STATEMENT OF ADDITIONAL INFORMATION

497 1 supp.htm STATEMENT OF ADDITIONAL INFORMATION STATEMENT OF ADDITIONAL INFORMATION

October 13, 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
NT Growth Fund
NT VistaSM Fund
Select Fund
American Century-Mason Street Small Cap Growth Fund
Ultra® Fund
Veedot® Fund
Vista(SM) Fund

THIS STATEMENT OF ADDITIONAL INFORMATION ADDS TO THE DISCUSSION IN THE FUNDS'
PROSPECTUSES DATED MARCH 1, 2006, MAY 1, 2006 AND OCTOBER 13, 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]

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, NT Growth, NT Vista, 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Investment Advisor. . . . . . . . . . . . . . . . . . . . . . . . . . 50
Subadvisor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Portfolio Managers. . . . . . . . . . . . . . . . . . . . . . . . . . 55
Transfer Agent and Administrator. . . . . . . . . . . . . . . . . . . 66
Distributor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
Custodian Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . .66
Independent Registered Public Accounting Firm. . . . . . . . . . . . .66
Brokerage Allocation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Capital Growth, Capital Value, Focused Growth, Fundamental
Equity, Giftrust, Growth, Heritage, Mid Cap Growth, New
Opportunities, New Opportunities II, NT Growth, NT Vista,
Select, Small Cap Growth, Ultra, Veedot, Vista and
the Equity Portion of Balanced. . . . . . . . . . . . . . . . . . . . 67
The Fixed-Income Portion of Balanced. . . . . . . . . . . . . . . . . 69
Regular Broker-Dealers. . . . . . . . . . . . . . . . . . . . . . . . 69
Information about Fund Shares. . . . . . . . . . . . . . . . . . . . . . . . .70
Multiple Class Structure. . . . . . . . . . . . . . . . . . . . . . . 71
Buying and Selling Fund Shares. . . . . . . . . . . . . . . . . . . . 81
Valuation of a Fund's Securities. . . . . . . . . . . . . . . . . . . 82
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
Federal Income Tax. . . . . . . . . . . . . . . . . . . . . . . . . . 83
State and Local Taxes. . . . . . . . . . . . . . . . . . . . . . . . .85
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Explanation of Fixed-Income Securities Ratings. . . . . . . . . . . . . . . . 86

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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
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Institutional Class ABINX 05/01/2000
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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
--------------------------------------------------------------------------------

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2

FUND TICKER SYMBOL INCEPTION DATE
--------------------------------------------------------------------------------
Heritage
Investor Class TWHIX 11/10/1987
--------------------------------------------------------------------------------
Institutional Class ATHIX 06/16/1997
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C Class AHGCX 06/26/2001
--------------------------------------------------------------------------------
Advisor Class ATHAX 07/11/1997
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
NT Growth
Institutional Class ACLTX 05/12/2006
--------------------------------------------------------------------------------
NT Vista
Institutional Class ACLWX 05/12/2006
--------------------------------------------------------------------------------
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 ACWVX 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
--------------------------------------------------------------------------------

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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 (other
than U.S. government securities and securities of other investment companies).

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, NT GROWTH, NT VISTA,
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
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 8, SHORT-TERM SECURITIES, page 21 and FUTURES AND OPTIONS, page
11.

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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 86.

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.

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.

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.

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5

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.

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

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6

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.

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, 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.

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7

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.

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 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.

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8

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.

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 securities.

Equity equivalents also may include securities whose value or return is derived
from the value or return of a different security.

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.

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.

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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.

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 8.

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

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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.

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.

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

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11

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 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.

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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.

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.

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.

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.

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(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.

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, NT Growth, Select and Ultra
up to 5%; Giftrust, Heritage, Mid Cap Growth, New Opportunities, New
Opportunities II, NT Vista, 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.

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.

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14

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.

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 graduated payment 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.

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15

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 (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

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16

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 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.

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17

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.

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.

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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18

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.

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.

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.

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 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.

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19

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.

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.

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.

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 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.

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20

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.

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.

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

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21

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 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.

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.

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.

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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.

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.

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.

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.

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23

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. To the extent a
fund remains fully invested or almost fully invested at the same time it has
purchased securities on a when-issued basis, there will be greater fluctuations
in its net asset value than if it solely set aside cash to pay for when-issued
securities. 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.

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.

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 assets will not be considered in
determining whether it has complied with its investment policies.

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For purposes of a fund's investment policies, the party identified as the
"issuer" of a municipal security depends on the form and conditions of the
security. When the assets and revenues of a political subdivision are separate
from those of the government that created the subdivision and the security is
backed only by the assets and revenues of the subdivision, the subdivision is
deemed the sole issuer. Similarly, in the case of an Industrial Development
Bond, if the bond were backed only by the assets and revenues of a
non-governmental user, the non-governmental user would be deemed the sole
issuer. If, in either case, the creating government or some other entity were to
guarantee the security, the guarantee would be considered a separate security
and treated as an issue of the guaranteeing entity.

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.

SUBJECT POLICY
--------------------------------------------------------------------------------
Senior Securities A fund may not issue senior securities, except as
permitted 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 policies 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.

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25

For purposes of the investment policy 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.

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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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 contracts shall not constitute purchasing
securities on margin.
--------------------------------------------------------------------------------
Futures A fund may enter into futures contracts and write and buy
and Options put 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.
--------------------------------------------------------------------------------
Issuers with A fund may invest a portion of its assets in the equity
Limited securities of issuers with limited operating histories. An
Operating issuer is considered to have a limited operating history
Histories if that issuer 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.
--------------------------------------------------------------------------------

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. As new funds, NT Growth and NT Vista do not
have financial highlights.

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

------
26

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 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 characterized 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.

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27

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.

INTERESTED DIRECTORS
--------------------------------------------------------------------------------
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: 66

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 (April 2005 to September 2006); Director, ACC, ACIM,
ACGIM, ACS, ACIS and other ACC subsidiaries

NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66

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: 66

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: 66

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: 66

OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, ALLIED MOTION TECHNOLOGIES, INC.
--------------------------------------------------------------------------------

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28

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, PLAZA BELMONT LLC, Chief
Financial Officer, PLAZA BELMONT LLC (September 1999 to July 2006)

NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66

OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, SAIA, INC. and ENTERTAINMENT
PROPERTIES TRUST
--------------------------------------------------------------------------------
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: 66

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: 66

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: 66

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: 66

OTHER DIRECTORSHIPS HELD BY DIRECTOR: None
--------------------------------------------------------------------------------

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: Chairman and Chief Executive Officer, ACIM, ACGIM, ACIS and other ACC
subsidiaries; President, ACIM, ACGIM and other ACC subsidiaries (September 2002
to September 2006); Executive Vice President, ACS (January 2005 to September
2006); 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: Executive Vice President, ACC
(November 2005 to present); 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; Managing Director, MORGAN STANLEY (MARCH 2000 TO NOVEMBER
2005)
--------------------------------------------------------------------------------

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29

MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111

YEAR OF BIRTH: 1956

POSITION(S) HELD WITH FUNDS: Chief Compliance Officer and Senior Vice President

FIRST YEAR OF SERVICE: 2000

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM,
ACGIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995
to August 2006); and Treasurer and Chief Financial Officer, various American
Century funds (July 2000 to August 2006). Also serves as: Senior Vice President,
ACS
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111

YEAR OF BIRTH: 1966

POSITION(S) HELD WITH FUNDS: Vice President, Treasurer and Chief Financial
Officer

FIRST YEAR OF SERVICE: 1997

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February 2000
to present); and Controller, various American Century funds (1997 to September
2006)
--------------------------------------------------------------------------------
C. JEAN WADE, 4500 Main St., Kansas City, MO 64111

YEAR OF BIRTH: 1964

POSITION(S) HELD WITH FUNDS: Controller

FIRST YEAR OF SERVICE: 2006

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February 2000
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: Senior Vice President, ACC (August
2006 to present); Vice President, ACC and certain ACC subsidiaries (October
2001 to August 2006); Vice President, Corporate Tax, ACS (April 1998 to August
2006). Also serves as: Senior Vice President, ACIM, ACGIM, ACS, 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.

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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, are responsible for approving new and existing management contracts with
the funds' advisor.

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, if any,
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
--------------------------------------------------------------------------------
COMMITTEE: Audit

MEMBERS: D.D. (Del) Hock, Thomas A. Brown, Donald H. Pratt

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
--------------------------------------------------------------------------------

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31

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; and

* 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.

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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.

No deferred fees were paid to any director under the plan during the fiscal year
ended October 31, 2005.

------
33

OWNERSHIP OF FUND SHARES

The directors owned shares in the funds as of December 31, 2005, as shown in the
table below. Because NT Growth and NT Vista were not in operation as of the
calendar year end, they are not included in the tables below. Because the
directors did not oversee the management of Mid Cap Growth or Small Cap Growth
as of the end of the most recent calendar year, those funds do not appear in the
table 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
--------------------------------------------------------------------------------
Focused Growth 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
--------------------------------------------------------------------------------
Focused Growth 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. They permit personnel subject to the codes 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 60 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.

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.

------
36

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 September
29, 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
* 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
* Jefferson National Life Insurance Company
* Jefferson Pilot Financial
* Jeffrey Slocum & Associates, Inc.
* Kansas City Life Insurance Company
* Kmotion, Inc.
* Liberty Life Insurance Company
* The Lincoln National Life Insurance Company
* Lipper Inc.
* Manulife Financial

------
37

* 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.

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.

------
38

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 September 13, 2006, the following shareholders, beneficial or of record,
owned more than 5% of the outstanding shares of any class of a fund.

PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
FUND/ SHARES OWNED SHARES OWNED
CLASS SHAREHOLDER OF RECORD BENEFICIALLY(1)
--------------------------------------------------------------------------------
Balanced
--------------------------------------------------------------------------------
Investor Class
Charles Schwab & Co., Inc. 7% 0%
San Francisco, California
--------------------------------------------------------------------------------
Institutional Class
National Financial 68% 0%
Services LLC
New York, New York

Trustees of American Century 32% 0%
Mutual Funds Indep Directors
Def Comp Plan
Kansas City, Missouri
--------------------------------------------------------------------------------
Advisor Class
Charles Schwab & Co., Inc. 12% 0%
San Francisco, California

MLPF&S, Inc. 11% 0%
Jacksonville, Florida

Delaware Charter 9% 0%
Guarantee & Trust
Des Moines, Iowa

National Financial 8% 0%
Services LLC
New York, New York

Mitra & Co Exp 7% 0%
M&I Trust Company NA
Milwaukee, Wisconsin

Nationwide Trust Company 6% 0%
Columbus, Ohio
--------------------------------------------------------------------------------
Capital Growth
--------------------------------------------------------------------------------
Investor Class
American Century Investment 50% 50%
Management, Inc.
Kansas City, Missouri

National Financial 29% 0%
Services Corp
New York, New York

Charles Schwab & Co 17% 0%
San Francisco, California
--------------------------------------------------------------------------------
Institutional Class
American Century Investment 100% 100%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
A Class
American Century Investment 20% 20%
Management, Inc.
Kansas City, Missouri

Charles Schwab & Co., Inc. 15% 0%
San Francisco, California

American Enterprise 11% 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

MLPF&S, Inc. 10% 0%
Jacksonville, Florida

Bear Stearns Securities Corp. 6% 0%
Brooklyn, New York
--------------------------------------------------------------------------------
C Class
American Century Investment 47% 47%
Management, Inc.
Kansas City, Missouri

AG Edwards & Sons Inc. 20% 0%
FBO RRF Investments LLC
St. Louis, Missouri

MLPF&S Inc 8% 0%
Jacksonville, Florida

First Clearing, LLC 5% 0%
Annandale, New Jersey
--------------------------------------------------------------------------------
R Class
American Century Investment 100% 100%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
Capital Value
--------------------------------------------------------------------------------
Investor Class
Charles Schwab & Co., Inc. 32% 0%
San Francisco, California

Saxon & Co 12% 0%
Philadelphia, Pennsylvania

US Bank Trustee 5% 0%
Private Asset O/A Platform
Milwaukee, Wisconsin
--------------------------------------------------------------------------------
Institutional Class
Charles Schwab & Co., Inc. 50% 0%
San Francisco, California

Saxon & Co. 46% 0%
Philadelphia, Pennsylvania
--------------------------------------------------------------------------------
Advisor Class
Nationwide Trust Company 70% 0%
Columbus, Ohio

Charles Schwab & Co., Inc. 20% 0%
San Francisco, California

National Financial 6% 0%
Services Corp
New York, New York
--------------------------------------------------------------------------------
Focused Growth
--------------------------------------------------------------------------------
Investor Class
National Financial Services LLC 10% 0%
New York, New York
--------------------------------------------------------------------------------
Fundamental Equity
--------------------------------------------------------------------------------
Investor Class
Raymond James & Assoc Inc. 10% 0%
FBO Mammoser
St. Petersburg, Florida

Raymond James & Assoc Inc. 7% 0%
FBO Dubey ML IRA
St. Petersburg, Florida
--------------------------------------------------------------------------------

------
41

PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
FUND/ SHARES OWNED SHARES OWNED
CLASS SHAREHOLDER OF RECORD BENEFICIALLY(1)
--------------------------------------------------------------------------------
Fundamental Equity
--------------------------------------------------------------------------------
Investor Class
Charles Schwab & Co., Inc. 6% 0%
San Francisco, California

Gerard P. Sullivan & 6% 0%
Gail M. Sullivan JT WROS
Overland Park, Kansas
--------------------------------------------------------------------------------
Institutional Class
American Century Investment 100% 100%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
A Class
Charles Schwab & Co., Inc. 71% 0%
San Francisco, California
--------------------------------------------------------------------------------
B Class
MLPF&S Inc. 17% 0%
Jacksonville, Florida
--------------------------------------------------------------------------------
C Class
MLPF&S Inc. 33% 0%
Jacksonville, Florida
--------------------------------------------------------------------------------
R Class
American Century Investment 100% 100%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
Giftrust
--------------------------------------------------------------------------------
Investor Class
None
--------------------------------------------------------------------------------
Growth
--------------------------------------------------------------------------------
Investor Class
None
--------------------------------------------------------------------------------
Institutional Class
State Street Bank TR 74% 0%
Lockheed Martin Co
Defined Contributions
Plans Master Trust
Westwood, Massachusetts

JP Morgan Chase Bank TTEE 6% 0%
Avon Personal Savings
Account Plan Trust
New York, New York
--------------------------------------------------------------------------------
C Class
Pershing LLC 27% 0%
Jersey City, New Jersey

NFS LLC 5% 0%
FEBO A Daigger &
Co Inc. LED DEF
Vernon Hills, Illinois
--------------------------------------------------------------------------------
R Class
ING Life Insurance 81% 0%
and Annuity Co
Hartford, Connecticut

MG Trust Cust FBO 11% 0%
Resource Control
Associates Inc.
Denver, Colorado
--------------------------------------------------------------------------------

------
42

Nationwide Trust Company FSB 11% 0%
Columbus, Ohio
--------------------------------------------------------------------------------
Heritage
--------------------------------------------------------------------------------
Investor Class
Charles Schwab & Co., Inc. 7% 0%
San Francisco, California
--------------------------------------------------------------------------------
Institutional Class
Chase Manhattan Bank Trustee 65% 0%
The BOC Group Inc. Savings
Investment Plan Trust
New York, New York

Trustees of American Century 20% 0%
P/S & 401(k) Savings
Plan & Trust
Kansas City, Missouri

State Street Bank 12% 0%
& Trust Trustee
AFP Habitat
North Quincy, Massachusetts
--------------------------------------------------------------------------------
C Class
None
--------------------------------------------------------------------------------
Advisor Class
Charles Schwab & Co., Inc. 49% 0%
San Francisco, California

MCB Trust Services 6% 0%
as Agent For
Citizens Bank as Trustee FBO
Centimark Corporation
401k Plan
Providence, Rhode Island
--------------------------------------------------------------------------------
Mid Cap Growth
--------------------------------------------------------------------------------
Investor Class
American Century Investment 75% 75%
Management, Inc.
Kansas City, Missouri

I.R.A. - Roth 24% 24%
Steve A. Vento
Olympia, Washington
--------------------------------------------------------------------------------
Institutional Class
Northwestern Mutual Life 58% 0%
Milwaukee, Wisconsin

Maroon Inc. 42% 0%
Milwaukee, Wisconsin
--------------------------------------------------------------------------------

------
43

Scottrade Inc 30% 30%
FBO John J. Harrison IRA
St. Louis, Missouri

Pershing LLC 9% 0%
Jersey City, New Jersey
--------------------------------------------------------------------------------
R Class
American Century Investment 100% 100%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
New Opportunities
--------------------------------------------------------------------------------
Investor Class
Trustees of American 8% 0%
Century Profit
Sharing and 401K Savings
Plan & Trust
Kansas City, Missouri
--------------------------------------------------------------------------------
New Opportunities II
--------------------------------------------------------------------------------
Investor Class
US Bank Trustee 16% 0%
Private Asset O/A Platform
Milwaukee, Wisconsin

American Century Investment 8% 8%
Management, Inc.
Kansas City, Missouri

MLPF&S Inc. 5% 0%
Jacksonville, Florida
--------------------------------------------------------------------------------
Institutional Class
None
--------------------------------------------------------------------------------
A Class
Charles Schwab & Co., Inc. 78% 0%
San Francisco, California
--------------------------------------------------------------------------------
B Class
None
--------------------------------------------------------------------------------
C Class
MLPF&S Inc. 31% 0%
Jacksonville, Florida
--------------------------------------------------------------------------------

------
44

American Century Serv Corp 21% 21%
LIVESTRONG™
2035 Portfolio
NT Growth Omnibus
Kansas City, Missouri

American Century Serv Corp 21% 21%
LIVESTRONG™
2015 Portfolio
NT Growth Omnibus
Kansas City, Missouri

American Century Serv Corp 14% 14%
LIVESTRONG™
2045 Portfolio
NT Growth Omnibus
Kansas City, Missouri
--------------------------------------------------------------------------------
NT Vista
--------------------------------------------------------------------------------
Institutional Class
American Century Serv Port 37% 37%
LIVESTRONG™
2025 Portfolio
NT Vista Omnibus
Kansas City, Missouri

American Century Serv Corp 22% 22%
LIVESTRONG™
2035 Portfolio
NT Vista Omnibus
Kansas City, Missouri

American Century Serv Corp 21% 21%
LIVESTRONG™
2015 Portfolio
NT Vista Omnibus
Kansas City, Missouri

American Century Serv Corp 16% 16%
LIVESTRONG™
2045 Portfolio
NT Vista Omnibus
Kansas City, Missouri
--------------------------------------------------------------------------------
Select
--------------------------------------------------------------------------------
Investor Class
None
--------------------------------------------------------------------------------
Institutional Class
Northwestern Mutual Life 47% 0%
Milwaukee, Wisconsin

Maroon Inc. 28% 0%
Milwaukee, Wisconsin

The Chase Manhattan 11% 0%
Bank NA TR
Huntsman Corp Salary
Deferral Plan & Trust
New York, New York

The Chase Manhattan 5% 0%
Bank NA TR
Huntsman Corp MPP
Plan & Trust
New York, New York
--------------------------------------------------------------------------------

------
45

PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
SHARES OWNED SHARES OWNED
FUND/CLASS SHAREHOLDER OF RECORD BENEFICIALLY(1)
--------------------------------------------------------------------------------
Select
--------------------------------------------------------------------------------
A Class
Charles Schwab & Co., Inc. 40% 0%
San Francisco, California
--------------------------------------------------------------------------------
B Class
None
--------------------------------------------------------------------------------
C Class
MLPF&S Inc. 23% 0%
Jacksonville, Florida
--------------------------------------------------------------------------------
R Class
American Century Investment 100% 100%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
Advisor Class
UMB Bank NA 41% 0%
Fiduciary for Various
Deferred Accounts
Topeka, Kansas

MG Trust Company Cust FBO 10% 0%
Rosen Hotels & Resorts Inc
Denver, Colorado

Security Benefit Life 9% 0%
Insurance Co.
Topeka, Kansas

MLPF&S Inc. 8% 0%
Jacksonville, Florida

Orchard Trust Company, 7% 0%
LLC Cust
RHD Investors Choice 403B7
Englewood, Colorado

Saxon & Co 7% 0%
Philadelphia, Pennsylvania
--------------------------------------------------------------------------------
Small Cap Growth
--------------------------------------------------------------------------------
Investor Class
Charles Schwab & Co., Inc. 60% 0%
San Francisco, California

Prudential Investment 29% 0%
MGMT SVC
Newark, New Jersey

American Century Investment 11% 11%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
Institutional Class
American Century Investment 100% 100%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
A Class
None
--------------------------------------------------------------------------------

------
46

American Century Investment 25% 25%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
R Class
American Century Investment 100% 100%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
Ultra
--------------------------------------------------------------------------------
Investor Class
Charles Schwab & Co., Inc. 7% 0%
San Francisco, California
--------------------------------------------------------------------------------
Institutional Class
JP Morgan Chase Bank Trustee 15% 0%
401(k) Savings Plan of
JP Morgan Chase & Co. Trust
Brooklyn, New York

Fidelity FIIOC TR 13% 0%
FBO Intel SERP 401k
Covington, Kentucky

JP Morgan Chase Bank Trustee 10% 0%
Bosch Savings Incentive Plan
Kansas City, Missouri

JP Morgan Chase TR 8% 0%
The Interpublic Group of
Companies Inc.
Savings Plan Trust
New York, New York

Nationwide Trust Company 6% 0%
FBO Participating
Retirement Plans
TPA-NTC
Columbus, Ohio

Northern Trust Co TR 6% 0%
Goodyear Tire & Rubber
Company 401K Plan Trust
Chicago, Illinois
--------------------------------------------------------------------------------
C Class
Boone County National 5% 0%
Bank Cust
FBP MO Bar 457(B) Plan
Columbia, Missouri
--------------------------------------------------------------------------------

------
47

ING Life Insurance and 27% 0%
Annuity Co.
Hartford, Connecticut

Massachusetts Mutual 13% 0%
Life Insurance
Springfield, Massachusetts

Hartford Life Ins Co 10% 0%
Hartford, Connecticut

Symetra Investment Services 8% 0%
Seattle, Washington
--------------------------------------------------------------------------------
Advisor Class
Nationwide Trust Company 17% 0%
Columbus, Ohio

Charles Schwab & Co., Inc. 9% 0%
San Francisco, California

ING Life Insurance and 6% 0%
Annuity Co
Hartford, Connecticut

PRIAC as Trustee/Custodian 5% 0%
For Various Retirement Plans
Kansas City, Missouri
--------------------------------------------------------------------------------
Veedot
--------------------------------------------------------------------------------
Investor Class
None
--------------------------------------------------------------------------------
Institutional Class
Trustees of American 59% 0%
Century P/S & 401K Savings
Plan & Trust
Kansas City, Missouri

American Century Investment 23% 23%
Management, Inc.
Kansas City, Missouri

UMB TR 11% 0%
American Century Executive
Deferred Comp Plan Trust
Kansas City, Missouri
--------------------------------------------------------------------------------
Vista
--------------------------------------------------------------------------------
Investor Class
John Hancock Life Ins Co. USA 8% 0%
Toronto, Ontario
--------------------------------------------------------------------------------
Institutional Class
Delaware Charter 28% 0%
Guarantee & Trust
Des Moines, Iowa
--------------------------------------------------------------------------------

------
48

The Chase Manhattan 11% 0%
Bank NA TR
Huntsman Corp Salary
Deferral Plan & Trust
New York, New York

JP Morgan Chase 10% 0%
Bank Trustee
Black & Veatch Employee
Savings Plan
Kansas City, Missouri

JP Morgan Chase 9% 0%
Bank Trustee
Astellas US Retirement
and Savings Plan
Kansas City, Missouri
--------------------------------------------------------------------------------
C Class
Delaware Charter 10% 0%
Guarantee & Trust
FBO Various Qualified Plans
Des Moines, Iowa

Delaware Charter 9% 0%
Guarantee & Trust
FBO Principal Financial Group
Omnibus Qualified
Des Moines, Iowa
--------------------------------------------------------------------------------
R Class
MFS Heritage Trust Co 82% 0%
Boston, Massachusetts

Mid-Atlantic Trust 10% 0%
FBO Aqua-Chem Ret
PL & Savings
Ridgeland, Mississippi

American Century Investment 8% 8%
Management, Inc.
Kansas City, Missouri
--------------------------------------------------------------------------------
Advisor Class
Trustar/Delaware Charter 14% 0%
FBO Principal Financial Group
Wilmington, Delaware

Charles Schwab & Co., Inc. 13% 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 7% 0%
Guarantee & Trust
FBO Various Qualified Plans
Des Moines, Iowa

Transamerica Life Insurance 7% 0%
Company
Cedar Rapids, Iowa
--------------------------------------------------------------------------------

------
49

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 the corporation. 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 September 13, 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
corporation has 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.

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 each fund with a stepped fee schedule, the rate
of the fee is determined by applying the 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). Strategy assets include assets
of the fund and certain assets of other clients of the advisor outside the
American Century fund family that use very similar investment teams and
strategies. For a fund with a corresponding NT fund, strategy assets for both
funds also include the assets of the other. The use of strategy assets, rather
than fund assets, in calculating the fee rate for a particular fund could allow
the fund to realize scheduled cost savings more quickly. However, it is possible
that a fund's strategy assets will not include assets of other client accounts
or that any such assets may not be sufficient to result in a lower fee rate. 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 0.980% of the next $5 billion
0.970% of the next $5 billion
0.960% of the next $5 billion
0.950% of the next $5 billion
0.900% of the next $5 billion
0.800% over $30 billion
--------------------------------------------------------------------------------

------
50

FUND CLASS PERCENTAGE OF STRATEGY ASSETS
--------------------------------------------------------------------------------
Capital Institutional 0.800% of first $5 billion
Growth 0.780% of the next $5 billion
0.770% of the next $5 billion
0.760% 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 Investor 1.10% of first $500 million
Value 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 Investor 1.00%
Growth
--------------------------------------------------------------------------------
Fundamental Investor, A, B, 1.000% of first $5 billion
Equity C and R 0.980% of next $5 billion
0.970% of next $5 billion
0.960% 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
0.780% of next $5 billion
0.770% of next $5 billion
0.760% 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 1.000% of first $5 billion
and R 0.980% of next $5 billion
0.970% of next $5 billion
0.960% 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
0.780% of next $5 billion
0.770% of next $5 billion
0.760% 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
0.730% of next $5 billion
0.720% of next $5 billion
0.710% of next $5 billion
0.700% of next $5 billion
0.650% of next $5 billion
0.550% over $30 billion
--------------------------------------------------------------------------------

------
51

FUND CLASS PERCENTAGE OF STRATEGY ASSETS
--------------------------------------------------------------------------------
Heritage Investor 1.000%
and C
---------------------------------------------------------
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 1.25% of next $250 million
1.15% of next $250 million
1.10% over $750 million
--------------------------------------------------------------------------------
New Investor, A, 1.50% of the first $250 million
Opportunities II B and C 1.25% of next $250 million
1.15% of next $250 million
1.10% over $750 million
---------------------------------------------------------
Institutional 1.30% of the first $250 million
1.05% of next $250 million
0.95% of next $250 million
0.90% over $750 million
--------------------------------------------------------------------------------
NT Institutional 0.800% of first $5 billion
Growth 0.780% of next $5 billion
0.770% of next $5 billion
0.760% of next $5 billion
0.750% of next $5 billion
0.700% of next $5 billion
0.600% over $30 billion
--------------------------------------------------------------------------------
NT Vista Institutional 0.800%
--------------------------------------------------------------------------------
Select Investor, A, B, 1.000% of first $5 billion
C and R 0.980% of next $5 billion
0.970% of next $5 billion
0.960% 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
0.780% of next $5 billion
0.770% of next $5 billion
0.760% 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
0.730% of next $5 billion
0.720% of next $5 billion
0.710% 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
--------------------------------------------------------------------------------

------
52

FUND CLASS PERCENTAGE OF STRATEGY ASSETS
--------------------------------------------------------------------------------
Ultra Investor, C 1.000% of first $5 billion
and R 0.980% of next $5 billion
0.970% of next $5 billion
0.960% 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
0.780% of next $5 billion
0.770% of next $5 billion
0.760% 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
0.730% of next $5 billion
0.720% of next $5 billion
0.710% of next $5 billion
0.700% of next $5 billion
0.650% of next $5 billion
0.550% over $30 billion
--------------------------------------------------------------------------------
Veedot Investor 1.250% of first $500 million
1.100% of next $500 million
1.000% over $1 billion
----------------------------------------------------------
Institutional 1.050% of first $500 million
0.900% of next $500 million
0.800% over $1 billion
--------------------------------------------------------------------------------
Vista Investor, C 1.000%
and R
----------------------------------------------------------
Institutional 0.800%
----------------------------------------------------------
Advisor 0.750%
--------------------------------------------------------------------------------

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.

------
53

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 NT Growth, NT Vista and 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.

UNIFIED MANAGEMENT FEES
FUND/CLASS 2005 2004 2003
--------------------------------------------------------------------------------
Balanced $5,715,280 $5,409,000 $5,107,000
--------------------------------------------------------------------------------
Capital Growth $21,281 $7,454 N/A
--------------------------------------------------------------------------------
Capital Value $4,766,345 $1,927,559 $821,449
--------------------------------------------------------------------------------
Focused Growth $40,167 N/A N/A
--------------------------------------------------------------------------------
Fundamental Equity $15,524(1) N/A N/A
--------------------------------------------------------------------------------
Giftrust $9,173,657 $8,873,785 $7,857,938
--------------------------------------------------------------------------------
Growth $47,534,738 $48,430,000 $44,750,000
--------------------------------------------------------------------------------
Heritage $10,948,186 $12,821,000 $11,715,000
--------------------------------------------------------------------------------
Mid Cap Growth(2) $1,382,888 $1,252,131 $1,059,938
--------------------------------------------------------------------------------
New Opportunities $3,839,704 $4,491,558 $4,300,248
--------------------------------------------------------------------------------
New Opportunities II $1,283,128 $664,838 $410,210
--------------------------------------------------------------------------------
Select $37,902,378 $40,572,517 $37,551,100
--------------------------------------------------------------------------------
Small Cap Growth(2) $460,953 $299,436 $214,449
--------------------------------------------------------------------------------
Ultra $216,746,243 $224,856,000 $200,109,000
--------------------------------------------------------------------------------
Veedot $3,187,010 $3,620,633 $3,009,421
--------------------------------------------------------------------------------
Vista $19,468,881 $14,415,000 $10,438,000
--------------------------------------------------------------------------------

(1) FEES ACCRUED FROM NOVEMBER 30, 2004 (INCEPTION) THROUGH OCTOBER 31, 2005.

(2) REPRESENTS MANAGEMENT FEES PAID BY THE A, B AND C CLASSES OF THE
PREDECESSOR FUND TO MASON STREET ADVISORS, LLC AS OF THE FISCAL YEARS
ENDED MARCH 31, 2006, 2005 AND 2004.

------
54

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 MSA
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
MSA, 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 MSA 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 the services it provides to Mid Cap Growth, the
advisor pays MSA 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 MSA 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.

(1) INFORMATION PROVIDED AS OF APRIL 21, 2006.

------
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 STRATEGIES AND
SUBADVISED 529 EDUCATION CORPORATE
FUNDS) SAVINGS PLANS) MONEY)
---------------------------------------------------------------------------------------
Balanced(1)
---------------------------------------------------------------------------------------
Fei Zou Number of Other 4 0 1
Accounts Managed
-----------------------------------------------------------------------
Assets in Other $3,457,550,829 N/A $10,470,322
Accounts Managed
---------------------------------------------------------------------------------------
G. David Number of Other 5 0 1
MacEwen Accounts Managed
-----------------------------------------------------------------------
Assets in Other $1,653,100,674 N/A $26,599,241
Accounts Managed
---------------------------------------------------------------------------------------
Robert V. Number of Other 14 0 2
Gahagan Accounts Managed
-----------------------------------------------------------------------
Assets in Other $6,861,245,597 N/A $38,134,266
Accounts Managed
---------------------------------------------------------------------------------------
James F. Number of Other 5 0 1
Keegan Accounts Managed
-----------------------------------------------------------------------
Assets in Other $1,276,417,206 N/ A $26,599,241
Accounts Managed
---------------------------------------------------------------------------------------
Jeffrey L. Number of Other 4 0 1
Houston Accounts Managed
-----------------------------------------------------------------------
Assets in Other $1,207,232,742 N/A $26,599,241
Accounts Managed
---------------------------------------------------------------------------------------
Alejandro Number of Other 8 0 2
H. Aguilar Accounts Managed
-----------------------------------------------------------------------
Assets in Other $4,630,812,435 N/A $38,134,266
Accounts Managed
---------------------------------------------------------------------------------------
Brian Howell Number of Other 6 0 2
Accounts Managed
-----------------------------------------------------------------------
Assets in Other $2,700,382,747 N/A $38,134,266
Accounts Managed
---------------------------------------------------------------------------------------
John F. Walsh Number of Other 4 0 1
Accounts Managed
-----------------------------------------------------------------------
Assets in Other $1,207,232,742 N/A $26,599,241
Accounts Managed
---------------------------------------------------------------------------------------
Dan Shiffman Number of Other 8 0 2
Accounts Managed
-----------------------------------------------------------------------
Assets in Other $5,224,353,486 N/A $26,599,241
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. Number of Other 3 0 3
Prescott Accounts Managed
LeGard
Assets in Other $5,616,146,705 N/A $119,199,093
Accounts Managed
---------------------------------------------------------------------------------------

(1) INFORMATION PROVIDED AS OF APRIL 21, 2006.

------
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 STRATEGIES AND
SUBADVISED 529 EDUCATION CORPORATE
FUNDS) SAVINGS PLANS) MONEY)
---------------------------------------------------------------------------------------
Capital Value
---------------------------------------------------------------------------------------
Mark Number of Other 10 0 3
Mallon Accounts Managed
-------------------------------------------------------------------------
Assets in Other $6,367,445,040 N/A $212,144,211
Accounts Managed
---------------------------------------------------------------------------------------
Charles Number of Other 10 0 3
Ritter 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
---------------------------------------------------------------------------------------
Fundamental Equity
---------------------------------------------------------------------------------------
Jerry Number of Other 3 0 0
Sullivan 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
---------------------------------------------------------------------------------------

------
57

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 STRATEGIES AND
SUBADVISED 529 EDUCATION CORPORATE
FUNDS) SAVINGS PLANS) MONEY)
------------------------------------------------------------------------------------------
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. Number of Other 2 0 0
Stalzer Accounts Managed
-------------------------------------------------------------------------
Assets in Other $1,230,726,532 N/A N/A
Accounts Managed
------------------------------------------------------------------------------------------
New Opportunities
------------------------------------------------------------------------------------------
Harold Number of Other 1 0 14
Bradley Accounts Managed
-------------------------------------------------------------------------
Assets in Other $97,206,408 N/A $23,196,743
Accounts Managed
------------------------------------------------------------------------------------------
Matthew Number of Other 1 0 0
Ferretti(1) Accounts Managed
-------------------------------------------------------------------------
Assets in Other $114,029,365 N/A N/A
Accounts Managed
------------------------------------------------------------------------------------------
Stafford Number of Other 1 0 0
Southwick(2) Accounts Managed
-------------------------------------------------------------------------
Assets in Other $114,504,071 N/A N/A
Accounts Managed
------------------------------------------------------------------------------------------
New Opportunities II
------------------------------------------------------------------------------------------
Harold Number of Other 1 0 14
Bradley Accounts Managed
-------------------------------------------------------------------------
Assets in Other $240,673,473 N/A $23,196,743
Accounts Managed
------------------------------------------------------------------------------------------
Matthew Number of Other 1 0 0
Ferretti(1) Accounts Managed
-------------------------------------------------------------------------
Assets in Other $259,545,107 N/A N/A
Accounts Managed
------------------------------------------------------------------------------------------
Stafford Number of Other 1 0 0
Southwick(2) Accounts Managed
-------------------------------------------------------------------------
Assets in Other $274,858,936 N/A N/A
Accounts Managed
------------------------------------------------------------------------------------------

(1) MR. FERRETTI BECAME A PORTFOLIO MANAGER FOR NEW OPPORTUNITIES AND NEW
OPPORTUNITIES II ON JUNE 30, 2006. INFORMATION IS PROVIDED AS OF JULY 12,
2006.

(2) MR. SOUTHWICK BECAME A PORTFOLIO MANAGER FOR NEW OPPORTUNITIES AND NEW
OPPORTUNITIES II ON APRIL 1, 2006. INFORMATION IS PROVIDED AS OF APRIL 1,
2006.

------
58

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 STRATEGIES AND
SUBADVISED 529 EDUCATION CORPORATE
FUNDS) SAVINGS PLANS) MONEY)
---------------------------------------------------------------------------------------
NT Growth(1)
---------------------------------------------------------------------------------------
Gregory J. Number of Other 8 0 3
Woodhams Accounts Managed
------------------------------------------------------------------------
Assets in Other $9,794,623,329 N/A $134,259,345
Accounts Managed
---------------------------------------------------------------------------------------
E.A. Number of Other 4 0 3
Prescott Accounts Managed
LeGard
------------------------------------------------------------------------
Assets in Other $5,821,020,595 N/A $134,259,345
Accounts Managed
---------------------------------------------------------------------------------------
NT Vista(1)
Glenn Number of Other 8 0 1
Fogle Accounts Managed
------------------------------------------------------------------------
Assets in Other $7,052,458,009 N/A $30,699,952
Accounts Managed
---------------------------------------------------------------------------------------
David Number of Other 8 0 1
Hollond Accounts Managed
------------------------------------------------------------------------
Assets in Other $7,052,458,009 N/A $30,699,952
Accounts Managed
---------------------------------------------------------------------------------------
Select
---------------------------------------------------------------------------------------
Harold Number of Other 3 0 14
Bradley(2) Accounts Managed
------------------------------------------------------------------------
Assets in Other $787,068,444 N/A $26,399,165
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 Number of Other 1 0 0
Li(3) Accounts Managed
------------------------------------------------------------------------
Assets in Other $433,736,823 N/A N/A
Accounts Managed
---------------------------------------------------------------------------------------
Ultra
---------------------------------------------------------------------------------------
Thomas Number of Other 2 0 0
Telford(4) Accounts Managed
------------------------------------------------------------------------
Assets in Other $1,587,618,801 N/A N/A
Accounts Managed
---------------------------------------------------------------------------------------
Wade Number of Other 1 0 0
Slome Accounts Managed
------------------------------------------------------------------------
Assets in Other $259,364,324 N/A N/A
Accounts Managed
---------------------------------------------------------------------------------------
Jerry Number of Other 3 0 0
Sullivan Accounts Managed
------------------------------------------------------------------------
Assets in Other $686,105,081 N/A N/A
Accounts Managed
---------------------------------------------------------------------------------------

(1) THE FUND'S INCEPTION DATE WILL BE MAY 12, 2006. THE FUND'S INFORMATION
IS PROVIDED AS OF MARCH 31, 2006, AND ASSUMES THE FUND WAS IN OPERATION ON
THAT DATE.

(2) MR. BRADLEY BECAME A PORTFOLIO MANAGER FOR SELECT ON APRIL 1, 2006.
INFORMATION IS PROVIDED AS OF APRIL 10, 2006.

(3) DR. LI BECAME A PORTFOLIO MANAGER FOR SELECT ON FEBRUARY 1, 2006.
INFORMATION IS PROVIDED AS OF FEBRUARY 10, 2006.

(4) MR. TELFORD BECAME A PORTFOLIO MANAGER FOR ULTRA ON JUNE 30, 2006.
INFORMATION IS PROVIDED AS OF JULY 12, 2006.

------
59

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

------
60

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.

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 (other than NT Growth and NT Vista), 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, such as NT Growth and NT Vista, 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. This is the case for NT Growth and NT Vista.

A portion of portfolio managers' bonuses also is 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).

------
61

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. Because NT Growth and NT Vista were not in
operation as of October 31, 2005, they are not included in the chart below.

OWNERSHIP OF SECURITIES AGGREGATE DOLLAR RANGE OF SECURITIES IN FUND
--------------------------------------------------------------------------------
Balanced(1)
William Martin(2) A
--------------------------------------------------------------------------------
Thomas P. Vaiana(2) A
--------------------------------------------------------------------------------
Fei Zou(2) A
--------------------------------------------------------------------------------
G. David MacEwen(2) A
--------------------------------------------------------------------------------
Robert V. Gahagan(2) A
--------------------------------------------------------------------------------
James F. Keegan(2) A
--------------------------------------------------------------------------------
Jeffrey L. Houston(2) A
--------------------------------------------------------------------------------
Alejandro H. Aguilar(2) A
--------------------------------------------------------------------------------
Brian Howell(2) A
--------------------------------------------------------------------------------
John F. Walsh(2) A
--------------------------------------------------------------------------------
Dan Shiffman(2) A
--------------------------------------------------------------------------------
Capital Growth
Gregory J. Woodhams(2) A
--------------------------------------------------------------------------------
E.A. Prescott LeGard(2) 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
--------------------------------------------------------------------------------

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) INFORMATION PROVIDED AS OF APRIL 1, 2006.

(2) 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.

------
62

OWNERSHIP OF SECURITIES AGGREGATE DOLLAR RANGE OF SECURITIES IN FUND
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
Matthew Ferretti(2) C
--------------------------------------------------------------------------------
Stafford Southwick(3) C
--------------------------------------------------------------------------------
New Opportunities II
Harold Bradley E
--------------------------------------------------------------------------------
Matthew Ferretti(1)(2) A
--------------------------------------------------------------------------------
Stafford Southwick(3) C
--------------------------------------------------------------------------------
Select
Harold Bradley(4) C
--------------------------------------------------------------------------------
Keith Lee E
--------------------------------------------------------------------------------
Michael Li(5) B
--------------------------------------------------------------------------------
Ultra
Thomas Telford(6) E
--------------------------------------------------------------------------------
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) MR. FERRETTI BECAME A PORTFOLIO MANAGER FOR NEW OPPORTUNITIES AND NEW
OPPORTUNITIES II ON JUNE 30, 2006. INFORMATION IS PROVIDED AS OF JULY 12,
2006.

(3) MR. SOUTHWICK BECAME A PORTFOLIO MANAGER FOR NEW OPPORTUNITIES AND NEW
OPPORTUNITIES II ON APRIL 1, 2006. INFORMATION IS PROVIDED AS OF APRIL 1,
2006.

(4) MR. BRADLEY BECAME A PORTFOLIO MANAGER FOR SELECT ON APRIL 1, 2006.
INFORMATION IS PROVIDED AS OF APRIL 10, 2006.

(5) DR. LI BECAME A PORTFOLIO MANAGER FOR SELECT ON FEBRUARY 1, 2006.
INFORMATION IS PROVIDED AS OF FEBRUARY 10, 2006.

(6) MR. TELFORD BECAME A PORTFOLIO MANAGER FOR ULTRA ON JUNE 30, 2006.
INFORMATION IS PROVIDED AS OF JULY 12, 2006.

------
63

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 MARCH 31, 2006)
OTHER ACCOUNTS
OTHER POOLED (E.G., SEPARATE
INVESTMENT ACCOUNTS AND
VEHICLES (E.G., CORPORATE
COMMINGLED ACCOUNTS INCLUDING
REGISTERED TRUSTS AND 529 INCUBATION
INVESTMENT EDUCATION STRATEGIES AND
COMPANIES SAVINGS PLANS) CORPORATE MONEY)
------------------------------------------------------------------------------------
Mid Cap Growth
------------------------------------------------------------------------------------
William R. Number of Other 3(1) 0 0
Walker Accounts Managed
-----------------------------------------------------------------------
Assets in Other $1.95 billion N/A N/A
Accounts Managed
------------------------------------------------------------------------------------
Small Cap Growth
------------------------------------------------------------------------------------
William R. Number of Other 3(2) 0 0
Walker Accounts Managed
-----------------------------------------------------------------------
Assets in Other $2.08 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.

------
64

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.

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 seeks 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 has adopted Codes of Ethics or
other policies and procedures governing the personal securities transactions of
its 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.

------
65

Portfolio Manager Securities Ownership

As of March 31, 2006, the portfolio managers beneficially owned no shares of the
fund.

TRANSFER AGENT AND ADMINISTRATOR

American Century Services, LLC (ACS), 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 50.

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.
(ACIS), 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 50. 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

JPMorgan 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. Goldman, Sachs
& Co., 85 Broad Street, New York, New York 10004, maintains custody accounts
for the safekeeping of futures trading margin for all funds except 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. JPMorgan Chase Bank is paid based on the monthly average of assets
held in custody plus a transaction fee.

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 its affiliates 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.

------
66

BROKERAGE ALLOCATION

CAPITAL GROWTH, CAPITAL VALUE, FOCUSED GROWTH, FUNDAMENTAL EQUITY, GIFTRUST,
GROWTH, HERITAGE, MID CAP GROWTH, NEW OPPORTUNITIES, NEW OPPORTUNITIES II, NT
GROWTH, NT VISTA, 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 fiscal years ended October 31, 2005, 2004 and 2003, the brokerage
commissions of each fund are listed in the following table. Because NT Growth
and NT Vista were not in operation as of the fiscal year end, they are not
included.

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 Equity $1,686(3) N/A N/A
--------------------------------------------------------------------------------
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 Growth(4) (5) $437,184 $245,045 $150,296
--------------------------------------------------------------------------------
New Opportunities $1,027,283 $1,521,059 $1,463,909
--------------------------------------------------------------------------------
New Opportunities II $367,669 $231,389 $167,785
--------------------------------------------------------------------------------
Select $2,279,586 $3,551,910 $6,445,767
--------------------------------------------------------------------------------
Small Cap Growth(4) (6) $167,469 $72,119 $58,052
--------------------------------------------------------------------------------
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.

(5) FOR THE FISCAL YEAR ENDED MARCH 31, 2006, THE PREDECESSOR FUND PAID
$472,870.

(6) FOR THE FISCAL YEAR ENDED MARCH 31, 2006, THE PREDECESSOR FUND PAID
$219,083.

The funds' distributor (ACIS) and investment advisor (ACIM) are wholly owned,
directly or indirectly, by ACC. JPMorgan Chase & Co. (JPM) is an equity investor
in ACC. The funds paid J.P. Morgan Securities Inc. (JPMS), a subsidiary of JPM,
the following brokerage commissions for the fiscal years ended October 31, 2005,
2004 and 2003.

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67

FUND 2005 2004 2003
--------------------------------------------------------------------------------
Balanced $0 $108 $1,500
--------------------------------------------------------------------------------
Capital Growth $1 $11(1) N/A
--------------------------------------------------------------------------------
Capital Value $132 $88 $0
--------------------------------------------------------------------------------
Focused Growth $0(2) N/A N/A
--------------------------------------------------------------------------------
Fundamental Equity $0(3) N/A N/A
--------------------------------------------------------------------------------
Giftrust $3,028 $3,989 $3,726
--------------------------------------------------------------------------------
Growth $2,036 $60,707 $30,568
--------------------------------------------------------------------------------
Heritage $3,036 $1,104 $5,648
--------------------------------------------------------------------------------
Mid Cap Growth(4) N/A N/A N/A
--------------------------------------------------------------------------------
New Opportunities $0 $0 $940
--------------------------------------------------------------------------------
New Opportunities II $0 $0 $60
--------------------------------------------------------------------------------
Select $3,103 $75,020 $32,555
--------------------------------------------------------------------------------
Small Cap Growth(5) N/A N/A N/A
--------------------------------------------------------------------------------
Ultra $25,240 $17,936 $34,969
--------------------------------------------------------------------------------
Veedot $0 $657 $7,100
--------------------------------------------------------------------------------
Vista $812 $14,861 $28,909
--------------------------------------------------------------------------------

(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) BROKERAGE COMMISSIONS PAID BEFORE APRIL 1, 2006 WERE PAID BY MASON
STREET AGGRESSIVE GROWTH FUND, WHICH WAS NOT AFFILIATED WITH JPM OR JPMS.
MID CAP GROWTH ACQUIRED ALL OF THE NET ASSETS OF MASON STREET AGGRESSIVE
GROWTH FUND ON MARCH 31, 2006.

(5) BROKERAGE COMMISSIONS PAID BEFORE APRIL 1, 2006 WERE PAID BY MASON
STREET SMALL CAP GROWTH FUND, WHICH WAS NOT AFFILIATED WITH JPM OR JPMS.
SMALL CAP GROWTH ACQUIRED ALL OF THE NET ASSETS OF MASON STREET SMALL CAP
GROWTH FUND ON MARCH 31, 2006.

For the fiscal year ended October 31, 2005, the following table shows the
percentage of each fund's aggregate brokerage commissions paid to JPMS and the
percentage of each fund's aggregate dollar amount of portfolio transactions
involving the payment of commissions effected through JPMS.

PERCENTAGE OF
PERCENTAGE DOLLAR AMOUNT
OF BROKERAGE OF PORTFOLIO
FUND COMMISSIONS TRANSACTIONS
--------------------------------------------------------------------------------
Balanced 0.00% 0.00%
--------------------------------------------------------------------------------
Capital Growth 0.04% 0.02%
--------------------------------------------------------------------------------
Capital Value 0.08% 0.02%
--------------------------------------------------------------------------------
Focused Growth(1) 0.00% 0.00%
--------------------------------------------------------------------------------
Fundamental Equity(2) 0.00% 0.00%
--------------------------------------------------------------------------------
Giftrust 0.12% 0.06%
--------------------------------------------------------------------------------
Growth 0.04% 0.04%
--------------------------------------------------------------------------------
Heritage 0.10% 0.05%
--------------------------------------------------------------------------------
Mid Cap Growth(3) N/A N/A
--------------------------------------------------------------------------------
New Opportunities 0.00% 0.00%
--------------------------------------------------------------------------------
New Opportunities II 0.00% 0.00%
--------------------------------------------------------------------------------
Select 0.14% 0.03%
--------------------------------------------------------------------------------
Small Cap Growth(4) N/A N/A
--------------------------------------------------------------------------------
Ultra 0.31% 0.11%
--------------------------------------------------------------------------------
Veedot 0.00% 0.00%
--------------------------------------------------------------------------------
Vista 0.01% 0.01%
--------------------------------------------------------------------------------

(1) FEBRUARY 28, 2005 (INCEPTION) THROUGH OCTOBER 31, 2005.

(2) NOVEMBER 30, 2004 (INCEPTION) THROUGH OCTOBER 31, 2005.

(3) BROKERAGE COMMISSIONS PAID BEFORE APRIL 1, 2006 WERE PAID BY MASON
STREET AGGRESSIVE GROWTH FUND, WHICH WAS NOT AFFILIATED WITH JPM OR JPMS.
MID CAP GROWTH ACQUIRED ALL OF THE NET ASSETS OF MASON STREET AGGRESSIVE
GROWTH FUND ON MARCH 31, 2006.

(4) BROKERAGE COMMISSIONS PAID BEFORE APRIL 1, 2006 WERE PAID BY MASON
STREET SMALL CAP GROWTH FUND, WHICH WAS NOT AFFILIATED WITH JPM OR JPMS.
SMALL CAP GROWTH ACQUIRED ALL OF THE NET ASSETS OF MASON STREET SMALL CAP
GROWTH FUND ON MARCH 31, 2006.

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68

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.

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 statistical and other
information and services, including research, 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 the end 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. As new funds, NT Growth and NT Vista are not included in the table
below.

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. $1,574,442
--------------------------------------------------------------
Merrill Lynch and Company, Inc. $542,539
--------------------------------------------------------------------------------

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69

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 Growth None
--------------------------------------------------------------------------------
Fundamental Equity Citigroup Inc. $70,684
-------------------------------------------------------
Goldman Sachs Group, Inc. $29,950
-------------------------------------------------------
Morgan Stanley $28,892
--------------------------------------------------------------------------------
Giftrust None
--------------------------------------------------------------------------------
Growth None
--------------------------------------------------------------------------------
Heritage None
--------------------------------------------------------------------------------
Mid Cap Growth None(1)
--------------------------------------------------------------------------------
New Opportunities None
--------------------------------------------------------------------------------
New Opportunities II None
--------------------------------------------------------------------------------
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, 2006, 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.
Within their respective series, all shares have equal redemption rights. Each
share, when issued, is fully paid and non-assessable.

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70

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.

MULTIPLE CLASS STRUCTURE

The corporation's Board of Directors has adopted a multiple class 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 of 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 about revenues and expenses under the plans is presented to
the Board of Directors quarterly for its consideration in continuing 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).

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71

A Class Plan

As described in the prospectuses, the A Class shares of the funds are made
available to participants in employer-sponsored retirement 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 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 $41,392(1)
New Opportunities II $96,534
Select $97,145
Small Cap Growth $45,290(1)

(1) DURING THE FISCAL YEAR ENDED MARCH 31, 2006, THE AGGREGATE AMOUNT OF
DISTRIBUTION 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;

(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) paying 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) compensating registered representatives or other employees of the
distributor who engage in or support distribution of the funds' A Class
shares;

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72

(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 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 $69,276(1)
New Opportunities II $19,487
Select $24,655
Small Cap Growth $56,761(1)

(1) DURING THE FISCAL YEAR ENDED MARCH 31, 2006, THE AGGREGATE AMOUNT OF
DISTRIBUTION FEES PAID BY THE PREDECESSOR FUND.

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73

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;

(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) paying 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) compensating registered representatives or other employees of the
distributor who engage in or support distribution of the funds' B Class
shares;