter into swap agreements only with counterparties
that meet certain standards of creditworthiness. Certain restrictions imposed on
the funds by the Internal Revenue Code may limit the funds' ability to use swap
agreements. The swaps market is a relatively new market and is largely
unregulated. It is possible that developments in the swaps market, including
potential government regulation, could adversely affect a fund's ability to
terminate existing swap agreements or to realize amounts to be received under
such agreements.
Investment in Issuers with Limited Operating Histories
The funds may invest the following portions of their assets in the equity
securities of issuers with limited operating histories: Balanced, Capital
Growth, Focused Growth, Fundamental Equity, Growth, Select and Ultra up to 5%;
Giftrust, Heritage, Mid Cap Growth, New Opportunities, New Opportunities II,
Small Cap Growth, Veedot and Vista up to 10%. Capital Value may invest an
unlimited portion of its equity securities in issuers with limited operating
histories. The managers consider an issuer to have a limited operating history
if that issuer has a record of less than three years of continuous operation.
The managers will consider periods of capital formation, incubation,
consolidations, and research and development in determining whether a particular
issuer has a record of three years of continuous operation.
Investments in securities of issuers with limited operating histories may
involve greater risks than investments in securities of more mature issuers. By
their nature, such issuers present limited operating histories and financial
information upon which the managers may base their investment decision on behalf
of the funds. In addition, financial and other information regarding such
issuers, when available, may be incomplete or inaccurate.
For purposes of this limitation, "issuers" refers to operating companies that
issue securities for the purposes of issuing debt or raising capital as a means
of financing their ongoing operations. It does not, however, refer to entities,
corporate or otherwise, that are created for the express purpose of securitizing
obligations or income streams. For example, a fund's investments in a trust
created for the purpose of pooling mortgage obligations would not be subject to
the limitation.
Repurchase Agreements
Each fund may invest in repurchase agreements when they present an attractive
short-term return on cash that is not otherwise committed to the purchase of
securities pursuant to the investment policies of that fund.
A repurchase agreement occurs when, at the time a fund purchases an
interest-bearing obligation, the seller (a bank or a broker-dealer registered
under the Securities Exchange Act of 1934) agrees to purchase it on a specified
date in the future at an agreed-upon price. The repurchase price reflects an
agreed-upon interest rate during the time the fund's money is invested in the
security.
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Because the security purchased constitutes collateral for the repurchase
obligation, a repurchase agreement can be considered a loan collateralized by
the security purchased. The fund's risk is the seller's ability to pay the
agreed-upon repurchase price on the repurchase date. If the seller defaults, the
fund may incur costs in disposing of the collateral, which would reduce the
amount realized thereon. If the seller seeks relief under the bankruptcy laws,
the disposition of the collateral may be delayed or limited. To the extent the
value of the security decreases, the fund could experience a loss.
The funds will limit repurchase agreement transactions to securities issued by
the U.S. government and its agencies and instrumentalities, and will enter into
such transactions with those banks and securities dealers who are deemed
creditworthy by the funds' advisor.
Repurchase agreements maturing in more than seven days would count toward a
fund's 15% limit on illiquid securities.
When-Issued and Forward Commitment Agreements
The funds may sometimes purchase new issues of securities on a when-issued or
forward commitment basis in which the transaction price and yield are each fixed
at the time the commitment is made, but payment and delivery occur at a future
date.
For example, a fund may sell a security and at the same time make a commitment
to purchase the same or a comparable security at a future date and specified
price. Conversely, a fund may purchase a security and at the same time make a
commitment to sell the same or a comparable security at a future date and
specified price. These types of transactions are executed simultaneously in what
are known as dollar-rolls, buy/sell back transactions, cash and carry, or
financing transactions. For example, a broker-dealer may seek to purchase a
particular security that a fund owns. The fund will sell that security to the
broker-dealer and simultaneously enter into a forward commitment agreement to
buy it back at a future date. This type of transaction generates income for the
fund if the dealer is willing to execute the transaction at a favorable price in
order to acquire a specific security.
When purchasing securities on a when-issued or forward commitment basis, a fund
assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. Market rates of interest on debt securities at the time of
delivery may be higher or lower than those contracted for on the when-issued
security. Accordingly, the value of that security may decline prior to delivery,
which could result in a loss to the fund. While the fund will make commitments
to purchase or sell securities with the intention of actually receiving or
delivering them, it may sell the securities before the settlement date if doing
so is deemed advisable as a matter of investment strategy.
In purchasing securities on a when-issued or forward commitment basis, a fund
will segregate cash, cash equivalents or other appropriate liquid securities on
its record in an amount sufficient to meet the purchase price. When the time
comes to pay for the when-issued securities, the fund will meet its obligations
with available cash, through the sale of securities, or, although it would not
normally expect to do so, by selling the when-issued securities themselves
(which may have a market value greater or less than the fund's payment
obligation). Selling securities to meet when-issued or forward commitment
obligations may generate taxable capital gains or losses.
Restricted and Illiquid Securities
The funds may, from time to time, purchase restricted or illiquid securities,
including Rule 144A securities, when they present attractive investment
opportunities that otherwise meet the funds' criteria for selection. Rule 144A
securities are securities that are privately placed with and traded among
qualified institutional investors rather than the general public. Although Rule
144A securities are considered restricted securities, they are not necessarily
illiquid.
With respect to securities eligible for resale under Rule 144A, the staff of the
Securities and Exchange Commission (SEC) has taken the position that the
liquidity of such securities in the portfolio of a fund offering redeemable
securities is a question of fact for the Board of Directors to determine, such
determination to be based upon a consideration of the readily available trading
markets and the review of any contractual restrictions. Accordingly, the Board
of
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10
Directors is responsible for developing and establishing the guidelines and
procedures for determining the liquidity of Rule 144A securities. As allowed by
Rule 144A, the Board of Directors has delegated the day-to-day function of
determining the liquidity of Rule 144A securities to the portfolio managers. The
board retains the responsibility to monitor the implementation of the guidelines
and procedures it has adopted.
Because the secondary market for restricted securities is generally limited to
certain qualified institutional investors, the liquidity of such securities may
be limited accordingly and a fund may, from time to time, hold a Rule 144A or
other security that is illiquid. In such an event, the portfolio managers will
consider appropriate remedies to minimize the effect on such fund's liquidity.
Short-Term Securities
In order to meet anticipated redemptions, anticipated purchases of additional
securities for a fund's portfolio, or, in some cases, for temporary defensive
purposes, these funds may invest a portion of their assets in money market and
other short-term securities.
Examples of those securities include:
* Securities issued or guaranteed by the U.S. government and its agencies
and instrumentalities
* Commercial Paper
* Certificates of Deposit and Euro Dollar Certificates of Deposit
* Bankers' Acceptances
* Short-term notes, bonds, debentures or other debt instruments
* Repurchase agreements
* Money market funds
Under the Investment Company Act, a fund's investment in other investment
companies (including money market funds) currently is limited to (a) 3% of the
total voting stock of any one investment company; (b) 5% of the fund's total
assets with respect to any one investment company; and (c) 10% of a fund's total
assets in the aggregate. These investments may include investments in money
market funds managed by the advisor. Any investment in money market funds must
be consistent with the investment policies and restrictions of the fund making
the investment.
Other Investment Companies
Each of the funds may invest up to 10% of its total assets in other investment
companies, such as mutual funds, provided that the investment is consistent with
the fund's investment policies and restrictions. These investments may include
investments in money market funds managed by the advisor. Under the Investment
Company Act, a fund's investment in such securities, subject to certain
exceptions, currently is limited to
* 3% of the total voting stock of any one investment company;
* 5% of the fund's total assets with respect to any one investment company;
and
* 10% of a fund's total assets in the aggregate.
Such purchases will be made in the open market where no commission or profit to
a sponsor or dealer results from the purchase other than the customary brokers'
commissions. As a shareholder of another investment company, a fund would bear,
along with other shareholders, its pro rata portion of the other investment
company's expenses, including advisory fees. These expenses would be in addition
to the management fee that each fund bears directly in connection with its own
operations.
Each fund may invest in exchange traded funds (ETFs), such as Standard & Poor's
Depositary Receipts (SPDRs) and the Lehman Aggregate Bond ETF, with the same
percentage limitations as investments in registered investment companies. ETFs
are a type of fund bought and sold on a securities exchange. An ETF trades like
common stock and usually represents a fixed portfolio of securities designed to
track the performance and dividend yield of a particular domestic or foreign
market index. A fund may purchase an ETF to temporarily gain exposure to a
portion of the U.S. or a foreign market while awaiting
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purchase of underlying securities. The risks of owning an ETF generally reflect
the risks of owning the underlying securities they are designed to track,
although the lack of liquidity on an ETF could result in it being more volatile.
Additionally, ETFs have management fees, which increase their cost.
Futures and Options
Each fund may enter into futures contracts, options or options on futures
contracts. Futures contracts provide for the sale by one party and purchase by
another party of a specific security at a specified future time and price.
Generally, futures transactions will be used to:
* protect against a decline in market value of the fund's securities (taking
a short futures position),
* protect against the risk of an increase in market value for securities in
which the fund generally invests at a time when the fund is not fully
invested (taking a long futures position), or
* provide a temporary substitute for the purchase of an individual security
that may not be purchased in an orderly fashion.
Some futures and options strategies, such as selling futures, buying puts and
writing calls, hedge a fund's investments against price fluctuations. Other
strategies, such as buying futures, writing puts and buying calls, tend to
increase market exposure.
Although other techniques may be used to control a fund's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While a fund pays brokerage commissions in connection
with opening and closing out futures positions, these costs are lower than the
transaction costs incurred in the purchase and sale of the underlying
securities.
For example, the sale of a future by a fund means the fund becomes obligated to
deliver the security (or securities, in the case of an index future) at a
specified price on a specified date. The purchase of a future means the fund
becomes obligated to buy the security (or securities) at a specified price on a
specified date. The portfolio managers may engage in futures and options
transactions based on securities indices, provided that the transactions are
consistent with the fund's investment objectives. Examples of indices that may
be used include the Bond Buyer Index of Municipal Bonds for fixed-income funds,
or the S&P 500 Index for equity funds. The managers also may engage in futures
and options transactions based on specific securities, such as U.S. Treasury
bonds or notes. Futures contracts are traded on national futures exchanges.
Futures exchanges and trading are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission (CFTC), a U.S. government agency.
Index futures contracts differ from traditional futures contracts in that when
delivery takes place, no stocks or bonds change hands. Instead, these contracts
settle in cash at the spot market value of the index. Although other types of
futures contracts by their terms call for actual delivery or acceptance of the
underlying securities, in most cases the contracts are closed out before the
settlement date. A futures position may be closed by taking an opposite position
in an identical contract (i.e., buying a contract that has previously been sold
or selling a contract that has previously been bought).
Unlike when the fund purchases or sells a security, no price is paid or received
by the fund upon the purchase or sale of the future. Initially, the fund will be
required to deposit an amount of cash or securities equal to a varying specified
percentage of the contract amount. This amount is known as initial margin. The
margin deposit is intended to ensure completion of the contract (delivery or
acceptance of the underlying security) if it is not terminated prior to the
specified delivery date. A margin deposit does not constitute a margin
transaction for purposes of the fund's investment restrictions. Minimum initial
margin requirements are established by the futures exchanges and may be revised.
In addition, brokers may establish margin deposit requirements that are higher
than the exchange minimums. Cash held in the margin accounts generally is not
income-producing. However, coupon bearing securities, such as Treasury bills and
bonds, held in margin accounts generally will earn income. Subsequent payments
to and from the broker, called
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12
variation margin, will be made on a daily basis as the price of the underlying
security or index fluctuates, making the future more or less valuable, a process
known as marking the contract to market. Changes in variation margin are
recorded by the fund as unrealized gains or losses. At any time prior to
expiration of the future, the fund may elect to close the position by taking an
opposite position. A final determination of variation margin is then made;
additional cash is required to be paid by or released to the fund and the fund
realizes a loss or gain.
RISKS RELATED TO FUTURES AND OPTIONS TRANSACTIONS
Futures and options prices can be volatile, and trading in these markets
involves certain risks. If the portfolio managers apply a hedge at an
inappropriate time or judge interest rate or equity market trends incorrectly,
futures and options strategies may lower a fund's return.
A fund could suffer losses if it is unable to close out its position because of
an illiquid secondary market. Futures contracts may be closed out only on an
exchange that provides a secondary market for these contracts, and there is no
assurance that a liquid secondary market will exist for any particular futures
contract at any particular time. Consequently, it may not be possible to close a
futures position when the portfolio managers consider it appropriate or
desirable to do so. In the event of adverse price movements, a fund would be
required to continue making daily cash payments to maintain its required margin.
If the fund had insufficient cash, it might have to sell portfolio securities to
meet daily margin requirements at a time when the portfolio managers would not
otherwise elect to do so. In addition, a fund may be required to deliver or take
delivery of instruments underlying futures contracts it holds. The portfolio
managers will seek to minimize these risks by limiting the futures contracts
entered into on behalf of the funds to those traded on national futures
exchanges and for which there appears to be a liquid secondary market.
A fund could suffer losses if the prices of its futures and options positions
were poorly correlated with its other investments, or if securities underlying
futures contracts purchased by a fund had different maturities than those of the
portfolio securities being hedged. Such imperfect correlation may give rise to
circumstances in which a fund loses money on a futures contract at the same time
that it experiences a decline in the value of its hedged portfolio securities. A
fund also could lose margin payments it has deposited with a margin broker, if,
for example, the broker became bankrupt.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of the trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond the limit. However, the daily limit
governs only price movement during a particular trading day and, therefore, does
not limit potential losses. In addition, the daily limit may prevent liquidation
of unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
OPTIONS ON FUTURES
By purchasing an option on a futures contract, a fund obtains the right, but not
the obligation, to sell the futures contract (a put option) or to buy the
contract (a call option) at a fixed strike price. A fund can terminate its
position in a put option by allowing it to expire or by exercising the option.
If the option is exercised, the fund completes the sale of the underlying
security at the strike price. Purchasing an option on a futures contract does
not require a fund to make margin payments unless the option is exercised.
Although they do not currently intend to do so, the funds may write (or sell)
call options that obligate them to sell (or deliver) the option's underlying
instrument upon exercise of the option. While the receipt of option premiums
would mitigate the effects of price declines, the funds would give up some
ability to participate in a price increase on the underlying security. If a fund
were to engage in options transactions, it would own the futures contract at the
time a call were written and would keep the contract open until the obligation
to deliver it pursuant to the call expired.
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RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS
Each fund may enter into futures contracts, options or options on futures
contracts.
Under the Commodity Exchange Act, a fund may enter into futures and options
transactions (a) for hedging purposes without regard to the percentage of assets
committed to initial margin and option premiums or (b) for purposes other than
hedging, provided that assets committed to initial margin and option premiums do
not exceed 5% of the fund's total assets. To the extent required by law, each
fund will segregate cash, cash equivalents or other appropriate liquid
securities on its records in an amount sufficient to cover its obligations under
the futures contracts and options.
Forward Currency Exchange Contracts
Each fund may purchase and sell foreign currency on a spot (i.e., cash) basis
and may engage in forward currency contracts, currency options and futures
transactions for hedging or any other lawful purpose. See DERIVATIVE SECURITIES,
page 7.
The funds expect to use forward currency contracts under two circumstances:
(1) When the portfolio managers are purchasing or selling a security
denominated in a foreign currency and wish to lock in the U.S. dollar price
of that security, the portfolio managers would be able to enter into a
forward currency contract to do so;
(2) When the portfolio managers believe that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, a
fund would be able to enter into a forward currency contract to sell
foreign currency for a fixed U.S. dollar amount approximating the value of
some or all of its portfolio securities either denominated in, or whose
value is tied to, such foreign currency.
In the first circumstance, when a fund enters into a trade for the purchase or
sale of a security denominated in a foreign currency, it may be desirable to
establish (lock in) the U.S. dollar cost or proceeds. By entering into forward
currency contracts in U.S. dollars for the purchase or sale of a foreign
currency involved in an underlying security transaction, the fund will be able
to protect itself against a possible loss between trade and settlement dates
resulting from the adverse change in the relationship between the U.S. dollar
and the subject foreign currency.
In the second circumstance, when the portfolio managers believe that the
currency of a particular country may suffer a substantial decline relative to
the U.S. dollar, a fund could enter into a forward currency contract to sell for
a fixed dollar amount the amount in foreign currencies approximating the value
of some or all of its portfolio securities either denominated in, or whose value
is tied to, such foreign currency. The fund will cover outstanding forward
contracts by maintaining liquid portfolio securities denominated in, or whose
value is tied to, the currency underlying the forward contract or the currency
being hedged. To the extent that the fund is not able to cover its forward
currency positions with underlying portfolio securities, the fund will segregate
on its records cash or other liquid assets having a value equal to the aggregate
amount of the fund's commitments under the forward currency contact.
The precise matching of forward currency contracts in the amounts and values of
securities involved generally would not be possible because the future values of
such foreign currencies will change as a consequence of market movements in the
values of those securities between the date the forward currency contract is
entered into and the date it matures. Predicting short-term currency market
movements is extremely difficult, and the successful execution of short-term
hedging strategy is highly uncertain. The portfolio managers do not intend to
enter into such contracts on a regular basis. Normally, consideration of the
prospect for currency parities will be incorporated into the long-term
investment decisions made with respect to overall diversification strategies.
However, the portfolio managers believe that it is important to have flexibility
to enter into such forward currency contracts when they determine that a fund's
best interests may be served.
When the forward currency contract matures, the fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate the obligation to deliver the foreign currency by
purchasing an offsetting forward currency contract with the same currency trader
that obligates the fund to purchase, on the same maturity date, the same amount
of the foreign currency.
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It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the forward currency contract.
Accordingly, it may be necessary for a fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign currency the
fund is obligated to deliver and if a decision is made to sell the security to
make delivery of the foreign currency the fund is obligated to deliver.
Equity Equivalents
In addition to investing in common stocks, the funds may invest in other equity
securities and equity equivalents, including securities that permit a fund to
receive an equity interest in an issuer, the opportunity to acquire an equity
interest in an issuer, or the opportunity to receive a return on its investment
that permits the fund to benefit from the growth over time in the equity of an
issuer. Examples of equity securities and equity equivalents include preferred
stock, convertible preferred stock and convertible debt securities.
Equity equivalents also may include securities whose value or return is derived
from the value or return of a different security.
Debt Securities
Each of the funds may invest in debt securities when the portfolio managers
believe such securities represent an attractive investment for the fund. The
funds may invest in debt securities for income, or as a defensive strategy when
the managers believe adverse economic or market conditions exist.
The value of debt securities in which the funds may invest will fluctuate based
upon changes in interest rates and the credit quality of the issuer. Debt
securities generally will be limited to investment-grade obligations. Investment
grade means that at the time of purchase, such obligations are rated within the
four highest categories by a nationally recognized statistical rating
organization (for example, at least Baa by Moody's Investors Service, Inc. or
BBB by Standard & Poor's Corporation), or, if not rated, are of equivalent
investment quality as determined by the fund's advisor. According to Moody's,
bonds rated Baa are medium-grade and possess some speculative characteristics. A
BBB rating by S&P indicates S&P's belief that a security exhibits a satisfactory
degree of safety and capacity for repayment, but is more vulnerable to adverse
economic conditions and changing circumstances.
Balanced may invest up to 20% of the fixed-income portion of the fund in
securities rated in the fourth category, and up to 15% may be invested in
securities rated in the fifth category.
Mid Cap Growth and Small Cap Growth will not invest more than 10% of their
assets in high-yield, high risk bonds.
A high-yield security is one that has been rated below the four highest
categories used by a nationally recognized statistical rating organization, or
determined by the investment advisor to be of similar quality. Issuers of these
securities often have short financial histories or questionable credit. High
yield bonds are regarded as predominantly speculative with respect to the
issuer's continuing ability to meet principal and interest payments.
In addition, the value of a fund's investments in fixed-income securities will
change as prevailing interest rates change. In general, the prices of such
securities vary inversely with interest rates. As prevailing interest rates
fall, the prices of bonds and other securities that trade on a yield basis
generally rise. When prevailing interest rates rise, bond prices generally fall.
Depending upon the particular amount and type of fixed-income securities
holdings of a fund, these changes may impact the net asset value of that fund's
shares.
Municipal Notes
Municipal notes are issued by state and local governments or government entities
to provide short-term capital or to meet cash flow needs.
Tax Anticipation Notes (TANs) are issued in anticipation of seasonal tax
revenues, such as ad valorem property, income, sales, use and business taxes,
and are payable from these future taxes. TANs usually are general obligations of
the issuer. General obligations are backed by the issuer's full faith and credit
based on its ability to levy taxes for the timely payment of interest and
repayment of principal, although such levies may be constitutionally or
statutorily limited as to rate or amount.
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Revenue Anticipation Notes (RANs) are issued with the expectation that receipt
of future revenues, such as federal revenue sharing or state aid payments, will
be used to repay the notes. Typically, these notes also constitute general
obligations of the issuer.
Bond Anticipation Notes (BANs) are issued to provide interim financing until
long-term financing can be arranged. In most cases, the long-term bonds provide
the money for repayment of the notes.
Municipal Bonds
Municipal bonds, which generally have maturities of more than one year when
issued, are designed to meet longer-term capital needs. These securities have
two principal classifications: general obligation bonds and revenue bonds.
General Obligation (GO) bonds are issued by states, counties, cities, towns and
regional districts to fund a variety of public projects, including construction
of and improvements to schools, highways, and water and sewer systems. GO bonds
are backed by the issuer's full faith and credit based on its ability to levy
taxes for the timely payment of interest and repayment of principal, although
such levies may be constitutionally or statutorily limited as to rate or amount.
Revenue Bonds are not backed by an issuer's taxing authority; rather, interest
and principal are secured by the net revenues from a project or facility.
Revenue bonds are issued to finance a variety of capital projects, including
construction or refurbishment of utility and waste disposal systems, highways,
bridges, tunnels, air and seaport facilities, schools and hospitals. Many
revenue bond issuers provide additional security in the form of a debt-service
reserve fund that may be used to make payments of interest and repayments of
principal on the issuer's obligations. Some revenue bond financings are further
protected by a state's assurance (without obligation) that it will make up
deficiencies in the debt-service reserve fund.
Industrial Development Bonds (IDBs), a type of revenue bond, are issued by or on
behalf of public authorities to finance privately operated facilities. These
bonds are used to finance business, manufacturing, housing, athletic and
pollution control projects, as well as public facilities such as mass transit
systems, air and seaport facilities and parking garages. Payment of interest and
repayment of principal on an IDB depend solely on the ability of the facility's
operator to meet financial obligations, and on the pledge, if any, of the real
or personal property financed. The interest earned on IDBs may be subject to the
federal alternative minimum tax.
Variable- and Floating-Rate Obligations
Variable- and floating-rate demand obligations (VRDOs and FRDOs) carry rights
that permit holders to demand payment of the unpaid principal plus accrued
interest, from the issuers or from financial intermediaries. Floating-rate
securities, or floaters, have interest rates that change whenever there is a
change in a designated base rate; variable-rate instruments provide for a
specified, periodic adjustment in the interest rate, which typically is based on
an index. These rate formulas are designed to result in a market value for the
VRDO or FRDO that approximates par value.
Obligations with Term Puts Attached
The funds may invest in fixed-rate bonds subject to third-party puts and
participation interests in such bonds that are held by a bank in trust or
otherwise, which have tender options or demand features attached. These tender
options or demand features permit the funds to tender (or put) their bonds to an
institution at periodic intervals and to receive the principal amount thereof.
The portfolio managers expect that the funds will pay more for securities with
puts attached than for securities without these liquidity features.
Because it is difficult to evaluate the likelihood of exercise or the potential
benefit of a put, puts normally will be determined to have a value of zero,
regardless of whether any direct or indirect consideration is paid. Accordingly,
puts as separate securities are not expected to affect the funds' weighted
average maturities. When a fund has paid for a put, the cost will be reflected
as unrealized depreciation on the underlying security for the period the put is
held. Any gain on the sale of the underlying security will be reduced by the
cost of the put.
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There is a risk that the seller of an obligation with a put attached will not be
able to repurchase the underlying obligation when (or if) a fund attempts to
exercise the put. To minimize such risks, the funds will purchase obligations
with puts attached only from sellers deemed creditworthy by the portfolio
managers under the direction of the Board of Directors.
Tender Option Bonds
Tender Option Bonds (TOBs) were created to increase the supply of high-quality,
short-term tax-exempt obligations, and thus they are of particular interest to
money market funds. However, Capital Value may purchase these instruments.
TOBs are created by municipal bond dealers who purchase long-term tax-exempt
bonds in the secondary market, place the certificates in trusts, and sell
interests in the trusts with puts or other liquidity guarantees attached. The
credit quality of the resulting synthetic short-term instrument is based on the
put provider's short-term rating and the underlying bond's long-term rating.
There is some risk that a remarketing agent will renege on a tender option
agreement if the underlying bond is downgraded or defaults. Because of this, the
portfolio managers monitor the credit quality of bonds underlying the funds' TOB
holdings and intend to sell or put back any TOB if the rating on the underlying
bond falls below the second-highest rating category designated by a rating
agency.
Zero-Coupon and Step-Coupon Securities
The funds may purchase zero-coupon debt securities. Zero-coupon securities do
not make regular cash interest payments, and are sold at a deep discount to
their face value.
The fund may also purchase step-coupon or step-rate debt securities. Instead of
having a fixed coupon for the life of the security, coupon or interest payments
may increase to predetermined rates at future dates. The issuer generally
retains the right to call the security. Some step-coupon securities are issued
with no coupon payments at all during an initial period, and only become
interest-bearing at a future date; these securities are sold at a deep discount
to their face value.
Although zero-coupon and certain step-coupon securities may not pay current cash
income, federal income tax law requires the holder to include in income each
year the portion of any original issue discount and other noncash income on such
securities accrued during that year. In order to continue to qualify for
treatment as a regulated investment company under the Internal Revenue Code and
avoid certain excise tax, the funds are required to make distributions of any
original issue discount and other noncash income accrued for each year.
Accordingly, the funds may be required to dispose of other portfolio securities,
which may occur in periods of adverse market prices, in order to generate a case
to meet these distribution requirements.
Inverse Floaters
The funds may hold inverse floaters. An inverse floater is a type of derivative
security that bears an interest rate that moves inversely to market interest
rates. As market interest rates rise, the interest rate on inverse floaters goes
down, and vice versa. Generally, this is accomplished by expressing the interest
rate on the inverse floater as an above-market fixed rate of interest, reduced
by an amount determined by reference to a market-based or bond-specific floating
interest rate (as well as by any fees associated with administering the inverse
floater program).
Inverse floaters may be issued in conjunction with an equal amount of Dutch
Auction floating-rate bonds (floaters), or a market-based index may be used to
set the interest rate on these securities. A Dutch Auction is an auction system
in which the price of the security is gradually lowered until it meets a
responsive bid and is sold. Floaters and inverse floaters may be brought to
market by (1) a broker-dealer who purchases fixed-rate bonds and places them in
a trust, or (2) an issuer seeking to reduce interest expenses by using a
floater/inverse floater structure in lieu of fixed-rate bonds.
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In the case of a broker-dealer structured offering (where underlying fixed-rate
bonds have been placed in a trust), distributions from the underlying bonds are
allocated to floater and inverse floater holders in the following manner:
(i) Floater holders receive interest based on rates set at a six-month
interval or at a Dutch Auction, which is typically held every 28 to 35
days. Current and prospective floater holders bid the minimum interest rate
that they are willing to accept on the floaters, and the interest rate is
set just high enough to ensure that all of the floaters are sold.
(ii) Inverse floater holders receive all of the interest that remains, if
any, on the underlying bonds after floater interest and auction fees are
paid. The interest rates on inverse floaters may be significantly reduced,
even to zero, if interest rates rise.
Procedures for determining the interest payment on floaters and inverse floaters
brought to market directly by the issuer are comparable, although the interest
paid on the inverse floaters is based on a presumed coupon rate that would have
been required to bring fixed-rate bonds to market at the time the floaters and
inverse floaters were issued.
Where inverse floaters are issued in conjunction with floaters, inverse floater
holders may be given the right to acquire the underlying security (or to create
a fixed-rate bond) by calling an equal amount of corresponding floaters. The
underlying security may then be held or sold. However, typically, there are time
constraints and other limitations associated with any right to combine interests
and claim the underlying security.
Floater holders subject to a Dutch Auction procedure generally do not have the
right to put back their interests to the issuer or to a third party. If a Dutch
Auction fails, the floater holder may be required to hold its position until the
underlying bond matures, during which time interest on the floater is capped at
a predetermined rate.
The secondary market for floaters and inverse floaters may be limited. The
market value of inverse floaters tends to be significantly more volatile than
fixed-rate bonds.
U.S. Government Securities
U.S. Treasury bills, notes, zero-coupon bonds and other bonds are direct
obligations of the U.S. Treasury, which has never failed to pay interest and
repay principal when due. Treasury bills have initial maturities of one year or
less, Treasury notes from two to 10 years, and Treasury bonds more than 10
years. Although U.S. Treasury securities carry little principal risk if held to
maturity, the prices of these securities (like all debt securities) change
between issuance and maturity in response to fluctuating market interest rates.
A number of U.S. government agencies and instrumentalities issue debt
securities. These agencies generally are created by Congress to fulfill a
specific need, such as providing credit to home buyers or farmers. Among these
agencies are the Federal Home Loan Banks, the Federal Farm Credit Banks, the
Student Loan Marketing Association and the Resolution Funding Corporation.
Some agency securities are backed by the full faith and credit of the U.S.
government, and some are guaranteed only by the issuing agency. Agency
securities typically offer somewhat higher yields than U.S. Treasury securities
with similar maturities. However, these securities may involve greater risk of
default than securities backed by the U.S. Treasury.
Interest rates on agency securities may be fixed for the term of the investment
(fixed-rate agency securities) or tied to prevailing interest rates
(floating-rate agency securities). Interest rate resets on floating-rate agency
securities generally occur at intervals of one year or less, based on changes in
a predetermined interest rate index.
Floating-rate agency securities frequently have caps limiting the extent to
which coupon rates can be raised. The price of a floating-rate agency security
may decline if its capped coupon rate is lower than prevailing market interest
rates. Fixed- and floating-rate agency securities may be issued with a call date
(which permits redemption before the maturity date). The exercise of a call may
reduce an obligation's yield to maturity.
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INTEREST RATE RESETS ON FLOATING-RATE U.S. GOVERNMENT AGENCY SECURITIES
Interest rate resets on floating-rate U.S. government agency securities
generally occur at intervals of one year or less in response to changes in a
predetermined interest rate index. There are two main categories of indices:
those based on U.S. Treasury securities and those derived from a calculated
measure, such as a cost-of-funds index. Commonly used indices include the
three-month, six-month and one-year Treasury bill rates; the two-year Treasury
note yield; the Eleventh District Federal Home Loan Bank Cost of Funds Index
(EDCOFI); and the London Interbank Offered Rate (LIBOR). Fluctuations in the
prices of floating-rate U.S. government agency securities are typically
attributed to differences between the coupon rates on these securities and
prevailing market interest rates between interest rate reset dates.
Mortgage-Backed Securities
BACKGROUND
A mortgage-backed security represents an ownership interest in a pool of
mortgage loans. The loans are made by financial institutions to finance home and
other real estate purchases. As the loans are repaid, investors receive payments
of both interest and principal.
Like fixed-income securities such as U.S. Treasury bonds, mortgage-backed
securities pay a stated rate of interest during the life of the security.
However, unlike a bond, which returns principal to the investor in one lump sum
at maturity, mortgage-backed securities return principal to the investor in
increments during the life of the security.
Because the timing and speed of principal repayments vary, the cash flow on
mortgage-backed securities is irregular. If mortgage holders sell their homes,
refinance their loans, prepay their mortgages or default on their loans, the
principal is distributed pro rata to investors.
As with other fixed-income securities, the prices of mortgage-backed securities
fluctuate in response to changing interest rates; when interest rates fall, the
prices of mortgage-backed securities rise, and vice versa. Changing interest
rates have additional significance for mortgage-backed securities investors,
however, because they influence prepayment rates (the rates at which mortgage
holders prepay their mortgages), which in turn affect the yields on
mortgage-backed securities. When interest rates decline, prepayment rates
generally increase. Mortgage holders take advantage of the opportunity to
refinance their mortgages at lower rates with lower monthly payments. When
interest rates rise, mortgage holders are less inclined to refinance their
mortgages. The effect of prepayment activity on yield depends on whether the
mortgage-backed security was purchased at a premium or at a discount.
A fund may receive principal sooner than it expected because of accelerated
prepayments. Under these circumstances, the fund might have to reinvest returned
principal at rates lower than it would have earned if principal payments were
made on schedule. Conversely, a mortgage-backed security may exceed its
anticipated life if prepayment rates decelerate unexpectedly. Under these
circumstances, a fund might miss an opportunity to earn interest at higher
prevailing rates.
GNMA CERTIFICATES
The Government National Mortgage Association (GNMA) is a wholly owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. The National Housing Act of 1934 (Housing Act), as amended,
authorizes GNMA to guarantee the timely payment of interest and repayment of
principal on certificates that are backed by a pool of mortgage loans insured by
the Federal Housing Administration under the Housing Act, or by Title V of the
Housing Act of 1949 (FHA Loans), or guaranteed by the Department of Veterans
Affairs under the Servicemen's Readjustment Act of 1944 (VA Loans), as amended,
or by pools of other eligible mortgage loans. The Housing Act provides that the
full faith and credit of the U.S. government is pledged to the payment of all
amounts that may be required to be paid under any guarantee. GNMA has unlimited
authority to borrow from the U.S. Treasury in order to meet its obligations
under this guarantee.
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GNMA certificates represent a pro rata interest in one or more pools of the
following types of mortgage loans: (a) fixed-rate level payment mortgage loans;
(b) fixed-rate graduatedpayment mortgage loans (GPMs); (c) fixed-rate growing
equity mortgage loans (GEMs); (d) fixed-rate mortgage loans secured by
manufactured (mobile) homes (MHs); (e) mortgage loans on multifamily residential
properties under construction (CLCs); (f) mortgage loans on completed
multifamily projects (PLCs); (g) fixed-rate mortgage loans that use escrowed
funds to reduce the borrower's monthly payments during the early years of the
mortgage loans (buydown mortgage loans); and (h) mortgage loans that provide for
payment adjustments based on periodic changes in interest rates or in other
payment terms of the mortgage loans.
FANNIE MAE CERTIFICATES
The Federal National Mortgage Association (FNMA or Fannie Mae) is a federally
chartered and privately owned corporation established under the Federal National
Mortgage Association Charter Act. Fannie Mae was originally established in 1938
as a U.S. government agency designed to provide supplemental liquidity to the
mortgage market and was reorganized as a stockholder-owned and privately managed
corporation by legislation enacted in 1968. Fannie Mae acquires capital from
investors who would not ordinarily invest in mortgage loans directly and thereby
expands the total amount of funds available for housing. This money is used to
buy home mortgage loans from local lenders, replenishing the supply of capital
available for mortgage lending.
Fannie Mae certificates represent a pro rata interest in one or more pools of
FHA Loans, VA Loans, or, most commonly, conventional mortgage loans (i.e.,
mortgage loans that are not insured or guaranteed by a government agency) of the
following types: (a) fixed-rate level payment mortgage loans; (b) fixed-rate
growing equity mortgage loans; (c) fixed-rate graduated payment mortgage loans;
(d) adjustable-rate mortgage loans; and (e) fixed-rate mortgage loans secured by
multifamily projects.
Fannie Mae certificates entitle the registered holder to receive amounts
representing a pro rata interest in scheduled principal and interest payments
(at the certificate's pass-through rate, which is net of any servicing and
guarantee fees on the underlying mortgage loans), any principal prepayments, and
a proportionate interest in the full principal amount of any foreclosed or
otherwise liquidated mortgage loan. The full and timely payment of interest and
repayment of principal on each Fannie Mae certificate is guaranteed by Fannie
Mae; this guarantee is not backed by the full faith and credit of the U.S.
government.
FREDDIE MAC CERTIFICATES
The Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) is a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970 (FHLMC Act), as amended. Freddie Mac was established
primarily for the purpose of increasing the availability of mortgage credit. Its
principal activity consists of purchasing first-lien conventional residential
mortgage loans (and participation interests in such mortgage loans) and
reselling these loans in the form of mortgage-backed securities, primarily
Freddie Mac certificates.
Freddie Mac certificates represent a pro rata interest in a group of mortgage
loans (a Freddie Mac certificate group) purchased by Freddie Mac. The mortgage
loans underlying Freddie Mac certificates consist of fixed- or adjustable-rate
mortgage loans with original terms to maturity of between 10 and 30 years,
substantially all of which are secured by first-liens on one- to four-family
residential properties or multifamily projects. Each mortgage loan must meet
standards set forth in the FHLMC Act. A Freddie Mac certificate group may
include whole loans, participation interests in whole loans, undivided interests
in whole loans, and participations composing another Freddie Mac certificate
group.
Freddie Mac guarantees to each registered holder of a Freddie Mac certificate
the timely payment of interest at the rate provided for by the certificate.
Freddie Mac also guarantees ultimate collection of all principal on the related
mortgage loans, without any offset or deduction, but generally does not
guarantee the timely repayment of principal. Freddie Mac may remit principal at
any time after default on an underlying mortgage loan, but no later than 30 days
following (a) foreclosure sale, (b) payment of a claim by any mortgage insurer,
or
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(c) the expiration of any right of redemption, whichever occurs later, and in
any event no later than one year after demand has been made upon the mortgager
for accelerated payment of principal. Obligations guaranteed by Freddie Mac are
not backed by the full faith and credit pledge of the U.S. government.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
A CMO is a multiclass bond backed by a pool of mortgage pass-through
certificates or mortgage loans. CMOs may be collateralized by (a) GNMA, Fannie
Mae or Freddie Mac pass-through certificates; (b) unsecured mortgage loans
insured by the Federal Housing Administration or guaranteed by the Department of
Veterans' Affairs; (c) unsecuritized conventional mortgages; or (d) any
combination thereof.
In structuring a CMO, an issuer distributes cash flow from the underlying
collateral over a series of classes called tranches. Each CMO is a set of two or
more tranches, with average lives and cash flow patterns designed to meet
specific investment objectives. The average life expectancies of the different
tranches in a four-part deal, for example, might be two, five, seven and 20
years.
As payments on the underlying mortgage loans are collected, the CMO issuer pays
the coupon rate of interest to the bondholders in each tranche. At the outset,
scheduled and unscheduled principal payments go to investors in the first
tranches. Investors in later tranches do not begin receiving principal payments
until the prior tranches are paid off. This basic type of CMO is known as a
sequential pay or plain vanilla CMO.
Some CMOs are structured so that the prepayment or market risks are transferred
from one tranche to another. Prepayment stability is improved in some tranches
if other tranches absorb more prepayment variability.
The final tranche of a CMO often takes the form of a Z-bond, also known as an
accrual bond or accretion bond. Holders of these securities receive no cash
until the earlier tranches are paid in full. During the period that the other
tranches are outstanding, periodic interest payments are added to the initial
face amount of the Z-bond but are not paid to investors. When the prior tranches
are retired, the Z-bond receives coupon payments on its higher principal balance
plus any principal prepayments from the underlying mortgage loans. The existence
of a Z-bond tranche helps stabilize cash flow patterns in the other tranches. In
a changing interest rate environment, however, the value of the Z-bond tends to
be more volatile.
As CMOs have evolved, some classes of CMO bonds have become more prevalent. The
planned amortization class (PAC) and targeted amortization class (TAC), for
example, were designed to reduce prepayment risk by establishing a sinking-fund
structure. PAC and TAC bonds assure to varying degrees that investors will
receive payments over a predetermined period under various prepayment scenarios.
Although PAC and TAC bonds are similar, PAC bonds are better able to provide
stable cash flows under various prepayment scenarios than TAC bonds because of
the order in which these tranches are paid.
The existence of a PAC or TAC tranche can create higher levels of risk for other
tranches in the CMO because the stability of the PAC or TAC tranche is achieved
by creating at least one other tranche - known as a companion bond, support or
non-PAC bond - that absorbs the variability of principal cash flows. Because
companion bonds have a high degree of average life variability, they generally
pay a higher yield. A TAC bond can have some of the prepayment variability of a
companion bond if there is also a PAC bond in the CMO issue.
Floating-rate CMO tranches (floaters) pay a variable rate of interest that is
usually tied to the LIBOR. Institutional investors with short-term liabilities,
such as commercial banks, often find floating-rate CMOs attractive investments.
Super floaters (which float a certain percentage above LIBOR) and inverse
floaters (which float inversely to LIBOR) are variations on the floater
structure that have highly variable cash flows.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are created by segregating the cash flows
from underlying mortgage loans or mortgage securities to create two or more new
securities, each with
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21
a specified percentage of the underlying security's principal or interest
payments. Mortgage-backed securities may be partially stripped so that each
investor class receives some interest and some principal. When securities are
completely stripped, however, all of the interest is distributed to holders of
one type of security, known as an interest-only security, or IO, and all of the
principal is distributed to holders of another type of security known as a
principal-only security, or PO. Strips can be created in a pass-through
structure or as tranches of a CMO.
The market values of IOs and POs are very sensitive to interest rate and
prepayment rate fluctuations. POs, for example, increase (or decrease) in value
as interest rates decline (or rise). The price behavior of these securities also
depends on whether the mortgage collateral was purchased at a premium or
discount to its par value. Prepayments on discount coupon POs generally are much
lower than prepayments on premium coupon POs. IOs may be used to hedge a fund's
other investments because prepayments cause the value of an IO strip to move in
the opposite direction from other mortgage-backed securities.
COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS)
CMBS are securities created from a pool of commercial mortgage loans, such as
loans for hotels, shopping centers, office buildings, apartment buildings, and
the like. Interest and principal payments from these loans are passed on to the
investor according to a particular schedule of payments. They may be issued by
U.S. government agencies or by private issuers. The credit quality of CMBS
depends primarily on the quality of the underlying loans and on the structure of
the particular deal. Generally, deals are structured with senior and subordinate
classes. Multiple classes may permit the issuance of securities with payment
terms, interest rates, or other characteristics differing both from those of
each other and those of the underlying assets. Examples include classes having
characteristics such as floating interest rates or scheduled amortization of
principal. Rating agencies rate the individual classes of the deal based on the
degree of seniority or subordination of a particular class and other factors.
The value of these securities may change because of actual or perceived changes
in the creditworthiness of individual borrowers, their tenants, the servicing
agents, or the general state of commercial real estate and other factors.
Mortgage Dollar Rolls
The Balanced Fund may enter into mortgage dollar rolls in which a fund sells
mortgage-backed securities to financial institutions for delivery in the current
month and simultaneously contracts to repurchase similar securities on a
specified future date. During the period between the sale and repurchase (the
"roll period"), the fund forgoes principal and interest paid on the
mortgage-backed securities. The fund is compensated by the difference between
the current sales price and the lower forward price for the future purchase
(often referred to as the "drop"), as well as by the interest earned on the cash
proceeds of the initial sale. The fund will use the proceeds generated from the
transaction to invest in short term investments and/or other mortgage-backed
securities, which may enhance the fund's current yield and total return.
For each mortgage dollar roll transaction, a fund will cover the roll by
segregating on its books an offsetting cash position or a position of liquid
securities of equivalent value. The portfolio managers will monitor the value of
such securities to determine that the value equals or exceeds the mortgage
dollar roll contract price.
A fund could suffer a loss if the contracting party fails to perform the future
transaction and the fund is therefore unable to buy back the mortgage-backed
securities it initially sold. The fund also takes the risk that the
mortgage-backed securities that it repurchases at a later date will have less
favorable market characteristics than the securities originally sold.
Adjustable-Rate Mortgage Loans (ARMs)
ARMs eligible for inclusion in a mortgage pool generally will provide for a
fixed initial mortgage interest rate for a specified period of time, generally
for either the first three, six, 12, 24, 36, 60 or 84 scheduled monthly
payments. Thereafter, the interest rates are subject to periodic adjustment
based on changes in an index.
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22
ARMs have minimum and maximum rates beyond which the mortgage interest rate may
not vary over the lifetime of the loan. Certain ARMs provide for additional
limitations on the maximum amount by which the mortgage interest rate may adjust
for any single adjustment period. Negatively amortizing ARMs may provide
limitations on changes in the required monthly payment. Limitations on monthly
payments can result in monthly payments that are greater or less than the amount
necessary to amortize a negatively amortizing ARM by its maturity at the
interest rate in effect during any particular month.
There are two types of indices that provide the basis for ARM rate adjustments:
those based on market rates and those based on a calculated measure, such as a
cost-of-funds index or a moving average of mortgage rates. Commonly utilized
indices include the one-year, three-year and five-year constant maturity U.S.
Treasury rates (as reported by the Federal Reserve Board); the three-month
Treasury bill rate; the 180-day Treasury bill rate; rates on longer-term
Treasury securities; the Eleventh District Federal Home Loan Bank Cost of Funds
Index (EDCOFI); the National Median Cost of Funds Index; the one-month,
three-month, six-month or one-year London Interbank Offered Rate (LIBOR); or
six-month CD rates. Some indices, such as the one-year constant maturity
Treasury rate or three-month LIBOR, are highly correlated with changes in market
interest rates. Other indices, such as the EDCOFI, tend to lag behind changes in
market rates and be somewhat less volatile over short periods of time.
The EDCOFI reflects the monthly weighted average cost of funds of savings and
loan associations and savings banks whose home offices are located in Arizona,
California and Nevada (the Federal Home Loan Bank Eleventh District) and who are
member institutions of the Federal Home Loan Bank of San Francisco (the FHLB of
San Francisco), as computed from statistics tabulated and published by the FHLB
of San Francisco. The FHLB of San Francisco normally announces the Cost of Funds
Index on the last working day of the month following the month in which the cost
of funds was incurred.
One-year and three-year Constant Maturity Treasury (CMT) rates are calculated by
the Federal Reserve Bank of New York, based on daily closing bid yields on
actively traded Treasury securities submitted by five leading broker-dealers.
The median bid yields are used to construct a daily yield curve.
The National Median Cost of Funds Index, similar to the EDCOFI, is calculated
monthly by the Federal Home Loan Bank Board (FHLBB) and represents the average
monthly interest expenses on liabilities of member institutions. A median,
rather than an arithmetic mean, is used to reduce the effect of extreme numbers.
LIBOR is the rate at which banks in London offer Eurodollars in trades between
banks. LIBOR has become a key rate in the U.S. domestic money market because it
is perceived to reflect the true global cost of money.
The portfolio managers may invest in ARMs whose periodic interest rate
adjustments are based on new indices as these indices become available.
Asset-Backed Securities (ABS)
ABS are structured like mortgage-backed securities, but instead of mortgage
loans or interest in mortgage loans, the underlying assets may include, for
example, such items as motor vehicle installment sales or installment loan
contracts, leases of various types of real and personal property, home equity
loans, student loans, small business loans, and receivables from credit card
agreements. The ability of an issuer of asset-backed securities to enforce its
security interest in the underlying assets may be limited. The value of an ABS
is affected by changes in the market's perception of the assets backing the
security, the creditworthiness of the servicing agent for the loan pool, the
originator of the loans, or the financial institution providing any credit
enhancement.
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23
Payments of principal and interest passed through to holders of ABS are
typically supported by some form of credit enhancement, such as a letter of
credit, surety bond, limited guarantee by another entity or a priority to
certain of the borrower's other securities. The degree of credit enhancement
varies, and generally applies to only a fraction of the asset-backed security's
par value until exhausted. If the credit enhancement of an ABS held by the fund
has been exhausted, and if any required payments of principal and interest are
not made with respect to the underlying loans, the fund may experience losses or
delays in receiving payment.
Some types of ABS may be less effective than other types of securities as a
means of "locking in" attractive long-term interest rates. One reason is the
need to reinvest prepayments of principal; another is the possibility of
significant unscheduled prepayments resulting from declines in interest rates.
These prepayments would have to be reinvested at lower rates. As a result, these
securities may have less potential for capital appreciation during periods of
declining interest rates than other securities of comparable maturities,
although they may have a similar risk of decline in market value during periods
of rising interest rates. Prepayments may also significantly shorten the
effective maturities of these securities, especially during periods of declining
interest rates. Conversely, during periods of rising interest rates, a reduction
in prepayments may increase the effective maturities of these securities,
subjecting them to a greater risk of decline in market value in response to
rising interest rates than traditional debt securities, and, therefore,
potentially increasing the volatility of the fund.
The risks of investing in ABS are ultimately dependent upon the repayment of
loans by the individual or corporate borrowers. Although the fund would
generally have no recourse against the entity that originated the loans in the
event of default by a borrower, ABS typically are structured to mitigate this
risk of default.
Asset-backed securities are generally issued in more than one class, each with
different payment terms. Multiple class asset-backed securities may be used as a
method of providing credit support through creation of one or more classes whose
right to payments is made subordinate to the right to such payments of the
remaining class or classes. Multiple classes also may permit the issuance of
securities with payment terms, interest rates or other characteristics differing
both from those of each other and from those of the underlying assets. Examples
include so-called strips (asset-backed securities entitling the holder to
disproportionate interests with respect to the allocation of interest and
principal of the assets backing the security), and securities with classes
having characteristics such as floating interest rates or scheduled amortization
of principal.
TRACERS(sm)/TRAINS(sm)
Balanced may invest in TRACERS and TRAINS which represent ownership of a
specified percentage of each security in an underlying pool of securities.
Owners are entitled to receive a pro rata share of distributions from the
underlying securities. In the event an underlying security is downgraded by a
rating agency, that portion of the investment product will be redeemed and the
underlying security will be distributed to the owner pro rata or the owner may
receive cash proceeds. The risk of owning these products are the same as owning
the individual securities, but enable the fund to be more diversified by owning
a single security.
INVESTMENT POLICIES
Unless otherwise indicated, with the exception of the percentage limitations on
borrowing, the policies described below apply at the time a fund enters into a
transaction. Accordingly, any later increase or decrease beyond the specified
limitation resulting from a change in a fund's net assets will not be considered
in determining whether it has complied with its investment policies.
Fundamental Investment Policies
The funds' fundamental investment policies are set forth below. These investment
policies and the funds' investment objectives set forth in their prospectuses
may not be changed without approval of a majority of the outstanding votes of
shareholders of a fund, as determined in accordance with the Investment Company
Act.
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24
SUBJECT POLICY
--------------------------------------------------------------------------------
Senior A fund may not issue senior securities, except as permitted
Securities under the Investment Company Act.
--------------------------------------------------------------------------------
Borrowing A fund may not borrow money, except for temporary or
emergency purposes (not for leveraging or investment) in an
amount not exceeding 33-1/3% of the fund's total assets.
--------------------------------------------------------------------------------
Lending A fund may not lend any security or make any other loan if,
as a result, more than 33-1/3% of the fund's total assets
would be lent to other parties, except (i) through the
purchase of debt securities in accordance with its
investment objective, policies and limitations or (ii) by
engaging in repurchase agreements with respect to
portfolio securities.
--------------------------------------------------------------------------------
Real Estate A fund may not purchase or sell real estate unless acquired
as a result of ownership of securities or other instruments.
This policy shall not prevent a fund from investing in
securities or other instruments backed by real estate or
securities of companies that deal in real estate or are
engaged in the real estate business.
--------------------------------------------------------------------------------
Concentration A fund (except Focused Growth and Veedot) may not
concentrate its investments in securities of issuers in a
particular industry (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities).
--------------------------------------------------------------------------------
Underwriting A fund may not act as an underwriter of securities issued by
others, except to the extent that the fund may be
considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted
securities.
--------------------------------------------------------------------------------
Commodities A fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other
instruments, provided that this limitation shall not
prohibit the fund from purchasing or selling options and
futures contracts or from investing in securities or other
instruments backed by physical commodities.
--------------------------------------------------------------------------------
Control A fund may not invest for purposes of exercising control over
management.
--------------------------------------------------------------------------------
For purposes of the investment restrictions relating to lending and borrowing,
the funds have received an exemptive order from the SEC regarding an interfund
lending program. Under the terms of the exemptive order, the funds may borrow
money from or lend money to other American Century-advised funds that permit
such transactions. All such transactions will be subject to the limits for
borrowing and lending set forth above. The funds will borrow money through the
program only when the costs are equal to or lower than the costs of short-term
bank loans. Interfund loans and borrowings normally extend only overnight, but
can have a maximum duration of seven days. The funds will lend through the
program only when the returns are higher than those available from other
short-term instruments (such as repurchase agreements). The funds may have to
borrow from a bank at a higher interest rate if an interfund loan is called or
not renewed. Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional borrowing costs.
For purposes of the investment restriction relating to concentration, a fund
shall not purchase any securities that would cause 25% or more of the value of
the fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that
(a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. government, any state, territory or possession of
the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions and repurchase
agreements secured by such obligations,
(b) wholly owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of their parents,
(c) utilities will be divided according to their services, for example,
gas, gas transmission, electric and gas, electric and telephone will each
be considered a separate industry, and
(d) personal credit and business credit businesses will be considered
separate industries.
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25
Nonfundamental Investment Policies
In addition, the funds are subject to the following investment policies that are
not fundamental and may be changed by the Board of Directors.
SUBJECT POLICY
-------------------------------------------------------------------------------------
Leveraging A fund may not purchase additional investment securities at any
time during which outstanding borrowings exceed 5% of the total
assets of the fund.
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Liquidity A fund may not purchase any security or enter into a
repurchase agreement if, as a result, more than 15% of its net
assets would be invested in illiquid securities. Illiquid securities
include repurchase agreements not entitling the holder to
payment of principal and interest within seven days, and
securities that are illiquid by virtue of legal or contractual
restrictions on resale or the absence of a readily available market.
-------------------------------------------------------------------------------------
Short Sales A fund may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the
securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling
securities short.
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Margin A fund may not purchase securities on margin, except to obtain
such short-term credits as are necessary for the
clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures con
tracts shall not constitute purchasing securities on margin.
-------------------------------------------------------------------------------------
Futures A fund may enter into futures contracts and write and buy put
and Options and call options relating to futures contracts. A fund may not,
however, enter into leveraged futures transactions if it would be
possible for the fund to lose more than the notional value of the
investment.
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Issuers with A fund may invest a portion of its equity assets in the equity
Limited securities of issuers with limited operating histories. An issuer
Operating is considered to have a limited operating history if that issuer
Histories has a record of less than three years of continuous operation.
Periods of capital formation, incubation, consolidations, and
research and development may be considered in determining
whether a particular issuer has a record of three years of
continuous operation.
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The Investment Company Act imposes certain additional restrictions upon the
funds' ability to acquire securities issued by insurance companies,
broker-dealers, underwriters or investment advisors, and upon transactions with
affiliated persons as defined by the Act. It also defines and forbids the
creation of cross and circular ownership. Neither the SEC nor any other agency
of the federal or state government participates in or supervises the management
of the funds or their investment practices or policies.
PORTFOLIO TURNOVER
The portfolio turnover rate of each fund is listed in the Financial Highlights
table in that fund's prospectus.
Capital Value Fund
The portfolio managers of Capital Value seek to minimize realized capital gains
by keeping portfolio turnover low and generally holding portfolio investments
for long periods. Because a higher turnover rate may increase taxable capital
gains, the managers carefully weigh the potential benefits of short-term
investing against the tax impact such investing would have on the fund's
shareholders. However, the portfolio managers may sell securities to realize
losses that can be used to offset realized capital gains. They will take such
actions when they believe the tax benefits from realizing losses offset the
near-term investment potential of that security.
Other Funds
With respect to each other fund, the managers may sell securities without regard
to the length of time the security has been held. Accordingly, each fund's
portfolio turnover rate may be substantial.
The portfolio managers intend to purchase a given security whenever they believe
it will contribute to the stated objective of a particular fund. In order to
achieve each fund's investment objective, the managers may sell a given security
regardless of the length of time it has been held
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26
in the portfolio, and regardless of the gain or loss realized on the sale. The
managers may sell a portfolio security if they believe that the security is not
fulfilling its purpose because, among other things, it did not live up to the
managers' expectations, because it may be replaced with another security holding
greater promise, because it has reached its optimum potential, because of a
change in the circumstances of a particular company or industry or in general
economic conditions, or because of some combination of such reasons.
When a general decline in security prices is anticipated, the equity funds may
decrease or eliminate entirely their equity positions and increase their cash
positions, and when a general rise in price levels is anticipated, the equity
funds may increase their equity positions and decrease their cash positions.
However, it should be expected that the funds will, under most circumstances, be
essentially fully invested in equity securities.
Because investment decisions are based on a particular security's anticipated
contribution to a fund's investment objective, the managers believe that the
rate of portfolio turnover is irrelevant when they determine that a change is
required to pursue the fund's investment objective. As a result, a fund's annual
portfolio turnover rate cannot be anticipated and may be higher than that of
other mutual funds with similar investment objectives. Higher turnover would
generate correspondingly greater brokerage commissions, which is a cost the
funds pay directly. Portfolio turnover also may affect the character of capital
gains realized and distributed by the fund, if any, because short-term capital
gains are taxable as ordinary income.
Because the managers do not take portfolio turnover rate into account in making
investment decisions, (1) the managers have no intention of maintaining any
particular rate of portfolio turnover, whether high or low, and (2) the
portfolio turnover rates in the past should not be considered as representative
of the rates that will be attained in the future.
Variations in a fund's portfolio turnover rate from year to year may be due to a
fluctuating volume of shareholder purchase and redemption activity, varying
market conditions, and/or changes in the managers' investment outlook.
MANAGEMENT
The individuals listed below serve as directors or officers of the funds. Each
director serves until his or her successor is duly elected and qualified or
until he or she retires. Mandatory retirement age for independent directors is
72. Those listed as interested directors are "interested" primarily by virtue of
their engagement as officers of American Century Companies, Inc. (ACC) or its
wholly owned, direct or indirect, subsidiaries, including the funds' investment
advisor, American Century Investment Management, Inc. (ACIM or the advisor); the
funds' principal underwriter, American Century Investment Services, Inc. (ACIS);
and the funds' transfer agent, American Century Services, LLC (ACS).
The other directors (more than three-fourths of the total number) are
independent; that is, they have never been employees or officers of, and have no
financial interest in, ACC or any of its wholly owned, direct or indirect,
subsidiaries, including ACIM, ACIS and ACS. The directors serve in this capacity
for seven registered investment companies in the American Century family of
funds.
All persons named as officers of the funds also serve in similar capacities for
the other 14 investment companies advised by ACIM, or American Century Global
Investment Management, Inc. (ACGIM), a wholly owned subsidiary of ACIM, unless
otherwise noted. Only officers with policy-making functions are listed. No
officer is compensated for his or her service as an officer of the funds. The
listed officers are interested persons of the funds and appointed or
re-appointed on an annual basis. The officers serve in similar capacities for
the other 14 registered investment companies advised by ACIM.
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27
Interested Directors
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JAMES E. STOWERS, JR.(1), 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1924
POSITION(S) HELD WITH FUNDS: Director, Co-Vice Chairman
FIRST YEAR OF SERVICE: 1958
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Founder, Director and Controlling
Shareholder, ACC; Chairman, ACC (January 1995 to December 2004); Director, ACIM,
ACGIM, ACS, ACIS and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 57
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
--------------------------------------------------------------------------------
JAMES E. STOWERS III(1), 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1959
POSITION(S) HELD WITH FUNDS: Director, Co-Vice Chairman
FIRST YEAR OF SERVICE: 1990
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, ACC (January 2005 to
present); Co-Chairman, ACC (September 2000 to December 2004); Chairman, ACS and
other ACC subsidiaries; Director, ACC, ACIM, ACGIM, ACS, ACIS and other ACC
subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 57
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
--------------------------------------------------------------------------------
(1) JAMES E. STOWERS, JR. IS THE FATHER OF JAMES E. STOWERS III.
Independent Directors
--------------------------------------------------------------------------------
THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1940
POSITION(S) HELD WITH FUNDS: Director
FIRST YEAR OF SERVICE: 1980
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Chief Executive
Officer/Treasurer, ASSOCIATED BEARINGS COMPANY
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 57
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
--------------------------------------------------------------------------------
ANDREA C. HALL, PH.D., 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUNDS: Director
FIRST YEAR OF SERVICE: 1997
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President, MIDWEST
RESEARCH INSTITUTE
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 57
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
--------------------------------------------------------------------------------
D.D. (DEL) HOCK, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1935
POSITION(S) HELD WITH FUNDS: Director
FIRST YEAR OF SERVICE: 1996
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Chairman, PUBLIC
SERVICE COMPANY OF COLORADO
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 57
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, ALLIED MOTION TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
JAMES A. OLSON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1942
POSITION(S) HELD WITH FUNDS: Advisory Board Member
FIRST YEAR OF SERVICE: 2006
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Principal and Chief Financial
Officer, PLAZA BELMONT LLC
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 57
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, SCS TRANSPORTATION, INC. and
ENTERTAINMENT PROPERTIES TRUST
--------------------------------------------------------------------------------
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28
DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUNDS: Director, Chairman of the Board
FIRST YEAR OF SERVICE: 1995
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, WESTERN INVESTMENTS,
INC.; Retired Chairman of the Board, BUTLER MANUFACTURING COMPANY
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 57
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
--------------------------------------------------------------------------------
GALE E. SAYERS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1943
POSITION(S) HELD WITH FUNDS: Director
FIRST YEAR OF SERVICE: 2000
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President, Chief Executive Officer
and Founder, SAYERS40, INC., a technology products and services provider
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 57
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, TRIAD HOSPITALS, INC.
--------------------------------------------------------------------------------
M. JEANNINE STRANDJORD, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUNDS: Director
FIRST YEAR OF SERVICE: 1994
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Senior Vice
President, SPRINT CORPORATION
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 57
OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, DST SYSTEMS, INC.; Director,
EURONET WORLDWIDE, INC.
--------------------------------------------------------------------------------
TIMOTHY S. WEBSTER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUNDS: Director
FIRST YEAR OF SERVICE: 2001
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, AMERICAN ITALIAN PASTA COMPANY (1992 to December 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 57
OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
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Officers
--------------------------------------------------------------------------------
WILLIAM M. LYONS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1955
POSITION(S) HELD WITH FUNDS: President
FIRST YEAR OF SERVICE: 2000
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC
(September 2000 to present); President, ACC (June 1997 to present). Also serves
as: Chief Executive Officer and President, ACIM, ACGIM, ACIS and other ACC
subsidiaries, Executive Vice President, ACS; Director, ACC, ACIM, ACGIM, ACS,
ACIS and other ACC subsidiaries
--------------------------------------------------------------------------------
JONATHAN THOMAS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUNDS: Executive Vice President
FIRST YEAR OF SERVICE: 2005
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Administrative Officer, ACC
(February 2006 to present). Also serves as: President, ACS, Chief Executive
Officer, Chief Financial Officer and Chief Accounting Officer, ACIM, ACGIM, ACS,
ACIS and other ACC subsidiaries; Executive Vice President, ACC (November 2005 to
present); Managing Director, MORGAN STANLEY (March 2000 to November 2005)
--------------------------------------------------------------------------------
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUNDS: Senior Vice President, Treasurer and Chief
Financial Officer
FIRST YEAR OF SERVICE: 2000
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Assistant Treasurer, ACC (January
1995 to present). Also serves as: Senior Vice President, ACS; Assistant
Treasurer, ACIM, ACGIM, ACS, ACIS and other ACC subsidiaries
--------------------------------------------------------------------------------
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29
DAVID C. TUCKER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1958
POSITION(S) HELD WITH FUNDS: Senior Vice President and General Counsel
FIRST YEAR OF SERVICE: 2000
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACC (February 2001
to present); General Counsel, ACC (June 1998 to present). Also serves as: Senior
Vice President and General Counsel, ACIM, ACGIM, ACS, ACIS and other ACC
subsidiaries
--------------------------------------------------------------------------------
CHARLES C.S. PARK, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUNDS: Vice President and Chief Compliance Officer
FIRST YEAR OF SERVICE: 2000
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM,
ACGIM and ACS (March 2005 to present); Vice President, ACS (February 2000 to
present); Assistant General Counsel, ACS (January 1998 to March 2005)
--------------------------------------------------------------------------------
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUNDS: Controller
FIRST YEAR OF SERVICE: 1997
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February 2000
to present); Controller-Fund Accounting, ACS (June 1997 to present)
--------------------------------------------------------------------------------
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUNDS: Tax Officer
FIRST YEAR OF SERVICE: 1997
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACC (October 2001
to present); Vice President, Corporate Tax, ACS (April 1998 to present). Also
serves as: Vice President, ACIM, ACGIM, ACIS and other ACC subsidiaries
--------------------------------------------------------------------------------
On December 23, 1999, American Century Services, LLC (ACS) entered into an
agreement with DST Systems, Inc. (DST) under which DST would provide back office
software and support services for transfer agency services provided by ACS (the
Agreement). ACS pays DST fees based in part on the number of accounts and the
number and type of transactions processed for those accounts. Through December
31, 2005, DST received $21,201,953 in fees from ACS. DST's revenue for the
calendar year ended December 31, 2005 was approximately $2.52 billion.
Ms. Strandjord is a director of DST and a holder of 28,031 shares and possesses
options to acquire an additional 55,890 shares of DST common stock, the sum of
which is less than one percent (1%) of the shares outstanding. Because of her
official duties as a director of DST, she may be deemed to have an "indirect
interest" in the Agreement. However, the Board of Directors of the funds was not
required to nor did it approve or disapprove the Agreement, since the provision
of the services covered by the Agreement is within the discretion of ACS. DST
was chosen by ACS for its industry-leading role in providing cost-effective back
office support for mutual fund service providers such as ACS. DST is the largest
mutual fund transfer agent, servicing more than 75 million mutual fund accounts
on its shareholder recordkeeping system. Ms. Strandjord's role as a director of
DST was not considered by ACS; she was not involved in any way with the
negotiations between ACS and DST; and her status as a director of either DST or
the funds was not a factor in the negotiations. The Board of Directors of the
funds and Bryan Cave LLP, counsel to the independent directors of the funds,
have concluded that the existence of this Agreement does not impair Ms.
Strandjord's ability to serve as an independent director under the Investment
Company Act.
------
30
THE BOARD OF DIRECTORS
The Board of Directors oversees the management of the funds and meets at least
quarterly to review reports about fund operations. Although the Board of
Directors does not manage the funds, it has hired the advisor to do so. The
directors, in carrying out their fiduciary duty under the Investment Company Act
of 1940, are responsible for approving new and existing management contracts
with the funds' advisor. In carrying out these responsibilities, the board
reviews material factors to evaluate such contracts, including (but not limited
to) assessment of information related to the advisor's performance and expense
ratios, estimates of income and indirect benefits (if any) accruing to the
advisor, the advisor's overall management and projected profitability, and
services provided to the funds and their investors.
The board has the authority to manage the business of the funds on behalf of
their investors, and it has all powers necessary or convenient to carry out that
responsibility. Consequently, the directors may adopt Bylaws providing for the
regulation and management of the affairs of the funds and may amend and repeal
them to the extent that such Bylaws do not reserve that right to the funds'
investors. They may fill vacancies in or reduce the number of board members, and
may elect and remove such officers and appoint and terminate such agents as they
consider appropriate. They may appoint from their own number and establish and
terminate one or more committees consisting of two or more directors who may
exercise the powers and authority of the board to the extent that the directors
determine. They may, in general, delegate such authority as they consider
desirable to any officer of the funds, to any committee of the board, to any
agent or employee of the funds, or to any custodian, transfer or investor
servicing agent, or principal underwriter. Any determination as to what is in
the interests of the funds made by the directors in good faith shall be
conclusive.
The Advisory Board
The funds also have an Advisory Board. Members of the Advisory Board function
like fund directors in many respects, but do not possess voting power. Advisory
Board members attend all meetings of the Board of Directors and the independent
directors and receive any materials distributed in connection with such
meetings. Advisory Board members may be considered as candidates to fill
vacancies on the Board of Directors.
Committees
The board has five standing committees to oversee specific functions of the
funds' operations. Information about these committees appears in the table
below. The director first named serves as chairman of the committee.
--------------------------------------------------------------------------------
COMMITTEE: Executive
MEMBERS: Donald H. Pratt, James E. Stowers III, M. Jeannine Strandjord
FUNCTION: The Executive Committee performs the functions of the Board of
Directors between board meetings, subject to the limitations on its power set
out in the Maryland General Corporation Law, and except for matters required by
the Investment Company Act to be acted upon by the whole board.
NUMBER OF MEETINGS HELD DURING LAST FISCAL YEAR: 0
--------------------------------------------------------------------------------
COMMITTEE: Compliance and Shareholder Communications
MEMBERS: Andrea C. Hall, Ph.D., James A. Olson(1), Gale E. Sayers, M. Jeannine
Strandjord
FUNCTION: The Compliance and Shareholder Communications Committee reviews the
results of the funds' compliance testing program, reviews quarterly reports from
the communications advisor to the board regarding various compliance matters and
monitors the implementation of the funds' Code of Ethics, including any
violations.
NUMBER OF MEETINGS HELD DURING LAST FISCAL YEAR: 4
--------------------------------------------------------------------------------
------
31
COMMITTEE: Audit
MEMBERS: D.D. (Del) Hock, Thomas A. Brown, Donald H. Pratt, Timothy S. Webster
FUNCTION: The Audit Committee approves the engagement of the funds' independent
registered public accounting firm, recommends approval of such engagement to the
independent directors, and oversees the activities of the funds' independent
registered public accounting firm. The committee receives reports from the
advisor's Internal Audit Department, which is accountable to the committee. The
committee also receives reporting about compliance matters affecting the funds.
NUMBER OF MEETINGS HELD DURING LAST FISCAL YEAR: 4
--------------------------------------------------------------------------------
COMMITTEE: Governance
MEMBERS: Donald H. Pratt, Thomas A. Brown, Gale E. Sayers, M. Jeannine
Strandjord
FUNCTION: The Governance Committee primarily considers and recommends
individuals for nomination as directors. The names of potential director
candidates are drawn from a number of sources, including recommendations from
members of the board, management (in the case of interested directors only) and
shareholders. See NOMINATIONS OF DIRECTORS below. This committee also reviews
and makes recommendations to the board with respect to the composition of board
committees and other board-related matters, including its organization, size,
composition, responsibilities, functions and compensation.
NUMBER OF MEETINGS HELD DURING LAST FISCAL YEAR: 3
--------------------------------------------------------------------------------
COMMITTEE: Fund Performance Review
MEMBERS: Timothy S. Webster, Thomas A. Brown, Andrea C. Hall, Ph.D., D.D. (Del)
Hock, James A. Olson(1), Donald H. Pratt, Gale E. Sayers, M. Jeannine
Strandjord
FUNCTION: The Fund Performance Review Committee reviews quarterly the investment
activities and strategies used to manage fund assets. The committee regularly
receives reports from portfolio managers and other investment personnel
concerning the funds' investments.
NUMBER OF MEETINGS HELD DURING LAST FISCAL YEAR: 4
--------------------------------------------------------------------------------
(1) ADVISORY BOARD MEMBER.
Nominations of Directors
As indicated in the table above, the Governance Committee is responsible for
identifying, evaluating and recommending qualified candidates for election to
the funds' Board of Directors. While the Governance Committee largely considers
nominees from searches that it conducts, the Committee will consider director
candidates submitted by shareholders. Any shareholder wishing to submit a
candidate for consideration should send the following information to the
Corporate Secretary, American Century Funds, P.O. Box 410141, Kansas City, MO
64141 or by email to corporatesecretary@americancentury.com:
* Shareholder's name, the fund name and number of fund shares owned and
length of period held;
* Name, age and address of the candidate;
* A detailed resume describing, among other things, the candidate's
educational background, occupation, employment history, financial knowledge
and expertise and material outside commitments (e.g., memberships on other
boards and committees, charitable foundations, etc.);
* Any other information relating to the candidate that is required to be
disclosed in solicitations of proxies for election of directors in an
election contest pursuant to Regulation 14A under the Securities Exchange Act
of 1934;
* Number of fund shares owned by the candidate and length of time held;
* A supporting statement which (i) describes the candidate's reasons for
seeking election to the Board of Directors and (ii) documents his/her ability
to satisfy the director qualifications described in the board's policy;
* A signed statement from the candidate confirming his/her willingness to
serve on the Board of Directors.
The Corporate Secretary will promptly forward such materials to the Governance
Committee chairman. The Corporate Secretary also will maintain copies of such
materials for future reference by the Governance Committee when filling board
positions.
Shareholders may submit potential director candidates at any time pursuant to
these procedures. The Governance Committee will consider such candidates if a
vacancy arises or if the board decides to expand its membership, and at such
other times as the Governance Committee deems necessary or appropriate.
------
32
Compensation of Directors
The directors serve as directors for seven American Century investment
companies. Each director who is not an interested person as defined in the
Investment Company Act receives compensation for service as a member of the
board of all such companies based on a schedule that takes into account the
number of meetings attended and the assets of the funds for which the meetings
are held. These fees and expenses are divided among these investment companies
based, in part, upon their relative net assets. Under the terms of the
management agreement with the advisor, the funds are responsible for paying such
fees and expenses.
The following table shows the aggregate compensation paid by the funds for the
periods indicated and by the investment companies served by the board to each
director who is not an interested person as defined in the Investment Company
Act.
AGGREGATE DIRECTOR COMPENSATION FOR FISCAL YEAR ENDED OCTOBER 31, 2005
TOTAL COMPENSATION FROM
TOTAL COMPENSATION THE AMERICAN CENTURY
NAME OF DIRECTOR FROM THE FUNDS (1) FAMILY OF FUNDS (2)
--------------------------------------------------------------------------------
Thomas A. Brown $54,511 $97,612
--------------------------------------------------------------------------------
Andrea C. Hall, Ph.D. $57,875 $103,612
--------------------------------------------------------------------------------
D.D. (Del) Hock $58,157 $104,112
--------------------------------------------------------------------------------
Donald H. Pratt $73,417 $131,362
--------------------------------------------------------------------------------
Gale E. Sayers $53,846 $96,112
--------------------------------------------------------------------------------
M. Jeannine Strandjord $53,831 $96,112
--------------------------------------------------------------------------------
Timothy S. Webster $57,601 $103,112
--------------------------------------------------------------------------------
(1) INCLUDES COMPENSATION PAID TO THE DIRECTORS FOR THE FISCAL YEAR ENDED
OCTOBER 31, 2005, AND ALSO INCLUDES AMOUNTS DEFERRED AT THE ELECTION OF THE
DIRECTORS UNDER THE AMERICAN CENTURY MUTUAL FUNDS' INDEPENDENT DIRECTORS'
DEFERRED COMPENSATION PLAN.
(2) INCLUDES COMPENSATION PAID BY THE INVESTMENT COMPANIES OF THE AMERICAN
CENTURY FAMILY OF FUNDS SERVED BY THIS BOARD AT THE END OF THE FISCAL
YEAR. THE TOTAL AMOUNT OF DEFERRED COMPENSATION INCLUDED IN THE PRECEDING
TABLE IS AS FOLLOWS: MR. BROWN, $16,822; DR. HALL, $92,112; MR. HOCK,
$92,112; MR. PRATT, $17,625; MR. SAYERS, $96,112; AND MR. WEBSTER, $50,306.
The funds have adopted the American Century Mutual Funds' Independent Directors'
Deferred Compensation Plan. Under the plan, the independent directors may defer
receipt of all or any part of the fees to be paid to them for serving as
directors of the funds.
All deferred fees are credited to an account established in the name of the
directors. The amounts credited to the account then increase or decrease, as the
case may be, in accordance with the performance of one or more of the American
Century funds that are selected by the director. The account balance continues
to fluctuate in accordance with the performance of the selected fund or funds
until final payment of all amounts credited to the account. Directors are
allowed to change their designation of mutual funds from time to time.
No deferred fees are payable until such time as a director resigns, retires or
otherwise ceases to be a member of the Board of Directors. Directors may receive
deferred fee account balances either in a lump sum payment or in substantially
equal installment payments to be made over a period not to exceed 10 years. Upon
the death of a director, all remaining deferred fee account balances are paid to
the director's beneficiary or, if none, to the director's estate.
The plan is an unfunded plan and, accordingly, the funds have no obligation to
segregate assets to secure or fund the deferred fees. To date, the funds have
voluntarily funded their obligations. The rights of directors to receive their
deferred fee account balances are the same as the rights of a general unsecured
creditor of the funds. The plan may be terminated at any time by the
administrative committee of the plan. If terminated, all deferred fee account
balances will be paid in a lump sum.
------
33
No deferred fees were paid to any director under the plan during the fiscal year
ended October 31, 2005.
OWNERSHIP OF FUND SHARES
The directors owned shares in the funds as of December 31, 2005, as shown in the
table below. Because Mid Cap Growth and Small Cap Growth were not in operation
as of the calendar year end, they are not included in the tables below.
NAME OF DIRECTORS
--------------------------------------------------------------------------------
JAMES E. JAMES E. THOMAS A. ANDREA C.
STOWERS, JR. STOWERS III BROWN HALL, PH.D.
--------------------------------------------------------------------------------
Dollar Range of Equity
Securities in the Funds:
Balanced A A C A
--------------------------------------------------------------------------------
Capital Growth A A A A
--------------------------------------------------------------------------------
Capital Value A A B A
--------------------------------------------------------------------------------
Fundamental Equity A A A A
--------------------------------------------------------------------------------
Giftrust A C A A
--------------------------------------------------------------------------------
Growth E A C A
--------------------------------------------------------------------------------
Heritage A A B A
--------------------------------------------------------------------------------
New Opportunities A D C C
--------------------------------------------------------------------------------
New Opportunities II A A A A
--------------------------------------------------------------------------------
Select A A C A
--------------------------------------------------------------------------------
Ultra A D C A
--------------------------------------------------------------------------------
Veedot A E C A
--------------------------------------------------------------------------------
Vista A D C D
--------------------------------------------------------------------------------
Aggregate Dollar
Range of Equity
Securities in all
Registered Investment
Companies Overseen
by Director in Family
of Investment
Companies E E E E
--------------------------------------------------------------------------------
RANGES: A-NONE, B-$1-$10,000, C-$10,001-$50,000, D-$50,001-$100,000,
E-MORE THAN $100,000
NAME OF DIRECTORS
--------------------------------------------------------------------------------
D.D. (DEL) DONALD GALE E. M. JEANNINE TIMOTHY S.
HOCK H. PRATT SAYERS STRANDJORD WEBSTER
--------------------------------------------------------------------------------
Dollar Range of Equity
Securities in the Funds:
Balanced A A C A C
--------------------------------------------------------------------------------
Capital Growth A A A A A
--------------------------------------------------------------------------------
Capital Value A A A A A
--------------------------------------------------------------------------------
Fundamental Equity A A A A A
--------------------------------------------------------------------------------
Giftrust A A A B A
--------------------------------------------------------------------------------
Growth D A A A A
--------------------------------------------------------------------------------
Heritage A C A A A
--------------------------------------------------------------------------------
New Opportunities A C A A A
--------------------------------------------------------------------------------
New Opportunities II A A A A A
--------------------------------------------------------------------------------
Select D A D A A
--------------------------------------------------------------------------------
Ultra D A A A D
--------------------------------------------------------------------------------
Veedot C B A A E
--------------------------------------------------------------------------------
Vista E C A A D
--------------------------------------------------------------------------------
Aggregate Dollar
Range of Equity
Securities in all
Registered Investment
Companies Overseen
by Director in Family
of Investment
Companies E E E E E
--------------------------------------------------------------------------------
RANGES: A-NONE, B-$1-$10,000, C-$10,001-$50,000, D-$50,001-$100,000,
E-MORE THAN $100,000
------
34
CODE OF ETHICS
The funds, their investment advisor, principal underwriter and, if applicable,
subadvisor have adopted codes of ethics under Rule 17j-1 of the Investment
Company Act and the code of ethics permits personnel subject to the code to
invest in securities, including securities that may be purchased or held by the
funds, provided that they first obtain approval from the compliance department
before making such investments.
PROXY VOTING GUIDELINES
The advisor is responsible for exercising the voting rights associated with the
securities purchased and/or held by the funds. In exercising its voting
obligations, the advisor is guided by general fiduciary principles. It must act
prudently, solely in the interest of the funds, and for the exclusive purpose of
providing benefits to them. The advisor attempts to consider all factors of its
vote that could affect the value of the investment. The funds' Board of
Directors has approved the advisor's proxy voting guidelines to govern the
advisor's proxy voting activities.
The advisor and the board have agreed on certain significant contributors to
shareholder value with respect to a number of matters that are often the subject
of proxy solicitations for shareholder meetings. The proxy voting guidelines
specifically address these considerations and establish a framework for the
advisor's consideration of the vote that would be appropriate for the funds. In
particular, the proxy voting guidelines outline principles and factors to be
considered in the exercise of voting authority for proposals addressing:
* Election of Directors
* Ratification of Selection of Auditors
* Equity-Based Compensation Plans
* Anti-Takeover Proposals
* Cumulative Voting
* Staggered Boards
* "Blank Check" Preferred Stock
* Elimination of Preemptive Rights
* Non-targeted Share Repurchase
* Increase in Authorized Common Stock
* "Supermajority" Voting Provisions or Super Voting Share Classes
* "Fair Price" Amendments
* Limiting the Right to Call Special Shareholder Meetings
* Poison Pills or Shareholder Rights Plans
* Golden Parachutes
* Reincorporation
* Confidential Voting
* Opting In or Out of State Takeover Laws
* Shareholder Proposals Involving Social, Moral or Ethical Matters
* Anti-Greenmail Proposals
* Changes to Indemnification Provisions
* Non-Stock Incentive Plans
* Director Tenure
* Directors' Stock Options Plans
* Director Share Ownership
------
35
Finally, the proxy voting guidelines establish procedures for voting of proxies
in cases in which the advisor may have a potential conflict of interest.
Companies with which the advisor has direct business relationships could
theoretically use these relationships to attempt to unduly influence the manner
in which American Century votes on matters for the funds. To ensure that such a
conflict of interest does not affect proxy votes cast for the funds, all
discretionary (including case-by-case) voting for these companies will be voted
in direct consultation with a committee of the independent directors of the
funds.
A copy of the advisor's proxy voting guidelines and information regarding how
the advisor voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 are available on the ABOUT US page at
americancentury.com. The advisor's proxy voting record also is available on the
SEC's website at sec.gov.
DISCLOSURE OF PORTFOLIO HOLDINGS
The advisor (ACIM) has adopted policies and procedures with respect to the
disclosure of fund portfolio holdings and characteristics, which are described
below.
Distribution to the Public
Full portfolio holdings for each fund will be made available for distribution 30
days after the end of each calendar quarter, and will be posted on
americancentury.com at approximately the same time. This disclosure is in
addition to the portfolio disclosure in annual and semi-annual shareholder
reports, and on Form N-Q, which disclosures are filed with the Securities and
Exchange Commission within sixty days of each fiscal quarter end and also posted
on americancentury.com at the time the filings are made.
Top 10 holdings for each fund will be made available for distribution monthly 30
days after the end of each month, and will be posted on americancentury.com at
approximately the same time.
Certain portfolio characteristics determined to be sensitive and confidential
will be made available for distribution monthly 30 days after the end of each
month, and will be posted on americancentury.com at approximately the same time.
Characteristics not deemed confidential will be available for distribution at
any time. The advisor may make determinations of confidentiality on a
fund-by-fund basis, and may add or delete characteristics from those considered
confidential at any time.
So long as portfolio holdings are disclosed in accordance with the above
parameters, the advisor makes no distinction among different categories of
recipients, such as individual investors, institutional investors,
intermediaries that distribute the funds' shares, third-party service providers,
rating and ranking organizations, and fund affiliates. Because this information
is publicly available and widely disseminated, the advisor places no conditions
or restrictions on, and does not monitor, its use. Nor does the advisor require
special authorization for its disclosure.
Accelerated Disclosure
The advisor recognizes that certain parties, in addition to the advisor and its
affiliates, may have legitimate needs for information about portfolio holdings
and characteristics prior to the times prescribed above. Such accelerated
disclosure is permitted under the circumstances described below.
------
36
ONGOING ARRANGEMENTS
Certain parties, such as investment consultants who provide regular analysis of
fund portfolios for their clients and intermediaries who pass through
information to fund shareholders, may have legitimate needs for accelerated
disclosure. These needs may include, for example, the preparation of reports for
customers who invest in the funds, the creation of analyses of fund
characteristics for intermediary or consultant clients, the reformatting of data
for distribution to the intermediary's or consultant's clients, and the review
of fund performance for ERISA fiduciary purposes.
In such cases, accelerated disclosure is permitted if the service provider
enters an appropriate non-disclosure agreement with the funds' distributor in
which it agrees to treat the information confidentially until the public
distribution date and represents that the information will be used only for the
legitimate services provided to its clients (i.e., not for trading).
Non-disclosure agreements require the approval of an attorney in the advisor's
Legal Department. The advisor's Compliance Department receives quarterly reports
detailing which clients received accelerated disclosure, what they received,
when they received it and the purposes of such disclosure. Compliance personnel
are required to confirm that an appropriate non-disclosure agreement has been
obtained from each recipient identified in the reports.
Those parties who have entered into non-disclosure agreements as of February 20,
2006 are as follows:
* Aetna, Inc.
* American Fidelity Assurance Co.
* AUL/American United Life Insurance Company
* Ameritas Life Insurance Corporation
* Annuity Investors Life Insurance Company
* Asset Services Company L.L.C.
* Bell Globemedia Publishing
* Bellwether Consulting, LLC
* Bidart & Ross
* Business Men's Assurance Co. of America
* Callan Associates, Inc.
* Cambridge Financial Services, Inc.
* Cleary Gull Inc.
* Commerce Bank, N.A.
* Connecticut General Life Insurance Company
* CRA RogersCasey, Inc.
* Defined Contribution Advisors, Inc.
* EquiTrust Life Insurance Company
* Evaluation Associates, LLC
* Evergreen Investments
* Farm Bureau Life Insurance Company
* First MetLife Investors Insurance Company
* Fund Evaluation Group, LLC
* The Guardian Life Insurance & Annuity Company, Inc.
* Hewitt Associates LLC
* ICMA Retirement Corporation
* ING Life Insurance Company & Annuity Co.
* Investors Securities Services, Inc.
* Iron Capital Advisors
* J.P. Morgan Retirement Plan Services LLC
------
37
* Jefferson National Life Insurance Company
* Jefferson Pilot Financial
* Jeffrey Slocum & Associates, Inc.
* Kansas City Life Insurance Company
* Kmotion, Inc.
* The Lincoln National Life Insurance Company
* Lipper Inc.
* Manulife Financial
* Massachusetts Mutual Life Insurance Company
* Merrill Lynch
* MetLife Investors Insurance Company
* MetLife Investors Insurance Company of California
* Midland National Life Insurance Company
* Minnesota Life Insurance Company
* Morgan Stanley DW, Inc.
* Morningstar Associates LLC
* Morningstar Investment Services, Inc.
* National Life Insurance Company
* Nationwide Financial
* New England Pension Consultants
* Northwestern Mutual Life Insurance Co.
* NT Global Advisors, Inc.
* NYLIFE Distributors, LLC
* Principal Life Insurance Company
* Prudential Financial
* Rocaton Investment Advisors, LLC
* S&P Financial Communications
* Scudder Distributors, Inc.
* Security Benefit Life Insurance Co.
* Smith Barney
* SunTrust Bank
* Symetra Life Insurance Company
* Trusco Capital Management
* Union Bank of California, N.A.
* The Union Central Life Insurance Company
* VALIC Financial Advisors
* VALIC Retirement Services Company
* Vestek Systems, Inc.
* Wachovia Bank, N.A.
* Wells Fargo Bank, N.A.
Once a party has executed a non-disclosure agreement, it may receive any or all
of the following data for funds in which its clients have investments or are
actively considering investment:
(1) Full holdings quarterly as soon as reasonably available;
(2) Full holdings monthly as soon as reasonably available;
(3) Top 10 holdings monthly as soon as reasonably available; and
(4) Portfolio characteristics monthly as soon as reasonably available.
------
38
The types, frequency and timing of disclosure to such parties vary. In most
situations, the information provided pursuant to a non-disclosure agreement is
limited to certain portfolio characteristics and/or top 10 holdings, which
information is provided on a monthly basis. In limited situations, and when
approved by a member of the legal department and responsible chief investment
officer, full holdings may be provided.
SINGLE EVENT REQUESTS
In certain circumstances, the advisor may provide fund holding information on an
accelerated basis outside of an ongoing arrangement with manager-level or higher
authorization. For example, from time to time the advisor may receive requests
for proposals (RFPs) from consultants or potential clients that request
information about a fund's holdings on an accelerated basis. As long as such
requests are on a one-time basis, and do not result in continued receipt of
data, such information may be provided in the RFP as of the most recent month
end regardless of lag time. Such information will be provided with a
confidentiality legend and only in cases where the advisor has reason to believe
that the data will be used only for legitimate purposes and not for trading.
In addition, the advisor occasionally may work with a transition manager to move
a large account into or out of a fund. To reduce the impact to the fund, such
transactions may be conducted on an in-kind basis using shares of portfolio
securities rather than cash. The advisor may provide accelerated holdings
disclosure to the transition manager with little or no lag time to facilitate
such transactions, but only if the transition manager enters into an appropriate
non-disclosure agreement.
SERVICE PROVIDERS
Various service providers to the funds and the funds' advisor must have access
to some or all of the funds' portfolio holdings information on an accelerated
basis from time to time in the ordinary course of providing services to the
funds. These service providers include the funds' custodian (daily, with no
lag), auditors (as needed) and brokers involved in the execution of fund trades
(as needed). Additional information about these service providers and their
relationships with the funds and the advisor are provided elsewhere in this
statement of additional information.
Additional Safeguards
The advisor's policies and procedures include a number of safeguards designed to
control disclosure of portfolio holdings and characteristics so that such
disclosure is consistent with the best interests of fund shareholders. First,
the frequency with which this information is disclosed to the public, and the
length of time between the date of the information and the date on which the
information is disclosed, are selected to minimize the possibility of a third
party improperly benefiting from fund investment decisions to the detriment of
fund shareholders. Second, distribution of portfolio holdings information,
including compliance with the advisor's policies and the resolution of any
potential conflicts that may arise, is monitored quarterly. Finally, the funds'
Board of Directors exercises oversight of disclosure of the funds' portfolio
securities. The board has received and reviewed a summary of the advisor's
policy and is informed on a quarterly basis of any changes to or violations of
such policy detected during the prior quarter.
Neither the advisor nor the funds receive any compensation from any party for
the distribution of portfolio holdings information.
The advisor reserves the right to change its policies and procedures with
respect to the distribution of portfolio holdings information at any time. There
is no guarantee that these policies and procedures will protect the funds from
the potential misuse of holdings information by individuals or firms in
possession of such information.
------
39
THE FUNDS' PRINCIPAL SHAREHOLDERS
As of March 10, 2006, the following shareholders, beneficial or of record, owned
more than 5% of the outstanding shares of any class of the funds. Because the
Investor, Institutional, C and R Classes of Mid Cap Growth and Small Cap Growth
were not in operation as of March 10, 2006, they are not included in the chart
below.
PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
FUND/ SHARES OWNED SHARES OWNED
CLASS SHAREHOLDER OF RECORD BENEFICIALLY(1)
--------------------------------------------------------------------------------
Balanced
--------------------------------------------------------------------------------
Investor
Charles Schwab & Co., Inc. 7% 0%
San Francisco, California
--------------------------------------------------------------------------------
Institutional
National Financial 75% 0%
Services LLC
New York, New York
Trustees of American Century 25% 25%
Mutual Funds Indep Directors
Def Comp Plan
Kansas City, Missouri
--------------------------------------------------------------------------------
Advisor
Charles Schwab & Co., Inc. 11% 0%
San Francisco, California
Reliance Trust Co. Cust FBO 11% 0%
Gold Bank Corp 401k
Atlanta, Georgia
MLPF&S, Inc. 10% 0%
Jacksonville, Florida
National Financial 8% 0%
Services LLC
New York, New York
Nationwide Trust Company 5% 0%
Columbus, Ohio
--------------------------------------------------------------------------------
Capital Growth
--------------------------------------------------------------------------------
Investor
American Century Investment 93% 93%
Management, Inc.
Kansas City, Missouri
Wells Fargo Investments LLC 7% 0%
Minneapolis, Minnesota
--------------------------------------------------------------------------------
Institutional
American Century Investment 100% 100%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
A
American Century Investment 22% 22%
Management, Inc.
Kansas City, Missouri
Charles Schwab & Co., Inc. 15% 0%
San Francisco, California
American Enterprise 12% 0%
Investment Svcs
Minneapolis, Minnesota
--------------------------------------------------------------------------------
(1) IF SHARES ARE REGISTERED IN AN INDIVIDUAL'S NAME OR IN THE NAME OF AN
INTERMEDIARY FOR THE BENEFIT OF A NAMED PARTY, WE REPORT THOSE SHARES AS
BEING BENEFICIALLY OWNED. OTHERWISE, AMERICAN CENTURY HAS NO INFORMATION
CONCERNING BENEFICIAL OWNERSHIP OF FUND SHARES.
------
40
PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
SHARES OWNED SHARES OWNED
FUND/CLASS SHAREHOLDER OF RECORD BENEFICIALLY(1)
--------------------------------------------------------------------------------
Capital Growth
--------------------------------------------------------------------------------
B
American Century Investment 42% 42%
Management, Inc.
Kansas City, Missouri
MLPF&S Inc. 11% 0%
Jacksonville, Florida
Bear Stearns Securities Corp. 6% 0%
Brooklyn, New York
--------------------------------------------------------------------------------
C
American Century Investment 55% 55%
Management, Inc.
Kansas City, Missouri
AG Edwards & Sons Inc. 24% 0%
FBO RRF Investments LLC
St. Louis, Missouri
--------------------------------------------------------------------------------
R
American Century Investment 100% 100%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
Capital Value
--------------------------------------------------------------------------------
Investor
Charles Schwab & Co., Inc. 35% 0%
San Francisco, California
Saxon & Co 11% 0%
Philadelphia, Pennsylvania
US Bank Trustee 5% 0%
Private Asset O/A Platform
Milwaukee, Wisconsin
--------------------------------------------------------------------------------
Institutional
Saxon & Co. 50% 0%
Philadelphia, Pennsylvania
Charles Schwab & Co., Inc. 46% 0%
San Francisco, California
--------------------------------------------------------------------------------
Advisor
Nationwide Trust Company 68% 0%
Columbus, Ohio
Charles Schwab & Co., Inc. 22% 0%
San Francisco, California
National Financial 8% 0%
Services Corp
New York, New York
--------------------------------------------------------------------------------
Focused Growth
--------------------------------------------------------------------------------
Investor
None
--------------------------------------------------------------------------------
Fundamental Equity
--------------------------------------------------------------------------------
Investor
American Century Investment 35% 35%
Management, Inc.
Kansas City, Missouri
Edward D. Jones & Co 20% 0%
FAO Paul R Jacobi
Maryland Heights, Missouri
Piper Jaffray & Co. 19% 0%
Minneapolis, Minnesota
--------------------------------------------------------------------------------
(1) IF SHARES ARE REGISTERED IN AN INDIVIDUAL'S NAME OR IN THE NAME OF AN
INTERMEDIARY FOR THE BENEFIT OF A NAMED PARTY, WE REPORT THOSE SHARES AS
BEING BENEFICIALLY OWNED. OTHERWISE, AMERICAN CENTURY HAS NO INFORMATION
CONCERNING BENEFICIAL OWNERSHIP OF FUND SHARES.
------
41
PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
FUND/ SHARES OWNED SHARES OWNED
CLASS SHAREHOLDER OF RECORD BENEFICIALLY(1)
--------------------------------------------------------------------------------
Fundamental Equity
--------------------------------------------------------------------------------
Investor
John J. Jenson and 15% 15%
Debra J. Jenson, JTWROS
Leawood, Kansas
National Financial 11% 0%
Services Corp.
New York, New York
--------------------------------------------------------------------------------
Institutional
American Century Investment 100% 100%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
A Class
Charles Schwab & Co., Inc. 44% 0%
San Francisco, California
American Enterprise 7% 0%
Investment Svcs
Minneapolis, Minnesota
--------------------------------------------------------------------------------
B Class
American Century Investment 47% 47%
Management, Inc.
Kansas City, Missouri
American Enterprise 6% 0%
Investment Svcs
Minneapolis, Minnesota
American Enterprise 5% 0%
Investment Svcs
Minneapolis, Minnesota
--------------------------------------------------------------------------------
C Class
American Century Investment 18% 18%
Management, Inc.
Kansas City, Missouri
MLPF&S Inc. 16% 0%
Jacksonville, Florida
--------------------------------------------------------------------------------
R
American Century Investment 100% 100%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
Giftrust
--------------------------------------------------------------------------------
None
--------------------------------------------------------------------------------
Growth
--------------------------------------------------------------------------------
Investor
None
--------------------------------------------------------------------------------
Institutional
State Street Bank TR 74% 0%
Lockheed Martin Co
Defined Contributions
Plans Master Trust
Westwood, Massachusetts
JP Morgan Chase 6% 0%
Bank TTEE
Avon Personal Savings
Account Plan Trust
New York, New York
--------------------------------------------------------------------------------
C
Pershing LLC 23% 0%
Jersey City, New Jersey
--------------------------------------------------------------------------------
(1) IF SHARES ARE REGISTERED IN AN INDIVIDUAL'S NAME OR IN THE NAME OF AN
INTERMEDIARY FOR THE BENEFIT OF A NAMED PARTY, WE REPORT THOSE SHARES AS
BEING BENEFICIALLY OWNED. OTHERWISE, AMERICAN CENTURY HAS NO INFORMATION
CONCERNING BENEFICIAL OWNERSHIP OF FUND SHARES.
------
42
PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
SHARES OWNED SHARES OWNED
FUND/CLASS SHAREHOLDER OF RECORD BENEFICIALLY(1)
--------------------------------------------------------------------------------
Growth
--------------------------------------------------------------------------------
R
ING Life Insurance and 50% 0%
Annuity Co
Hartford, Connecticut
MG Trust Cust FBO 24% 0%
Resource Control
Associates Inc.
Denver, Colorado
MLPF&S Inc. 11% 0%
Jacksonville, Florida
MG Trust Company 10% 0%
Cust FBO
Drill Masters Inc 401K
Denver, Colorado
--------------------------------------------------------------------------------
Advisor
Charles Schwab & Co., Inc. 14% 0%
San Francisco, California
Nationwide Trust Co. 12% 0%
Columbus, Ohio
--------------------------------------------------------------------------------
Heritage
--------------------------------------------------------------------------------
Investor
Charles Schwab & Co., Inc. 8% 0%
San Francisco, California
--------------------------------------------------------------------------------
Institutional
Chase Manhattan Bank Trustee 77% 0%
The BOC Group Inc. Savings
Investment Plan Trust
New York, New York
Trustees of American Century 21% 21%
P/S & 401(k) Savings
Plan & Trust
Kansas City, Missouri
--------------------------------------------------------------------------------
C
None
--------------------------------------------------------------------------------
Advisor
Charles Schwab & Co., Inc. 33% 0%
San Francisco, California
MCB Trust Services as 9% 0%
Agent For
Citizens Bank as
Trustee FBO
Centimark Corporation
401k Plan
Providence, Rhode Island
Mitra & Co. Exp 6% 0%
Milwaukee, Wisconsin
AIG Federal Savings 5% 0%
Bank TR
FBO Macome-Oakland
Regional
Center Money
Purchase Plan
Houston, Texas
--------------------------------------------------------------------------------
(1) IF SHARES ARE REGISTERED IN AN INDIVIDUAL'S NAME OR IN THE NAME OF AN
INTERMEDIARY FOR THE BENEFIT OF A NAMED PARTY, WE REPORT THOSE SHARES AS
BEING BENEFICIALLY OWNED. OTHERWISE, AMERICAN CENTURY HAS NO INFORMATION
CONCERNING BENEFICIAL OWNERSHIP OF FUND SHARES.
------
43
PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
SHARES OWNED SHARES OWNED
FUND/CLASS SHAREHOLDER OF RECORD BENEFICIALLY(1)
--------------------------------------------------------------------------------
Mid Cap Growth
--------------------------------------------------------------------------------
A
Northwestern Mutual 44% 0%
Milwaukee, Wisconsin
Maroon Inc.(2) 32% 0%
Milwaukee, Wisconsin
--------------------------------------------------------------------------------
B
None
--------------------------------------------------------------------------------
New Opportunities
--------------------------------------------------------------------------------
Investor
Trustees of American 9% 9%
Century Profit
Sharing and 401K
Savings Plan & Trust
Kansas City, Missouri
--------------------------------------------------------------------------------
New Opportunities II
--------------------------------------------------------------------------------
Investor
US Bank Trustee 16% 0%
Private Asset O/A Platform
Milwaukee, Wisconsin
American Century Investment 8% 8%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
Institutional
None
--------------------------------------------------------------------------------
A
Charles Schwab & Co., Inc. 77% 0%
San Francisco, California
--------------------------------------------------------------------------------
B
None
--------------------------------------------------------------------------------
C
MLPF&S Inc. 33% 0%
Jacksonville, Florida
--------------------------------------------------------------------------------
Select
--------------------------------------------------------------------------------
Investor
None
--------------------------------------------------------------------------------
Institutional
Northern Trust Co. TR 58% 0%
CSX Corp Master Savings Plan
Chicago, Illinois
The Chase Manhattan 16% 0%
Bank NA TR
Huntsman Corp Salary
Deferral Plan & Trust
New York, New York
The Chase Manhattan 8% 0%
Bank NA TR
Huntsman Corp MPP Plan & Trust
New York, New York
JP Morgan Chase 7% 0%
Bank Trustee
Buckeye Pipe Line
Services Company
Retirement & Savings Plan
Kansas City, Missouri
FIIOC 6% 0%
Covington, Kentucky
--------------------------------------------------------------------------------
(1) IF SHARES ARE REGISTERED IN AN INDIVIDUAL'S NAME OR IN THE NAME OF AN
INTERMEDIARY FOR THE BENEFIT OF A NAMED PARTY, WE REPORT THOSE SHARES AS
BEING BENEFICIALLY OWNED. OTHERWISE, AMERICAN CENTURY HAS NO INFORMATION
CONCERNING BENEFICIAL OWNERSHIP OF FUND SHARES.
(2) MAROON, INC. IS A WHOLLY OWNED SUBSIDIARY OF NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY.
------
44
PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
SHARES OWNED SHARES OWNED
FUND/CLASS SHAREHOLDER OF RECORD BENEFICIALLY(1)
--------------------------------------------------------------------------------
Select
--------------------------------------------------------------------------------
A
Charles Schwab & Co., Inc. 77% 0%
San Francisco, California
--------------------------------------------------------------------------------
B
MLPF&S Inc. 8% 0%
Jacksonville, Florida
--------------------------------------------------------------------------------
C
MLPF&S Inc. 28% 0%
Jacksonville, Florida
--------------------------------------------------------------------------------
R
American Century Investment 100% 100%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
Advisor
UMB Bank NA 42% 0%
Fiduciary for Various
Deferred Accounts
Topeka, Kansas
MG Trust Company Cust FBO 10% 0%
Rosen Hotels & Resorts Inc
Denver, Colorado
Security Benefit Life 8% 0%
Insurance Co.
Topeka, Kansas
Orchard Trust Company, 8% 0%
LLC Cust
RHD Investors Choice
403B7
Englewood, Colorado
MLPF&S Inc. 8% 0%
Jacksonville, Florida
Saxon & Co 7% 0%
Philadelphia, Pennsylvania
--------------------------------------------------------------------------------
Small Cap Growth
--------------------------------------------------------------------------------
A
Principal Life Insurance 18% 0%
FBO Principal Financial
Group
Des Moines, Iowa
--------------------------------------------------------------------------------
B
None
--------------------------------------------------------------------------------
Ultra
--------------------------------------------------------------------------------
Investor
Charles Schwab & Co., Inc. 6% 0%
San Francisco, California
The Variable Annuity Life 5% 0%
Insurance Company
Houston, Texas
-------------------------------------------------------------------------------
(1) IF SHARES ARE REGISTERED IN AN INDIVIDUAL'S NAME OR IN THE NAME OF AN
INTERMEDIARY FOR THE BENEFIT OF A NAMED PARTY, WE REPORT THOSE SHARES AS
BEING BENEFICIALLY OWNED. OTHERWISE, AMERICAN CENTURY HAS NO INFORMATION
CONCERNING BENEFICIAL OWNERSHIP OF FUND SHARES.
------
45
PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
SHARES OWNED SHARES OWNED
FUND/CLASS SHAREHOLDER OF RECORD BENEFICIALLY(1)
--------------------------------------------------------------------------------
Ultra
--------------------------------------------------------------------------------
Institutional
JP Morgan Chase 11% 0%
Bank Trustee
401(k) Savings Plan of
JP Morgan Chase & Co. Trust
Brooklyn, New York
Fidelity FIIOC TR 10% 0%
FBO Intel SERP 401k
Covington, Kentucky
JP Morgan Chase 9% 0%
Bank Trustee
Bosch Savings Incentive Plan
Kansas City, Missouri
JP Morgan Chase TR 7% 0%
The Interpublic Group of
Companies Inc.
Savings Plan Trust
New York, New York
FIIOC 5% 0%
Covington, Kentucky
Nationwide Trust Company 5% 0%
FBO Participating
Retirement Plans
TPA-NTC
Columbus, Ohio
--------------------------------------------------------------------------------
Advisor
Nationwide Trust Company 15% 0%
Columbus, Ohio
Charles Schwab & Co., Inc. 9% 0%
San Francisco, California
PRIAC as Trustee/Custodian 6% 0%
For Various Retirement Plans
Kansas City, Missouri
ING Life Insurance 6% 0%
and Annuity Co
Hartford, Connecticut
--------------------------------------------------------------------------------
C
None
--------------------------------------------------------------------------------
R
ING National Trust 32% 0%
Hartford, Connecticut
ING Life Insurance 22% 0%
and Annuity Co.
Hartford, Connecticut
Massachusetts Mutual 15% 0%
Life Insurance
Springfield, Massachusetts
Hartford Life Ins Co 10% 0%
Hartford, Connecticut
Symetra Investment Services 10% 0%
Seattle, Washington
--------------------------------------------------------------------------------
(1) IF SHARES ARE REGISTERED IN AN INDIVIDUAL'S NAME OR IN THE NAME OF AN
INTERMEDIARY FOR THE BENEFIT OF A NAMED PARTY, WE REPORT THOSE SHARES AS
BEING BENEFICIALLY OWNED. OTHERWISE, AMERICAN CENTURY HAS NO INFORMATION
CONCERNING BENEFICIAL OWNERSHIP OF FUND SHARES.
------
46
PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
FUND/ SHARES OWNED SHARES OWNED
CLASS SHAREHOLDER OF RECORD BENEFICIALLY(1)
--------------------------------------------------------------------------------
Veedot
--------------------------------------------------------------------------------
Investor
None
--------------------------------------------------------------------------------
Institutional
Trustees of American 59% 59%
Century P/S
& 401K Savings Plan & Trust
Kansas City, Missouri
American Century Investment 22% 22%
Management, Inc.
Kansas City, Missouri
UMB TR 10% 10%
American Century Executive
Deferred Comp Plan Trust
Kansas City, Missouri
UMB TR 6% 6%
American Century
Services Corp.
Stock Option Surrender
Plan #95
Kansas City, Missouri
--------------------------------------------------------------------------------
Vista
--------------------------------------------------------------------------------
Investor
John Hancock Life Ins 9% 0%
Co. USA
Toronto, Ontario
--------------------------------------------------------------------------------
Institutional
Trustees of American 21% 21%
Century P/S
and 401K Savings
Plan and Trust
Kansas City, Missouri
The Chase Manhattan 13% 0%
Bank NA TR
Huntsman Corp Salary
Deferral Plan & Trust
New York, New York
JP Morgan Chase 12% 0%
Bank Trustee
Black & Veatch Employee
Savings Plan
Kansas City, Missouri
JP Morgan Chase 10% 0%
Bank Trustee
Astellas US Retirement
and Savings Plan
Kansas City, Missouri
JP Morgan Chase Bank Cust 6% 0%
FBO Housing Renewal
Local Agency Retirement
Plan & Trust
Brooklyn, New York
Trustees of Valassis Employees 6% 0%
Retirement Savings Plan
Livonia, Michigan
American Century Serv Corp 6% 6%
My Retirement 2025 Portfolio
Vista Omnibus
Kansas City, Missouri
--------------------------------------------------------------------------------
(1) IF SHARES ARE REGISTERED IN AN INDIVIDUAL'S NAME OR IN THE NAME OF AN
INTERMEDIARY FOR THE BENEFIT OF A NAMED PARTY, WE REPORT THOSE SHARES AS
BEING BENEFICIALLY OWNED. OTHERWISE, AMERICAN CENTURY HAS NO INFORMATION
CONCERNING BENEFICIAL OWNERSHIP OF FUND SHARES.
------
47
PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
FUND/ SHARES OWNED SHARES OWNED
CLASS SHAREHOLDER OF RECORD BENEFICIALLY(1)
--------------------------------------------------------------------------------
Vista
--------------------------------------------------------------------------------
Advisor
Trustar/Delaware Charter 16% 0%
FBO Principal Financial Group
Wilmington, Delaware
Charles Schwab & Co., Inc. 12% 0%
San Francisco, California
Oklahoma Public Employees 10% 0%
Retirement System Board
of Trustees
FBO OK State Employees
Def Comp Plan
Greenwood Village, Colorado
Delaware Charter Guarantee 8% 0%
& Trust
FBO Various Qualified Plans
Des Moines, Iowa
Transamerica Life Insurance 7% 0%
Company
Cedar Rapids, Iowa
--------------------------------------------------------------------------------
C
Delaware Charter Guarantee 11% 0%
& Trust
FBO Principal Financial Group
Des Moines, Iowa
Delaware Charter Guarantee 11% 0%
& Trust
FBO Various Qualified Plans
Des Moines, Iowa
--------------------------------------------------------------------------------
R
American Century Investment 99.99% 99.99%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
(1) IF SHARES ARE REGISTERED IN AN INDIVIDUAL'S NAME OR IN THE NAME OF AN
INTERMEDIARY FOR THE BENEFIT OF A NAMED PARTY, WE REPORT THOSE SHARES AS
BEING BENEFICIALLY OWNED. OTHERWISE, AMERICAN CENTURY HAS NO INFORMATION
CONCERNING BENEFICIAL OWNERSHIP OF FUND SHARES.
The funds are unaware of any other shareholders, beneficial or of record, who
own more than 5% of any class of a fund's outstanding shares. The funds are
unaware of any other shareholders, beneficial or of record, who own more than
25% of the voting securities of American Century Mutual Funds, Inc. A
shareholder owning of record or beneficially more than 25% of the corporation's
outstanding shares may be considered a controlling person. The vote of any such
person could have a more significant effect on matters presented at a
shareholders' meeting than votes of other shareholders. As of March 10, 2006,
the officers and directors of the funds, as a group, owned 1% of the Investor
Class of Veedot and owned less than 1% of all other classes of the other funds'
outstanding shares.
SERVICE PROVIDERS
The funds have no employees. To conduct the funds' day-to-day activities, the
funds have hired a number of service providers. Each service provider has a
specific function to fill on behalf of the funds that is described below.
ACIM, ACS and ACIS are wholly owned, directly or indirectly, by ACC. James E.
Stowers, Jr., controls ACC by virtue of his ownership of a majority of its
voting stock.
------
48
INVESTMENT ADVISOR
American Century Investment Management, Inc. (ACIM) serves as the investment
advisor for each of the funds. A description of the responsibilities of the
advisor appears in each prospectus under the heading MANAGEMENT.
For services provided to each fund, the advisor receives a unified management
fee based on a percentage of the net assets of each fund. For more information
about the unified management fee, see THE INVESTMENT ADVISOR under the heading
MANAGEMENT in each fund's prospectus. The amount of the fee is calculated daily
and paid monthly in arrears. For funds with a stepped fee schedule, the rate of
the fee is determined by applying the fee rate calculation formula indicated in
the table below. This formula takes into account all of the advisor's assets
under management in the fund's investment strategy ("strategy assets") to
calculate the appropriate fee rate for the fund. The strategy assets include the
fund's assets and the assets of other clients of the advisor that are not in the
American Century family of mutual funds but that have the same investment team
and investment strategy. The use of strategy assets, rather than fund assets, in
calculating the fee rate for a particular fund could allow a fund to realize
scheduled cost savings more quickly if the advisor acquires additional assets
under management within a strategy in addition to the fund's assets. The
management fee schedules for the funds appear below.
FUND CLASS PERCENTAGE OF STRATEGY ASSETS
--------------------------------------------------------------------------------
Balanced Investor 0.900% of first $1 billion
0.800% over $1 billion
---------------------------------------------------------
Institutional 0.700% of first $1 billion
0.600% over $1 billion
---------------------------------------------------------
Advisor 0.650% of first $1 billion
0.550% over $1 billion
--------------------------------------------------------------------------------
Capital Investor, A, B, 1.000% of first $5 billion
Growth C and R 0.990% of the next $5 billion
0.980% of the next $5 billion
0.970% of the next $5 billion
0.950% of the next $5 billion
0.900% of the next $5 billion
0.800% over $30 billion
---------------------------------------------------------
Institutional 0.800% of first $5 billion
0.790% of the next $5 billion
0.780% of the next $5 billion
0.770% of the next $5 billion
0.750% of the next $5 billion
0.700% of the next $5 billion
0.600% over $30 billion
--------------------------------------------------------------------------------
Capital Value Investor 1.10% of first $500 million
1.00% of next $500 million
0.90% over $1 billion
---------------------------------------------------------
Institutional 0.90% of first $500 million
0.80% of next $500 million
0.70% over $1 billion
---------------------------------------------------------
Advisor 0.85% of first $500 million
0.75% of next $500 million
0.65% over $1 billion
--------------------------------------------------------------------------------
Focused Growth Investor 1.00%
--------------------------------------------------------------------------------
------
49
FUND CLASS PERCENTAGE OF STRATEGY ASSETS
--------------------------------------------------------------------------------
Fundamental Investor, A, B, 1.000% of first $5 billion
Equity C and R 0.990% of next $5 billion
0.980% of next $5 billion
0.970% of next $5 billion
0.950% of next $5 billion
0.900% of next $5 billion
0.800% over $30 billion
---------------------------------------------------------
Institutional 0.800% of first $5 billion
0.790% of next $5 billion
0.780% of next $5 billion
0.770% of next $5 billion
0.750% of next $5 billion
0.700% of next $5 billion
0.600% over $30 billion
--------------------------------------------------------------------------------
Giftrust Investor 1.00%
--------------------------------------------------------------------------------
Growth Investor, C and R 1.000% of first $5 billion
0.990% of next $5 billion
0.980% of next $5 billion
0.970% of next $5 billion
0.950% of next $5 billion
0.900% of next $5 billion
0.800% over $30 billion
---------------------------------------------------------
Institutional 0.800% of first $5 billion
0.790% of next $5 billion
0.780% of next $5 billion
0.770% of next $5 billion
0.750% of next $5 billion
0.700% of next $5 billion
0.600% over $30 billion
---------------------------------------------------------
Advisor 0.750% of first $5 billion
0.740% of next $5 billion
0.730% of next $5 billion
0.720% of next $5 billion
0.700% of next $5 billion
0.650% of next $5 billion
0.550% over $30 billion
--------------------------------------------------------------------------------
Heritage Investor and C 1.000%
---------------------------------------------------------
Institutional 0.800%
---------------------------------------------------------
Advisor 0.750%
--------------------------------------------------------------------------------
Mid Cap Investor, A, B, 1.050% of first $500 million
Growth C and R 1.000% over $500 million
---------------------------------------------------------
Institutional 0.850% of first $500 million
0.800% over $500 million
--------------------------------------------------------------------------------
New Investor 1.50% of the first $250 million
Opportunities 1.30% of next $250 million
1.10% over $500 million
--------------------------------------------------------------------------------
New Investor, A, B 1.50% of the first $250 million
Opportunities II and C 1.30% of next $250 million
1.10% over $500 million
---------------------------------------------------------
Institutional 1.30% of the first $250 million
1.10% of next $250 million
0.90% over $500 million
--------------------------------------------------------------------------------
------
50
FUND CLASS PERCENTAGE OF STRATEGY ASSETS
--------------------------------------------------------------------------------
Select Investor, A, B, 1.000% of first $5 billion
C and R 0.990% of next $5 billion
0.980% of next $5 billion
0.970% of next $5 billion
0.950% of next $5 billion
0.900% of next $5 billion
0.800% over $30 billion
---------------------------------------------------------
Institutional 0.800% of first $5 billion
0.790% of next $5 billion
0.780% of next $5 billion
0.770% of next $5 billion
0.750% of next $5 billion
0.700% of next $5 billion
0.600% over $30 billion
---------------------------------------------------------
Advisor 0.750% of first $5 billion
0.740% of next $5 billion
0.730% of next $5 billion
0.720% of next $5 billion
0.700% of next $5 billion
0.650% of next $5 billion
0.550% over $30 billion
--------------------------------------------------------------------------------
Small Cap Investor, A, B, 1.300% of first $1 billion
Growth C and R 1.100% over $1 billion
---------------------------------------------------------
Institutional 1.100% of first $1 billion
0.900% over $1 billion
--------------------------------------------------------------------------------
Ultra Investor, C 1.000% of first $5 billion
and R 0.990% of next $5 billion
0.980% of next $5 billion
0.970% of next $5 billion
0.950% of next $5 billion
0.900% of next $5 billion
0.800% over $30 billion
---------------------------------------------------------
Institutional 0.800% of first $5 billion
0.790% of next $5 billion
0.780% of next $5 billion
0.770% of next $5 billion
0.750% of next $5 billion
0.700% of next $5 billion
0.600% over $30 billion
---------------------------------------------------------
Advisor 0.750% of first $5 billion
0.740% of next $5 billion
0.730% of next $5 billion
0.720% of next $5 billion
0.700% of next $5 billion
0.650% of next $5 billion
0.550% over $30 billion
--------------------------------------------------------------------------------
Veedot Investor 1.50% of first $250 million
1.30% of next $250 million
1.10% over $500 million
---------------------------------------------------------
Institutional 1.30% of first $250 million
1.10% of next $250 million
0.90% over $500 million
--------------------------------------------------------------------------------
Vista Investor, C 1.000%
and R
---------------------------------------------------------
Institutional 0.800%
---------------------------------------------------------
Advisor 0.750%
--------------------------------------------------------------------------------
------
51
On each calendar day, each class of each fund accrues a management fee that is
equal to the class's management fee rate (as calculated pursuant to the above
schedules) times the net assets of the class divided by 365 (366 in leap years).
On the first business day of each month, the funds pay a management fee to the
advisor for the previous month. The management fee is the sum of the daily fee
calculations for each day of the previous month.
The management agreement between the corporation and the advisor shall continue
in effect until the earlier of the expiration of two years from the date of its
execution or until the first meeting of fund shareholders following such
execution and for as long thereafter as its continuance is specifically approved
at least annually by
(1) the funds' Board of Directors, or a majority of outstanding
shareholder votes (as defined in the Investment Company Act) and
(2) the vote of a majority of the directors of the funds who are not
parties to the agreement or interested persons of the advisor, cast in
person at a meeting called for the purpose of voting on such approval.
The management agreement states that the funds' Board of Directors or a majority
of outstanding shareholder votes may terminate the management agreement at any
time without payment of any penalty on 60 days' written notice to the advisor.
The management agreement shall be automatically terminated if it is assigned.
The management agreement states the advisor shall not be liable to the funds or
their shareholders for anything other than willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
The management agreement also provides that the advisor and its officers,
directors and employees may engage in other business, render services to others,
and devote time and attention to any other business whether of a similar or
dissimilar nature.
Certain investments may be appropriate for the funds and also for other clients
advised by the advisor. Investment decisions for the funds and other clients are
made with a view to achieving their respective investment objectives after
consideration of such factors as their current holdings, availability of cash
for investment and the size of their investment generally. A particular security
may be bought or sold for only one client or fund, or in different amounts and
at different times for more than one but less than all clients or funds. A
particular security may be bought for one client or fund on the same day it is
sold for another client or fund, and a client or fund may hold a short position
in a particular security at the same time another client or fund holds a long
position. In addition, purchases or sales of the same security may be made for
two or more clients or funds on the same date. The advisor has adopted
procedures designed to ensure such transactions will be allocated among clients
and funds in a manner believed by the advisor to be equitable to each. In some
cases this procedure could have an adverse effect on the price or amount of the
securities purchased or sold by a fund.
The advisor may aggregate purchase and sale orders of the funds with purchase
and sale orders of its other clients when the advisor believes that such
aggregation provides the best execution for the funds. The Board of Directors
has approved the policy of the advisor with respect to the aggregation of
portfolio transactions. Where portfolio transactions have been aggregated, the
funds participate at the average share price for all transactions in that
security on a given day and allocate transaction costs on a pro rata basis. The
advisor will not aggregate portfolio transactions of the funds unless it
believes such aggregation is consistent with its duty to seek best execution on
behalf of the funds and the terms of the management agreement. The advisor
receives no additional compensation or remuneration as a result of such
aggregation.
Unified management fees incurred by each fund by class for the fiscal periods
ended October 31, 2005, 2004 and 2003, are indicated in the following tables.
Because the Investor, Institutional, C and R classes of Mid Cap Growth and Small
Cap Growth were not in operation as of the fiscal year end, they are not
included in the table below.
------
52
UNIFIED MANAGEMENT FEES
FUND/CLASS 2005 2004 2003
--------------------------------------------------------------------------------
Balanced
Investor Class $5,602,042 $5,299,050 $4,932,718
--------------------------------------------------------------------------------
Institutional Class $5,056 $1,312 $77,428
--------------------------------------------------------------------------------
Advisor Class $108,182 $108,622 $96,544
--------------------------------------------------------------------------------
Capital Growth
Investor Class $61(1) N/A N/A
--------------------------------------------------------------------------------
Institutional Class $49(1) N/A N/A
--------------------------------------------------------------------------------
A Class $9,730 $2,690(2) N/A
--------------------------------------------------------------------------------
B Class $6,065 $2,508(2) N/A
--------------------------------------------------------------------------------
C Class $5,315 $2,256(2) N/A
--------------------------------------------------------------------------------
R Class $61(1) N/A N/A
--------------------------------------------------------------------------------
Capital Value
Investor Class $4,387,644 $1,747,309 $771,404
--------------------------------------------------------------------------------
Institutional Class $271,788 $148,715 $49,740
--------------------------------------------------------------------------------
Advisor Class $106,913 $31,535 $305(3)
--------------------------------------------------------------------------------
Focused Growth
Investor Class $40,167(4) N/A N/A
--------------------------------------------------------------------------------
Fundamental Equity
Investor Class $63(1) N/A N/A
--------------------------------------------------------------------------------
Institutional Class $50(1) N/A N/A
--------------------------------------------------------------------------------
A Class $7,266(5) N/A N/A
--------------------------------------------------------------------------------
B Class $3,372(5) N/A N/A
--------------------------------------------------------------------------------
C Class $4,710(5) N/A N/A
--------------------------------------------------------------------------------
R Class $63(1) N/A N/A
--------------------------------------------------------------------------------
Giftrust
Investor Class $9,173,657 $8,873,785 $7,857,938
--------------------------------------------------------------------------------
Growth
Investor Class $41,378,462 $42,629,274 $40,233,896
--------------------------------------------------------------------------------
Institutional Class $5,520,819 $5,284,047 $4,188,607
--------------------------------------------------------------------------------
Advisor Class $627,822 $510,260 $322,092
--------------------------------------------------------------------------------
C Class $7,307 $6,830 $5,324
--------------------------------------------------------------------------------
R Class $328 $35 $4(6)
--------------------------------------------------------------------------------
Heritage
Investor Class $10,322,917 $12,168,009 $10,654,047
--------------------------------------------------------------------------------
Institutional Class $490,083 $528,668 $996,702
--------------------------------------------------------------------------------
Advisor Class $125,963 $114,578 $60,335
--------------------------------------------------------------------------------
C Class $9,223 $9,264 $3,641
--------------------------------------------------------------------------------
Mid Cap Growth(7) $1,252,131 $1,059,938 $528,575
--------------------------------------------------------------------------------
New Opportunities
Investor Class $3,839,704 $4,491,558 $4,300,248
--------------------------------------------------------------------------------
New Opportunities II
Investor Class $638,842 $543,334 $404,596
--------------------------------------------------------------------------------
A Class $579,207 $104,664 $4,348(8)
--------------------------------------------------------------------------------
B Class $29,231 $8,253 $1,211(8)
--------------------------------------------------------------------------------
C Class $35,848 $8,587 $55(8)
--------------------------------------------------------------------------------
------
53
UNIFIED MANAGEMENT FEES
FUND/CLASS 2005 2004 2003
--------------------------------------------------------------------------------
Select
Investor Class $35,540,943 $38,147,413 $35,720,710
--------------------------------------------------------------------------------
Institutional Class $1,715,806 $1,937,778 $1,623,535
--------------------------------------------------------------------------------
Advisor Class $193,972 $202,537 $180,024
--------------------------------------------------------------------------------
A Class $388,579 $236,164 $20,822(8)
--------------------------------------------------------------------------------
B Class $24,625 $18,681 $3,061(8)
--------------------------------------------------------------------------------
C Class $38,362 $29,945 $2,947(8)
--------------------------------------------------------------------------------
R Class $61(1) N/A N/A
--------------------------------------------------------------------------------
Small Cap Growth(7) $299,436 $214,449 $144,399
--------------------------------------------------------------------------------
Ultra
Investor Class $200,951,186 $211,788,565 $191,091,336
--------------------------------------------------------------------------------
Institutional Class $10,387,870 $7,721,096 $5,376,298
--------------------------------------------------------------------------------
Advisor Class $5,286,255 $5,283,974 $3,630,671
--------------------------------------------------------------------------------
C Class $57,997 $43,173 $10,567
--------------------------------------------------------------------------------
R Class $62,965 $19,637 $4(6)
--------------------------------------------------------------------------------
Veedot
Investor Class $3,027,002 $3,453,855 $2,881,700
--------------------------------------------------------------------------------
Institutional Class $160,008 $166,778 $127,721
--------------------------------------------------------------------------------
Vista
Investor Class $17,683,110 $13,739,409 $10,046,513
--------------------------------------------------------------------------------
Institutional Class $590,483 $324,585 $293,432
--------------------------------------------------------------------------------
Advisor Class $1,174,757 $340,458 $96,780
--------------------------------------------------------------------------------
C Class $20,470 $10,295 $1,515
--------------------------------------------------------------------------------
R Class $61(1) N/A N/A
--------------------------------------------------------------------------------
(1) FEES ACCRUED FROM JULY 29, 2005 (INCEPTION) THROUGH OCTOBER 31, 2005.
(2) FEES ACCRUED FROM FEBRUARY 27, 2004 (INCEPTION) THROUGH OCTOBER 31,
2004.
(3) FEES ACCRUED FROM MAY 14, 2003 (INCEPTION) THROUGH OCTOBER 31, 2003.
(4) FEES ACCRUED FROM FEBRUARY 28, 2005 (INCEPTION) THROUGH OCTOBER 31,
2005.
(5) FEES ACCRUED FROM NOVEMBER 30, 2004 (INCEPTION) THROUGH OCTOBER 31,
2004.
(6) FEES ACCRUED FROM AUGUST 29, 2003 (INCEPTION) THROUGH OCTOBER 31, 2003.
(7) INCLUDES MANAGEMENT FEES PAID BY THE A, B AND C CLASSES OF THE PREDECESSOR
FUND TO MASON STREET ADVISORS, LLC AS OF THE FISCAL YEAR ENDED MARCH 31.
(8) FEES ACCRUED FROM JANUARY 31, 2003 (INCEPTION) THROUGH OCTOBER 31,
2003.
SUBADVISOR
The investment management agreement provides that the advisor may delegate
certain responsibilities under the agreement to a subadvisor. Currently, Mason
Street Advisors LLC (MSA) serves as subadvisor to the Small Cap Growth Fund and
Mid Cap Growth Fund under a subadvisory agreement between the advisor and Mason
Street dated March 30, 2006, and approved by shareholders on March 30, 2006. The
subadvisory agreement continues for an initial period until July 31, 2007, and
thereafter so long as continuance is specifically approved at least annually by
vote of a majority of the fund's outstanding voting securities or by vote of a
majority of the fund's directors, provided that in either event the continuance
is also approved by a majority of those directors who are neither parties to the
agreement nor interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The subadvisory agreement is
subject to termination without penalty on 60 days' written notice by the
advisor, the Board of Directors, a majority of the fund's outstanding shares, or
Mason Street, and will terminate automatically in the event of its assignment or
termination of the investment advisory agreement between the fund and the
advisor.
The subadvisory agreement provides that Mason Street will make investment
decisions for the funds in accordance with the funds' investment objectives,
policies, and restrictions, and whatever additional written guidelines it may
receive from the advisor from time to time. For
------
54
the services it provides to Mid Cap Growth, the advisor pays Mason Street a
monthly fee at an annual rate of 0.550% on the first $50 million of the fund's
average daily net assets, 0.500% on the next $200 million of average daily net
assets, 0.450% on the next $250 million of average daily net assets and 0.400%
on average daily net assets over $500 million. For the services it provides to
Small Cap Growth, the advisor pays Mason Street a monthly fee at an annual rate
of 0.700% on the first $35 million of the fund's average daily net assets,
0.650% on the next $65 million of average daily net assets, 0.600% on the next
$400 million of average daily net assets and 0.550% on average daily net assets
over $500 million.
PORTFOLIO MANAGERS
All funds except Mid Cap Growth and Small Cap Growth
Other Accounts Managed
The portfolio managers also may be responsible for the day-to-day management of
other accounts, as indicated by the following table. None of these accounts has
an advisory fee based on the performance of the account.
OTHER ACCOUNTS MANAGED (AS OF OCTOBER 31, 2005)
--------------------------------------------------------------------------------------
REGISTERED OTHER ACCOUNTS
INVESTMENT (E.G., SEPARATE
COMPANIES ACCOUNTS AND
(E.G., OTHER OTHER POOLED CORPORATE
AMERICAN INVESTMENT ACCOUNTS
CENTURY FUNDS VEHICLES (E.G., INCLUDING
AND AMERICAN COMMINGLED INCUBATION
CENTURY - TRUSTS AND 529 STRATEGIES AND
SUBADVISED EDUCATION CORPORATE
FUNDS) SAVINGS PLANS) MONEY)
--------------------------------------------------------------------------------------
Balanced
--------------------------------------------------------------------------------------
Jeff Tyler Number of Other 16 34 0
Accounts Managed
---------------------------------------------------------------------
Assets in Other $4,628,827,830 $1,121,724,194 N/A
Accounts Managed
--------------------------------------------------------------------------------------
Capital Growth
--------------------------------------------------------------------------------------
Gregory J. Number of Other 7 0 3
Woodhams Accounts Managed
---------------------------------------------------------------------
Assets in Other $9,229,065,690 N/A $119,199,093
Accounts Managed
--------------------------------------------------------------------------------------
E. A. Prescott Number of Other 3 0 3
LeGard Accounts Managed
---------------------------------------------------------------------
Assets in Other $5,616,146,705 N/A $119,199,093
Accounts Managed
--------------------------------------------------------------------------------------
Capital Value
--------------------------------------------------------------------------------------
Mark Mallon Number of Other 10 0 3
Accounts Managed
---------------------------------------------------------------------
Assets in Other $6,367,445,040 N/A $212,144,211
Accounts Managed
--------------------------------------------------------------------------------------
Charles Ritter Number of Other 10 0 3
Accounts Managed
---------------------------------------------------------------------
Assets in Other $6,367,445,040 N/A $212,144,211
Accounts Managed
--------------------------------------------------------------------------------------
Brendan Number of Other 10 0 3
Healy Accounts Managed
---------------------------------------------------------------------
Assets in Other $6,367,445,040 N/A $212,144,211
Accounts Managed
--------------------------------------------------------------------------------------
Focused Growth
--------------------------------------------------------------------------------------
Gregory J. Number of Other 7 0 3
Woodhams Accounts Managed
---------------------------------------------------------------------
Assets in Other $9,219,653,916 N/A $119,199,093
Accounts Managed
--------------------------------------------------------------------------------------
Joseph Number of Other 0 0 0
Reiland Accounts Managed
---------------------------------------------------------------------
Assets in Other N/A N/A N/A
Accounts Managed
--------------------------------------------------------------------------------------
------
55
OTHER ACCOUNTS MANAGED (AS OF OCTOBER 31, 2005)
------------------------------------------------------------------------------------------
REGISTERED OTHER ACCOUNTS
INVESTMENT (E.G., SEPARATE
COMPANIES ACCOUNTS AND
(E.G., OTHER OTHER POOLED CORPORATE
AMERICAN INVESTMENT ACCOUNTS
CENTURY FUNDS VEHICLES (E.G., INCLUDING
AND AMERICAN COMMINGLED INCUBATION
CENTURY - TRUSTS AND 529 STRATEGIES AND
SUBADVISED EDUCATION CORPORATE
FUNDS) SAVINGS PLANS) MONEY)
------------------------------------------------------------------------------------------
Fundamental Equity
------------------------------------------------------------------------------------------
Jerry Sullivan Number of Other 3 0 0
Accounts Managed
----------------------------------------------------------------------
Assets in Other $21,721,294,962 N/A N/A
Accounts Managed
------------------------------------------------------------------------------------------
Robert Number of Other 0 0 0
Brookby Accounts Managed
----------------------------------------------------------------------
Assets in Other N/A N/A N/A
Accounts Managed
------------------------------------------------------------------------------------------
Giftrust
------------------------------------------------------------------------------------------
David M. Number of Other 2 0 0
Rose Accounts Managed
----------------------------------------------------------------------
Assets in Other $1,167,541,669 N/A N/A
Accounts Managed
------------------------------------------------------------------------------------------
Kurt R. Number of Other 2 0 0
Stalzer Accounts Managed
----------------------------------------------------------------------
Assets in Other $1,167,541,669 N/A N/A
Accounts Managed
------------------------------------------------------------------------------------------
Growth
------------------------------------------------------------------------------------------
Gregory J. Number of Other 7 0 3
Woodhams Accounts Managed
----------------------------------------------------------------------
Assets in Other $4,444,402,315 N/A $119,199,093
Accounts Managed
------------------------------------------------------------------------------------------
E. A. Prescott Number of Other 3 0 3
LeGard Accounts Managed
----------------------------------------------------------------------
Assets in Other $831,483,330 N/A $119,199,093
Accounts Managed
------------------------------------------------------------------------------------------
Heritage
------------------------------------------------------------------------------------------
David M. Number of Other 2 0 0
Rose Accounts Managed
----------------------------------------------------------------------
Assets in Other $1,230,726,532 N/A N/A
Accounts Managed
------------------------------------------------------------------------------------------
Kurt R. Stalzer Number of Other 2 0 0
Accounts Managed
----------------------------------------------------------------------
Assets in Other $1,230,726,532 N/A N/A
Accounts Managed
------------------------------------------------------------------------------------------
New Opportunities
------------------------------------------------------------------------------------------
Harold Bradley Number of Other 1 0 14
Accounts Managed
----------------------------------------------------------------------
Assets in Other $97,206,408 N/A $23,196,743
Accounts Managed
------------------------------------------------------------------------------------------
Thomas Telford Number of Other 2 0 0
Accounts Managed
----------------------------------------------------------------------
Assets in Other $231,337,376 N/A N/A
Accounts Managed
------------------------------------------------------------------------------------------
------
56
OTHER ACCOUNTS MANAGED (AS OF OCTOBER 31, 2005)
---------------------------------------------------------------------------------------------
REGISTERED OTHER ACCOUNTS
INVESTMENT (E.G., SEPARATE
COMPANIES ACCOUNTS AND
(E.G., OTHER OTHER POOLED CORPORATE
AMERICAN INVESTMENT ACCOUNTS
CENTURY FUNDS VEHICLES (E.G., INCLUDING
AND AMERICAN COMMINGLED INCUBATION
CENTURY - TRUSTS AND 529 STRATEGIES AND
SUBADVISED EDUCATION CORPORATE
FUNDS) SAVINGS PLANS) MONEY)
---------------------------------------------------------------------------------------------
New Opportunities II
---------------------------------------------------------------------------------------------
Harold Bradley Number of Other 1 0 14
Accounts Managed
-----------------------------------------------------------------------
Assets in Other $240,673,473 N/A $23,196,743
Accounts Managed
---------------------------------------------------------------------------------------------
Thomas Telford Number of Other 2 0 0
Accounts Managed
-----------------------------------------------------------------------
Assets in Other $374,804,442 N/A N/A
Accounts Managed
---------------------------------------------------------------------------------------------
Select
---------------------------------------------------------------------------------------------
John Sykora Number of Other 1 0 0
Accounts Managed
-----------------------------------------------------------------------
Assets in Other $435,618,606 N/A N/A
Accounts Managed
---------------------------------------------------------------------------------------------
Keith Lee Number of Other 1 0 0
Accounts Managed
-----------------------------------------------------------------------
Assets in Other $435,618,606 N/A N/A
Accounts Managed
---------------------------------------------------------------------------------------------
Michael Li(1) Number of Other 1 0 0
Accounts Managed
-----------------------------------------------------------------------
Assets in Other $433,736,823 N/A N/A
Accounts Managed
---------------------------------------------------------------------------------------------
Ultra
---------------------------------------------------------------------------------------------
Bruce Number of Other 2 0 0
Wimberly Accounts Managed
-----------------------------------------------------------------------
Assets in Other $683,250,346 N/A N/A
Accounts Managed
---------------------------------------------------------------------------------------------
Wade Slome Number of Other 1 0 0
Accounts Managed
-----------------------------------------------------------------------
Assets in Other $259,364,324 N/A N/A
Accounts Managed
---------------------------------------------------------------------------------------------
Jerry Sullivan Number of Other 3 0 0
Accounts Managed
-----------------------------------------------------------------------
Assets in Other $686,105,081 N/A N/A
Accounts Managed
---------------------------------------------------------------------------------------------
Veedot
---------------------------------------------------------------------------------------------
John Small Jr. Number of Other 1 0 3
Accounts Managed
-----------------------------------------------------------------------
Assets in Other $4,929,879 N/A $1,252,455
Accounts Managed
---------------------------------------------------------------------------------------------
Vista
---------------------------------------------------------------------------------------------
Glenn Fogle Number of Other 7 0 1
Accounts Managed
-----------------------------------------------------------------------
Assets in Other $3,814,961,642 N/A $29,172,828
Accounts Managed
---------------------------------------------------------------------------------------------
David Hollond Number of Other 7 0 1
Accounts Managed
-----------------------------------------------------------------------
Assets in Other $3,814,961,642 N/A $29,172,828
Accounts Managed
---------------------------------------------------------------------------------------------
(1) DR. LI BECAME A PORTFOLIO MANAGER FOR SELECT ON FEBRUARY 1, 2006.
INFORMATION IS PROVIDED AS OF FEBRUARY 10, 2006.
------
57
Potential Conflicts of Interest
Certain conflicts of interest may arise in connection with the management of
multiple portfolios. Potential conflicts include, for example, conflicts among
investment strategies and conflicts in the allocation of investment
opportunities. American Century has adopted policies and procedures that are
designed to minimize the effects of these conflicts.
Responsibility for managing American Century client portfolios is organized
according to investment discipline. Investment disciplines include, for example,
core equity, small- and mid-cap growth, large-cap growth, value, international,
fixed income, asset allocation, and sector funds. Within each discipline are one
or more portfolio teams responsible for managing specific client portfolios.
Generally, client portfolios with similar strategies are managed by the same
team using the same objective, approach, and philosophy. Accordingly, portfolio
holdings, position sizes, and industry and sector exposures tend to be similar
across similar portfolios, which minimizes the potential for conflicts of
interest.
For each investment strategy, one portfolio is generally designated as the
"policy portfolio." Other portfolios with similar investment objectives,
guidelines and restrictions, if any, are referred to as "tracking portfolios."
When managing policy and tracking portfolios, a portfolio team typically
purchases and sells securities across all portfolios that the team manages.
American Century's trading systems include various order entry programs that
assist in the management of multiple portfolios, such as the ability to purchase
or sell the same relative amount of one security across several funds. In some
cases a tracking portfolio may have additional restrictions or limitations that
cause it to be managed separately from the policy portfolio. Portfolio managers
make purchase and sale decisions for such portfolios alongside the policy
portfolio to the extent the overlap is appropriate, and separately, if the
overlap is not.
American Century may aggregate orders to purchase or sell the same security for
multiple portfolios when it believes such aggregation is consistent with its
duty to seek best execution on behalf of its clients. Orders of certain client
portfolios may, by investment restriction or otherwise, be determined not
available for aggregation. American Century has adopted policies and procedures
to minimize the risk that a client portfolio could be systematically advantaged
or disadvantaged in connection with the aggregation of orders. To the extent
equity trades are aggregated, shares purchased or sold are generally allocated
to the participating portfolios PRO RATA based on order size. Because initial
public offerings (IPOs) are usually available in limited supply and in amounts
too small to permit across-the-board pro rata allocations, American Century has
adopted special procedures designed to promote a fair and equitable allocation
of IPO securities among clients over time. Fixed income securities transactions
are not executed through a centralized trading desk. Instead, portfolio teams
are responsible for executing trades with broker/dealers in a predominantly
dealer marketplace. Trade allocation decisions are made by the portfolio manager
at the time of trade execution and orders entered on the fixed income order
management system.
Finally, investment of American Century's corporate assets in proprietary
accounts may raise additional conflicts of interest. To mitigate these potential
conflicts of interest, American Century has adopted policies and procedures
intended to provide that trading in proprietary accounts is performed in a
manner that does not give improper advantage to American Century to the
detriment of client portfolios.
Compensation
American Century portfolio manager compensation is structured to align the
interests of portfolio managers with those of the shareholders whose assets they
manage. It includes the components described below, each of which is determined
with reference to a number of factors such as overall performance, market
competition, and internal equity. Compensation is not directly tied to the value
of assets held in client portfolios.
BASE SALARY
Portfolio managers receive base pay in the form of a fixed annual salary.
------
58
BONUS
A significant portion of portfolio manager compensation takes the form of an
annual incentive bonus tied to performance. Bonus payments are determined by a
combination of factors. One factor is fund investment performance. For policy
portfolios, such as the funds described in this statement of additional
information, investment performance is measured by a combination of one- and
three-year pre-tax performance relative to a pre-established,
internally-customized peer group and/or market benchmark. Custom peer groups are
constructed using all the funds in appropriate Lipper or Morningstar categories
as a starting point. Funds are then eliminated from the peer group based on a
standardized methodology designed to result in a final peer group that more
closely represents the fund's true peers based on internal investment mandates
and that is more stable (i.e., has less peer turnover) over the long-term. In
cases where a portfolio manager has responsibility for more than one policy
portfolio, the performance of each is assigned a percentage weight commensurate
with the portfolio manager's level of responsibility.
With regard to tracking portfolios, investment performance may be measured in a
number of ways. The performance of the tracking portfolio may be measured
against a customized peer group and/or market benchmark as described above for
policy portfolios. Alternatively, the tracking portfolio may be evaluated
relative to the performance of its policy portfolio, with the goal of matching
the policy portfolio's performance as closely as possible. In some cases, the
performance of a tracking portfolio is not separately considered; rather, the
performance of the policy portfolio is the key metric.
A second factor in the bonus calculation relates to the performance of all
American Century funds managed according to a particular investment style, such
as U.S. growth or value. Performance is measured for each product individually
as described above and then combined to create an overall composite for the
product group. These composites may measure one-year performance (equal
weighted) or a combination of one- and three-year performance (asset weighted)
depending on the portfolio manager's responsibilities and products managed. This
feature is designed to encourage effective teamwork among portfolio management
teams in achieving long-term investment success for similarly styled portfolios.
A portion of some portfolio managers' bonuses may be tied to individual
performance goals, such as research projects and the development of new
products.
Finally, portfolio manager bonuses may occasionally be affected by
extraordinarily positive or negative financial performance by American Century
Companies, Inc. ("ACC"), the advisor's privately-held parent company. This
feature has been designed to maintain investment performance as the primary
component of portfolio manager bonuses while also providing a link to the
advisor's ability to pay.
RESTRICTED STOCK PLANS
Portfolio managers are eligible for grants of restricted stock of ACC. These
grants are discretionary, and eligibility and availability can vary from year to
year. The size of an individual's grant is determined by individual and product
performance as well as other product-specific considerations. Grants can
appreciate/depreciate in value based on the performance of the ACC stock during
the restriction period (generally three years).
DEFERRED COMPENSATION PLANS
Portfolio managers are eligible for grants of deferred compensation. These
grants are used in very limited situations, primarily for retention purposes.
Grants are fixed and can appreciate/depreciate in value based on the performance
of the American Century mutual funds in which the portfolio manager chooses to
invest them.
Ownership of Securities
The following table indicates the dollar range of securities of each fund
beneficially owned by the fund's portfolio managers as of October 31, 2005, the
fund's most recent fiscal year end.
------
59
OWNERSHIP OF SECURITIES
--------------------------------------------------------------------------------
AGGREGATE DOLLAR RANGE OF SECURITIES IN FUND
--------------------------------------------------------------------------------
Balanced
Jeff Tyler(1) A
--------------------------------------------------------------------------------
Capital Growth
Gregory J. Woodhams(1) A
--------------------------------------------------------------------------------
E.A. Prescott LeGard(1) A
--------------------------------------------------------------------------------
Capital Value
Mark Mallon D
--------------------------------------------------------------------------------
Charles Ritter E
--------------------------------------------------------------------------------
Brendan Healy D
--------------------------------------------------------------------------------
Focused Growth
Gregory J. Woodhams C
--------------------------------------------------------------------------------
Joseph Reiland D
--------------------------------------------------------------------------------
Fundamental Equity
Jerry Sullivan D
--------------------------------------------------------------------------------
Robert Brookby C
--------------------------------------------------------------------------------
Giftrust
David M. Rose(1) A
--------------------------------------------------------------------------------
Kurt R. Stalzer(1) A
--------------------------------------------------------------------------------
Growth
Gregory J. Woodhams E
--------------------------------------------------------------------------------
E.A. Prescott LeGard F
--------------------------------------------------------------------------------
Heritage
David M. Rose E
--------------------------------------------------------------------------------
Kurt R. Stalzer D
--------------------------------------------------------------------------------
New Opportunities
Harold Bradley F
--------------------------------------------------------------------------------
Thomas Telford E
--------------------------------------------------------------------------------
New Opportunities II
Harold Bradley E
--------------------------------------------------------------------------------
Thomas Telford C
--------------------------------------------------------------------------------
Select
John Sykora F
--------------------------------------------------------------------------------
Keith Lee E
--------------------------------------------------------------------------------
Michael Li(2) B
--------------------------------------------------------------------------------
Ultra
Bruce Wimberly F
--------------------------------------------------------------------------------
Wade Slome E
--------------------------------------------------------------------------------
Jerry Sullivan D
--------------------------------------------------------------------------------
Veedot
John Small Jr. E
--------------------------------------------------------------------------------
Vista
Glenn Fogle E
--------------------------------------------------------------------------------
David Hollond E
--------------------------------------------------------------------------------
RANGES: A - NONE; B - $1-$10,000; C - $10,001-$50,000; D - $50,001-$100,000;
E - $100,001-$500,000; F - $500,001-$1,000,000; G - MORE THAN $1,000,000.
(1) AMERICAN CENTURY HAS ADOPTED A POLICY THAT, WITH LIMITED EXCEPTIONS,
REQUIRES ITS PORTFOLIO MANAGERS TO MAINTAIN INVESTMENTS IN THE POLICY
PORTFOLIOS THEY OVERSEE. HOWEVER, BECAUSE THIS PORTFOLIO MANAGER SERVES ON
A TEAM THAT OVERSEES A NUMBER OF FUNDS IN THE SAME BROAD INVESTMENT
STRATEGY, THE PORTFOLIO MANAGER IS NOT REQUIRED TO INVEST IN EACH SUCH
FUND.
(2) DR. LI BECAME A PORTFOLIO MANAGER FOR SELECT ON FEBRUARY 1, 2006.
INFORMATION IS PROVIDED AS OF FEBRUARY 10, 2006.
------
60
Mid Cap Growth
Small Cap Growth
The information under this heading has been provided by MSA, the subadvisor for
Mid Cap Growth and Small Cap Growth.
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
Certain of the fund's portfolio managers or members of the investment team as
identified in the prospectus may also manage other mutual funds, other pooled
investment vehicles that are not registered mutual funds, and other accounts
managed for organizations and individuals. The table below identifies for each
person, the number of accounts (other than the funds), for which he or she has
day-to-day management responsibilities and the total assets in such accounts,
within each of the following categories: registered investment companies, other
pooled investment vehicles, and other accounts. These categories are
collectively referred to as "accounts." None of the accounts identified below
pays advisory fees that are based on the performance of the account.
OTHER ACCOUNTS MANAGED (AS OF SEPTEMBER 30, 2005)
--------------------------------------------------------------------------------------
OTHER ACCOUNTS
(E.G., SEPARATE
ACCOUNTS AND
OTHER POOLED CORPORATE
INVESTMENT ACCOUNTS
VEHICLES (E.G., INCLUDING
COMMINGLED INCUBATION
REGISTERED TRUSTS AND STRATEGIES
INVESTMENT 529 EDUCATION AND CORPORATE
COMPANIES SAVINGS PLANS) MONEY)
--------------------------------------------------------------------------------------
Mid Cap Growth
--------------------------------------------------------------------------------------
William R. Walker Number of Other 3(1) 0 0
Accounts Managed
-------------------------------------------------------------------
Assets in Other $1.76 billion N/A N/A
Accounts Managed
--------------------------------------------------------------------------------------
Small Cap Growth
--------------------------------------------------------------------------------------
William R. Walker Number of Other 3(2) 0 0
Accounts Managed
-------------------------------------------------------------------
Assets in Other $1.89 billion N/A N/A
Accounts Managed
--------------------------------------------------------------------------------------
(1) EXCLUDES MASON STREET AGGRESSIVE GROWTH STOCK FUND, WHICH REORGANIZED INTO
THE FUND.
(2) EXCLUDES MASON STREET SMALL CAP GROWTH STOCK FUND, WHICH REORGANIZED INTO
THE FUND.
Compensation of Portfolio Managers
MSA has adopted a system of compensation for portfolio managers that seeks to
attract, motivate and retain high quality investment personnel and align the
financial interests of the portfolio managers with the performance of MSA and
its clients. A portfolio manager's compensation consists primarily of the
following three components: a base salary, annual variable compensation and, for
certain portfolio managers, long-term variable compensation. Eligibility and
participation in the annual and long-term variable compensation programs is
determined on a year-to-year basis. Each portfolio manager is also eligible to
participate in benefit plans and programs available generally to all employees
of MSA.
A portfolio manager's total compensation is determined through a process that
combines both objective and subjective criteria. Initially, at the beginning of
each year, compensation targets are determined for each portfolio manager based
on market factors and the skill, experience and tenure of the portfolio manager.
The compensation target is then allocated among base salary, annual variable
compensation and long-term variable compensation based on a formula for each
portfolio manager.
At the end of the year, the portfolio manager's performance is evaluated using
both objective and subjective criteria. Primary consideration is given to the
historic investment performance of accounts managed by the portfolio manager
over both a one-year and a four-year period, with more weight typically being
given to the longer-term performance. The performance of each account managed by
the portfolio manager is measured against a relevant peer group and/or an
applicable benchmark, as deemed appropriate. If a portfolio manager manages more
than one account, performance is weighted based on a combination of factors,
including the number and type of accounts managed, and the assets in each
account.
The evaluation process also includes a subjective evaluation of competencies or
behaviors deemed important to achieving MSA's overall business objectives.
Subjective criteria may include considerations such as management and
supervisory responsibilities, market factors, complexity of investment
strategies, length of service, team building efforts and successes, risk
management initiatives and leadership contributions. A portfolio manager's
compensation is then determined by applying a multiplier (which can be greater
or less than 1.0) based on the annual evaluation of the objective and subjective
criteria to the targeted compensation. Long-term variable pay grants are made on
an annual basis and are credited to a deferred account that accrues interest on
the balances. Awarded grants vest over a three to five-year vesting period and
are paid upon vesting.
------
61
CONFLICTS OF INTEREST
Conflicts of interest may arise when a portfolio manager is responsible for the
management of more than one account. The principal types of these potential
conflicts may include:
TIME AND ATTENTION. The management of multiple Funds and/or accounts may give
rise to potential conflicts of interest as the portfolio manager must allocate
his or her time and investment ideas across multiple funds and accounts. This
could result in a portfolio manager devoting unequal time and attention to the
management of each Fund and/or other accounts. The effect of this potential
conflict may be more pronounced where Funds and/or accounts overseen by a
particular portfolio manager have different objectives, benchmarks, time
horizons, and fees.
LIMITED INVESTMENT OPPORTUNITIES. If a portfolio manager identifies a limited
investment opportunity that may be suitable for multiple Funds and/or accounts,
the opportunity may be allocated among these several Funds or accounts, which
may limit a Fund's ability to take full advantage of the investment opportunity.
MSA and Templeton seek to manage such potential conflicts by using procedures
intended to provide a fair allocation of buy and sell opportunities among Funds
and other accounts.
VARIATION IN INCENTIVES. A conflict of interest may arise where the financial or
other benefits available to the portfolio manager differ among the Funds and/or
accounts that he or she manages. If the structure of the investment adviser's
management fee and/or the portfolio manager's compensation differs among Funds
and/or accounts (such as where certain Funds or accounts pay higher management
fees or performance-based management fees), the portfolio manager might be
motivated to help certain Funds and/or accounts over others. In addition, the
portfolio manager might be motivated to favor Funds and/or accounts in which he
or she has an interest or in which the investment adviser and/or its affiliates
have interests. Similarly, the desire to maintain assets under management or to
enhance the portfolio manager's performance record or to derive other rewards,
financial or otherwise, could influence the portfolio manager in affording
preferential treatment to those Funds and/or accounts that could most
significantly benefit the portfolio manager.
PERSONAL ACCOUNTS. Portfolio managers may be permitted to purchase and sell
securities for their own personal accounts or the personal accounts of family
members, which could potentially influence the portfolio manager's decisions
with respect to purchasing or selling the same securities for the Fund. To
mitigate this potential conflict of interest, MSA and Templeton have adopted
Codes of Ethics or other policies and procedures governing the personal
securities transactions of their portfolio managers.
DIFFERING STRATEGIES. At times, a portfolio manager may determine that an
investment opportunity may be appropriate for only some of the funds and/or
accounts for which he or she exercises investment responsibility, or may decide
that certain of the funds and/or accounts should take differing positions with
respect to a particular security. In these cases, the portfolio manager may
place separate transactions for one or more funds or accounts which may affect
the market price of the security or the execution of the transaction, or both,
to the detriment or benefit of one or more other funds and/or accounts.
MSA and the fund have adopted compliance polices and procedures, as applicable,
that are designed to address these, and other, types of conflicts of interest.
There is no guarantee, however, that such policies and procedures will be able
to detect and/or prevent every situation where a conflict arises.
Portfolio Manager Securities Ownership
As of March 31, 2005 the portfolio managers beneficially owned no shares of the
fund.
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62
TRANSFER AGENT AND ADMINISTRATOR
American Century Services, LLC, 4500 Main Street, Kansas City, Missouri 64111,
serves as transfer agent and dividend-paying agent for the funds. It provides
physical facilities, computer hardware and software and personnel for the
day-to-day administration of the funds and the advisor. The advisor pays ACS's
costs for serving as transfer agent and dividend-paying agent for the funds out
of the advisor's unified management fee. For a description of this fee and the
terms of its payment, see the above discussion under the caption INVESTMENT
ADVISOR on page 48.
From time to time, special services may be offered to shareholders who maintain
higher share balances in our family of funds. These services may include the
waiver of minimum investment requirements, expedited confirmation of shareholder
transactions, newsletters and a team of personal representatives. Any expenses
associated with these special services will be paid by the advisor.
DISTRIBUTOR
The funds' shares are distributed by American Century Investment Services, Inc.,
a registered broker-dealer. The distributor is a wholly owned subsidiary of ACC
and its principal business address is 4500 Main Street, Kansas City, Missouri
64111.
The distributor is the principal underwriter of the funds' shares. The
distributor makes a continuous, best-efforts underwriting of the funds' shares.
This means the distributor has no liability for unsold shares. The advisor pays
ACIS's costs for serving as principal underwriter of the funds' shares out of
the advisor's unified management fee. For a description of this fee and the
terms of its payment, see the above discussion under the caption INVESTMENT
ADVISOR on page 48. ACIS does not earn commissions for distributing the funds'
shares.
Certain financial intermediaries unaffiliated with the distributor or the funds
may perform various administrative and shareholder services for their clients
who are invested in the funds. These services may include assisting with fund
purchases, redemptions and exchanges, distributing information about the funds
and their performance, preparing and distributing client account statements, and
other administrative and shareholder services that would otherwise be provided
by the distributor or its affiliates. The distributor may pay fees out of its
own resources to such financial intermediaries for providing these services.
CUSTODIAN BANKS
JP Morgan Chase Bank, 4 Metro Tech Center, Brooklyn, New York 11245, and
Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105, each serves as
custodian of the funds' assets. State Street Bank and Trust Company, One Lincoln
Street, Boston, Massachusetts 02111, maintains custody accounts for the
safekeeping of futures trading margin for Mid Cap Growth and Small Cap Growth.
The custodians take no part in determining the investment policies of the funds
or in deciding which securities are purchased or sold by the funds. The funds,
however, may invest in certain obligations of the custodians and may purchase or
sell certain securities from or to the custodians.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP is the independent registered public accounting firm of
the funds. The address of Deloitte & Touche LLP is 1100 Walnut Street, Kansas
City, Missouri 64106. As the independent registered public accounting firm of
the funds, Deloitte & Touche LLP and an affiliate provide services including
(1) auditing the annual financial statements for each fund,
(2) assisting and consulting in connection with SEC filings and
(3) reviewing the annual federal income tax return filed for each fund.
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63
BROKERAGE ALLOCATION
CAPITAL GROWTH, CAPITAL VALUE, FOCUSED GROWTH, FUNDAMENTAL EQUITY, GIFTRUST,
GROWTH, HERITAGE, MID CAP GROWTH NEW OPPORTUNITIES, NEW OPPORTUNITIES II,
SELECT, SMALL CAP GROWTH, ULTRA, VEEDOT, VISTA, AND THE EQUITY PORTION OF
BALANCED
Under the management agreement between the funds and the advisor, the advisor
has the responsibility of selecting brokers and dealers to execute portfolio
transactions. The funds' policy is to secure the most favorable prices and
execution of orders on its portfolio transactions. So long as that policy is
met, the advisor may take into consideration the factors discussed below when
selecting brokers. For Mid Cap Growth and Small Cap Growth, the advisor has
delegated responsibility for selecting brokers to execute portfolio transactions
to the subadvisor under the terms of the subadvisory agreement.
The advisor, or the subadvisor, as the case may be, receives statistical and
other information and services, including research, without cost from brokers
and dealers. The advisor or subadvisor evaluates such information and services,
together with all other information that it may have, in supervising and
managing the investments of the funds. Because such information and services may
vary in amount, quality and reliability, their influence in selecting brokers
varies from none to very substantial. The advisor or subadvisor intends to
continue to place some of the funds' brokerage business with one or more brokers
who provide information and services. Such information and services will be in
addition to and not in lieu of services required to be performed by the advisor.
The advisor does not utilize brokers that provide such information and services
for the purpose of reducing the expense of providing required services to the
funds. In the years ended October 31, 2005, 2004 and 2003, the brokerage
commissions of each fund are listed in the following table.
FUND 2005 2004 2003
--------------------------------------------------------------------------------
Balanced $920,605 $1,223,255 $1,606,559
--------------------------------------------------------------------------------
Capital Growth $2,281 $1,342(1) N/A
--------------------------------------------------------------------------------
Capital Value $170,142 $76,585 $41,498
--------------------------------------------------------------------------------
Focused Growth $4,808(2) N/A N/A
--------------------------------------------------------------------------------
Fundamental $1,686(3) N/A N/A
Equity
--------------------------------------------------------------------------------
Giftrust $2,476,145 $3,433,171 $1,826,653
--------------------------------------------------------------------------------
Growth $4,107,762 $8,405,085 $11,633,672
--------------------------------------------------------------------------------
Heritage $3,052,428 $5,217,528 $2,689,688
--------------------------------------------------------------------------------
Mid Cap $437,184 $245,045 $150,296
Growth(4)
--------------------------------------------------------------------------------
New $1,027,283 $1,521,059 $1,463,909
Opportunities
--------------------------------------------------------------------------------
New $367,669 $231,389 $167,785
Opportunities II
--------------------------------------------------------------------------------
Select $2,279,586 $3,551,910 $6,445,767
--------------------------------------------------------------------------------
Small Cap $167,469 $72,119 $58,052
Growth(4)
--------------------------------------------------------------------------------
Ultra $8,078,728 $9,440,731 $25,150,177
--------------------------------------------------------------------------------
Veedot $1,200,009 $1,597,322 $1,873,205
--------------------------------------------------------------------------------
Vista $5,978,255 $6,049,997 $5,927,293
--------------------------------------------------------------------------------
(1) FEBRUARY 27, 2004 (INCEPTION) THROUGH OCTOBER 31, 2004.
(2) FEBRUARY 28, 2005 (INCEPTION) THROUGH OCTOBER 31, 2005.
(3) NOVEMBER 30, 2004 (INCEPTION) THROUGH OCTOBER 31, 2005.
(4) REFLECTS COMMISSIONS PAID BY THE PREDECESSOR FUND AS OF THE FISCAL YEAR
ENDED MARCH 31.
Brokerage commissions paid by a fund may vary significantly from year to year as
a result of changing asset levels throughout the year, portfolio turnover,
varying market conditions, and other factors.
------
64
The brokerage commissions paid by the funds may exceed those that another broker
might have charged for effecting the same transactions, because of the value of
the brokerage and research services provided by the broker. Research services
furnished by brokers through whom the funds effect securities transactions may
be used by the advisor in servicing all of its accounts, and not all such
services may be used by the advisor in managing the portfolios of the funds.
The staff of the SEC has expressed the view that the best price and execution of
over-the-counter transactions in portfolio securities may be secured by dealing
directly with principal market makers, thereby avoiding the payment of
compensation to another broker. In certain situations, the officers of the funds
and the advisor believe that the facilities, expert personnel and technological
systems of a broker often enable the funds to secure as good a net price by
dealing with a broker instead of a principal market maker, even after payment of
the compensation to the broker. The funds regularly place their over-the-counter
transactions with principal market makers, but also may deal on a brokerage
basis when utilizing electronic trading networks or as circumstances warrant.
THE FIXED-INCOME PORTION OF BALANCED
Under the management agreement between the funds and the advisor, the advisor
has the responsibility of selecting brokers and dealers to execute portfolio
transactions. In many transactions, the selection of the broker or dealer is
determined by the availability of the desired security and its offering price.
In other transactions, the selection of the broker or dealer is a function of
market selection and price negotiation, as well as the broker's general
execution and operational and financial capabilities in the type of transaction
involved. The advisor will seek to obtain prompt execution of orders at the most
favorable prices or yields. The advisor may choose to purchase and sell
portfolio securities from and to dealers who provide services or research,
statistical and other information to the funds and to the advisor. Such
information or services will be in addition to, and not in lieu of, the services
required to be performed by the advisor, and the expenses of the advisor will
not necessarily be reduced as a result of the receipt of such supplemental
information.
The funds generally purchase and sell debt securities through principal
transactions, meaning the funds normally purchase securities on a net basis
directly from the issuer or a primary market-maker acting as principal for the
securities. The funds do not pay brokerage commissions on these transactions,
although the purchase price for debt securities usually includes an undisclosed
compensation. Purchases of securities from underwriters typically include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market-makers typically include a dealer's mark-up
(i.e., a spread between the bid and asked prices).
REGULAR BROKER-DEALERS
As of its most recently completed fiscal year, each of the funds listed below
owned securities of its regular brokers or dealers (as defined by Rule 10b-1
under the Investment Company Act of 1940) or of their parent companies.
VALUE OF SECURITIES
OWNED AS OF
FUND BROKER, DEALER OR PARENT OCTOBER 31, 2005
--------------------------------------------------------------------------------
Balanced Morgan Stanley $7,890,537
--------------------------------------------------------------
LB-UBS Commercial Mortgage $7,417,418
--------------------------------------------------------------
Bear Stearns Companies, Inc. $5,079,405
--------------------------------------------------------------
Citigroup Inc. $2,276,662
--------------------------------------------------------------
Goldman Sachs Group, Inc. $1,509,505
--------------------------------------------------------------
Merrill Lynch and Company, Inc. $542,539
--------------------------------------------------------------------------------
------
65
VALUE OF SECURITIES
OWNED AS OF
FUND BROKER, DEALER OR PARENT OCTOBER 31, 2005
--------------------------------------------------------------------------------
Capital Growth None
--------------------------------------------------------------------------------
Capital Value Citigroup Inc $22,711,458
---------------------------------------------------------
Merrill Lynch & Co., Inc. $8,597,472
---------------------------------------------------------
Morgan Stanley $7,231,089
--------------------------------------------------------------------------------
Focused None
Growth
--------------------------------------------------------------------------------
Fundamental Citigroup Inc. $70,684
Equity
---------------------------------------------------------
Goldman Sachs Group, Inc. $29,950
---------------------------------------------------------
Morgan Stanley $28,892
--------------------------------------------------------------------------------
Giftrust None
--------------------------------------------------------------------------------
Growth None
--------------------------------------------------------------------------------
Heritage None
--------------------------------------------------------------------------------
Mid Cap Growth None(1)
--------------------------------------------------------------------------------
New None
Opportunities
--------------------------------------------------------------------------------
New None
Opportunities II
--------------------------------------------------------------------------------
Select Citigroup Inc. $62,900,163
--------------------------------------------------------------------------------
Small Cap Growth None(1)
--------------------------------------------------------------------------------
Ultra Citigroup Inc. $268,682,820
---------------------------------------------------------
The Goldman Sachs Group, Inc. $214,197,150
--------------------------------------------------------------------------------
Veedot Merrill Lynch & Company, Inc. $1,359,540
---------------------------------------------------------
Charles Schwab Corp. $813,200
---------------------------------------------------------
Goldman Sachs & Company, Inc. $695,035
---------------------------------------------------------
Lehman Brothers Holdings, Inc. $658,185
--------------------------------------------------------------------------------
Vista None
--------------------------------------------------------------------------------
(1) AS OF MARCH 31, 2005, THE PREDECESSOR FUND'S FISCAL YEAR END.
INFORMATION ABOUT FUND SHARES
Each of the funds named on the front of this statement of additional information
is a series of shares issued by the corporation, and shares of each fund have
equal voting rights. In addition, each series (or fund) may be divided into
separate classes. See MULTIPLE CLASS STRUCTURE, which follows. Additional funds
and classes may be added without a shareholder vote.
Each fund votes separately on matters affecting that fund exclusively. Voting
rights are not cumulative, so investors holding more than 50% of the
corporation's (all funds') outstanding shares may be able to elect a Board of
Directors. The corporation undertakes dollar-based voting, meaning that the
number of votes a shareholder is entitled to is based upon the dollar amount of
the shareholder's investment. The election of directors is determined by the
votes received from all the corporation's shareholders without regard to whether
a majority of shares of any one fund voted in favor of a particular nominee or
all nominees as a group.
The assets belonging to each series are held separately by the custodian and the
shares of each series represent a beneficial interest in the principal, earnings
and profit (or losses) of investments and other assets held for each series.
Your rights as a shareholder are the same for all series of securities unless
otherwise stated. Within their respective series, all shares have equal
redemption rights. Each share, when issued, is fully paid and non-assessable.
Each shareholder has rights to dividends and distributions declared by the fund
he or she owns and to the net assets of such fund upon its liquidation or
dissolution proportionate to his or her share ownership interest in the fund.
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66
MULTIPLE CLASS STRUCTURE
The corporation's Board of Directors has adopted a multiple class plan (the
Multiclass Plan) pursuant to Rule 18f-3 adopted by the SEC. The plan is
described in the prospectus of any fund that offers more than one class.
Pursuant to such plan, the funds may issue up to seven classes of shares:
Investor Class, Institutional Class, A Class, B Class, C Class, R Class and
Advisor Class. Not all funds offer all seven classes.
The Investor Class of most funds is made available to investors directly without
any load or commission, for a single unified management fee. It is also
available through some financial intermediaries. The Investor Class of those
funds which have A and B Classes is not available directly at no load. The
Institutional and Advisor Classes are made available to institutional
shareholders or through financial intermediaries that do not require the same
level of shareholder and administrative services from the advisor as Investor
Class shareholders. As a result, the advisor is able to charge these classes a
lower total management fee. In addition to the management fee, however, the
Advisor Class shares are subject to a Master Distribution and Shareholder
Services Plan (the Advisor Class Plan). The A, B and C Classes also are made
available through financial intermediaries, for purchase by individual investors
who receive advisory and personal services from the intermediary. The R Class is
made available through financial intermediaries and is generally used in 401(k)
and other retirement plans. The unified management fee for the A, B, C and R
classes is the same as for Investor Class, but the A, B, C and R Class shares
each are subject to a separate Master Distribution and Individual Shareholder
Services Plan (the A Class Plan, B Class Plan, C Class Plan and R Class Plan,
respectively and collectively with the Advisor Class Plan, the Plans) described
below. The Plans have been adopted by the funds' Board of Directors in
accordance with Rule 12b-1 adopted by the SEC under the Investment Company Act.
Rule 12b-1
Rule 12b-1 permits an investment company to pay expenses associated with the
distribution of its shares in accordance with a plan adopted by its Board of
Directors and approved by its shareholders. Pursuant to such rule, the Board of
Directors and initial shareholder of the funds' A, B, C, R and Advisor Classes
have approved and entered into the A Class Plan, B Class Plan, C Class Plan, R
Class Plan and Advisor Class Plan, respectively. The plans are described below.
In adopting the plans, the Board of Directors (including a majority of directors
who are not interested persons of the funds [as defined in the Investment
Company Act], hereafter referred to as the independent directors) determined
that there was a reasonable likelihood that the plans would benefit the funds
and the shareholders of the affected class. Some of the anticipated benefits
include improved name recognition for the funds generally; and growing assets in
existing funds, which helps retain and attract investment management talent,
provides a better environment for improving fund performance, and can lower the
total expense ratio for funds with stepped-fee schedules. Pursuant to Rule
12b-1, information with respect to revenues and expenses under the plans is
presented to the Board of Directors quarterly for its consideration in
connection with its deliberations as to the continuance of the plans.
Continuance of the plans must be approved by the Board of Directors (including a
majority of the independent directors) annually. The plans may be amended by a
vote of the Board of Directors (including a majority of the independent
directors), except that the plans may not be amended to materially increase the
amount to be spent for distribution without majority approval of the
shareholders of the affected class. The plans terminate automatically in the
event of an assignment and may be terminated upon a vote of a majority of the
independent directors or by vote of a majority of outstanding shareholder votes
of the affected class.
All fees paid under the plans will be made in accordance with Section 26 of the
Conduct Rules of the National Association of Securities Dealers (NASD).
------
67
A Class Plan
As described in the prospectuses, the A Class shares of the funds are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through broker-dealers, banks, insurance companies and
other financial intermediaries that provide various administrative, shareholder
and distribution services. The funds' distributor enters into contracts with
various banks, broker-dealers, insurance companies and other financial
intermediaries, with respect to the sale of the funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.
Certain recordkeeping and administrative services that are provided by the
funds' transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for A Class
investors. In addition to such services, the financial intermediaries provide
various individual shareholder and distribution services.
To enable the funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
Board of Directors has adopted the A Class Plan. Pursuant to the A Class Plan,
the A Class pays the funds' distributor a fee equal to 0.25% annually of the
average daily net asset value of the A Class shares. The distributor may use
these fees to pay for certain ongoing shareholder and administrative services
(as described below) and for distribution services, including past distribution
services (as described below). This payment is fixed at 0.25% and is not based
on expenses incurred by the distributor. During the fiscal year ended October
31, 2005, the aggregate amount of fees paid under the A Class plan was:
Capital Growth $2,433
Fundamental Equity $1,817
Mid Cap Growth $108,548(1)
New Opportunities II $96,534
Select $97,145
Small Cap Growth $27,557(1)
(1) DURING THE FISCAL YEAR ENDED MARCH 31, 2005, THE AGGREGATE AMOUNT OF FEES
PAID BY THE PREDECESSOR FUND.
The distributor then makes these payments to the financial intermediaries
(including underwriters and broker-dealers, who may use some of the proceeds to
compensate sales personnel) who offer the A Class shares for the services
described below. No portion of these payments is used by the distributor to pay
for advertising, printing costs or interest expenses.
Payments may be made for a variety of individual shareholder services,
including, but not limited to:
(a) providing individualized and customized investment advisory services,
including the consideration of shareholder profiles and specific goals;
(b) creating investment models and asset allocation models for use by
shareholders in selecting appropriate funds;
(c) conducting proprietary research about investment choices and the
market in general;
(d) periodic rebalancing of shareholder accounts to ensure compliance with
the selected asset allocation;
(e) consolidating shareholder accounts in one place; and
(f) other individual services.
Individual shareholder services do not include those activities and expenses
that are primarily intended to result in the sale of additional shares of the
funds.
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of A Class shares, which services
may include but are not limited to:
(a) the payment of sales commissions, on-going commissions and other
payments to brokers, dealers, financial institutions or others who sell A
Class shares pursuant to selling agreements;
(b) compensation to registered representatives or other employees of the
distributor who engage in or support distribution of the funds' A Class
shares;
------
68
(c) compensation to, and expenses (including overhead and telephone
expenses) of, the distributor;
(d) printing prospectuses, statements of additional information and
reports for other-than-existing shareholders;
(e) preparing, printing and distributing sales literature and advertising
materials provided to the funds' shareholders and prospective shareholders;
(f) receiving and answering correspondence from prospective shareholders,
including distributing prospectuses, statements of additional information,
and shareholder reports;
(g) providing facilities to answer questions from prospective shareholders
about fund shares;
(h) complying with federal and state securities laws pertaining to the
sale of fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the
distribution of fund shares;
(k) organizing and conducting sales seminars and payments in the form of
transactional and compensation or promotional incentives;
(l) profit on the foregoing;
(m) paying service fees for providing personal, continuing services to
investors, as contemplated by the Conduct Rules of the NASD; and
(n) such other distribution and services activities as the advisor
determines may be paid for by the funds pursuant to the terms of the
agreement between the corporation and the funds' distributor and in
accordance with Rule 12b-1 of the Investment Company Act.
B Class Plan
As described in the prospectuses, the B Class shares of the funds are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through broker-dealers, banks, insurance companies and
other financial intermediaries that provide various administrative, shareholder
and distribution services. The funds' distributor enters into contracts with
various banks, broker-dealers, insurance companies and other financial
intermediaries, with respect to the sale of the funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.
Certain recordkeeping and administrative services that are provided by the
funds' transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for B Class
investors. In addition to such services, the financial intermediaries provide
various individual shareholder and distribution services.
To enable the funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
Board of Directors has adopted the B Class Plan. Pursuant to the B Class Plan,
the B Class pays the funds' distributor 1.00% annually of the average daily net
asset value of the B Class shares, 0.25% of which is paid for certain ongoing
individual shareholder and administrative services (as described below) and
0.75% of which is paid for distribution services, including past distribution
services (as described below). The payment is fixed at 1.00% and is not based on
expenses incurred by the distributor. During the fiscal year ended October 31,
2005, the aggregate amount of fees paid under the B Class plan was:
Capital Growth $6,065
Fundamental Equity $3,372
Mid Cap Growth $75,263(1)
New Opportunities II $19,487
Select $24,655
Small Cap Growth $48,212(1)
(1) DURING THE FISCAL YEAR ENDED MARCH 31, 2005, THE AGGREGATE AMOUNT OF FEES
PAID BY THE PREDECESSOR FUND.
------
69
The distributor then makes these payments to the financial intermediaries
(including underwriters and broker-dealers, who may use some of the proceeds to
compensate sales personnel) who offer the B Class shares for the services
described below. No portion of these payments is used by the distributor to pay
for advertising, printing costs or interest expenses.
Payments may be made for a variety of individual shareholder services,
including, but not limited to:
(a) providing individualized and customized investment advisory services,
including the consideration of shareholder profiles and specific goals;
(b) creating investment models and asset allocation models for use by
shareholders in selecting appropriate funds;
(c) conducting proprietary research about investment choices and the
market in general;
(d) periodic rebalancing of shareholder accounts to ensure compliance with
the selected asset allocation;
(e) consolidating shareholder accounts in one place; and
(f) other individual services.
Individual shareholder services do not include those activities and expenses
that are primarily intended to result in the sale of additional shares of the
funds.
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of B Class shares, which services
may include but are not limited to:
(a) the payment of sales commissions, on-going commissions and other
payments to brokers, dealers, financial institutions or others who sell B
Class shares pursuant to selling agreements;
(b) compensation to registered representatives or other employees of the
distributor who engage in or support distribution of the funds' B Class
shares;
(c) compensation to, and expenses (including overhead and telephone
expenses) of, the distributor;
(d) printing prospectuses, statements of additional information and
reports for other-than-existing shareholders;
(e) preparing, printing and distributing sales literature and advertising
materials provided to the funds' shareholders and prospective shareholders;
(f) receiving and answering correspondence from prospective shareholders,
including distributing prospectuses, statements of additional information,
and shareholder reports;
(g) providing facilities to answer questions from prospective shareholders
about fund shares;
(h) complying with federal and state securities laws pertaining to the
sale of fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the
distribution of fund shares;
(k) organizing and conducting sales seminars and payments in the form of
transactional and compensation or promotional incentives;
(l) profit on the foregoing;
(m) paying service fees for providing personal, continuing services to
investors, as contemplated by the Conduct Rules of the NASD; and
(n) such other distribution and services activities as the advisor
determines may be paid for by the funds pursuant to the terms of the
agreement between the corporation and the funds' distributor and in
accordance with Rule 12b-1 of the Investment Company Act.
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70
C Class Plan
As described in the prospectuses, the C Class shares of the funds are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through broker-dealers, banks, insurance companies and
other financial intermediaries that provide various administrative, shareholder
and distribution services. The funds' distributor enters into contracts with
various banks, broker-dealers, insurance companies and other financial
intermediaries, with respect to the sale of the funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.
Certain recordkeeping and administrative services that are provided by the
funds' transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for C Class
investors. In addition to such services, the financial intermediaries provide
various individual shareholder and distribution services.
To enable the funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
Board of Directors has adopted the C Class Plan. Pursuant to the C Class Plan,
the C Class pays the funds' distributor 1.00% annually of the average daily net
asset value of the funds' C Class shares, 0.25% of which is paid for certain
ongoing individual shareholder and administrative services (as described below)
and 0.75% of which is paid for distribution services, including past
distribution services (as described below). This payment is fixed at 1.00% and
is not based on expenses incurred by the distributor. During the fiscal year
ended October 31, 2005, the aggregate amount of fees paid under the C Class Plan
was:
Capital Growth $5,315
Fundamental Equity $4,711
Growth $7,309
Heritage $9,223
New Opportunities II $23,900
Select $38,362
Ultra $58,566
Vista $20,469
Because the C Class of Mid Cap Growth and Small Cap Growth was not in operation
as of the fiscal year end, no fees were paid under the C Class Plan.
The distributor then makes these payments to the financial intermediaries
(including underwriters and broker-dealers, who may use some of the proceeds to
compensate sales personnel) who offer the C Class shares for the services
described below. No portion of these payments is used by the distributor to pay
for advertising, printing costs or interest expenses.
Payments may be made for a variety of individual shareholder services,
including, but not limited to:
(a) providing individualized and customized investment advisory services,
including the consideration of shareholder profiles and specific goals;
(b) creating investment models and asset allocation models for use by
shareholders in selecting appropriate funds;
(c) conducting proprietary research about investment choices and the
market in general;
(d) periodic rebalancing of shareholder accounts to ensure compliance with
the selected asset allocation;
(e) consolidating shareholder accounts in one place; and
(f) other individual services.
Individual shareholder services do not include those activities and expenses
that are primarily intended to result in the sale of additional shares of the
funds.
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of C Class shares, which services
may include but are not limited to:
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71
(a) the payment of sales commissions, on-going commissions and other
payments to brokers, dealers, financial institutions or others who sell C
Class shares pursuant to selling agreements;
(b) compensation to registered representatives or other employees of the
distributor who engage in or support distribution of the funds' C Class
shares;
(c) compensation to, and expenses (including overhead and telephone
expenses) of, the distributor;
(d) printing prospectuses, statements of additional information and
reports for other-than-existing shareholders;
(e) preparing, printing and distributing sales literature and advertising
materials provided to the funds' shareholders and prospective shareholders;
(f) receiving and answering correspondence from prospective shareholders,
including distributing prospectuses, statements of additional information,
and shareholder reports;
(g) providing facilities to answer questions from prospective shareholders
about fund shares;
(h) complying with federal and state securities laws pertaining to the
sale of fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the
distribution of fund shares;
(k) organizing and conducting of sales seminars and payments in the form
of transactional and compensation or promotional incentives;
(l) profit on the foregoing;
(m) paying service fees for providing personal, continuing services to
investors, as contemplated by the Conduct Rules of the NASD; and
(n) such other distribution and services activities as the advisor
determines may be paid for by the funds pursuant to the terms of the
agreement between the corporation and the funds' distributor and in
accordance with Rule 12b-1 of the Investment Company Act.
R Class Plan
As described in the prospectuses, the R Class shares of the funds are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through broker-dealers, banks, insurance companies and
other financial intermediaries that provide various administrative, shareholder
and distribution services. The funds' distributor enters into contracts with
various banks, broker-dealers, insurance companies and other financial
intermediaries, with respect to the sale of the funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.
Certain recordkeeping and administrative services that are provided by the
funds' transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for R Class
investors. In addition to such services, the financial intermediaries provide
various individual shareholder and distribution services.
To enable the funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
Board of Directors has adopted the R Class Plan. Pursuant to the R Class Plan,
the R Class pays the funds' distributor 0.50% annually of the average daily net
asset value of the R Class shares. The distributor may use these fees to pay for
certain ongoing shareholder and administrative services (as described below) and
for distribution services, including past distribution services (as described
below). This payment is fixed at 0.50% and is not based on expenses incurred by
the distributor. During the fiscal year ended October 31, 2005, the aggregate
amount of fees paid under the R Class Plan was:
Capital Growth $31
Fundamental Equity $31
Growth $164
Select $30
Ultra $31,807(1)
Vista $31
(1) BEFORE A FEE REIMBURSEMENT OF $3,125 FOR DISTRIBUTION AND SHAREHOLDER
SERVICES.
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72
Because the R Class of Mid Cap Growth and Small Cap Growth was not in operation
as of the fiscal year end, no fees were paid under the R Class Plan.
The distributor then makes these payments to the financial intermediaries
(including underwriters and broker-dealers, who may use some of the proceeds to
compensate sales personnel) who offer the R Class shares for the services, as
described below. No portion of these payments is used by the distributor to pay
for advertising, printing costs or interest expenses.
Payments may be made for a variety of individual shareholder services,
including, but not limited to:
(a) providing individualized and customized investment advisory services,
including the consideration of shareholder profiles and specific goals;
(b) creating investment models and asset allocation models for use by
shareholders in selecting appropriate funds;
(c) conducting proprietary research about investment choices and the
market in general;
(d) periodic rebalancing of shareholder accounts to ensure compliance with
the selected asset allocation;
(e) consolidating shareholder accounts in one place; and
(f) other individual services.
Individual shareholder services do not include those activities and expenses
that are primarily intended to result in the sale of additional shares of the
funds.
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of R Class shares, which services
may include but are not limited to:
(a) the payment of sales commissions, on-going commissions and other
payments to brokers, dealers, financial institutions or others who sell R
Class shares pursuant to selling agreements;
(b) compensation to registered representatives or other employees of the
distributor who engage in or support distribution of the funds' R Class
shares;
(c) compensation to, and expenses (including overhead and telephone
expenses) of, the distributor;
(d) printing prospectuses, statements of additional information and
reports for other-than-existing shareholders;
(e) preparing, printing and distributing sales literature and advertising
materials provided to the funds' shareholders and prospective shareholders;
(f) receiving and answering correspondence from prospective shareholders,
including distributing prospectuses, statements of additional information,
and shareholder reports;
(g) providing facilities to answer questions from prospective shareholders
about fund shares;
(h) complying with federal and state securities laws pertaining to the
sale of fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the
distribution of fund shares;
(k) organizing and conducting of sales seminars and payments in the form
of transactional and compensation or promotional incentives;
(l) profit on the foregoing;
(m) paying service fees for providing personal, continuing services to
investors, as contemplated by the Conduct Rules of the NASD; and
(n) such other distribution and services activities as the advisor
determines may be paid for by the funds pursuant to the terms of the
agreement between the corporation and the funds' distributor and in
accordance with Rule 12b-1 of the Investment Company Act.
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73
Advisor Class Plan
As described in the prospectuses, the funds' Advisor Class shares are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through broker-dealers, banks, insurance companies, and
other financial intermediaries that provide various administrative, shareholder
and distribution services. The funds' distributor enters into contracts with
various banks, broker-dealers, insurance companies and other financial
intermediaries, with respect to the sale of the funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.
Certain recordkeeping and administrative services that are provided by the
funds' transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for Advisor Class
investors. In addition to such services, the financial intermediaries provide
various distribution services.
To enable the funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
advisor has reduced its management fee by 0.25% per annum with respect to the
Advisor Class shares, and the funds' Board of Directors has adopted the Advisor
Class Plan. Pursuant to the Advisor Class Plan, the Advisor Class pays the
funds' distributor 0.50% annually of the aggregate average daily assets of the
funds' Advisor Class shares, 0.25% of which is paid for certain ongoing
shareholder and administrative services (as described below) and 0.25% of which
is paid for distribution services, including past distribution services (as
described below). This payment is fixed at 0.50% and is not based on expenses
incurred by the distributor. During the fiscal year ended October 31, 2005, the
aggregate amount of fees paid under the Advisor Class Plan was:
Balanced $83,218
Capital Value $62,936
Growth $418,752
Heritage $83,976
Select $129,314
Ultra $3,569,776
Vista $783,172
The distributor then makes these payments to the financial intermediaries
(including underwriters and broker-dealers, who may use some of the proceeds to
compensate sales personnel) who offer the Advisor Class shares for the services,
as described below. No portion of these payments is used by the distributor to
pay for advertising, printing costs or interest expenses.
Payments may be made for a variety of shareholder services, including, but not
limited to:
(a) receiving, aggregating and processing purchase, exchange and
redemption requests from beneficial owners (including contract owners of
insurance products that utilize the funds as underlying investment media)
of shares and placing purchase, exchange and redemption orders with the
funds' distributor;
(b) providing shareholders with a service that invests the assets of their
accounts in shares pursuant to specific or pre-authorized instructions;
(c) processing dividend payments from a fund on behalf of shareholders and
assisting shareholders in changing dividend options, account designations
and addresses;
(d) providing and maintaining elective services such as check writing and
wire transfer services;
(e) acting as shareholder of record and nominee for beneficial owners;
(f) maintaining account records for shareholders and/or other beneficial
owners;
(g) issuing confirmations of transactions;
(h) providing subaccounting with respect to shares beneficially owned by
customers of third parties or providing the information to a fund as
necessary for such subaccounting;
(i) preparing and forwarding investor communications from the funds (such
as proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to shareholders
and/or other beneficial owners; and
(j) providing other similar administrative and sub-transfer agency
services.
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74
Shareholder services do not include those activities and expenses that are
primarily intended to result in the sale of additional shares of the funds.
During the fiscal year ended October 31, 2005, the amount of fees paid under the
Advisor Class Plan for shareholder services was:
Balanced $41,609
Capital Value $31,468
Growth $209,376
Heritage $41,988
Select $64,657
Ultra $1,784,888
Vista $391,586
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of Advisor Class shares, which
services may include but are not limited to:
(a) the payment of sales commissions, on-going commissions and other
payments to brokers, dealers, financial institutions or others who sell
Advisor Class shares pursuant to selling agreements;
(b) compensation to registered representatives or other employees of the
distributor who engage in or support distribution of the funds' Advisor
Class shares;
(c) compensation to, and expenses (including overhead and telephone
expenses) of, the distributor;
(d) printing prospectuses, statements of additional information and
reports for other-than-existing shareholders;
(e) preparing, printing and distributing of sales literature and
advertising materials provided to the funds' shareholders and prospective
shareholders;
(f) receiving and answering correspondence from prospective shareholders,
including distributing prospectuses, statements of additional information,
and shareholder reports;
(g) providing facilities to answer questions from prospective shareholders
about fund shares;
(h) complying with federal and state securities laws pertaining to the
sale of fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the
distribution of fund shares;
(k) organizing and conducting of sales seminars and payments in the form
of transactional and compensation or promotional incentives;
(l) profit on the foregoing;
(m) paying service fees for the provision of personal, continuing services
to investors, as contemplated by the Conduct Rules of the NASD; and
(n) such other distribution and services activities as the advisor
determines may be paid for by the funds pursuant to the terms of the
agreement between the corporation and the funds' distributor and in
accordance with Rule 12b-1 of the Investment Company Act.
During the fiscal year ended October 31, 2005, the amount of fees paid under the
Advisor Class Plan for distribution services was:
Balanced $41,609
Capital Value $31,468
Growth $209,376
Heritage $41,988
Select $64,657
Ultra $1,784,888
Vista $391,586
Sales Charges
The sales charges applicable to the A, B and C Classes of the funds are
described in the prospectuses for those classes in the section titled INVESTING
THROUGH A FINANCIAL INTERMEDIARY. Shares of the A Class are subject to an
initial sales charge, which declines as the amount of the purchase increases
pursuant to the schedule set forth in the prospectus.
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75
This charge may be waived in the following situations due to sales efficiencies
and competitive considerations:
* Qualified retirement plan purchases
* Certain individual retirement account rollovers
* Purchases by registered representatives and other employees of certain
financial intermediaries (and their immediate family members) having sales
agreements with the advisor or the distributor
* Wrap accounts maintained for clients of certain financial intermediaries
who have entered into agreements with American Century
* Purchases by current and retired employees of American Century and their
immediate family members (spouses and children under age 21) and trusts or
qualified retirement plans established by those persons
* Purchases by certain other investors that American Century deems
appropriate, including but not limited to current or retired directors,
trustees and officers of funds managed by the advisor and trusts and
qualified retirement plans established by those persons
There are several ways to reduce the sales charges applicable to a purchase of A
Class shares. These methods are described in the relevant prospectuses. You or
your financial advisor must indicate at the time of purchase that you intend to
take advantage of one of these reductions.
Shares of the A, B and C Classes are subject to a contingent deferred sales
charge (CDSC) upon redemption of the shares in certain circumstances. The
specific charges and when they apply are described in the relevant prospectuses.
The CDSC may be waived for certain redemptions by some shareholders, as
described in the prospectuses.
An investor may terminate his relationship with an intermediary at any time. If
the investor does not establish a relationship with a new intermediary and
transfer any accounts to that new intermediary, such accounts may be exchanged
to the Investor Class of the fund, if such class is available. The investor will
be the shareholder of record of such accounts. In this situation, any applicable
CDSCs will be charged when the exchange is made.
No CDSCs were paid for the A Class of shares in the fiscal year ended October
31, 2005.
The aggregate CDSC paid to the distributor for the B Class shares in the fiscal
year ended October 31, 2005, were Capital Growth, $975; Select, $8,043 and New
Opportunities II, $1,671.
The aggregate CDSC paid to the distributor for the C Class shares in the fiscal
year ended October 31, 2005 were Growth, $136; Select, $937; Vista, $1,164;
Capital Growth, $6; Fundamental Equity, $27; New Opportunities II, $1,496;
Ultra; $1,808; and Heritage, $58.
Payments to Dealers
The funds' distributor expects to pay sales commissions to the financial
intermediaries who sell A, B and/or C Class shares of the fund at the time of
such sales. Payments for A Class shares will be as follows:
PURCHASE AMOUNT DEALER CONCESSION
--------------------------------------------------------------------------------
LESS THAN $50,000 5.00%
--------------------------------------------------------------------------------
$50,000 - $99,999 4.00%
--------------------------------------------------------------------------------
$100,000 - $249,999 3.25%
--------------------------------------------------------------------------------
$250,000 - $499,999 2.00%
--------------------------------------------------------------------------------
$500,000 - $999,999 1.75%
--------------------------------------------------------------------------------
$1,000,000 - $3,999,999 1.00%
--------------------------------------------------------------------------------
$4,000,000 - $9,999,999 0.50%
--------------------------------------------------------------------------------
GREATER THAN $10,000,000 0.25%
--------------------------------------------------------------------------------
No concession will be paid on purchases by qualified retirement plans. Payments
will equal 4.00% of the purchase price of B Class shares and 1.00% of the
purchase price of the C Class
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76
shares sold by the intermediary. The distributor will retain the 12b-1 fee paid
by the C Class of funds for the first 12 months after the shares are purchased.
This fee is intended in part to permit the distributor to recoup a portion of
on-going sales commissions to dealers plus financing costs, if any. Beginning
with the first day of the 13th month, the distributor will make the C Class
distribution and individual shareholder services fee payments described above to
the financial intermediaries involved on a quarterly basis. In addition, B and C
Class purchases and A Class purchases greater than $1,000,000 are subject to a
CDSC as described in the prospectuses.
From time to time, the distributor may provide additional payments to dealers,
including but not limited to payment assistance for conferences and seminars,
provision of sales or training programs for dealer employees and/or the public
(including, in some cases, payment for travel expenses for registered
representatives and other dealer employees who participate), advertising and
sales campaigns about a fund or funds, and assistance in financing
dealer-sponsored events. Other payments may be offered as well, and all such
payments will be consistent with applicable law, including the then-current
rules of the National Association of Securities Dealers, Inc. Such payments will
not change the price paid by investors for shares of the funds.
BUYING AND SELLING FUND SHARES
Information about buying, selling, exchanging and, if applicable, converting
fund shares is contained in the funds' prospectuses. The prospectuses are
available to investors without charge and may be obtained by calling us.
VALUATION OF A FUND'S SECURITIES
All classes of the funds except the A Class are offered at their net asset
value, as described below. The A Class of the funds are offered at their public
offering price, which is the net asset value plus the appropriate sales charge.
This calculation may be expressed as a formula:
Offering Price = Net Asset Value/(1 - Sales Charge as a % of Offering Price)
For example, if the net asset value of a fund's A Class shares is $5.00, the
public offering price would be $5/(1-5.75%) = $5.31.
Each fund's net asset value per share (NAV) is calculated as of the close of
business of the New York Stock Exchange (the Exchange) each day the Exchange is
open for business. The Exchange usually closes at 4 p.m. Eastern time. The
Exchange typically observes the following holidays: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. Although the funds expect
the same holidays to be observed in the future, the Exchange may modify its
holiday schedule at any time.
Each fund's NAV is calculated by adding the value of all portfolio securities
and other assets, deducting liabilities and dividing the result by the number of
shares outstanding. Expenses and interest earned on portfolio securities are
accrued daily.
The portfolio securities of each fund that are listed or traded on a domestic
securities exchange are valued at the last sale price on that exchange, except
as otherwise noted. Portfolio securities primarily traded on foreign securities
exchanges generally are valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or if
local convention or regulation so provides, the mean of the latest bid and asked
prices is used. Depending on local convention or regulation, securities traded
over-the-counter are priced at the mean of the latest bid and asked prices, the
last sale price, or the official closing price. When market quotations are not
readily available, securities and other assets are valued at fair value as
determined in accordance with procedures adopted by the Board of Directors.
Debt securities not traded on a principal securities exchange are valued through
valuations obtained from a commercial pricing service or at the most recent mean
of the bid and asked prices provided by investment dealers in accordance with
procedures established by the Board of Directors.
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77
Because there are hundreds of thousands of municipal issues outstanding, and the
majority of them do not trade daily, the prices provided by pricing services for
these types of securities are generally determined without regard to bid or last
sale prices. In valuing securities, the pricing services generally take into
account institutional trading activity, trading in similar groups of securities,
and any developments related to specific securities. The methods used by the
pricing service and the valuations so established are reviewed by the advisor
under the general supervision of the Board of Directors. There are a number of
pricing services available, and the advisor, on the basis of ongoing evaluation
of these services, may use other pricing services or discontinue the use of any
pricing service in whole or in part.
Securities maturing within 60 days of the valuation date may be valued at cost,
plus or minus any amortized discount or premium, unless the directors determine
that this would not result in fair valuation of a given security. Other assets
and securities for which quotations are not readily available are valued in good
faith at their fair value using methods approved by the Board of Directors.
The value of an exchange-traded foreign security is determined in its national
currency as of the close of trading on the foreign exchange on which it is
traded or as of the close of business on the New York Stock Exchange, if that is
earlier. That value is then translated to dollars at the prevailing foreign
exchange rate.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed at various times before the close
of business on each day that the New York Stock Exchange is open. If an event
were to occur after the value of a security was established, but before the net
asset value per share was determined, that was likely to materially change the
net asset value, then that security would be valued at fair value as determined
in accordance with procedures adopted by the Board of Directors.
Trading of these securities in foreign markets may not take place on every day
that the Exchange is open. In addition, trading may take place in various
foreign markets and on some electronic trading networks on Saturdays or on other
days when the Exchange is not open and on which the funds' net asset values are
not calculated. Therefore, such calculations do not take place contemporaneously
with the determination of the prices of many of the portfolio securities used in
such calculation, and the value of the funds' portfolios may be affected on days
when shares of the funds may not be purchased or redeemed.
TAXES
FEDERAL INCOME TAX
Each fund intends to qualify annually as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). By so
qualifying, a fund should be exempt from federal income taxes to the extent that
it distributes substantially all of its net investment income and net realized
capital gains (if any) to investors. If a fund fails to qualify as a regulated
investment company, it will be liable for taxes, significantly reducing its
distributions to investors and eliminating investors' ability to treat
distributions received from the funds in the same manner in which they were
realized by the funds.
If fund shares are purchased through taxable accounts, distributions of net
investment income and net short-term capital gains are taxable to you as
ordinary income, unless they are designated as qualified dividend income and you
meet a minimum required holding period with respect to your shares of a fund, in
which case such distributions are taxed as long-term capital gains. Qualified
dividend income is a dividend received by a fund from the stock of a domestic or
qualifying foreign corporation, provided that the fund has held the stock for a
required holding period. The required holding period for qualified dividend
income is met if the underlying shares are held more than 60 days in the 121-day
period beginning 60 days prior to the ex-dividend date. Dividends received by
the funds on shares of stock of domestic corporations may qualify for the 70%
dividends-received deduction to the extent that the fund held those shares for
more than 45 days.
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78
Distributions from gains on assets held by the funds longer than 12 months are
taxable as long-term gains regardless of the length of time you have held your
shares in the fund. If you purchase shares in the fund and sell them at a loss
within six months, your loss on the sale of those shares will be treated as a
long-term capital loss to the extent of any long-term capital gains dividend you
received on those shares.
Dividends and interest received by a fund on foreign securities may give rise to
withholding and other taxes imposed by foreign countries. However, tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. Foreign countries generally do not impose taxes on capital
gains with respect to investments by non-resident investors. Any foreign taxes
paid by a fund will reduce its dividend distributions to investors.
If more than 50% of the value of a fund's total assets at the end of its fiscal
year consists of securities of foreign corporations, the fund may qualify for
and make an election with the Internal Revenue Service with respect to such
fiscal year so that fund shareholders may be able to claim a foreign tax credit
in lieu of a deduction for foreign income taxes paid by the fund. If such an
election is made, the foreign taxes paid by the fund will be treated as income
received by you. In order for you to utilize the foreign tax credit, you must
have held your shares for 16 days or more during the 31-day period, beginning 15
days prior to the ex-dividend date for the mutual fund shares. The mutual fund
must meet a similar holding period requirement with respect to foreign
securities to which a dividend is attributable. Any portion of the foreign tax
credit that is ineligible as a result of the fund not meeting the holding period
requirement will be deducted in computing net investment income.
If a fund purchases the securities of certain foreign investment funds or trusts
called passive foreign investment companies (PFIC), capital gains on the sale of
such holdings will be deemed ordinary income regardless of how long the fund
holds the investment. The fund also may be subject to corporate income tax and
an interest charge on certain dividends and capital gains earned from these
investments, regardless of whether such income and gains are distributed to
shareholders. In the alternative, the fund may elect to recognize cumulative
gains on such investments as of the last day of its fiscal year and distribute
them to shareholders. Any distribution attributable to a PFIC is characterized
as ordinary income.
As of October 31, 2005, the funds in the table below had the following capital
loss carryovers. When a fund has a capital loss carryover, it does not make
capital gains distributions until the loss has been offset or expired.
FUND 2009 2010 2011 2012 2013
--------------------------------------------------------------------------------------
Balanced - - - - -
--------------------------------------------------------------------------------------
Capital - - - ($28,366) ($38,008)
Growth
--------------------------------------------------------------------------------------
Capital Value - - - - -
--------------------------------------------------------------------------------------
Focused - - - - -
Growth
--------------------------------------------------------------------------------------
Fundamental - - - - -
Equity
--------------------------------------------------------------------------------------
Giftrust ($267,748,116) ($138,461,916) ($6,240,451) - -
--------------------------------------------------------------------------------------
Growth - ($221,736,446) ($1,033,165,010) - -
--------------------------------------------------------------------------------------
Heritage - - - - -
--------------------------------------------------------------------------------------
Mid Cap - - - - -
Growth(1)
--------------------------------------------------------------------------------------
New ($118,115,810) ($37,698,543) - - -
Opportunities
--------------------------------------------------------------------------------------
New - - - - -
Opportunities
II
--------------------------------------------------------------------------------------
Select - ($273,611,570) - - -
--------------------------------------------------------------------------------------
Small Cap - - - - -
Growth(1)
--------------------------------------------------------------------------------------
Ultra - ($255,914,198) ($181,261,147) - -
--------------------------------------------------------------------------------------
Veedot ($59,765,362) ($32,317,452) - - -
--------------------------------------------------------------------------------------
Vista - ($69,515,196) - - -
--------------------------------------------------------------------------------------
(1) AS OF MARCH 31, 2005, THE FISCAL YEAR END FOR THE PREDECESSOR FUND.
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79
If you have not complied with certain provisions of the Internal Revenue Code
and Regulations, either American Century or your financial intermediary is
required by federal law to withhold and remit to the IRS the applicable federal
withholding rate of reportable payments (which may include dividends, capital
gains distributions and redemption proceeds). Those regulations require you to
certify that the Social Security number or tax identification number you provide
is correct and that you are not subject to withholding for previous
under-reporting to the IRS. You will be asked to make the appropriate
certification on your account application. Payments reported by us to the IRS
that omit your Social Security number or tax identification number will subject
us to a non-refundable penalty of $50, which will be charged against your
account if you fail to provide the certification by the time the report is
filed.
A redemption of shares of a fund (including a redemption made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
you generally will recognize gain or loss in an amount equal to the difference
between the basis of the shares and the amount received. If a loss is realized
on the redemption of fund shares, the reinvestment in additional fund shares
within 30 days before or after the redemption may be subject to the "wash sale"
rules of the Code, resulting in a postponement of the recognition of such loss
for federal income tax purposes.
STATE AND LOCAL TAXES
Distributions by the funds also may be subject to state and local taxes, even if
all or a substantial part of such distributions are derived from interest on
U.S. government obligations which, if you received such interest directly, would
be exempt from state income tax. However, most but not all states allow this tax
exemption to pass through to fund shareholders when a fund pays distributions to
its shareholders. You should consult your tax advisor about the tax status of
such distributions in your state.
The information above is only a summary of some of the tax considerations
affecting the funds and their shareholders. No attempt has been made to discuss
individual tax consequences. A prospective investor should consult with his or
her tax advisors or state or local tax authorities to determine whether the
funds are suitable investments.
FINANCIAL STATEMENTS
The financial statements for Ultra Fund, Vista Fund, Balanced Fund, Capital
Growth Fund, Capital Value Fund, Giftrust Fund, Growth Fund, Heritage Fund, New
Opportunities Fund, New Opportunities II Fund, Select Fund, Veedot Fund,
Fundamental Equity Fund, and Focused Growth Fund have been audited by Deloitte &
Touche LLP, independent registered public accounting firm. The Report of
Independent Registered Public Accounting Firm and the financial statements
included in the annual reports of these funds for the fiscal year ended October
31, 2005, are incorporated herein by reference.
The financial statements for Mid Cap Growth and Small Cap Growth for the fiscal
years ended March 31, 2005, March 31, 2004, March 31, 2003, March 31, 2002 and
March 31, 2001 have been audited by PricewaterhouseCoopers LLP, independent
registered public accounting firm. This information reflects financial results
of the Mason Street Aggressive Growth Fund, for which Mid Cap Growth is the
post-reorganization successor, and the Mason Street Small Cap Growth Fund, for
which Small Cap Growth is the post-reorganization successor. The Report of
Independent Registered Public Accounting Firm to the financial statements
included in the Mason Street Funds Inc. Annual Report for the fiscal year ended
March 31, 2005 are incorporated herein by reference.
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EXPLANATION OF FIXED-INCOME
SECURITIES RATINGS
As described in the prospectuses, some of the funds will invest in fixed-income
securities. Those investments, however, are subject to certain credit quality
restrictions, as noted in the prospectuses. The following is a summary of the
rating categories referenced in the prospectus.
RATINGS OF CORPORATE DEBT SECURITIES
--------------------------------------------------------------------------------
STANDARD & POOR'S
--------------------------------------------------------------------------------
AAA This is the highest rating assigned by S&P to a debt obligation. It
indicates an extremely strong capacity to pay interest and repay
principal.
--------------------------------------------------------------------------------
AA Debt rated in this category is considered to have a very strong
capacity to pay interest and repay principal. It differs from the
highest-rated obligations only in small degree.
--------------------------------------------------------------------------------
A Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
--------------------------------------------------------------------------------
BBB Debt rated in this category is regarded as having an adequate
capacity to pay interest and repay principal. While it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this
category than in higher-rated categories. Debt rated below BBB is
regarded as having significant speculative characteristics.
--------------------------------------------------------------------------------
BB Debt rated in this category has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions that could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating also is used for debt
subordinated to senior debt that is assigned an actual or implied
BBB rating.
--------------------------------------------------------------------------------
B Debt rated in this category is more vulnerable to nonpayment than
obligations rated BB, but currently has the capacity to pay interest
and repay principal. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to pay
interest and repay principal.
--------------------------------------------------------------------------------
CCC Debt rated in this category is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B
or B- rating.
--------------------------------------------------------------------------------
CC Debt rated in this category is currently highly vulnerable to
nonpayment. This rating category is also applied to debt
subordinated to senior debt that is assigned an actual or implied
CCC rating.
--------------------------------------------------------------------------------
C The rating C typically is applied to debt subordinated to senior debt,
and is currently highly vulnerable to nonpayment of interest and
principal. This rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action taken, but debt
service payments are being continued.
--------------------------------------------------------------------------------
D Debt rated in this category is in default. This rating is used when
interest payments or principal repayments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
It also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if debt service
payments are jeopardized.
--------------------------------------------------------------------------------
------
81
MOODY'S INVESTORS SERVICE, INC.
--------------------------------------------------------------------------------
Aaa This is the highest rating assigned by Moody's to a debt
obligation. It indicates an extremely strong capacity to pay interest
and repay principal.
--------------------------------------------------------------------------------
Aa Debt rated in this category is considered to have a very strong
capacity to pay interest and repay principal and differs from Aaa
issues only in a small degree. Together with Aaa debt, it
comprises what are generally known as high-grade bonds.
--------------------------------------------------------------------------------
A Debt rated in this category possesses many favorable investment
attributes and is to be considered as upper-medium-grade debt.
Although capacity to pay interest and repay principal are
considered adequate, it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
--------------------------------------------------------------------------------
Baa Debt rated in this category is considered as medium-grade debt
having an adequate capacity to pay interest and repay principal.
While it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories. Debt
rated below Baa is regarded as having significant speculative
characteristics.
--------------------------------------------------------------------------------
Ba Debt rated Ba has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or
economic conditions that could lead to inadequate capacity to
meet timely interest and principal payments. Often the protection
of interest and principal payments may be very moderate.
--------------------------------------------------------------------------------
B Debt rated B has a greater vulnerability to default, but currently
has the capacity to meet financial commitments. Assurance of
interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small. The B
rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied Ba or Ba3 rating.
--------------------------------------------------------------------------------
Caa Debt rated Caa is of poor standing, has a currently identifiable
vulnerability to default, and is dependent upon favorable
business, financial and economic conditions to meet timely
payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest. The Caa rating is also
used for debt subordinated to senior debt that is assigned an
actual or implied B or B3 rating.
--------------------------------------------------------------------------------
Ca Debt rated in this category represent obligations that are
speculative in a high degree. Such debt is often in default or has
other marked shortcomings.
--------------------------------------------------------------------------------
C This is the lowest rating assigned by Moody's, and debt rated C
can be regarded as having extremely poor prospects of attaining
investment standing.
--------------------------------------------------------------------------------
FITCH INVESTORS SERVICE, INC.
--------------------------------------------------------------------------------
AAA Debt rated in this category has the lowest expectation of credit
risk. Capacity for timely payment of financial commitments is
exceptionally strong and highly unlikely to be adversely affected
by foreseeable events.
--------------------------------------------------------------------------------
AA Debt rated in this category has a very low expectation of credit
risk. Capacity for timely payment of financial commitments is very
strong and not significantly vulnerable to foreseeable events.
--------------------------------------------------------------------------------
A Debt rated in this category has a low expectation of credit risk.
Capacity for timely payment of financial commitments is strong,
but may be more vulnerable to changes in circumstances or in
economic conditions than debt rated in higher categories.
--------------------------------------------------------------------------------
BBB Debt rated in this category currently has a low expectation of
credit risk and an adequate capacity for timely payment of
financial commitments. However, adverse changes in
circumstances and in economic conditions are more likely to
impair this capacity. This is the lowest investment grade category.
--------------------------------------------------------------------------------
BB Debt rated in this category has a possibility of developing credit
risk, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available
to allow financial commitments to be met. Securities rated in this
category are not investment grade.
--------------------------------------------------------------------------------
------
82
FITCH INVESTORS SERVICE, INC.
--------------------------------------------------------------------------------
B Debt rated in this category has significant credit risk, but
a limited margin of safety remains. Financial commitments
currently are being met, but capacity for continued
debt service payments is contingent upon a sustained,
favorable business and economic environment.
--------------------------------------------------------------------------------
CCC, CC, C Debt rated in these categories has a real possibility for
default. Capacity for meeting financial commitments
depends solely upon sustained, favorable business or
economic developments. A CC rating indicates that default of
some kind appears probable; a C rating signals
imminent default.
--------------------------------------------------------------------------------
DDD, DD, D The ratings of obligations in these categories are based
on their prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be
estimated with any precision, the following serve as general
guidelines. DDD obligations have the highest potential for
recovery, around 90%-100% of outstanding amounts and
accrued interest. DD indicates potential recoveries in the
range of 50%-90% and D the lowest recovery potential,
i.e., below 50%.
Entities rated in these categories have defaulted on some
or all of their obligations. Entities rated DDD have the
highest prospect for resumption of performance or
continued operation with or without a formal reorganization
process. Entities rated DD and D are generally undergoing
a formal reorganization or liquidation process; those rated
DD are likely to satisfy a higher portion of their outstanding
obligations, while entities rated D have a poor prospect of
repaying all obligations.
--------------------------------------------------------------------------------
To provide more detailed indications of credit quality, the Standard & Poor's
ratings from AA to CCC may be modified by the addition of a plus or minus sign
to show relative standing within these major rating categories. Similarly,
Moody's adds numerical modifiers (1,2,3) to designate relative standing within
its major bond rating categories. Fitch, Inc. also rates bonds and uses a
ratings system that is substantially similar to that used by Standard & Poor's.
COMMERCIAL PAPER RATINGS
--------------------------------------------------------------------------------
S&P MOODY'S DESCRIPTION
--------------------------------------------------------------------------------
A-1 Prime-1 This indicates that the degree of safety
(P-1) regarding timely payment is strong.
Standard & Poor's rates those issues
determined to possess extremely strong
safety characteristics as A-1+.
--------------------------------------------------------------------------------
A-2 Prime-2 Capacity for timely payment on commercial
(P-2) paper is satisfactory, but the relative degree
of safety is not as high as for issues
designated A-1. Earnings trends and
coverage ratios, while sound, will be more
subject to variation. Capitalization
characteristics, while still appropriated, may
be more affected by external conditions.
Ample alternate liquidity is maintained.
--------------------------------------------------------------------------------
A-3 Prime-3 Satisfactory capacity for timely repayment.
(P-3) Issues that carry this rating are somewhat
more vulnerable to the adverse changes in
circumstances than obligations carrying the
higher designations.
--------------------------------------------------------------------------------
NOTE RATINGS
--------------------------------------------------------------------------------
S&P MOODY'S DESCRIPTION
--------------------------------------------------------------------------------
SP-1 MIG-1; VMIG-1 Notes are of the highest quality enjoying
strong protection from established cash
flows of funds for their servicing or from
established and broad-based access to the
market for refinancing, or both.
--------------------------------------------------------------------------------
SP-2 MIG-2; VMIG-2 Notes are of high quality, with margins of
protection ample, although not so large as in
the preceding group.
--------------------------------------------------------------------------------
SP-3 MIG-3; VMIG-3 Notes are of favorable quality, with all
security elements accounted for, but lacking
the undeniable strength of the preceding
grades. Market access for refinancing, in
particular, is likely to be less well established.
--------------------------------------------------------------------------------
SP-4 MIG-4; VMIG-4 Notes are of adequate quality, carrying
specific risk but having protection and not
distinctly or predominantly speculative.
--------------------------------------------------------------------------------
------
83
NOTES
------
84
MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS
Annual and Semiannual Reports
Annual and semiannual reports contain more information about the funds'
investments and the market conditions and investment strategies that
significantly affected the funds' performance during the most recent fiscal
period.
You can receive a free copy of the annual and semiannual reports, and ask
questions about the funds and your accounts, online at americancentury.com, by
contacting American Century at the addresses or telephone numbers listed below
or by contacting your financial intermediary.
If you own or are considering purchasing fund shares through
* an employer-sponsored retirement plan
* a bank
* a broker-dealer
* an insurance company
* another financial intermediary
you can receive the annual and semiannual reports directly from them.
You also can get information about the funds from the Securities and Exchange
Commission (SEC). The SEC charges a duplicating fee to provide copies of this
information.
IN PERSON SEC Public Reference Room
Washington, D.C.
Call 202-942-8090 for location and hours.
ON THE INTERNET * EDGAR database at sec.gov
* By email request at publicinfo@sec.gov
BY MAIL SEC Public Reference Section
Washington, D.C. 20549-0102
Investment Company Act File No. 811-0816
AMERICAN CENTURY INVESTMENTS
americancentury.com
Banks and Trust Companies, Broker-Dealers,
Self-Directed Retail Investors Financial Professionals, Insurance Companies
P.O. Box 419200 P.O. Box 419786
Kansas City, Missouri 64141-6200 Kansas City, Missouri 64141-6786
1-800-345-2021 or 816-531-5575 1-800-345-6488
SH-SAI-48421 0604
AMERICAN CENTURY MUTUAL FUNDS, INC.
PART C OTHER INFORMATION
Item 23. Exhibits
(a) (1) Articles of Incorporation of Twentieth Century Investors, Inc.,
dated June 26, 1990 (filed electronically as Exhibit b1a to Post-Effective
Amendment No. 73 to the Registration Statement of the Registrant on February 29,
1996, File No. 2-14213, and incorporated herein by reference).
(2) Articles of Amendment of Twentieth Century Investors, Inc., dated
November 19, 1990 (filed electronically as Exhibit b1b to Post-Effective
Amendment No. 73 to the Registration Statement of the Registrant on February 29,
1996, File No. 2-14213, and incorporated herein by reference).
(3) Articles of Merger of Twentieth Century Investors, Inc., a
Maryland corporation and Twentieth Century Investors, Inc., a Delaware
corporation, dated February 22, 1991 (filed electronically as Exhibit b1c to
Post-Effective Amendment No. 73 to the Registration Statement of the Registrant
on February 29, 1996, File No. 2-14213, and incorporated herein by reference).
(4) Articles of Amendment of Twentieth Century Investors, Inc., dated
August 10, 1993 (filed electronically as Exhibit b1d to Post-Effective Amendment
No. 73 to the Registration Statement of the Registrant on February 29, 1996,
File No. 2-14213, and incorporated herein by reference).
(5) Articles Supplementary of Twentieth Century Investors, Inc.,
dated September 2, 1993 (filed electronically as Exhibit b1e to Post-Effective
Amendment No. 73 to the Registration Statement of the Registrant on February 29,
1996, File No. 2-14213, and incorporated herein by reference).
(6) Articles Supplementary of Twentieth Century Investors, Inc.,
dated April 24, 1995 (filed electronically as Exhibit b1f to Post-Effective
Amendment No. 73 to the Registration Statement of the Registrant on February 29,
1996, File No. 2-14213, and incorporated herein by reference).
(7) Articles Supplementary of Twentieth Century Investors, Inc.,
dated October 11, 1995 (filed electronically as Exhibit b1g to Post-Effective
Amendment No. 73 to the Registration Statement of the Registrant on February 29,
1996, File No. 2-14213, and incorporated herein by reference).
(8) Articles Supplementary of Twentieth Century Investors, Inc.,
dated January 22, 1996 (filed electronically as Exhibit b1h to Post-Effective
Amendment No. 73 to the Registration Statement of the Registrant on February 29,
1996, File No. 2-14213, and incorporated herein by reference).
(9) Articles Supplementary of Twentieth Century Investors, Inc.,
dated March 11, 1996 (filed electronically as Exhibit b1i to Post-Effective
Amendment No. 75 to the Registration Statement of the Registrant on June 14,
1996, File No. 2-14213, and incorporated herein by reference).
(10) Articles Supplementary of Twentieth Century Investors, Inc.,
dated September 9, 1996 (filed electronically as Exhibit a10 to Post-Effective
Amendment No. 85 to the Registration Statement of the Registrant on September 1,
1999, File No. 2-14213, and incorporated herein by reference).
(11) Articles of Amendment of Twentieth Century Investors, Inc., dated
December 2, 1996 (filed electronically as Exhibit b1j to Post-Effective
Amendment No. 76 to the Registration Statement of the Registrant on February 28,
1997, File No. 2-14213, and incorporated herein by reference).
(12) Articles Supplementary of American Century Mutual Funds, Inc.,
dated December 2, 1996 (filed electronically as Exhibit b1k to Post-Effective
Amendment No. 76 to the Registration Statement of the Registrant on February 28,
1997, File No. 2-14213, and incorporated herein by reference).
(13) Articles Supplementary of American Century Mutual Funds, Inc.,
dated July 28, 1997 (filed electronically as Exhibit b1l to Post-Effective
Amendment No. 78 to the Registration Statement of the Registrant on February 26,
1998, File No. 2-14213, and incorporated herein by reference).
(14) Articles Supplementary of American Century Mutual Funds, Inc.,
dated November 28, 1997 (filed electronically as Exhibit a13 to Post-Effective
Amendment No. 83 to the Registration Statement of the Registrant on February 26,
1999, File No. 2-14213, and incorporated herein by reference).
(15) Certificate of Correction to Articles Supplementary of American
Century Mutual Funds, Inc., dated December 18, 1997 (filed electronically as
Exhibit a14 to Post-Effective Amendment No. 83 to the Registration Statement of
the Registrant on February 26, 1999, File No. 2-14213, and incorporated herein
by reference).
(16) Articles Supplementary of American Century Mutual Funds, Inc.,
dated December 18, 1997 (filed electronically as Exhibit b1m to Post-Effective
Amendment No. 78 to the Registration Statement of the Registrant on February 26,
1998, File No. 2-14213, and incorporated herein by reference).
(17) Articles Supplementary of American Century Mutual Funds, Inc.,
dated January 25, 1999 (filed electronically as Exhibit a16 to Post-Effective
Amendment No. 83 to the Registration Statement of the Registrant on February 26,
1999, File No. 2-14213, and incorporated herein by reference).
(18) Articles Supplementary of American Century Mutual Funds, Inc.,
dated February 16, 1999 (filed electronically as Exhibit a17 to Post-Effective
Amendment No. 83 to the Registration Statement of the Registrant on February 26,
1999, File No. 2-14213, and incorporated herein by reference).
(19) Articles Supplementary of American Century Mutual Funds, Inc.,
dated August 2, 1999 (filed electronically as Exhibit a19 to Post-Effective
Amendment No. 89 to the Registration Statement of the Registrant on December 1,
2000, File No. 2-14213, and incorporated herein by reference).
(20) Articles Supplementary of American Century Mutual Funds, Inc.,
dated November 19, 1999 (filed electronically as Exhibit a19 to Post-Effective
Amendment No. 87 to the Registration Statement of the Registrant on November 29,
1999, File No. 2-14213, and incorporated herein by reference).
(21) Articles Supplementary of American Century Mutual Funds, Inc.,
dated March 5, 2001 (filed electronically as Exhibit a21 to Post-Effective
Amendment No. 93 to the Registration Statement of the Registrant on April 20,
2001, File No. 2-14213, and incorporated herein by reference).
(22) Certificate of Correction to Articles Supplementary, dated April
3, 2001 (filed electronically as Exhibit a22 to Post-Effective Amendment No. 93
to the Registration Statement of the Registrant on April 20, 2001, File No.
2-14213, and incorporated herein by reference).
(23) Articles Supplementary of American Century Mutual Funds, Inc.,
dated June 14, 2002 (filed electronically as Exhibit a23 to Post-Effective
Amendment No. 98 to the Registration Statement of the Registrant on October 10,
2002, File No. 2-14213, and incorporated herein by reference).
(24) Certificate of Correction to Articles Supplementary of American
Century Mutual Funds, Inc., dated June 25, 2002 (filed electronically as Exhibit
a24 to Post-Effective Amendment No. 98 to the Registration Statement of the
Registrant on October 10, 2002, File No. 2-14213, and incorporated herein by
reference).
(25) Articles Supplementary of American Century Mutual Funds, Inc.,
dated February 12, 2003 (filed electronically as Exhibit a25 to Post-Effective
Amendment No. 100 to the Registration Statement of the Registrant on February
28, 2003, File No. 2-14213, and incorporated herein by reference).
(26) Certificate of Correction to Articles Supplementary of American
Century Mutual Funds, Inc., dated February 28, 2003 (filed electronically as
Exhibit a26 to Post-Effective Amendment No. 101 to the Registration Statement of
the Registrant on August 28, 2003, File No. 2-14213, and incorporated herein by
reference).
(27) Articles Supplementary of American Century Mutual Funds, Inc.,
dated August 14, 2003 (filed electronically as Exhibit a27 to Post-Effective
Amendment No. 102 to the Registration Statement of the Registrant on August 28,
2003, File No. 2-14213, and incorporated herein by reference).
(28) Articles Supplementary of American Century Mutual Funds, Inc.,
dated January 14, 2004 (filed electronically as Exhibit a28 to Post-Effective
Amendment No. 104 to the Registration Statement of the Registrant on February
26, 2004, File No. 2-14213, and incorporated herein by reference).
(29) Articles Supplementary of American Century Mutual Funds, Inc.,
dated November 17, 2004 (filed electronically as Exhibit a29 to Post-Effective
Amendment No. 106 to the Registration Statement of the Registrant on November
29, 2004, File No. 2-14213, and incorporated herein by reference).
(30) Articles Supplementary of American Century Mutual Funds, Inc.,
dated January 13, 2005 (filed electronically as Exhibit a30 to Post-Effective
Amendment No. 109 to the Registration Statement of the Registrant on February
25, 2005, File No. 2-14213, and incorporated herein by reference).
(31) Articles Supplementary of American Century Mutual Funds, Inc.,
dated June 22, 2005 (filed electronically as Exhibit a31 to Post-Effective
Amendment No. 111 to the Registration Statement of the Registrant on July 28,
2005, File No. 2-14213, and incorporated herein by reference).
(32) Articles Supplementary of American Century Mutual Funds, Inc.,
dated December 13, 2005 (filed electronically as Exhibit 1(ff) to the
Registration Statement on Form N-14 of the Registrant on December 22, 2005, File
No. 2-14213, and incorporated herein by reference).
(33) Articles Supplementary of American Century Mutual Funds, Inc.
dated March 15, 2006, are included herein.
(b) Amended and Restated By-laws, dated September 21, 2004 (filed
electronically as Exhibit b to Post-Effective Amendment No. 106 to the
Registration Statement of the Registrant on November 29, 2004, File No. 2-14213,
and incorporated herein by reference).
(c) Registrant hereby incorporates by reference, as though set forth
fully herein, Article Fifth, Article Seventh, and Article Eighth, of
Registrant's Articles of Incorporation, appearing as Exhibit (a)(1) herein and
Article Fifth of Registrant's Articles of Amendment, appearing as Exhibit (a)(4)
herein and Sections 3, 4, 5, 6, 7, 8, 9, 10, 11, 22, 25, 30, 31, 32, 33, 39, 40
and 51 of Registrant's Amended and Restated Bylaws, incorporated herein by
reference as Exhibit b hereto.
(d) (1) Amended and Restated Management Agreement with American Century
Investment Management, Inc., dated July 29, 2005 (filed electronically as
Exhibit d to Post-Effective Amendment No. 111 to the Registration Statement of
the Registrant on July 28, 2005, File No. 2-14213, and incorporated herein by
reference).
(2) Management Agreement with American Century Investment Management,
Inc., dated March 30, 2006, is included herein.
(3) Investment Subadvisory Agreement with Mason Street Advisors LLC,
dated March 30, 2006, is included herein.
(e) Amended and Restated Distribution Agreement with American Century
Investment Services, Inc., dated March 30, 2006 (filed electronically as Exhibit
e to Post-Effective Amendment No. 23 to the Registration Statement of American
Century Strategic Asset Allocations, Inc. on March 30, 2006, File No. 33-79482,
and incorporated herein by reference).
(f) Not Applicable.
(g) (1) Master Agreement with Commerce Bank, N.A., dated January 22, 1997
(filed electronically as Exhibit b8e to Post-Effective Amendment No. 76 to the
Registration Statement of the Registrant on February 28, 1997, File No. 2-14213,
and incorporated herein by reference).
(2) Global Custody Agreement with The Chase Manhattan Bank, dated
August 9, 1996 (filed electronically as Exhibit b8 to Post-Effective Amendment
No. 31 to the Registration Statement of American Century Government Income Trust
on February 7, 1997, File No. 2-99222, and incorporated herein by reference).
(3) Amendment to the Global Custody Agreement with The Chase
Manhattan Bank, dated December 9, 2000 (filed electronically as Exhibit g2 to
Pre-Effective Amendment No. 2 to the Registration Statement of American Century
Variable Portfolios II, Inc. on January 9, 2001, File No. 333-46922, and
incorporated herein by reference).
(4) Amendment No. 2 to the Global Custody Agreement between American
Century Investments and the JPMorgan Chase Bank, dated as of May 1, 2004 (filed
electronically as Exhibit g4 to Post-Effective Amendment No. 35 to the
Registration Statement of American Century Quantitative Equity Funds, Inc. on
April 29, 2004, File No. 33-19589, and incorporated herein by reference).
(5) Chase Manhattan Bank Custody Fee Schedule, dated October 19, 2000
(filed electronically as Exhibit g5 to Post-Effective Amendment No. 35 to the
Registration Statement of American Century Quantitative Equity Funds, Inc. on
April 29, 2004, File No. 33-19589, and incorporated herein by reference).
(6) Registered Investment Company Custody Agreement with Goldman,
Sachs & Co., dated February 6, 2006 (filed electronically as Exhibit g6 to
Post-Effective Amendment No. 114 to the Registration Statement of the Registrant
on February 28, 2006, File No. 2-14213, and incorporated herein by reference).
(7) Custodian and Investment Accounting Agreement with State Street
Bank and Trust Company, dated May 27, 2005 (filed electronically as Exhibit g6
to Post-Effective Amendment No. 27 to the Registration Statement of American
Century Investment Trust on May 27, 2005, File No. 33-65170, and incorporated
herein by reference).
(8) Amendment No. 1 to Custodian and Investment Accounting Agreement
with State Street Bank and Trust Company, effective September 30, 2005 (filed
electronically as Exhibit g8 to Post-Effective Amendment No. 41 to the
Registration Statement of American Century Quantitative Equity Funds, Inc. on
September 29, 2005, File No. 33-19589, and incorporated herein by reference).
(9) Amendment No. 2 to Custodian and Investment Accounting Agreement
with State Street Bank and Trust Company, effective March 31, 2006 (filed
electronically as Exhibit g9 to Post-Effective Amendment No. 32 to the
Registration Statement of American Century Investment Trust on March 31, 2006,
File No. 33-65170, and incorporated herein by reference).
(h) (1) Transfer Agency Agreement with Twentieth Century Services, Inc.,
dated March 1, 1991 (filed electronically as Exhibit 9 to Post-Effective
Amendment No. 76 to the Registration Statement of the Registrant on February 28,
1997, File No. 2-14213, and incorporated herein by reference).
(2) Credit Agreement with JPMorgan Chase Bank, as Administrative
Agent, dated December 17, 2003 (filed electronically as Exhibit h9 to
Post-Effective Amendment No. 39 to the Registration Statement of American
Century Target Maturities Trust on January 30, 2004, File No. 2-94608, and
incorporated herein by reference).
(3) Termination, Replacement and Restatement Agreement with JPMorgan
Chase Bank N.A., as Administrative Agent, dated December 14, 2005 (filed
electronically as Exhibit h13 to Post-Effective Amendment No. 40 to the
Registration Statement of American Century California Tax-Free and Municipal
Funds on December 29, 2005, File No. 2-82734, and incorporated herein by
reference).
(4) Customer Identification Program Reliance Agreement, dated August
26, 2004 (filed electronically as Exhibit h2 to Post-Effective Amendment No. 1
to the Registration Statement of American Century Asset Allocation Portfolios,
Inc. on September 1, 2004, File No. 333-116351, and incorporated herein by
reference).
(i) Opinion and Consent of Counsel, dated March 9, 2006 (filed
electronically as Exhibit i to the Registration Statement on Form N-14 of the
Registrant on March 9, 2006, File No. 2-14213, and incorporated herein by
reference).
(j) (1) Consent of Deloitte & Touche LLP, independent registered public
accounting firm, dated March 28, 2006, is included herein.
(2) Consent of PricewaterhouseCoopers LLP, independent registered
public accounting firm, dated March 28, 2006, is included herein.
(3) Power of Attorney, dated December 13, 2005 (filed electronically
as Exhibit j2 to Post-Effective Amendment No. 39 to the Registration Statement
of American Century World Mutual Funds, Inc. on December 14, 2005, File No.
33-39242, and incorporated herein by reference).
(4) Secretary's Certificate, dated December 13, 2005 (filed
electronically as Exhibit j3 to Post-Effective Amendment No. 39 to the
Registration Statement of American Century World Mutual Funds, Inc. on December
14, 2005, File No. 33-39242, and incorporated herein by reference).
(k) Not applicable.
(l) Not applicable.
(m) (1) Master Distribution and Shareholder Services Plan (Advisor
Class), dated September 3, 1996 (filed electronically as Exhibit b15a to
Post-Effective Amendment No. 9 to the Registration Statement of American Century
Capital Portfolios, Inc. on February 17, 1998, File No. 33-64872, and
incorporated herein by reference).
(2) Amendment No. 1 to the Master Distribution and Shareholder
Services Plan (Advisor Class), dated June 13, 1997 (filed electronically as
Exhibit b15b to Post-Effective Amendment No. 77 to the Registration Statement of
the Registrant on July 17, 1997, File No. 2-14213, and incorporated herein by
reference).
(3) Amendment No. 2 to the Master Distribution and Shareholder
Services Plan (Advisor Class), dated September 30, 1997 (filed electronically as
Exhibit b15c to Post-Effective Amendment No. 78 to the Registration Statement of
the Registrant on February 26, 1998, File No. 2-14213, and incorporated herein
by reference).
(4) Amendment No. 3 to the Master Distribution and Shareholder
Services Plan (Advisor Class), dated June 30, 1998 (filed electronically as
Exhibit b15e to Post-Effective Amendment No. 11 to the Registration Statement of
American Century Capital Portfolios, Inc. on June 26, 1998, File No. 33-64872,
and incorporated herein by reference).
(5) Amendment No. 4 to the Master Distribution and Shareholder
Services Plan (Advisor Class), dated November 13, 1998 (filed electronically as
Exhibit b15e to Post-Effective Amendment No. 12 to the Registration Statement of
American Century World Mutual Funds, Inc. on November 13, 1998, File No.
33-39242, and incorporated herein by reference).
(6) Amendment No. 5 to the Master Distribution and Shareholder
Services Plan (Advisor Class), dated February 16, 1999 (filed electronically as
Exhibit m6 to Post-Effective Amendment No. 83 to the Registration Statement of
the Registrant on February 26, 1999, File No. 2-14213, and incorporated herein
by reference).
(7) Amendment No. 6 to the Master Distribution and Shareholder
Services Plan (Advisor Class), dated July 30, 1999 (filed electronically as
Exhibit m7 to Post-Effective Amendment No. 16 to the Registration Statement of
American Century Capital Portfolios, Inc. on July 29, 1999, File No. 33-64872,
and incorporated herein by reference).
(8) Amendment No. 7 to the Master Distribution and Shareholder
Services Plan (Advisor Class), dated November 19, 1999 (filed electronically as
Exhibit m8 to Post-Effective Amendment No. 87 to the Registration Statement of
the Registrant on November 29, 1999, File No. 2-14213, and incorporated herein
by reference).
(9) Amendment No. 8 to the Master Distribution and Shareholder
Services Plan (Advisor Class), dated June 1, 2000 (filed electronically as
Exhibit m9 to Post-Effective Amendment No. 19 to the Registration Statement of
American Century World Mutual Funds, Inc. on May 24, 2000, File No. 33-39242,
and incorporated herein by reference).
(10) Amendment No. 9 to the Master Distribution and Shareholder
Services Plan (Advisor Class), dated April 30, 2001 (filed electronically as
Exhibit m10 to Post-Effective Amendment No. 24 to the Registration Statement of
American Century World Mutual Funds, Inc. on April 19, 2001, File No. 33-39242,
and incorporated herein by reference).
(11) Amendment No. 10 to the Master Distribution and Shareholder
Services Plan (Advisor Class), dated December 3, 2001 (filed electronically as
Exhibit m11 to Post-Effective Amendment No. 94 to the Registration Statement of
the Registrant on December 13, 2001, File No. 2-14213, and incorporated herein
by reference).
(12) Amendment No. 11 to the Master Distribution and Shareholder
Services Plan (Advisor Class), dated September 3, 2002 (filed electronically as
Exhibit m12 to Post-Effective Amendment No. 26 to the Registration Statement of
American Century World Mutual Funds, Inc. on October 1, 2002, File No. 33-39242,
and incorporated herein by reference).
(13) Amendment No. 12 to the Master Distribution and Shareholder
Services Plan (Advisor Class), dated August 1, 2004 (filed electronically as
Exhibit m13 to Post-Effective Amendment No. 32 to the Registration Statement of
American Century Capital Portfolios, Inc., on July 29, 2004, File No. 33-64872,
and incorporated herein by reference).
(14) Master Distribution and Individual Shareholder Services Plan (C
Class), dated March 1, 2001 (filed electronically as Exhibit m11 to
Post-Effective Amendment No. 24 to the Registration Statement of American
Century World Mutual Funds, Inc. on April 19, 2001, File No. 33-39242, and
incorporated herein by reference).
(15) Amendment No. 1 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated April 30, 2001 (filed electronically
as Exhibit m12 to Post-Effective Amendment No. 24 to the Registration Statement
of American Century World Mutual Funds, Inc. on April 19, 2001, File No.
33-39242, and incorporated herein by reference).
(16) Amendment No. 2 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated September 3, 2002 (filed
electronically as Exhibit m15 to Post-Effective Amendment No. 26 to the
Registration Statement of American Century World Mutual Funds, Inc. on October
1, 2002, File No. 33-39242, and incorporated herein by reference).
(17) Amendment No. 3 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated February 27, 2004 (filed
electronically as Exhibit m16 to Post-Effective Amendment No. 104 to the
Registration Statement of the Registrant on February 26, 2004, File No. 2-14213,
and incorporated herein by reference).
(18) Amendment No. 4 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated September 30, 2004 (filed
electronically as Exhibit m18 to Post-Effective Amendment No. 20 to the
Registration Statement of American Century Strategic Asset Allocations, Inc., on
September 29, 2004, File No. 33-79482, and incorporated herein by reference).
(19) Amendment No. 5 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated November 17, 2004 (filed
electronically as Exhibit m19 to Post-Effective Amendment No. 106 to the
Registration Statement of the Registrant on November 29, 2004, File No. 2-14213,
and incorporated herein by reference).
(20) Amendment No. 6 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated March 30, 2006 (filed electronically
as Exhibit m20 to Post-Effective Amendment No. 23 to the Registration Statement
of American Century Strategic Asset Allocations, Inc. on March 30, 2006, File
No. 33-79482, and incorporated herein by reference).
(21) Master Distribution and Individual Shareholder Services Plan (A
Class), dated September 3, 2002 (filed electronically as Exhibit m6 to
Post-Effective Amendment No. 34 to the Registration Statement of American
Century California Tax-Free and Municipal Funds on October 1, 2002, File No.
2-82734, and incorporated herein by reference).
(22) Amendment No. 1 to the Master Distribution and Individual
Shareholder Services Plan (A Class) dated February 27, 2004 (filed
electronically as Exhibit m18 to Post-Effective Amendment No. 104 to the
Registration Statement of the Registrant on February 26, 2004, File No. 2-14213,
and incorporated herein by reference).
(23) Amendment No. 2 to the Master Distribution and Individual
Shareholder Services Plan (A Class), dated September 30, 2004 (filed
electronically as Exhibit m22 to Post-Effective Amendment No. 106 to the
Registration Statement of the Registrant on November 29, 2004, File No. 2-14213,
and incorporated herein by reference).
(24) Amendment No. 3 to the Master Distribution and Individual
Shareholder Services Plan (A Class), dated November 17, 2004 (filed
electronically as Exhibit m23 to Post-Effective Amendment No. 106 to the
Registration Statement of the Registrant on November 29, 2004, File No. 2-14213,
and incorporated herein by reference).
(25) Amendment No. 4 to the Master Distribution and Individual
Shareholder Services Plan (A Class), dated May 1, 2005 (filed electronically as
Exhibit m13 to Post-Effective Amendment No. 44 to the Registration Statement of
American Century Municipal Trust on May 13, 2005, File No. 2-91229, and
incorporated herein by reference).
(26) Amendment No. 5 to the Master Distribution and Individual
Shareholder Services Plan (A Class), dated September 29, 2005 (filed
electronically as Exhibit m25 to Post-Effective Amendment No. 38 to the
Registration Statement of American Century World Mutual Funds, Inc. on November
30, 2005, File No. 33-39242, and incorporated herein by reference).
(27) Amendment No. 6 to the Master Distribution and Individual
Shareholder Services Plan (A Class), dated March 30, 2006 (filed electronically
as Exhibit m27 to Post-Effective Amendment No. 23 to the Registration Statement
of American Century Strategic Asset Allocations, Inc. on March 30, 2006, File
No. 33-79482, and incorporated herein by reference).
(28) Master Distribution and Individual Shareholder Services Plan (B
Class), dated September 3, 2002 (filed electronically as Exhibit m7 to
Post-Effective Amendment No. 34 to the Registration Statement of American
Century California Tax-Free and Municipal Funds on October 1, 2002, File No.
2-82734, and incorporated herein by reference).
(29) Amendment No. 1 to the Master Distribution and Shareholder
Services Plan (B Class), dated February 27, 2004 (filed electronically as
Exhibit m20 to Post-Effective Amendment No. 104 to the Registration Statement of
the Registrant on February 26, 2004, File No. 2-14213, and incorporated herein
by reference).
(30) Amendment No. 2 to the Master Distribution and Individual
Shareholder Services Plan (B Class), dated September 30, 2004 (filed
electronically as Exhibit m26 to Post-Effective Amendment No. 106 to the
Registration Statement of the Registrant on November 29, 2004, File No. 2-14213,
and incorporated herein by reference).
(31) Amendment No. 3 to the Master Distribution and Individual
Shareholder Services Plan (B Class), dated November 17, 2004 (filed
electronically as Exhibit m27 to Post-Effective Amendment No. 106 to the
Registration Statement of the Registrant on November 29, 2004, File No. 2-14213,
and incorporated herein by reference).
(32) Amendment No. 4 to the Master Distribution and Individual
Shareholder Services Plan (B Class), dated May 1, 2005 (filed electronically as
Exhibit m18 to Post-Effective Amendment No. 44 to the Registration Statement of
American Century Municipal Trust on May 13, 2005, File No. 2-91229, and
incorporated herein by reference).
(33) Amendment No. 5 to the Master Distribution and Individual
Shareholder Services Plan (B Class), dated September 29, 2005 (filed
electronically as Exhibit m31 to Post-Effective Amendment No. 38 to the
Registration Statement of American Century World Mutual Funds, Inc. on November
30, 2005, File No. 33-39242, and incorporated herein by reference).
(34) Amendment No. 6 to the Master Distribution and Individual
Shareholder Services Plan (B Class), dated March 30, 2006 (filed electronically
as Exhibit m34 to Post-Effective Amendment No. 23 to the Registration Statement
of American Century Strategic Asset Allocations, Inc. on March 30, 2006, File
No. 33-79482, and incorporated herein by reference).
(35) Master Distribution and Individual Shareholder Services Plan (R
Class), dated August 29, 2003 (filed electronically as Exhibit m16 to
Post-Effective Amendment No. 17 to the Registration Statement of American
Century Strategic Asset Allocations, Inc. on August 28, 2003, File No. 33-79482,
and incorporated herein by reference).
(36) Amendment No. 1 to the Master Distribution and Individual
Shareholder Services Plan (R Class), dated May 1, 2004 (filed electronically as
Exhibit m15 to Post-Effective Amendment No. 35 to the Registration Statement of
American Century Quantitative Equity Funds, Inc., on April 29, 2004, File No.
33-19589, and incorporated herein by reference).
(37) Amendment No. 2 to the Master Distribution and Individual
Shareholder Services Plan (R Class), dated February 24, 2005 (filed
electronically as Exhibit m30 to Post-Effective Amendment No. 22 of American
Century Strategic Asset Allocations, Inc. on March 30, 2005, File No. 33-79482,
and incorporated herein by reference).
(38) Amendment No. 3 to the Master Distribution and Individual
Shareholder Services Plan (R Class), dated July 29, 2005 (filed electronically
as Exhibit m33 to Post-Effective Amendment No. 111 to the Registration Statement
of the Registrant on July 28, 2005, File No. 2-14213, and incorporated herein by
reference).
(39) Amendment No. 4 to the Master Distribution and Individual
Shareholder Services Plan (R Class), dated September 29, 2005 (filed
electronically as Exhibit m22 to Post-Effective Amendment No. 41 to the
Registration Statement of American Century Quantitative Equity Funds, Inc. on
September 29, 2005, File No. 33-19589, and incorporated herein by reference).
(40) Amendment No. 5 to the Master Distribution and Individual
Shareholder Services Plan (R Class), dated March 30, 2006 (filed electronically
as Exhibit m40 to Post-Effective Amendment No. 23 to the Registration Statement
of American Century Strategic Asset Allocations, Inc. on March 30, 2006, File
No. 33-79482, and incorporated herein by reference).
(n) (1) Amended and Restated Multiple Class Plan, dated September 3, 2002
(filed electronically as Exhibit n1 to Post-Effective Amendment No. 35 to the
Registration Statement of American Century California Tax-Free and Municipal
Funds on December 17, 2002, File No. 2-82734, and incorporated herein by
reference).
(2) Amendment No. 1 to the Amended and Restated Multiple Class Plan,
dated December 31, 2002 (filed electronically as Exhibit n2 to Post-Effective
Amendment No. 39 to the Registration Statement of American Century Municipal
Trust on December 23, 2002, File No. 2-91229, and incorporated herein by
reference).
(3) Amendment No. 2 to the Amended and Restated Multiple Class Plan,
dated August 29, 2003 (filed electronically as Exhibit n3 to Post-Effective
Amendment No. 17 to the Registration Statement of American Century Strategic
Asset Allocations, Inc. on August 28, 2003, File No. 33-79482, and incorporated
herein by reference).
(4) Amendment No. 3 to the Amended and Restated Multiple Class Plan,
dated February 27, 2004 (filed electronically as Exhibit n4 to Post-Effective
Amendment No. 104 to the Registration Statement of the Registrant on February
26, 2004, File No. 2-14213, and incorporated herein by reference).
(5) Amendment No. 4 to the Amended and Restated Multiple Class Plan,
dated May 1, 2004 (filed electronically as Exhibit n5 to Post-Effective
Amendment No. 35 to the Registration Statement of American Century Quantitative
Equity Funds, Inc., on April 29, 2004, File No. 33-19589, and incorporated
herein by reference).
(6) Amendment No. 5 to the Amended and Restated Multiple Class Plan,
dated August 1, 2004 (filed electronically as Exhibit n6 to Post-Effective
Amendment No. 24 to the Registration Statement of American Century Investment
Trust, on July 29, 2004, File No. 33-65170, and incorporated herein by
reference).
(7) Amendment No. 6 to the Amended and Restated Multiple Class Plan,
dated September 30, 2004 (filed electronically as Exhibit n7 to Post-Effective
Amendment No. 20 to the Registration Statement of American Century Strategic
Asset Allocations, Inc., on September 29, 2004, File No. 33-79482, and
incorporated herein by reference).
(8) Amendment No. 7 to the Amended and Restated Multiple Class Plan,
dated November 17, 2004 (filed electronically as Exhibit n8 to Post-Effective
Amendment No. 106 to the Registration Statement of the Registrant on November
29, 2004, File No. 2-14213, and incorporated herein by reference).
(9) Amendment No. 8 to the Amended and Restated Multiple Class Plan,
dated February 24, 2005 (filed electronically as Exhibit n9 to Post-Effective
Amendment No. 22 to American Century Strategic Asset Allocations, Inc. on March
30, 2005, File No. 33-79482, and incorporated herein by reference).
(10) Amendment No. 9 to the Amended and Restated Multiple Class Plan,
dated July 29, 2005 (filed electronically as Exhibit n10 to Post-Effective
Amendment No. 111 to the Registration Statement of the Registrant on July 28,
2005, File No. 2-14213, and incorporated herein by reference).
(11) Amendment No. 10 to the Amended and Restated Multiple Class Plan,
dated September 29, 2005 (filed electronically as Exhibit n11 to Post-Effective
Amendment No. 41 to the Registration Statement of American Century Quantitative
Equity Funds, Inc. on September 29, 2005, File No. 33-19589, and incorporated
herein by reference).
(12) Amendment No. 11 to the Amended and Restated Multiple Class Plan,
dated March 30, 2006 (filed electronically as Exhibit n12 to the Registration
Statement of American Century Strategic Asset Allocations, Inc. on March 30,
2006, File No. 33-79482, and incorporated herein by reference).
(13) Letter Agreement with American Century Investment Management,
Inc., dated March 30, 2006 (filed electronically as Exhibit n13 to
Post-Effective Amendment No. 42 to the Registration Statement of American
Century World Mutual Funds, Inc. on March 30, 2006, File No. 33-39242, and
incorporated herein by reference).
(o) Reserved.
(p) (1) American Century Investments Code of Ethics (filed electronically
as Exhibit p1 to Post-Effective Amendment No. 38 to the Registration Statement
of American Century California Tax-Free and Municipal Funds on December 29,
2004, File No. 2-82734, and incorporated herein by reference).
(2) Independent Directors' Code of Ethics amended March 4, 2000
(filed electronically as Exhibit p2 to Post-Effective Amendment No. 106 to the
Registration Statement of the Registrant on November 29, 2004, File No. 2-14213,
and incorporated herein by reference).
(3) Mason Street Advisors, LLC Statement of Policy on Personal
Securities Transactions (filed electronically as Exhibit p3 to Post-Effective
Amendment No. 31 to the Registration Statement of American Century Investment
Trust on March 9, 2006, File No. 33-65170, and incorporated herein by
reference).
Item 24. Persons Controlled by or Under Common Control with Fund
The persons who serve as the directors of the Registrant also serve, in
substantially identical capacities, the following investment companies:
American Century Asset Allocation Portfolios, Inc.
American Century Capital Portfolios, Inc.
American Century Growth Funds, Inc.
American Century Mutual Funds, Inc.
American Century Strategic Asset Allocations, Inc.
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
Because the boards of each of the above-named investment companies are
identical, these companies may be deemed to be under common control.
Item 25. Indemnification
The Registrant is a Maryland corporation. Section 2-418 of the General
Corporation Law of Maryland allows a Maryland corporation to indemnify its
directors, officers, employees and agents to the extent provided in such
statute.
Article Eighth of the Registrant's Articles of Incorporation requires the
indemnification of the corporation's directors and officers to the extent
permitted by the General Corporation Law of Maryland, the Investment Company Act
and all other applicable laws.
The Registrant has purchased an insurance policy insuring its officers and
directors against certain liabilities which such officers and directors may
incur while acting in such capacities and providing reimbursement to the
Registrant for sums which it may be permitted or required to pay to its officers
and directors by way of indemnification against such liabilities, subject in
either case to clauses respecting deductibility and participation.
Item 26. Business and Other Connections of the Investment Advisor
In addition to serving as the Registrant's investment advisor, American
Century Investment Management, Inc. provides portfolio management services for
other investment companies as well as for other business and institutional
clients. Business backgrounds of the directors and principal executive officers
of the advisor that also hold positions with the Registrant are included under
"Management" in the Statement of Additional Information included in this
registration statement. The remaining principal executive officer of the advisor
and his principal occupations during the past 2 fiscal years are as follows:
Mark Mallon (Senior Vice President and Chief Investment Officer). Senior
Vice President and Chief Investment Officer, American Century Global
Investment Management, Inc. (ACGIM). Also serves as portfolio manager for a
number of American Century-advised investment companies.
The principal address for all American Century entities other than ACGIM is 4500
Main Street, Kansas City, MO 64111. The principal address for ACGIM is 666 Third
Avenue, 23rd Floor, New York, NY 10017.
The subadvisor for Small Cap Growth and Mid Cap Growth is Mason Street
Advisors LLC (MSA). In addition to providing investment advisory services to
investment companies, MSA provides investment advisory services for Northwestern
Mutual and other institutional clients. Several of the directors and officers of
MSA also serve as officers of Northwestern Mutual. Additional information about
the business and other connections of MSA is available in Part I of MSA's Form
ADV and the schedules thereto (SEC file number 801-60721).
Item 27. Principal Underwriters
I. (a) American Century Investment Services, Inc. (ACIS) acts as principal
underwriter for the following investment companies:
American Century Asset Allocation Portfolios, Inc.
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Growth Funds, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Quantitative Equity Funds, Inc.
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century Variable Portfolios II, Inc.
American Century World Mutual Funds, Inc.
ACIS is registered with the Securities and Exchange Commission as a
broker-dealer and is a member of the National Association of Securities Dealers.
ACIS is located at 4500 Main Street, Kansas City, Missouri 64111. ACIS is a
wholly-owned subsidiary of American Century Companies, Inc.
(b) The following is a list of the directors and executive officers of
ACIS:
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
------------------------------------------------------------------------
James E. Stowers, Jr. Director Director and
Co-Vice Chairman
James E. Stowers III Chairman and Director Director and
Co-Vice Chairman
William M. Lyons President, Chief Executive President
Officer and Director
Jonathan S. Thomas Executive Vice President, Executive
Chief Financial Officer, and Vice President
Chief Accounting Officer
Donna Byers Senior Vice President none
Brian Jeter Senior Vice President none
Mark Killen Senior Vice President none
David Larrabee Senior Vice President none
Barry Mayhew Senior Vice President none
David C. Tucker Senior Vice President Senior Vice
and General Counsel President and
General Counsel
Clifford Brandt Chief Compliance Officer none
* All addresses are 4500 Main Street, Kansas City, Missouri 64111
(c) Not applicable.
Item 28. Location of Accounts and Records
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act, and the rules promulgated thereunder, are in the
possession of American Century Investment Management, Inc., 4500 Main Street,
Kansas City, MO 64111 and 1665 Charleston Road, Mountain View, CA 94043;
American Century Services, LLC, 4500 Main Street, Kansas City, MO 64111; JP
Morgan Chase Bank, 4 Metro Tech Center, Brooklyn, NY 11245; Commerce Bank, N.A.,
1000 Walnut, Kansas City, MO 64105; and State Street Bank and Trust Company, One
Lincoln Street, Boston, Massachusetts 02111. Certain records relating to the
day-to-day portfolio management of Small Cap Growth and Mid Cap Growth are kept
in the offices of the subadvisor, Mason Street Advisors, LLC, 720 East Wisconsin
Avenue, Milwaukee, WI 53202.
Item 29. Management Services - Not Applicable.
Item 30. Undertakings - Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement amendment pursuant
to Rule 485(b) promulgated under the Securities Act of 1933, as amended, and has
duly caused this amendment to be signed on its behalf by the undersigned, duly
authorized, in the City of Kansas City, State of Missouri on the 31st day of
March, 2006.
AMERICAN CENTURY MUTUAL FUNDS, INC.
(Registrant)
By: /*/ William M. Lyons
------------------------------------------
President and Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement amendment has been signed below by the following persons
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
*William M. Lyons President and March 31, 2006
---------------------- Principal Executive Officer
William M. Lyons
*Maryanne Roepke Senior Vice President, March 31, 2006
---------------------- Treasurer and Chief
Maryanne Roepke Financial Officer
*James E. Stowers, Jr. Co-Vice Chairman of the March 31, 2006
---------------------- Board and Director
James E. Stowers, Jr.
*James E. Stowers III Co-Vice Chairman of the March 31, 2006
---------------------- Board and Director
James E. Stowers III
*Thomas A. Brown Director March 31, 2006
----------------------
Thomas A. Brown
*Andrea C. Hall, Ph.D. Director March 31, 2006
----------------------
Andrea C. Hall, Ph.D.
*D. D. (Del) Hock Director March 31, 2006
----------------------
D. D. (Del) Hock
*Donald H. Pratt Chairman of the March 31, 2006
---------------------- Board and Director
Donald H. Pratt
*Gale E. Sayers Director March 31, 2006
----------------------
Gale E. Sayers
*M. Jeannine Strandjord Director March 31, 2006
----------------------
M. Jeannine Strandjord
*Timothy S. Webster Director March 31, 2006
----------------------
Timothy S. Webster
*By: /s/ Kathleen Gunja Nelson
--------------------------------------------
Kathleen Gunja Nelson
Attorney-in-Fact
(pursuant to a Power of
Attorney dated December 13, 2005)