UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-21591 --------------------------------------------- AMERICAN CENTURY ASSET ALLOCATION PORTFOLIOS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 4500 MAIN STREET, KANSAS CITY, MISSOURI 64111 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) DAVID C. TUCKER, ESQ., 4500 MAIN STREET, 9TH FLOOR, KANSAS CITY, MISSOURI 64111 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 816-531-5575 ---------------------------- Date of fiscal year end: 07-31 ------------------------------------------------------ Date of reporting period: 07-31-2006 ------------------------------------------------------
ITEM 1. REPORTS TO STOCKHOLDERS. [front cover] [american century investments livestrong portfolios logo] LIVESTRONG™ PORTFOLIOS FROM AMERICAN CENTURY INVESTMENTS Annual Report LIVESTRONG Income Portfolio LIVESTRONG 2015 Portfolio LIVESTRONG 2025 Portfolio LIVESTRONG 2035 Portfolio LIVESTRONG 2045 Portfolio [photo of man with glasses and book] JULY 31, 2006 Table of Contents Our Message to You. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 LIVESTRONG PORTFOLIOS Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Market Index Total Returns . . . . . . . . . . . . . . . . . . . . . . . 7 Types of Investments in LIVESTRONG Portfolios . . . . . . . . . . . . . 9 Underlying Fund Allocations . . . . . . . . . . . . . . . . . . . . . . 10 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Shareholder Fee Examples. . . . . . . . . . . . . . . . . . . . . . . . . . 14 FINANCIAL STATEMENTS Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . 18 Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . . 22 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 25 Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Report of Independent Registered Public Accounting Firm . . . . . . . . . . 59 OTHER INFORMATION Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Approval of Management Agreement for LIVESTRONG Portfolios. . . . . . . . . 63 Share Class Information . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 American Century Investment Services, Inc., has entered into an agreement with the Lance Armstrong Foundation for rights to use the LIVESTRONG name. LIVESTRONG is a trademark of the Lance Armstrong Foundation. For more information about the foundation, visit www.livestrong.org. The opinions expressed in the Portfolio Commentary reflect those of the portfolio management team as of the date of the report, and do not necessarily represent the opinions of American Century or any other person in the American Century organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century by third party vendors. To the best of American Century's knowledge, such information is accurate at the time of printing. Our Message to You [photo of James E. Stowers III and James E. Stowers, Jr.] JAMES E. STOWERS III WITH JAMES E. STOWERS, JR. We are pleased to provide you with the annual report for LIVESTRONG Portfolios from American Century Investments for the year ended July 31, 2006. We hope you find this information helpful in monitoring your investment. Another useful resource we offer is our Web site, americancentury.com, where we post quarterly portfolio commentaries, the views of our senior investment officers, and other communications about investments, portfolio strategy, and the markets. Our Web site presents American Century's strategic collaboration with Lance Armstrong and the Lance Armstrong Foundation (LAF). Our campaign, featuring Lance, is designed to encourage investors to take a more active role in planning their financial futures and make every investment decision count. American Century's collaboration with Lance Armstrong and the LAF is a perfect fit. Like members of our family, Lance is a cancer survivor and shares our values of optimism, focus, and determination. In addition, Lance and our family have dedicated our success to improving lives, through the LAF and the Stowers Institute for Medical Research, respectively. To learn more about American Century's collaboration with Lance Armstrong and the LAF, please visit www.lanceface.com on the Web and click on the links to related sites. Besides this exciting collaboration, we've enjoyed other good news -- in January, American Century was named, for the seventh consecutive year, one of FORTUNE magazine's 100 Best Companies to Work For in America. Fostering a positive work environment can benefit fund investors as well as our company -- it helps us continue to attract and retain talented people. As always, we deeply appreciate your investment with American Century Investments. Sincerely, /s/James E. Stowers, Jr. James E. Stowers, Jr. FOUNDER AMERICAN CENTURY COMPANIES, INC. /s/James E. Stowers III James E. Stowers III CHAIRMAN OF THE BOARD AMERICAN CENTURY COMPANIES, INC. - ------ 1 LIVESTRONG Portfolios - Performance TOTAL RETURNS AS OF JULY 31, 2006 -------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR INCEPTION DATE - -------------------------------------------------------------------------------- LIVESTRONG INCOME PORTFOLIO - -------------------------------------------------------------------------------- INVESTOR CLASS 2.99% 5.79% 8/31/04 - -------------------------------------------------------------------------------- Institutional Class 3.20% 5.99% 8/31/04 - -------------------------------------------------------------------------------- Advisor Class 2.83% 5.54% 8/31/04 - -------------------------------------------------------------------------------- R Class 2.48% 5.24% 8/31/04 - -------------------------------------------------------------------------------- LIVESTRONG 2015 PORTFOLIO - -------------------------------------------------------------------------------- INVESTOR CLASS 4.46% 8.12% 8/31/04 - -------------------------------------------------------------------------------- Institutional Class 4.67% 8.31% 8/31/04 - -------------------------------------------------------------------------------- Advisor Class 4.22% 7.84% 8/31/04 - -------------------------------------------------------------------------------- R Class 4.05% 7.61% 8/31/04 - -------------------------------------------------------------------------------- LIVESTRONG 2025 PORTFOLIO - -------------------------------------------------------------------------------- INVESTOR CLASS 5.48% 9.89% 8/31/04 - -------------------------------------------------------------------------------- Institutional Class 5.77% 10.13% 8/31/04 - -------------------------------------------------------------------------------- Advisor Class 5.30% 9.64% 8/31/04 - -------------------------------------------------------------------------------- R Class 4.95% 9.36% 8/31/04 - -------------------------------------------------------------------------------- RUSSELL 3000 INDEX(1) 5.14% 11.13% -- - -------------------------------------------------------------------------------- LEHMAN BROTHERS U.S. AGGREGATE INDEX(1) 1.46% 2.24% -- - -------------------------------------------------------------------------------- (1) Data provided by Lipper Inc. - A Reuters Company. © 2006 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. The data contained herein has been obtained from company reports, financial reporting services, periodicals and other resources believed to be reliable. Although carefully verified, data on compilations is not guaranteed by Lipper and may be incomplete. No offer or solicitations to buy or sell any of the securities herein is being made by Lipper. The Russell 3000 Index represents approximately 98% of the investable U.S. equity market and provides a broad measure of equity performance. The Lehman Brothers U.S. Aggregate Index represents the U.S. investment-grade fixed-rate bond market and provides a broad measure of bond market performance. Performance for these indices is provided for reference only. Neither index is intended to represent the composition of the fund, which invests in a mix of equity and fixed-income securities. (See the Schedule of Investments for the funds' asset allocations as of July 31, 2006.) Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. The performance of LIVESTRONG Portfolios is dependent on the performance of their underlying American Century funds, and will assume the risks associated with these funds. The risks will vary according to each LIVESTRONG Portfolio's asset allocation, and a fund with a later target date is expected to be more volatile than one with an earlier target date. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund's total returns include operating expenses (such as administrative fees) that reduce returns, while the total returns of the indices do not. (continued) - ------ 2 LIVESTRONG Portfolios - Performance TOTAL RETURNS AS OF JULY 31, 2006 -------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR INCEPTION DATE - -------------------------------------------------------------------------------- LIVESTRONG 2035 PORTFOLIO - -------------------------------------------------------------------------------- INVESTOR CLASS 6.45% 11.50% 8/31/04 - -------------------------------------------------------------------------------- Institutional Class 6.66% 11.75% 8/31/04 - -------------------------------------------------------------------------------- Advisor Class 6.10% 11.21% 8/31/04 - -------------------------------------------------------------------------------- R Class 5.93% 10.97% 8/31/04 - -------------------------------------------------------------------------------- LIVESTRONG 2045 PORTFOLIO - -------------------------------------------------------------------------------- INVESTOR CLASS 6.76% 12.24% 8/31/04 - -------------------------------------------------------------------------------- Institutional Class 6.96% 12.48% 8/31/04 - -------------------------------------------------------------------------------- Advisor Class 6.51% 11.96% 8/31/04 - -------------------------------------------------------------------------------- R Class 6.24% 11.72% 8/31/04 - -------------------------------------------------------------------------------- RUSSELL 3000 INDEX(1) 5.14% 11.13% -- - -------------------------------------------------------------------------------- LEHMAN BROTHERS U.S. AGGREGATE INDEX(1) 1.46% 2.24% -- - -------------------------------------------------------------------------------- (1) Data provided by Lipper Inc. - A Reuters Company. © 2006 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. The data contained herein has been obtained from company reports, financial reporting services, periodicals and other resources believed to be reliable. Although carefully verified, data on compilations is not guaranteed by Lipper and may be incomplete. No offer or solicitations to buy or sell any of the securities herein is being made by Lipper. The Russell 3000 Index represents approximately 98% of the investable U.S. equity market and provides a broad measure of equity performance. The Lehman Brothers U.S. Aggregate Index represents the U.S. investment-grade fixed-rate bond market and provides a broad measure of bond market performance. Performance for these indices is provided for reference only. Neither index is intended to represent the composition of the fund, which invests in a mix of equity and fixed-income securities. (See the Schedule of Investments for the funds' asset allocations as of July 31, 2006.) Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. The performance of LIVESTRONG Portfolios is dependent on the performance of their underlying American Century funds, and will assume the risks associated with these funds. The risks will vary according to each LIVESTRONG Portfolio's asset allocation, and a fund with a later target date is expected to be more volatile than one with an earlier target date. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund's total returns include operating expenses (such as administrative fees) that reduce returns, while the total returns of the indices do not. (continued) - ------ 3 LIVESTRONG Portfolios - Performance GROWTH OF $10,000 OVER LIFE OF LIVESTRONG INCOME PORTFOLIO -- INVESTOR CLASS $10,000 investment made August 31, 2004
* From 8/31/04, the Investor Class's inception date. Not annualized. GROWTH OF $10,000 OVER LIFE OF LIVESTRONG 2015 PORTFOLIO -- INVESTOR CLASS $10,000 investment made August 31, 2004
* From 8/31/04, the Investor Class's inception date. Not annualized. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. The performance of LIVESTRONG Portfolios is dependent on the performance of their underlying American Century funds, and will assume the risks associated with these funds. The risks will vary according to each LIVESTRONG Portfolio's asset allocation, and a fund with a later target date is expected to be more volatile than one with an earlier target date. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund's total returns include operating expenses (such as administrative fees) that reduce returns, while the total returns of the indices do not. (continued) - ------ 4 LIVESTRONG Portfolios - Performance GROWTH OF $10,000 OVER LIFE OF LIVESTRONG 2025 PORTFOLIO -- INVESTOR CLASS $10,000 investment made August 31, 2004
* From 8/31/04, the Investor Class's inception date. Not annualized. GROWTH OF $10,000 OVER LIFE OF LIVESTRONG 2035 PORTFOLIO -- INVESTOR CLASS $10,000 investment made August 31, 2004
* From 8/31/04, the Investor Class's inception date. Not annualized. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. The performance of LIVESTRONG Portfolios is dependent on the performance of their underlying American Century funds, and will assume the risks associated with these funds. The risks will vary according to each LIVESTRONG Portfolio's asset allocation, and a fund with a later target date is expected to be more volatile than one with an earlier target date. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund's total returns include operating expenses (such as administrative fees) that reduce returns, while the total returns of the indices do not. (continued) - ------ 5 LIVESTRONG Portfolios - Performance GROWTH OF $10,000 OVER LIFE OF LIVESTRONG 2045 PORTFOLIO -- INVESTOR CLASS $10,000 investment made August 31, 2004
* From 8/31/04, the Investor Class's inception date. Not annualized. ONE-YEAR RETURNS OVER LIFE OF CLASS Periods ended July 31 - -------------------------------------------------------------------------------- 2005* 2006 - -------------------------------------------------------------------------------- LIVESTRONG Income Portfolio -- Investor Class 8.14% 2.99% - -------------------------------------------------------------------------------- LIVESTRONG 2015 Portfolio -- Investor Class 11.17% 4.46% - -------------------------------------------------------------------------------- LIVESTRONG 2025 Portfolio -- Investor Class 13.57% 5.48% - -------------------------------------------------------------------------------- LIVESTRONG 2035 Portfolio -- Investor Class 15.71% 6.45% - -------------------------------------------------------------------------------- LIVESTRONG 2045 Portfolio -- Investor Class 16.86% 6.76% - -------------------------------------------------------------------------------- Russell 3000 Index 16.43% 5.14% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Aggregate Index 2.83% 1.46% - -------------------------------------------------------------------------------- * From 8/31/04, the Investor Class's inception date. Not annualized. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. The performance of LIVESTRONG Portfolios is dependent on the performance of their underlying American Century funds, and will assume the risks associated with these funds. The risks will vary according to each LIVESTRONG Portfolio's asset allocation, and a fund with a later target date is expected to be more volatile than one with an earlier target date. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund's total returns include operating expenses (such as administrative fees) that reduce returns, while the total returns of the indices do not. - ------ 6 LIVESTRONG Portfolios - Portfolio Commentary PORTFOLIO MANAGERS: JEFF TYLER AND IRINA TORELLI PERFORMANCE SUMMARY The five LIVESTRONG Portfolios posted positive returns for the year ended July 31, 2006, due mostly to positive performances in domestic and international stock markets. Returns from international stocks--especially emerging markets--were the biggest contributors to the funds' gains, while domestic bond market returns added only modestly to returns. LIVESTRONG Portfolios' one-year returns ranged from 2.99%* for LIVESTRONG Income Portfolio, which is heavily weighted toward bonds, to 6.76% for LIVESTRONG 2045 Portfolio, which had roughly 85% of its assets in international and domestic stocks as of July 31, 2006. Because of the funds' broad exposure to a variety of asset classes and investment styles, a review of the performances of the various financial markets helps explain each LIVESTRONG Portfolio's return. STOCK MARKET REVIEW In spite of rising interest rates and spiraling fuel costs, U.S. corporations generally enjoyed strong earnings growth, helping most of the major indices post gains for the year. The large-cap Russell 1000 Index outperformed the small-cap Russell 2000 Index, but both trailed the Russell Midcap Index. Investors favored value stocks, which outstripped growth stocks by a wide margin in large-, medium-, and small-cap arenas. For example, the Russell 1000 Growth Index returned MARKET INDEX TOTAL RETURNS AS OF JULY 31, 2006 - -------------------------------------------------------------------------------- 1 YEAR - -------------------------------------------------------------------------------- U.S. STOCKS - ------------------------------------------------------- Russell 1000 Index(1) 5.23% - ------------------------------------------------------------------------------- Russell Midcap Index(1) 5.60% - ------------------------------------------------------------------------------- Russell 2000 Index(1) 4.24% - ------------------------------------------------------------------------------- INTERNATIONAL STOCKS - ------------------------------------------------------- MSCI EAFE Index 24.01% - ------------------------------------------------------------------------------- MSCI Emerging Markets Index 28.82% - ------------------------------------------------------------------------------- U.S. FIXED INCOME - ------------------------------------------------------- Lehman Brothers U.S. Aggregate Index(1) 1.46% - ------------------------------------------------------------------------------- 10-Year U.S. Treasury Note -2.00% - ------------------------------------------------------------------------------- 90-Day U.S. Treasury Bill Index(1) 4.16% - ------------------------------------------------------------------------------- INTERNATIONAL BONDS - ------------------------------------------------------- Citigroup Non-U.S. World Government Bond Index 1.57% - ------------------------------------------------------------------------------- (1) Data provided by Lipper Inc. -- A Reuters Company. ©2006 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. The data contained herein has been obtained from company reports, financial reporting services, periodicals and other resources believed to be reliable. Although carefully verified, data on compilations is not guaranteed by Lipper and may be incomplete. No offer or solicitations to buy or sell any of the securities herein is being made by Lipper. *All LIVESTRONG Portfolio returns referenced in this commentary are for Investor Class shares. (continued) - ------ 7 LIVESTRONG Portfolios - Portfolio Commentary - -0.76%, while the Russell 1000 Value Index gained 11.59%. Foreign stock market returns were significantly higher than those of their U.S. counterparts, with emerging market stocks offering the highest returns overall. European stocks posted healthy returns, as companies were boosted by strong global demand. Japanese stocks did even better as the country's economy continued to improve. BOND MARKET REVIEW The broad U.S. bond market -- as represented by the Lehman Brothers U.S. Aggregate Index -- managed a small positive total return as price declines were offset by coupon payments. Yields rose across the Treasury yield curve as the Federal Reserve raised short-term interest rates eight times, moving the federal funds rate target from 3.25% to 5.25%. Yields rose more at the short end of the curve than the long end, "flattening" the curve, and even inverting it periodically. A yield-curve inversion occurs when shorter-maturity yields are higher than longer-maturity yields. Very short-term Treasurys, high-yield corporate securities, and mortgage-backed securities were among the best performers, while longer-term Treasurys had negative returns for the period. Money market rates rose significantly as the Fed pushed interest rates higher. Foreign bonds had flat to negative returns in local currency terms, but the dollar's weakness versus the euro and other major foreign currencies in the first half of 2006 pushed some returns for U.S. investors into positive territory. Japanese bond returns didn't get this boost in dollar terms, since the dollar rose 2% versus the yen during the year. But the dollar fell about 5% versus the euro and around 6% versus the British pound for the year ended July 31, 2006. PORTFOLIO STRATEGY LIVESTRONG Income Portfolio seeks current income, with capital appreciation as a secondary objective. The four target-year LIVESTRONG Portfolios seek the highest total return consistent with their particular asset mix. Each LIVESTRONG Portfolio is a "fund of funds," which means it invests in other American Century mutual funds to achieve its investment objective and target asset allocation. We will adjust each LIVESTRONG Portfolio's target asset allocation annually. In general (with the exception of LIVESTRONG Income Portfolio) LIVESTRONG Portfolios' allocation to stocks will decrease and their allocations to bonds and cash will increase each year until each fund's target year is reached. At that time, its asset mix will become fixed and match that of LIVESTRONG Income Portfolio. Given the strong performance of international stocks, the higher-risk funds among LIVESTRONG Portfolios' underlying funds offered the highest returns during the year. American Century Emerging Markets (38.38%) and American Century International Growth (21.18%) were the top-performing funds among LIVESTRONG Portfolios' basket of mutual fund investments. American Century Large Company Value (8.79%) was the top-performing domestic stock fund among LIVESTRONG Portfolios' basket of funds. (continued) - ------ 8 LIVESTRONG Portfolios - Portfolio Commentary As is typical with lower-risk, higher-quality investments, bond fund returns were more modest. American Century's Premium Money Market returned 4.10%, aided by rising short-term interest rates, helping the money market fund outperform the bond funds among LIVESTRONG Portfolios' underlying investments. American Century High-Yield (2.98%) and American Century International Bond (2.89%) were the best performers among LIVESTRONG Portfolios' bond funds, the first reflecting high-yield corporate bonds' relatively good performance for the period, and the second reflecting the dollar's weakness versus the euro and the British pound. The returns of each LIVESTRONG Portfolio were consistent with their respective asset mixes. Those with the highest allocations in foreign stocks (LIVESTRONG 2035 Portfolio and LIVESTRONG 2045 Portfolio) offered the strongest returns, while the LIVESTRONG Portfolios with more conservative asset allocations offered more modest returns. TYPES OF INVESTMENTS IN LIVESTRONG PORTFOLIOS AS A % OF NET ASSETS AS OF JULY 31, 2006 - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG LIVESTRONG LIVESTRONG LIVESTRONG INCOME 2015 2025 2035 2045 PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - -------------------------------------------------------------------------------- EQUITY - --------------- Large Cap Blend 13.2% 12.4% 12.6% 14.3% 15.3% - -------------------------------------------------------------------------------- Large Cap Value 11.3% 11.5% 12.4% 14.6% 15.7% - -------------------------------------------------------------------------------- Large Cap Growth 6.5% 9.0% 12.2% 14.2% 15.1% - -------------------------------------------------------------------------------- Large Cap Blend -- International 5.3% 6.8% 9.7% 10.4% 9.9% - -------------------------------------------------------------------------------- Large Cap Growth -- International -- 2.1% 3.3% 5.2% 6.8% - -------------------------------------------------------------------------------- Mid Cap Growth 2.5% 4.3% 5.3% 7.0% 7.5% - -------------------------------------------------------------------------------- Mid Cap Value 4.0% 5.2% 5.2% 6.9% 7.3% - -------------------------------------------------------------------------------- Small Cap Value 2.0% 2.2% 3.9% 3.9% 4.6% - -------------------------------------------------------------------------------- Real Estate 1.0% 1.5% 2.0% 2.5% 3.0% - -------------------------------------------------------------------------------- TOTAL EQUITY 45.8% 55.0% 66.6% 79.0% 85.2% - -------------------------------------------------------------------------------- FIXED INCOME - --------------- Investment Grade 33.6% 30.9% 25.1% 18.4% 13.4% - -------------------------------------------------------------------------------- High-Yield 3.7% 3.4% 2.8% 2.0% 1.4% - -------------------------------------------------------------------------------- International 6.9% 5.1% 0.5% -- -- - -------------------------------------------------------------------------------- TOTAL FIXED-INCOME 44.2% 39.4% 28.4% 20.4% 14.8% - -------------------------------------------------------------------------------- MONEY MARKET 9.8% 5.4% 4.9% 0.5% -- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES 0.2% 0.2% 0.1% 0.1% --(1) - -------------------------------------------------------------------------------- (1) Category is less than 0.05% of total net assets. (continued) - ------ 9 LIVESTRONG Portfolios - Portfolio Commentary An investment in LIVESTRONG Portfolios entails some risks, including those associated with investing in stocks, bonds, and foreign securities. The value of LIVESTRONG Portfolios' shares will fluctuate over time. UNDERLYING FUND ALLOCATIONS -- INSTITUTIONAL CLASS AS A % OF NET ASSETS AS OF JULY 31, 2006 - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG LIVESTRONG LIVESTRONG LIVESTRONG INCOME 2015 2025 2035 2045 PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - -------------------------------------------------------------------------------- NT Equity Growth Fund 13.2% 12.4% 12.6% 14.3% 15.3% - -------------------------------------------------------------------------------- NT Growth Fund 6.5% 9.0% 12.2% 14.2% 15.1% - -------------------------------------------------------------------------------- NT Large Company Value Fund 11.3% 11.5% 12.4% 14.6% 15.7% - -------------------------------------------------------------------------------- NT Mid Cap Value Fund 4.0% 5.2% 5.2% 6.9% 7.3% - -------------------------------------------------------------------------------- NT Small Company Fund 2.0% 2.2% 3.9% 3.9% 4.6% - -------------------------------------------------------------------------------- NT Vista Fund 2.5% 4.3% 5.3% 7.0% 7.5% - -------------------------------------------------------------------------------- Real Estate Fund 1.0% 1.5% 2.0% 2.5% 3.0% - -------------------------------------------------------------------------------- NT Emerging Markets Fund -- 2.1% 3.3% 5.2% 6.8% - -------------------------------------------------------------------------------- NT International Growth Fund 5.3% 6.8% 9.7% 10.4% 9.9% - -------------------------------------------------------------------------------- High-Yield Fund 3.7% 3.4% 2.8% 2.0% 1.4% - -------------------------------------------------------------------------------- Inflation- Adjusted Bond Fund 7.5% 6.9% 5.6% 4.0% 2.9% - -------------------------------------------------------------------------------- International Bond Fund 6.9% 5.1% 0.5% -- -- - -------------------------------------------------------------------------------- NT Diversified Bond Fund 26.1% 24.0% 19.5% 14.4% 10.5% - -------------------------------------------------------------------------------- Premium Money Market Fund* 9.8% 5.4% 4.9% 0.5% -- - -------------------------------------------------------------------------------- Other Assets and Liabilities 0.2% 0.2% 0.1% 0.1% --(1) - -------------------------------------------------------------------------------- *Investor Class (1) Category is less than 0.05% of total net assets. - ------ 10 LIVESTRONG Portfolios - Schedule of Investments JULY 31, 2006 - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- LIVESTRONG INCOME PORTFOLIO - -------------------------------------------------------------------------------- MUTUAL FUNDS(1) -- 99.8% - -------------------------------------------------------------------------------- DOMESTIC EQUITY FUNDS - 40.5% - -------------------------------------------------------------------------------- 466,081 NT Equity Growth Fund Institutional Class $ 4,604,880 - -------------------------------------------------------------------------------- 235,532 NT Growth Fund Institutional Class(2) 2,275,239 - -------------------------------------------------------------------------------- 388,517 NT Large Company Value Fund Institutional Class 3,916,251 - -------------------------------------------------------------------------------- 141,077 NT Mid Cap Value Fund Institutional Class 1,379,733 - -------------------------------------------------------------------------------- 75,409 NT Small Company Fund Institutional Class 687,730 - -------------------------------------------------------------------------------- 100,680 NT Vista Fund Institutional Class(2) 881,957 - -------------------------------------------------------------------------------- 12,122 Real Estate Fund Institutional Class 356,387 - -------------------------------------------------------------------------------- 14,102,177 - -------------------------------------------------------------------------------- DOMESTIC FIXED INCOME FUNDS - 37.3% - -------------------------------------------------------------------------------- 205,631 High-Yield Fund Institutional Class 1,287,250 - -------------------------------------------------------------------------------- 243,667 Inflation-Adjusted Bond Fund Institutional Class 2,597,490 - -------------------------------------------------------------------------------- 901,183 NT Diversified Bond Fund Institutional Class 9,074,921 - -------------------------------------------------------------------------------- 12,959,661 - -------------------------------------------------------------------------------- MONEY MARKET FUNDS - 9.8% - -------------------------------------------------------------------------------- 3,405,795 Premium Money Market Fund Investor Class 3,405,795 - -------------------------------------------------------------------------------- INTERNATIONAL FIXED INCOME FUNDS - 6.9% - -------------------------------------------------------------------------------- 177,722 International Bond Fund Institutional Class 2,417,019 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - 5.3% - -------------------------------------------------------------------------------- 196,623 NT International Growth Fund Institutional Class(2) 1,832,526 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES - 99.8% (Cost $34,906,616) 34,717,178 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES - 0.2% 68,453 - -------------------------------------------------------------------------------- TOTAL NET ASSETS - 100.0% $34,785,631 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS (1) Investments are funds within the American Century family of funds, of which certain funds may be deemed to be under common control because of the same board of directors. (See Note 5 in Notes to Financial Statements.) (2) Non-income producing. - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- LIVESTRONG 2015 PORTFOLIO - -------------------------------------------------------------------------------- MUTUAL FUNDS(1) -- 99.8% - -------------------------------------------------------------------------------- DOMESTIC EQUITY FUNDS - 46.1% - -------------------------------------------------------------------------------- 1,380,570 NT Equity Growth Fund Institutional Class $ 13,640,032 - -------------------------------------------------------------------------------- 1,024,610 NT Growth Fund Institutional Class(2) 9,897,733 - -------------------------------------------------------------------------------- 1,248,519 NT Large Company Value Fund Institutional Class 12,585,072 - -------------------------------------------------------------------------------- 581,803 NT Mid Cap Value Fund Institutional Class 5,690,033 - -------------------------------------------------------------------------------- 266,651 NT Small Company Fund Institutional Class 2,431,857 - -------------------------------------------------------------------------------- 537,679 NT Vista Fund Institutional Class(2) 4,710,068 - -------------------------------------------------------------------------------- 55,301 Real Estate Fund Institutional Class 1,625,849 - -------------------------------------------------------------------------------- 50,580,644 - -------------------------------------------------------------------------------- DOMESTIC FIXED INCOME FUNDS - 34.3% - -------------------------------------------------------------------------------- 595,761 High-Yield Fund Institutional Class 3,729,464 - -------------------------------------------------------------------------------- 706,080 Inflation-Adjusted Bond Fund Institutional Class 7,526,813 - -------------------------------------------------------------------------------- 2,622,086 NT Diversified Bond Fund Institutional Class 26,404,395 - -------------------------------------------------------------------------------- 37,660,672 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - 8.9% - -------------------------------------------------------------------------------- 253,841 NT Emerging Markets Fund Institutional Class(2) 2,335,337 - -------------------------------------------------------------------------------- 802,143 NT International Growth Fund Institutional Class(2) 7,475,973 - -------------------------------------------------------------------------------- 9,811,310 - -------------------------------------------------------------------------------- MONEY MARKET FUNDS - 5.4% - -------------------------------------------------------------------------------- 5,894,217 Premium Money Market Fund Investor Class 5,894,217 - -------------------------------------------------------------------------------- INTERNATIONAL FIXED INCOME FUNDS - 5.1% - -------------------------------------------------------------------------------- 415,182 International Bond Fund Institutional Class 5,646,475 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES - 99.8% (Cost $110,915,415) 109,593,318 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES - 0.2% 184,932 - -------------------------------------------------------------------------------- TOTAL NET ASSETS - 100.0% $109,778,250 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS (1) Investments are funds within the American Century family of funds, of which certain funds may be deemed to be under common control because of the same board of directors. (See Note 5 in Notes to Financial Statements.) (2) Non-income producing. See Notes to Financial Statements. (continued) - ------ 11 LIVESTRONG Portfolios - Schedule of Investments JULY 31, 2006 - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- LIVESTRONG 2025 PORTFOLIO - -------------------------------------------------------------------------------- MUTUAL FUNDS(1) -- 99.9% - -------------------------------------------------------------------------------- DOMESTIC EQUITY FUNDS - 53.6% - -------------------------------------------------------------------------------- 1,937,538 NT Equity Growth Fund Institutional Class $ 19,142,875 - -------------------------------------------------------------------------------- 1,917,716 NT Growth Fund Institutional Class(2) 18,525,137 - -------------------------------------------------------------------------------- 1,869,552 NT Large Company Value Fund Institutional Class 18,845,084 - -------------------------------------------------------------------------------- 799,340 NT Mid Cap Value Fund Institutional Class 7,817,545 - -------------------------------------------------------------------------------- 651,704 NT Small Company Fund Institutional Class 5,943,540 - -------------------------------------------------------------------------------- 913,828 NT Vista Fund Institutional Class(2) 8,005,133 - -------------------------------------------------------------------------------- 102,308 Real Estate Fund Institutional Class 3,007,855 - -------------------------------------------------------------------------------- 81,287,169 - -------------------------------------------------------------------------------- DOMESTIC FIXED INCOME FUNDS - 27.9% - -------------------------------------------------------------------------------- 677,982 High-Yield Fund Institutional Class 4,244,167 - -------------------------------------------------------------------------------- 796,775 Inflation-Adjusted Bond Fund Institutional Class 8,493,622 - -------------------------------------------------------------------------------- 2,928,445 NT Diversified Bond Fund Institutional Class 29,489,456 - -------------------------------------------------------------------------------- 42,227,245 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - 13.0% - -------------------------------------------------------------------------------- 550,499 NT Emerging Markets Fund Institutional Class(2) 5,064,591 - -------------------------------------------------------------------------------- 1,571,037 NT International Growth Fund Institutional Class(2) 14,642,065 - -------------------------------------------------------------------------------- 19,706,656 - -------------------------------------------------------------------------------- MONEY MARKET FUNDS - 4.9% - -------------------------------------------------------------------------------- 7,362,225 Premium Money Market Fund Investor Class 7,362,225 - -------------------------------------------------------------------------------- INTERNATIONAL FIXED INCOME FUNDS - 0.5% - -------------------------------------------------------------------------------- 54,841 International Bond Fund Institutional Class 745,838 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES - 99.9% (Cost $154,080,485) 151,329,133 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES - 0.1% 220,418 - -------------------------------------------------------------------------------- TOTAL NET ASSETS - 100.0% $151,549,551 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS (1) Investments are funds within the American Century family of funds, of which certain funds may be deemed to be under common control because of the same board of directors. (See Note 5 in Notes to Financial Statements.) (2) Non-income producing. - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- LIVESTRONG 2035 PORTFOLIO - -------------------------------------------------------------------------------- MUTUAL FUNDS(1) -- 99.9% - -------------------------------------------------------------------------------- DOMESTIC EQUITY FUNDS - 63.4% - -------------------------------------------------------------------------------- 998,380 NT Equity Growth Fund Institutional Class $ 9,863,994 - -------------------------------------------------------------------------------- 1,008,391 NT Growth Fund Institutional Class(2) 9,741,057 - -------------------------------------------------------------------------------- 1,000,250 NT Large Company Value Fund Institutional Class 10,082,521 - -------------------------------------------------------------------------------- 481,782 NT Mid Cap Value Fund Institutional Class 4,711,828 - -------------------------------------------------------------------------------- 294,609 NT Small Company Fund Institutional Class 2,686,834 - -------------------------------------------------------------------------------- 550,757 NT Vista Fund Institutional Class(2) 4,824,631 - -------------------------------------------------------------------------------- 58,093 Real Estate Fund Institutional Class 1,707,934 - -------------------------------------------------------------------------------- 43,618,799 - -------------------------------------------------------------------------------- DOMESTIC FIXED INCOME FUNDS - 20.4% - -------------------------------------------------------------------------------- 216,648 High-Yield Fund Institutional Class 1,356,216 - -------------------------------------------------------------------------------- 259,945 Inflation-Adjusted Bond Fund Institutional Class 2,771,014 - -------------------------------------------------------------------------------- 982,924 NT Diversified Bond Fund Institutional Class 9,898,049 - -------------------------------------------------------------------------------- 14,025,279 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - 15.6% - -------------------------------------------------------------------------------- 394,918 NT Emerging Markets Fund Institutional Class(2) 3,633,246 - -------------------------------------------------------------------------------- 767,610 NT International Growth Fund Institutional Class(2) 7,154,125 - -------------------------------------------------------------------------------- 10,787,371 - -------------------------------------------------------------------------------- MONEY MARKET FUNDS - 0.5% - -------------------------------------------------------------------------------- 332,790 Premium Money Market Fund Investor Class 332,790 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES - 99.9% (Cost $70,244,821) 68,764,239 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES - 0.1% 64,593 - -------------------------------------------------------------------------------- TOTAL NET ASSETS - 100.0% $68,828,832 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS (1) Investments are funds within the American Century family of funds, of which certain funds may be deemed to be under common control because of the same board of directors. (See Note 5 in Notes to Financial Statements.) (2) Non-income producing. See Notes to Financial Statements. (continued) - ------ 12 LIVESTRONG Portfolios - Schedule of Investments JULY 31, 2006 - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- LIVESTRONG 2045 PORTFOLIO - -------------------------------------------------------------------------------- MUTUAL FUNDS(1) -- 100.0% - -------------------------------------------------------------------------------- DOMESTIC EQUITY FUNDS - 68.5% - -------------------------------------------------------------------------------- 622,511 NT Equity Growth Fund Institutional Class $ 6,150,409 - -------------------------------------------------------------------------------- 628,776 NT Growth Fund Institutional Class(2) 6,073,976 - -------------------------------------------------------------------------------- 623,017 NT Large Company Value Fund Institutional Class 6,280,012 - -------------------------------------------------------------------------------- 300,760 NT Mid Cap Value Fund Institutional Class 2,941,433 - -------------------------------------------------------------------------------- 203,767 NT Small Company Fund Institutional Class 1,858,355 - -------------------------------------------------------------------------------- 343,690 NT Vista Fund Institutional Class(2) 3,010,724 - -------------------------------------------------------------------------------- 40,745 Real Estate Fund Institutional Class 1,197,903 - -------------------------------------------------------------------------------- 27,512,812 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - 16.7% - -------------------------------------------------------------------------------- 299,005 NT Emerging Markets Fund Institutional Class(2) 2,750,846 - -------------------------------------------------------------------------------- 424,763 NT International Growth Fund Institutional Class(2) 3,958,791 - -------------------------------------------------------------------------------- 6,709,637 - -------------------------------------------------------------------------------- DOMESTIC FIXED INCOME FUNDS - 14.8% - -------------------------------------------------------------------------------- 92,365 High-Yield Fund Institutional Class 578,205 - -------------------------------------------------------------------------------- 109,499 Inflation-Adjusted Bond Fund Institutional Class 1,167,259 - -------------------------------------------------------------------------------- 416,572 NT Diversified Bond Fund Institutional Class 4,194,872 - -------------------------------------------------------------------------------- 5,940,336 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES - 100.0% (Cost $41,024,376) 40,162,785 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES(3) 12,077 - -------------------------------------------------------------------------------- TOTAL NET ASSETS - 100.0% $40,174,862 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS (1) Investments are funds within the American Century family of funds, of which certain funds may be deemed to be under common control because of the same board of directors. (See Note 5 in Notes to Financial Statements.) (2) Non-income producing. (3) Category is less than 0.05% of total net assets. See Notes to Financial Statements. - ------ 13 Shareholder Fee Examples (Unaudited) Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds. As a shareholder in the underlying American Century funds, your fund will indirectly bear its pro rata share of the expenses incurred by the underlying funds. These expenses are not included in the fund's annualized expense ratio or the expenses paid during the period. These expenses are, however, included in the effective expenses paid during the period. The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from February 1, 2006 to July 31, 2006. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century account (i.e., not a financial intermediary or retirement plan account), American Century may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, (continued) - ------ 14 Shareholder Fee Examples (Unaudited) which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ---------------------------------------------------------------------------------------------------------- EFFECTIVE BEGINNING ENDING EXPENSES PAID EXPENSES PAID EFFECTIVE ACCOUNT ACCOUNT DURING PERIOD(1) ANNUALIZED DURING PERIOD(2) ANNUALIZED VALUE VALUE 2/1/06 -- EXPENSE 2/1/06 -- EXPENSE 2/1/06 7/31/06 7/31/06 RATIO(1) 7/31/06 RATIO(2) - ---------------------------------------------------------------------------------------------------------- LIVESTRONG INCOME PORTFOLIO SHAREHOLDER FEE EXAMPLE - ---------------------------------------------------------------------------------------------------------- ACTUAL - ---------------------------------------------------------------------------------------------------------- Investor Class $1,000 $1,005.00 $0.99 0.20% $3.78 0.76% - ---------------------------------------------------------------------------------------------------------- Institutional Class $1,000 $1,006.10 $0.00 0.00%(3) $2.79 0.56% - ---------------------------------------------------------------------------------------------------------- Advisor Class $1,000 $1,004.70 $2.24 0.45% $5.02 1.01% - ---------------------------------------------------------------------------------------------------------- R Class $1,000 $1,002.50 $3.48 0.70% $6.26 1.26% - ---------------------------------------------------------------------------------------------------------- HYPOTHETICAL - ---------------------------------------------------------------------------------------------------------- Investor Class $1,000 $1,023.80 $1.00 0.20% $3.81 0.76% - ---------------------------------------------------------------------------------------------------------- Institutional Class $1,000 $1,024.79 $0.00 0.00%(3) $2.81 0.56% - ---------------------------------------------------------------------------------------------------------- Advisor Class $1,000 $1,022.56 $2.26 0.45% $5.06 1.01% - ---------------------------------------------------------------------------------------------------------- R Class $1,000 $1,021.32 $3.51 0.70% $6.31 1.26% - ---------------------------------------------------------------------------------------------------------- (1) Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 181, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. The fees and expenses of the underlying American Century funds in which the fund invests are not included in the class's annualized expense ratio. (2) Effective expenses reflect the sum of expenses borne directly by the class plus the fund's pro rata share of the weighted average expense ratio of the underlying funds in which it invests. The effective annualized expense ratio combines the class's annualized expense ratio and the annualized weighted average expense ratio of the underlying funds. The annualized weighted average expense ratio of the underlying funds for the one-half year period reflects the actual expense ratio of each underlying fund from its most recent shareholder report, annualized and weighted for the fund's relative average investment therein during the period. (3) Other expenses, which include the fees and expenses of the fund's independent directors and its legal counsel, as well as interest, did not exceed 0.005%. (continued) - ------ 15 Shareholder Fee Examples (Unaudited) - ------------------------------------------------------------------------------------------------------------ EFFECTIVE BEGINNING ENDING EXPENSES PAID EXPENSES PAID EFFECTIVE ACCOUNT ACCOUNT DURING PERIOD(1) ANNUALIZED DURING PERIOD(2) ANNUALIZED VALUE VALUE 2/1/06 - EXPENSE 2/1/06 - EXPENSE 2/1/06 7/31/06 7/31/06 RATIO(1) 7/31/06 RATIO(2) - ------------------------------------------------------------------------------------------------------------ LIVESTRONG 2015 PORTFOLIO SHAREHOLDER FEE EXAMPLE - ------------------------------------------------------------------------------------------------------------ ACTUAL - ------------------------------------------------------------------------------------------------------------ Investor Class $1,000 $1,001.80 $0.99 0.20% $4.02 0.81% - ------------------------------------------------------------------------------------------------------------ Institutional Class $1,000 $1,002.70 $0.00 0.00%(3) $3.03 0.61% - ------------------------------------------------------------------------------------------------------------ Advisor Class $1,000 $1,000.00 $2.23 0.45% $5.26 1.06% - ------------------------------------------------------------------------------------------------------------ R Class $1,000 $999.10 $3.47 0.70% $6.49 1.31% - ------------------------------------------------------------------------------------------------------------ HYPOTHETICAL - ------------------------------------------------------------------------------------------------------------ Investor Class $1,000 $1,023.80 $1.00 0.20% $4.06 0.81% - ------------------------------------------------------------------------------------------------------------ Institutional Class $1,000 $1,024.79 $0.00 0.00%(3) $3.06 0.61% - ------------------------------------------------------------------------------------------------------------ Advisor Class $1,000 $1,022.56 $2.26 0.45% $5.32 1.06% - ------------------------------------------------------------------------------------------------------------ R Class $1,000 $1,021.32 $3.51 0.70% $6.57 1.31% - ------------------------------------------------------------------------------------------------------------ LIVESTRONG 2025 PORTFOLIO SHAREHOLDER FEE EXAMPLE - ------------------------------------------------------------------------------------------------------------ ACTUAL - ------------------------------------------------------------------------------------------------------------ Investor Class $1,000 $996.50 $0.99 0.20% $4.26 0.86% - ------------------------------------------------------------------------------------------------------------ Institutional Class $1,000 $998.30 $0.00 0.00%(3) $3.27 0.66% - ------------------------------------------------------------------------------------------------------------ Advisor Class $1,000 $995.70 $2.23 0.45% $5.49 1.11% - ------------------------------------------------------------------------------------------------------------ R Class $1,000 $994.80 $3.46 0.70% $6.73 1.36% - ------------------------------------------------------------------------------------------------------------ HYPOTHETICAL - ------------------------------------------------------------------------------------------------------------ Investor Class $1,000 $1,023.80 $1.00 0.20% $4.32 0.86% - ------------------------------------------------------------------------------------------------------------ Institutional Class $1,000 $1,024.79 $0.00 0.00%(3) $3.31 0.66% - ------------------------------------------------------------------------------------------------------------ Advisor Class $1,000 $1,022.56 $2.26 0.45% $5.57 1.11% - ------------------------------------------------------------------------------------------------------------ R Class $1,000 $1,021.32 $3.51 0.70% $6.82 1.36% - ------------------------------------------------------------------------------------------------------------ (1) Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 181, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. The fees and expenses of the underlying American Century funds in which the fund invests are not included in the class's annualized expense ratio. (2) Effective expenses reflect the sum of expenses borne directly by the class plus the fund's pro rata share of the weighted average expense ratio of the underlying funds in which it invests. The effective annualized expense ratio combines the class's annualized expense ratio and the annualized weighted average expense ratio of the underlying funds. The annualized weighted average expense ratio of the underlying funds for the one-half year period reflects the actual expense ratio of each underlying fund from its most recent shareholder report, annualized and weighted for the fund's relative average investment therein during the period. (3) Other expenses, which include the fees and expenses of the fund's independent directors and its legal counsel, as well as interest, did not exceed 0.005%. (continued) - ------ 16 Shareholder Fee Examples (Unaudited) - ------------------------------------------------------------------------------------------------------------ EFFECTIVE BEGINNING ENDING EXPENSES PAID EXPENSES PAID EFFECTIVE ACCOUNT ACCOUNT DURING PERIOD(1) ANNUALIZED DURING PERIOD(2) ANNUALIZED VALUE VALUE 2/1/06 - EXPENSE 2/1/06 - EXPENSE 2/1/06 7/31/06 7/31/06 RATIO(1) 7/31/06 RATIO(2) - ------------------------------------------------------------------------------------------------------------ LIVESTRONG 2035 PORTFOLIO SHAREHOLDER FEE EXAMPLE - ------------------------------------------------------------------------------------------------------------ ACTUAL - ------------------------------------------------------------------------------------------------------------ Investor Class $1,000 $994.10 $0.99 0.20% $4.50 0.91% - ------------------------------------------------------------------------------------------------------------ Institutional Class $1,000 $995.80 $0.00 0.00%(3) $3.51 0.71% - ------------------------------------------------------------------------------------------------------------ Advisor Class $1,000 $992.40 $2.22 0.45% $5.73 1.16% - ------------------------------------------------------------------------------------------------------------ R Class $1,000 $991.60 $3.46 0.70% $6.96 1.41% - ------------------------------------------------------------------------------------------------------------ HYPOTHETICAL - ------------------------------------------------------------------------------------------------------------ Investor Class $1,000 $1,023.80 $1.00 0.20% $4.57 0.91% - ------------------------------------------------------------------------------------------------------------ Institutional Class $1,000 $1,024.79 $0.00 0.00%(3) $3.56 0.71% - ------------------------------------------------------------------------------------------------------------ Advisor Class $1,000 $1,022.56 $2.26 0.45% $5.82 1.16% - ------------------------------------------------------------------------------------------------------------ R Class $1,000 $1,021.32 $3.51 0.70% $7.07 1.41% - ------------------------------------------------------------------------------------------------------------ LIVESTRONG 2045 PORTFOLIO SHAREHOLDER FEE EXAMPLE - ------------------------------------------------------------------------------------------------------------ ACTUAL - ------------------------------------------------------------------------------------------------------------ Investor Class $1,000 $992.50 $0.99 0.20% $4.64 0.94% - ------------------------------------------------------------------------------------------------------------ Institutional Class $1,000 $993.40 $0.00 0.00%(3) $3.66 0.74% - ------------------------------------------------------------------------------------------------------------ Advisor Class $1,000 $990.90 $2.22 0.45% $5.87 1.19% - ------------------------------------------------------------------------------------------------------------ R Class $1,000 $990.00 $3.45 0.70% $7.11 1.44% - ------------------------------------------------------------------------------------------------------------ HYPOTHETICAL - ------------------------------------------------------------------------------------------------------------ Investor Class $1,000 $1,023.80 $1.00 0.20% $4.72 0.94% - ------------------------------------------------------------------------------------------------------------ Institutional Class $1,000 $1,024.79 $0.00 0.00%(3) $3.72 0.74% - ------------------------------------------------------------------------------------------------------------ Advisor Class $1,000 $1,022.56 $2.26 0.45% $5.97 1.19% - ------------------------------------------------------------------------------------------------------------ R Class $1,000 $1,021.32 $3.51 0.70% $7.22 1.44% - ------------------------------------------------------------------------------------------------------------ (1) Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 181, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. The fees and expenses of the underlying American Century funds in which the fund invests are not included in the class's annualized expense ratio. (2) Effective expenses reflect the sum of expenses borne directly by the class plus the fund's pro rata share of the weighted average expense ratio of the underlying funds in which it invests. The effective annualized expense ratio combines the class's annualized expense ratio and the annualized weighted average expense ratio of the underlying funds. The annualized weighted average expense ratio of the underlying funds for the one-half year period reflects the actual expense ratio of each underlying fund from its most recent shareholder report, annualized and weighted for the fund's relative average investment therein during the period. (3) Other expenses, which include the fees and expenses of the fund's independent directors and its legal counsel, as well as interest, did not exceed 0.005%. - ------ 17 Statement of Assets and Liabilities JULY 31, 2006 - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG LIVESTRONG INCOME 2015 2025 PORTFOLIO PORTFOLIO PORTFOLIO - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investment securities in affiliates, at value (cost of $34,906,616, $110,915,415 and $154,080,485, respectively) $34,717,178 $109,593,318 $151,329,133 - ------------------------ Cash 5,732 18,803 22,532 - ------------------------ Receivable for capital shares sold -- -- 5,688 - ------------------------ Distributions receivable from affiliates 68,204 184,226 213,914 - -------------------------------------------------------------------------------- 34,791,114 109,796,347 151,571,267 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Accrued administrative fees 4,885 16,090 19,948 - ------------------------ Distribution and service fees payable 598 2,007 1,768 - -------------------------------------------------------------------------------- 5,483 18,097 21,716 - -------------------------------------------------------------------------------- NET ASSETS $34,785,631 $109,778,250 $151,549,551 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Capital (par value and paid-in surplus) $34,397,514 $107,091,673 $145,186,132 - ------------------------ Undistributed net investment income 96,579 992,587 1,186,995 - ------------------------ Undistributed net realized gain on investment transactions 480,976 3,016,087 7,927,776 - ------------------------ Net unrealized depreciation on investments (189,438) (1,322,097) (2,751,352) - -------------------------------------------------------------------------------- $34,785,631 $109,778,250 $151,549,551 ================================================================================ INVESTOR CLASS, $0.01 PAR VALUE - -------------------------------------------------------------------------------- Net assets $27,373,988 $89,431,329 $112,201,821 - ------------------------ Shares outstanding 2,619,766 8,065,373 9,762,511 - ------------------------ Net asset value per share $10.45 $11.09 $11.49 - -------------------------------------------------------------------------------- INSTITUTIONAL CLASS, $0.01 PAR VALUE - -------------------------------------------------------------------------------- Net assets $4,408,598 $10,439,317 $31,398,750 - ------------------------ Shares outstanding 421,831 940,187 2,728,445 - ------------------------ Net asset value per share $10.45 $11.10 $11.51 - -------------------------------------------------------------------------------- ADVISOR CLASS, $0.01 PAR VALUE - -------------------------------------------------------------------------------- Net assets $2,965,731 $9,556,472 $7,404,080 - ------------------------ Shares outstanding 283,933 863,243 645,081 - ------------------------ Net asset value per share $10.45 $11.07 $11.48 - -------------------------------------------------------------------------------- R CLASS, $0.01 PAR VALUE - -------------------------------------------------------------------------------- Net assets $37,314 $351,132 $544,900 - ------------------------ Shares outstanding 3,574 31,758 47,550 - ------------------------ Net asset value per share $10.44 $11.06 $11.46 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 18 Statement of Assets and Liabilities JULY 31, 2006 - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG 2035 2045 PORTFOLIO PORTFOLIO - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investment securities in affiliates, at value (cost of $70,244,821 and $41,024,376, respectively) $68,764,239 $40,162,785 - -------------------------------------- Cash 11,113 -- - -------------------------------------- Receivable for capital shares sold 1,357 300 - -------------------------------------- Distributions receivable from affiliates 62,826 18,834 - -------------------------------------------------------------------------------- 68,839,535 40,181,919 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Disbursements in excess of demand deposit cash -- 1,703 - -------------------------------------- Accrued administrative fees 9,536 4,434 - -------------------------------------- Distribution and service fees payable 1,167 920 - -------------------------------------------------------------------------------- 10,703 7,057 - -------------------------------------------------------------------------------- NET ASSETS $68,828,832 $40,174,862 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Capital (par value and paid-in surplus) $66,184,046 $38,484,591 - -------------------------------------- Undistributed net investment income 389,407 185,868 - -------------------------------------- Undistributed net realized gain on investment transactions 3,735,961 2,365,994 - -------------------------------------- Net unrealized depreciation on investments (1,480,582) (861,591) - -------------------------------------------------------------------------------- $68,828,832 $40,174,862 ================================================================================ INVESTOR CLASS, $0.01 PAR VALUE - -------------------------------------------------------------------------------- Net assets $52,205,501 $22,436,896 - -------------------------------------- Shares outstanding 4,405,545 1,875,602 - -------------------------------------- Net asset value per share $11.85 $11.96 - -------------------------------------------------------------------------------- INSTITUTIONAL CLASS, $0.01 PAR VALUE - -------------------------------------------------------------------------------- Net assets $11,103,502 $13,396,643 - -------------------------------------- Shares outstanding 935,607 1,118,396 - -------------------------------------- Net asset value per share $11.87 $11.98 - -------------------------------------------------------------------------------- ADVISOR CLASS, $0.01 PAR VALUE - -------------------------------------------------------------------------------- Net assets $5,223,884 $4,176,754 - -------------------------------------- Shares outstanding 441,397 349,722 - -------------------------------------- Net asset value per share $11.83 $11.94 - -------------------------------------------------------------------------------- R CLASS, $0.01 PAR VALUE - -------------------------------------------------------------------------------- Net assets $295,945 $164,569 - -------------------------------------- Shares outstanding 25,040 13,798 - -------------------------------------- Net asset value per share $11.82 $11.93 - -------------------------------------------------------------------------------- See Notes to Financial Statements. - ------ 19 Statement of Operations FOR THE YEAR ENDED JULY 31, 2006 - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG LIVESTRONG INCOME 2015 2025 PORTFOLIO PORTFOLIO PORTFOLIO - -------------------------------------------------------------------------------- INVESTMENT INCOME (LOSS) - -------------------------------------------------------------------------------- INCOME: - ------------------------ Income distributions from underlying funds - affiliates $1,016,234 $2,501,046 $3,560,260 - -------------------------------------------------------------------------------- EXPENSES: - ------------------------ Administrative fees 47,646 132,923 171,695 - ------------------------ Distribution and service fees: - ------------------------ Advisor Class 4,310 10,722 9,109 - ------------------------ R Class 102 706 1,438 - ------------------------ Directors' fees and expenses 442 1,120 1,729 - -------------------------------------------------------------------------------- 52,500 145,471 183,971 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) 963,734 2,355,575 3,376,289 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON AFFILIATES - -------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS) ON: - ------------------------ Sale of investments in underlying funds 231,994 2,327,918 6,983,522 - ------------------------ Capital gain distributions received from underlying funds 259,800 697,948 962,713 - -------------------------------------------------------------------------------- 491,794 3,025,866 7,946,235 - -------------------------------------------------------------------------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS (550,729) (2,621,574) (6,077,343) - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (58,935) 404,292 1,868,892 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 904,799 $2,759,867 $5,245,181 ================================================================================ See Notes to Financial Statements. (continued) - ------ 20 Statement of Operations FOR THE YEAR ENDED JULY 31, 2006 - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG 2035 2045 PORTFOLIO PORTFOLIO - -------------------------------------------------------------------------------- INVESTMENT INCOME (LOSS) - -------------------------------------------------------------------------------- INCOME: - -------------------------------------- Income distributions from underlying funds - affiliates $1,271,123 $ 729,16 - -------------------------------------------------------------------------------- EXPENSES: - -------------------------------------- Administrative fees 77,091 32,344 - -------------------------------------- Distribution and service fees: - -------------------------------------- Advisor Class 5,762 3,388 - -------------------------------------- R Class 531 235 - -------------------------------------- Directors' fees and expenses 692 395 - -------------------------------------------------------------------------------- 84,076 36,362 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) 1,187,047 692,802 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON AFFILIATES - -------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS) ON: - -------------------------------------- Sale of investments in underlying funds 3,324,117 2,147,595 - -------------------------------------- Capital gain distributions received from underlying funds 420,298 288,235 - -------------------------------------------------------------------------------- 3,744,415 2,435,830 - -------------------------------------------------------------------------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS (2,785,173) (1,825,720) - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) 959,242 610,110 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $2,146,289 $1,302,912 ================================================================================ See Notes to Financial Statements. - ------ 21 Statement of Changes in Net Assets YEAR ENDED JULY 31, 2006 AND PERIOD ENDED JULY 31, 2005 - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG INCOME 2015 PORTFOLIO PORTFOLIO - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 2006 2005(1) 2006 2005(1) - -------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------- Net investment income (loss) $ 963,734 $ 274,595 $ 2,355,575 $ 472,765 - --------------------- Net realized gain (loss) 491,794 21,944 3,025,866 55,018 - --------------------- Change in net unrealized appreciation (depreciation) (550,729) 361,291 (2,621,574) 1,299,477 - -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 904,799 657,830 2,759,867 1,827,260 - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - -------------------------------------------------------------------------------- From net investment income: - --------------------- Investor Class (740,215) (170,391) (1,494,047) (151,441) - --------------------- Institutional Class (123,487) (58,473) (101,538) (14,925) - --------------------- Advisor Class (48,341) (258) (73,173) (86) - --------------------- R Class (437) (148) (461) (82) - --------------------- From net realized gains: - --------------------- Investor Class (26,989) -- (57,984) -- - --------------------- Institutional Class (4,013) -- (3,679) -- - --------------------- Advisor Class (1,746) -- (3,112) -- - --------------------- R Class (14) -- (22) -- - -------------------------------------------------------------------------------- Decrease in net assets from distributions (945,242) (229,270) (1,734,016) (166,534) - -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - -------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions 15,136,327 19,261,187 64,687,101 42,404,572 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 15,095,884 19,689,747 65,712,952 44,065,298 - -------------------------------------------------------------------------------- NET ASSETS - -------------------------------------------------------------------------------- Beginning of period 19,689,747 -- 44,065,298 -- - -------------------------------------------------------------------------------- End of period $34,785,631 $19,689,747 $109,778,250 $44,065,298 ================================================================================ Undistributed net investment income $96,579 $45,325 $992,587 $306,231 ================================================================================ (1) August 31, 2004 (fund inception) through July 31, 2005. See Notes to Financial Statements. (continued) - ------ 22 Statement of Changes in Net Assets YEAR ENDED JULY 31, 2006 AND PERIOD ENDED JULY 31, 2005 - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG 2025 2035 PORTFOLIO PORTFOLIO - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 2006 2005(1) 2006 2005(1) - -------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------- Net investment income (loss) $ 3,376,289 $ 729,127 $ 1,187,047 $ 153,062 - --------------------- Net realized gain (loss) 7,946,235 120,684 3,744,415 27,190 - --------------------- Change in net unrealized appreciation (depreciation) (6,077,343) 3,325,991 (2,785,173) 1,304,591 - -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 5,245,181 4,175,802 2,146,289 1,484,843 - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - -------------------------------------------------------------------------------- From net investment income: - --------------------- Investor Class (1,904,998) (95,759) (741,605) (47,247) - --------------------- Institutional Class (702,282) (149,519) (121,935) (5,110) - --------------------- Advisor Class (63,954) (66) (33,882) (63) - --------------------- R Class (1,781) (62) (801) (59) - --------------------- From net realized gains: - --------------------- Investor Class (100,651) -- (29,595) -- - --------------------- Institutional Class (34,639) -- (4,508) -- - --------------------- Advisor Class (3,737) -- (1,501) -- - --------------------- R Class (116) -- (40) -- - -------------------------------------------------------------------------------- Decrease in net assets from distributions (2,812,158) (245,406) (933,867) (52,479) - -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - -------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions 73,921,053 71,265,079 42,524,951 23,659,095 - -------------------------------------------------------------------------------- Net increase (decrease) in net assets 76,354,076 75,195,475 43,737,373 25,091,459 - -------------------------------------------------------------------------------- NET ASSETS - -------------------------------------------------------------------------------- Beginning of period 75,195,475 -- 25,091,459 -- - -------------------------------------------------------------------------------- End of period $151,549,551 $75,195,475 $68,828,832 $25,091,459 ================================================================================ Undistributed net investment income $1,186,995 $483,721 $389,407 $100,583 ================================================================================ (1) August 31, 2004 (fund inception) through July 31, 2005. See Notes to Financial Statements. (continued) - ------ 23 Statement of Changes in Net Assets YEAR ENDED JULY 31, 2006 AND PERIOD ENDED JULY 31, 2005 - -------------------------------------------------------------------------------- LIVESTRONG 2045 PORTFOLIO - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 2006 2005(1) - -------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------- Net investment income (loss) $ 692,802 $ 151,541 - -------------------------------------------- Net realized gain (loss) 2,435,830 (12,620) - -------------------------------------------- Change in net unrealized appreciation (depreciation) (1,825,720) 964,129 - -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 1,302,912 1,103,050 - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - -------------------------------------------------------------------------------- From net investment income: - -------------------------------------------- Investor Class (322,350) (11,612) - -------------------------------------------- Institutional Class (240,707) (67,702) - -------------------------------------------- Advisor Class (15,750) (65) - -------------------------------------------- R Class (228) (61) - -------------------------------------------- From net realized gains: - -------------------------------------------- Investor Class (32,689) -- - -------------------------------------------- Institutional Class (22,737) -- - -------------------------------------------- Advisor Class (1,761) -- - -------------------------------------------- R Class (29) -- - -------------------------------------------------------------------------------- Decrease in net assets from distributions (636,251) (79,440) - -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - -------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions 24,476,051 14,008,540 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 25,142,712 15,032,150 - -------------------------------------------------------------------------------- NET ASSETS - -------------------------------------------------------------------------------- Beginning of period 15,032,150 -- - -------------------------------------------------------------------------------- End of period $40,174,862 $15,032,150 ================================================================================ Undistributed net investment income $185,868 $72,101 ================================================================================ (1) August 31, 2004 (fund inception) through July 31, 2005. See Notes to Financial Statements. - ------ 24 Notes to Financial Statements JULY 31, 2006 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- American Century Asset Allocation Portfolios, Inc. (the corporation) is registered under the Investment Company Act of 1940 (the 1940 Act), as amended, as an open-end management investment company. LIVESTRONG Income Portfolio (formerly My Retirement Income Portfolio), LIVESTRONG 2015 Portfolio (formerly My Retirement 2015 Portfolio), LIVESTRONG 2025 Portfolio (formerly My Retirement 2025 Portfolio), LIVESTRONG 2035 Portfolio (formerly My Retirement 2035 Portfolio) and LIVESTRONG 2045 Portfolio (formerly My Retirement 2045 Portfolio) (collectively, the funds) (see Note 8) are five funds in a series issued by the corporation. The funds operate as "fund of funds," meaning substantially all of the funds' assets will be invested in other funds in the American Century family of funds (the underlying funds). Because the funds directly invest in a relatively small number of underlying funds, they are not diversified as defined by the 1940 Act. However, the underlying funds are generally diversified and so indirectly provide broad exposure to a large number of securities. The investment objective of LIVESTRONG Income Portfolio is to seek current income. Capital appreciation is a secondary objective. The investment objectives of the four target-year LIVESTRONG Portfolios are to seek the highest total return consistent with their respective asset mix. The funds pursue their objectives by investing in underlying funds that represent a variety of asset classes and investment styles. For each fund with a target year, the target asset mix will be adjusted annually in a step-like fashion. In general, as the target year approaches, the allocation to stocks will decrease and the allocation to bonds and money market instruments will increase. When a fund reaches its most conservative planned target asset allocation, which is expected to occur on approximately November 30 of the year before the target year, its target asset mix will become fixed and will match that of LIVESTRONG Income Portfolio. The following is a summary of the funds' significant accounting policies. MULTIPLE CLASS -- The funds are authorized to issue the Investor Class, Institutional Class, Advisor Class and R Class. The share classes differ principally in their respective shareholder servicing and distribution expenses and arrangements. All shares of each fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the funds are allocated to each class of shares based on their relative net assets. All classes of the funds commenced sale on August 31, 2004, the funds' inception date. UNDERLYING FUNDS -- Each fund's assets are allocated among underlying funds that represent major asset classes, including equity securities (stocks), fixed-income securities (bonds) and cash-equivalent instruments (money markets). The underlying NT Diversified Bond, NT Emerging Markets, NT Equity Growth, NT Growth, NT International Growth, NT Large Company Value, NT Mid Cap Value, NT Small Company and NT Vista funds are not permitted to invest in securities issued by companies assigned the Global Industry Classfication Standard (GICS) for the tobacco industry. A brief description of each of the underlying funds follows: Domestic Equity Funds EQUITY GROWTH and NT EQUITY GROWTH seek long-term capital growth. Each fund uses a quantitative investment strategy to construct an optimized portfolio drawn primarily from the 1,500 largest publicly traded U.S. companies without regard to dividend yield. INCOME & GROWTH seeks long-term capital growth with income as a secondary objective. It uses a quantitative investment strategy to construct an optimized portfolio drawn primarily from the 1,500 largest publicly traded U.S. companies. Income & Growth's managers also attempt to create a dividend yield for the fund that exceeds that of the S&P 500 Index. LARGE COMPANY VALUE and NT LARGE COMPANY VALUE seek long-term capital growth with income as a secondary objective. Each fund uses a value investment strategy and invest primarily in larger U.S. companies. NT GROWTH seeks long-term capital growth. It uses a growth investment strategy and generally invests in larger U.S. companies. NT MID CAP VALUE seeks long-term capital growth with income as a secondary objective. It uses a value investment strategy and invests primarily in mid-sized U.S. companies. REAL ESTATE seeks long-term capital appreciation with income as a secondary objective. It invests primarily in equity securities issued by real estate investment trusts and companies engaged in the real estate industry. SMALL COMPANY and NT SMALL COMPANY seek long-term capital growth. Each fund uses a quantitative investment strategy and invest primarily in smaller U.S. companies. ULTRA seeks long-term capital growth. It uses a growth investment strategy and generally invests in larger U.S. companies. (continued) - ------ 25 Notes to Financial Statements JULY 31, 2006 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) VALUE seeks long-term capital growth with income as a secondary objective. It uses a value investment strategy and invests primarily in U.S. companies of all sizes. VISTA and NT VISTA seek long-term capital growth. Each fund uses a growth investment strategy and generally invest in medium-sized and smaller U.S. companies. International Equity Funds EMERGING MARKETS and NT EMERGING MARKETS seek capital growth. Each fund uses a growth investment strategy and invest primarily in securities of companies located in emerging market countries and companies that derive a significant portion of their business from emerging market countries. INTERNATIONAL GROWTH and NT INTERNATIONAL GROWTH seek capital growth. Each fund uses a growth investment strategy and invest primarily in securities of companies located in developed countries other than the United States. Domestic Fixed Income Funds DIVERSIFIED BOND and NT DIVERSIFIED BOND seek a high level of income by investing primarily in high- and medium-grade non-money market debt securities. These securities, which may be payable in U.S. or foreign currencies, may include corporate bonds and notes, government securities and securities backed by mortgages or other assets. HIGH-YIELD seeks high current income by investing in a diversified portfolio of high-yield corporate bonds and other debt securities. INFLATION-ADJUSTED BOND seeks to provide total return and inflation protection consistent with investment in inflation-indexed securities. International Fixed Income Funds INTERNATIONAL BOND seeks high total return by investing in high-quality, non-dollar-denominated government and corporate debt securities outside the United States. Money Market Funds PREMIUM MONEY MARKET seeks to earn the highest level of current income while preserving the value of shareholder investments by investing in high-quality, cash-equivalent securities. SECURITY VALUATIONS -- Investments in the underlying funds are valued at their reported net asset value. The underlying funds have specific valuation policies. If the underlying funds determine that the market price of a security is not readily available, or that the specific valuation methods do not reflect the security's fair value, such security is valued at its fair value as determined by, or in accordance with procedures adopted by, the underlying funds' Board of Directors/Trustees or its designee if such fair value determination would materially impact an underlying fund's net asset value. SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME -- Income and capital gain distributions, if any, from the underlying funds are recorded as of the ex-dividend date. Long-term capital gain distributions, if any, from the underlying funds are a component of net realized gain (loss). EXPENSES -- The expenses included in the accompanying financial statements reflect the expenses of each fund and do not include any expenses associated with the underlying funds. INCOME TAX STATUS -- It is each fund's policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state income taxes. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on the ex-dividend date. Distributions from net investment income, if any, are generally declared and paid quarterly for LIVESTRONG Income Portfolio. Distributions from net investment income, if any, are generally declared and paid annually for the four target-date LIVESTRONG Portfolios. Distributions from net realized gains, if any, are generally declared and paid annually for all funds. INDEMNIFICATIONS -- Under the corporation's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the funds. In addition, in the normal course of business, the funds enter into contracts that provide general indemnifications. The funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. The risk of material loss from such claims is considered by management to be remote. USE OF ESTIMATES -- The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. (continued) - ------ 26 Notes to Financial Statements JULY 31, 2006 2. FEES AND TRANSACTIONS WITH RELATED PARTIES ADMINISTRATIVE FEES -- The corporation has entered into a Management Agreement with American Century Investment Management, Inc. (ACIM), under which ACIM provides the funds with shareholder services in exchange for an administrative fee (the fee). The fee is computed and accrued daily based on the daily net assets of each specific class of shares of each fund and paid monthly in arrears. The rate of the fee for the Investor Class, Advisor Class and R Class of the funds is 0.20%. There is no administrative fee for the Institutional Class. DISTRIBUTION FEES -- The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for the Advisor Class and R Class (collectively, the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the Advisor Class and R Class will pay American Century Investment Services, Inc. (ACIS) 0.25% and 0.50%, respectively. The fees are computed and accrued daily based on each class's daily net assets and paid monthly in arrears. These fees are used to pay for distribution services and shareholder services. Fees incurred under the plans during the year ended July 31, 2006, are detailed in the Statement of Operations. MANAGEMENT FEES -- Each fund will indirectly realize its pro rata share of the fees and expenses of the underlying funds in which it invests. These fees and expenses are already reflected in the valuation of the underlying funds. RELATED PARTIES -- Certain officers and directors of the corporation are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc. (ACC), the parent of the corporation's investment advisor, ACIM, the distributor of the corporation, ACIS, and the corporation's transfer agent, American Century Services, LLC. The directors of the corporation are also directors of some underlying funds and therefore those underlying funds may be deemed to be under common control with the corporation. The officers of the corporation are also officers of all the underlying funds. ACIM or American Century Global Investment Management, Inc., a wholly-owned subsidiary of ACIM, serves as the investment advisor for the underlying funds. 3. INVESTMENT TRANSACTIONS Investment transactions for the year ended July 31, 2006, were as follows: - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG LIVESTRONG LIVESTRONG LIVESTRONG INCOME PORTFOLIO 2015 PORTFOLIO 2025 PORTFOLIO 2035 PORTFOLIO 2045 PORTFOLIO - -------------------------------------------------------------------------------------------------- Purchases $48,210,727 $154,253,771 $209,654,989 $106,894,909 $60,242,402 - -------------------------------------------------------------------------------------------------- Proceeds from sales $32,833,314 $88,386,838 $134,354,668 $63,739,892 $35,426,546 - -------------------------------------------------------------------------------------------------- 4. CAPITAL SHARE TRANSACTIONS The corporation is authorized to issue 3,000,000,000 shares. Transactions in shares of the funds were as follows: - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG INCOME PORTFOLIO 2015 PORTFOLIO - -------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- YEAR ENDED JULY 31, 2006 - ----------------------------- Sold 1,865,285 $19,417,311 5,549,139 $61,147,153 - ----------------------------- Issued in reinvestment of distributions 65,833 680,610 140,409 1,524,842 - ----------------------------- Redeemed (793,132) (8,273,388) (1,350,088) (14,856,888) - -------------------------------------------------------------------------------- Net increase (decrease) 1,137,986 $11,824,533 4,339,460 $47,815,107 ================================================================================ PERIOD ENDED JULY 31, 2005(1) - ----------------------------- Sold 1,628,131 $16,739,912 3,902,409 $41,049,602 - ----------------------------- Issued in reinvestment of distributions 15,257 157,830 14,144 148,658 - ----------------------------- Redeemed (161,608) (1,674,191) (190,640) (2,029,041) - -------------------------------------------------------------------------------- Net increase (decrease) 1,481,780 $15,223,551 3,725,913 $39,169,219 ================================================================================ (1) August 31, 2004 (fund inception) through July 31, 2005. (continued) - ------ 27 Notes to Financial Statements JULY 31, 2006 4. CAPITAL SHARE TRANSACTIONS (CONTINUED) - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG INCOME PORTFOLIO 2015 PORTFOLIO - -------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT - -------------------------------------------------------------------------------- INSTITUTIONAL CLASS - -------------------------------------------------------------------------------- YEAR ENDED JULY 31, 2006 - ----------------------------- Sold 197,184 $2,062,635 758,066 $8,404,619 - ----------------------------- Issued in reinvestment of distributions 12,315 127,282 9,680 105,217 - ----------------------------- Redeemed (89,121) (934,968) (102,771) (1,134,102) - -------------------------------------------------------------------------------- Net increase (decrease) 120,378 $1,254,949 664,975 $7,375,734 ================================================================================ PERIOD ENDED JULY 31, 2005(1) - ----------------------------- Sold 323,190 $3,315,596 290,244 $3,064,565 - ----------------------------- Issued in reinvestment of distributions 5,659 58,473 1,419 14,925 - ----------------------------- Redeemed (27,396) (284,000) (16,451) (174,484) - -------------------------------------------------------------------------------- Net increase (decrease) 301,453 $3,090,069 275,212 $2,905,006 ================================================================================ ADVISOR CLASS - -------------------------------------------------------------------------------- YEAR ENDED JULY 31, 2006 - ----------------------------- Sold 289,089 $3,021,063 891,334 $9,793,874 - ----------------------------- Issued in reinvestment of distributions 4,853 50,087 7,024 76,285 - ----------------------------- Redeemed (99,509) (1,043,161) (64,749) (710,437) - -------------------------------------------------------------------------------- Net increase (decrease) 194,433 $2,027,989 833,609 $9,159,722 ================================================================================ PERIOD ENDED JULY 31, 2005(1) - ----------------------------- Sold 89,804 $942,528 32,661 $349,947 - ----------------------------- Issued in reinvestment of distributions 25 258 8 86 - ----------------------------- Redeemed (329) (3,435) (3,035) (32,846) - -------------------------------------------------------------------------------- Net increase (decrease) 89,500 $939,351 29,634 $317,187 ================================================================================ R CLASS - -------------------------------------------------------------------------------- YEAR ENDED JULY 31, 2006 - ----------------------------- Sold 3,442 $35,859 33,377 $368,054 - ----------------------------- Issued in reinvestment of distributions 44 451 44 483 - ----------------------------- Redeemed (724) (7,454) (2,932) (31,999) - -------------------------------------------------------------------------------- Net increase (decrease) 2,762 $28,856 30,489 $336,538 ================================================================================ PERIOD ENDED JULY 31, 2005(1) - ----------------------------- Sold 803 $8,118 1,282 $13,304 - ----------------------------- Issued in reinvestment of distributions 14 148 8 82 - ----------------------------- Redeemed (5) (50) (21) (226) - -------------------------------------------------------------------------------- Net increase (decrease) 812 $8,216 1,269 $13,160 ================================================================================ (1) August 31, 2004 (fund inception) through July 31, 2005. (continued) - ------ 28 Notes to Financial Statements JULY 31, 2006 4. CAPITAL SHARE TRANSACTIONS (CONTINUED) - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG 2025 PORTFOLIO 2035 PORTFOLIO - -------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- YEAR ENDED JULY 31, 2006 - ----------------------------- Sold 6,131,308 $69,967,543 3,133,987 $36,820,309 - ----------------------------- Issued in reinvestment of distributions 176,795 1,988,938 65,522 758,749 - ----------------------------- Redeemed (1,298,238) (14,798,332) (677,940) (7,960,207) - -------------------------------------------------------------------------------- Net increase (decrease) 5,009,865 $57,158,149 2,521,569 $29,618,851 ================================================================================ PERIOD ENDED JULY 31, 2005(1) - ----------------------------- Sold 5,016,269 $53,494,769 1,993,049 $21,476,590 - ----------------------------- Issued in reinvestment of distributions 8,808 93,984 4,053 43,813 - ----------------------------- Redeemed (272,431) (2,945,784) (113,126) (1,235,086) - -------------------------------------------------------------------------------- Net increase (decrease) 4,752,646 $50,642,969 1,883,976 $20,285,317 ================================================================================ INSTITUTIONAL CLASS - -------------------------------------------------------------------------------- YEAR ENDED JULY 31, 2006 - ----------------------------- Sold 986,172 $11,275,206 694,353 $8,252,385 - ----------------------------- Issued in reinvestment of distributions 65,504 736,921 10,919 126,443 - ----------------------------- Redeemed (234,870) (2,674,891) (69,706) (818,529) - ----------------------------- Net increase (decrease) 816,806 $ 9,337,236 635,566 $7,560,299 ================================================================================ PERIOD ENDED JULY 31, 2005(1) - ----------------------------- Sold 2,033,515 $21,497,434 307,986 $3,348,138 - ----------------------------- Issued in reinvestment of distributions 14,013 149,519 473 5,110 - ----------------------------- Redeemed (135,889) (1,465,836) (8,418) (92,883) - -------------------------------------------------------------------------------- Net increase (decrease) 1,911,639 $20,181,117 300,041 $3,260,365 ================================================================================ ADVISOR CLASS - -------------------------------------------------------------------------------- YEAR ENDED JULY 31, 2006 - ----------------------------- Sold 665,010 $7,572,377 507,513 $5,948,743 - ----------------------------- Issued in reinvestment of distributions 6,012 67,691 3,055 35,383 - ----------------------------- Redeemed (60,570) (694,686) (79,097) (925,996) - -------------------------------------------------------------------------------- Net increase (decrease) 610,452 $6,945,382 431,471 $5,058,130 ================================================================================ PERIOD ENDED JULY 31, 2005(1) - ----------------------------- Sold 38,181 $417,596 10,329 $112,516 - ----------------------------- Issued in reinvestment of distributions 6 66 6 63 - ----------------------------- Redeemed (3,558) (39,298) (409) (4,618) - -------------------------------------------------------------------------------- Net increase (decrease) 34,629 $378,364 9,926 $107,961 ================================================================================ R CLASS - -------------------------------------------------------------------------------- YEAR ENDED JULY 31, 2006 - ----------------------------- Sold 55,608 $638,412 25,918 $304,212 - ----------------------------- Issued in reinvestment of distributions 169 1,897 73 841 - ----------------------------- Redeemed (14,043) (160,023) (1,493) (17,382) - -------------------------------------------------------------------------------- Net increase (decrease) 41,734 $480,286 24,498 $287,671 ================================================================================ PERIOD ENDED JULY 31, 2005(1) - ----------------------------- Sold 5,833 $62,823 537 $5,397 - ----------------------------- Issued in reinvestment of distributions 6 62 5 59 - ----------------------------- Redeemed (23) (256) -- (4) - -------------------------------------------------------------------------------- Net increase (decrease) 5,816 $62,629 542 $5,452 ================================================================================ (1) August 31, 2004 (fund inception) through July 31, 2005. (continued) - ------ 29 Notes to Financial Statements JULY 31, 2006 4. CAPITAL SHARE TRANSACTIONS (CONTINUED) - -------------------------------------------------------------------------------- LIVESTRONG 2045 PORTFOLIO - -------------------------------------------------------------------------------- SHARES AMOUNT - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- YEAR ENDED JULY 31, 2006 - --------------------------------------------------------- Sold 1,513,147 $17,989,67 - --------------------------------------------------------- Issued in reinvestment of distributions 29,951 349,831 - --------------------------------------------------------- Redeemed (314,171) (3,729,359) - -------------------------------------------------------------------------------- Net increase (decrease) 1,228,927 $14,610,14 ================================================================================ PERIOD ENDED JULY 31, 2005(1) - --------------------------------------------------------- Sold 775,796 $8,462,831 - --------------------------------------------------------- Issued in reinvestment of distributions 1,055 11,489 - --------------------------------------------------------- Redeemed (130,176) (1,401,282) - -------------------------------------------------------------------------------- Net increase (decrease) 646,675 $7,073,038 ================================================================================ INSTITUTIONAL CLASS - -------------------------------------------------------------------------------- YEAR ENDED JULY 31, 2006 - --------------------------------------------------------- Sold 583,552 $6,945,344 - --------------------------------------------------------- Issued in reinvestment of distributions 22,555 263,444 - --------------------------------------------------------- Redeemed (108,965) (1,293,059) - -------------------------------------------------------------------------------- Net increase (decrease) 497,142 $5,915,729 ================================================================================ PERIOD ENDED JULY 31, 2005(1) - --------------------------------------------------------- Sold 696,708 $7,391,651 - --------------------------------------------------------- Issued in reinvestment of distributions 6,217 67,702 - --------------------------------------------------------- Redeemed (81,671) (898,297) - -------------------------------------------------------------------------------- Net increase (decrease) 621,254 $6,561,056 ================================================================================ ADVISOR CLASS - -------------------------------------------------------------------------------- YEAR ENDED JULY 31, 2006 - --------------------------------------------------------- Sold 348,190 $4,162,541 - --------------------------------------------------------- Issued in reinvestment of distributions 1,501 17,511 - --------------------------------------------------------- Redeemed (32,947) (387,544) - -------------------------------------------------------------------------------- Net increase (decrease) 316,744 $3,792,508 ================================================================================ PERIOD ENDED JULY 31, 2005(1) - --------------------------------------------------------- Sold 32,973 $369,026 - --------------------------------------------------------- Issued in reinvestment of distributions 6 65 - --------------------------------------------------------- Redeemed (1) (7) - -------------------------------------------------------------------------------- Net increase (decrease) 32,978 $369,084 ================================================================================ R CLASS - -------------------------------------------------------------------------------- YEAR ENDED JULY 31, 2006 - --------------------------------------------------------- Sold 14,010 $166,299 - --------------------------------------------------------- Issued in reinvestment of distributions 22 257 - --------------------------------------------------------- Redeemed (765) (8,891) - -------------------------------------------------------------------------------- Net increase (decrease) 13,267 $157,665 ================================================================================ PERIOD ENDED JULY 31, 2005(1) - --------------------------------------------------------- Sold 1,637 $17,906 - --------------------------------------------------------- Issued in reinvestment of distributions 6 61 - --------------------------------------------------------- Redeemed (1,112) (12,605) - -------------------------------------------------------------------------------- Net increase (decrease) 531 $ 5,362 ================================================================================ (1) August 31, 2004 (fund inception) through July 31, 2005. (continued) - ------ 30 Notes to Financial Statements JULY 31, 2006 5. AFFILIATED COMPANY TRANSACTIONS Investments are funds within the American Century family of funds, of which certain funds may be deemed to be under common control because of the same board of directors. A summary of the transactions for each underlying fund during the year ended July 31, 2006 follows: - ------------------------------------------------------------------------------------------------------------------ JULY 31, 2005 JULY 31, 2006 SHARE PURCHASE SALES REALIZED DISTRIBUTIONS SHARE MARKET FUND/UNDERLYING FUND BALANCE COST COST GAIN (LOSS) RECEIVED(1) BALANCE VALUE - ------------------------------------------------------------------------------------------------------------------ LIVESTRONG INCOME PORTFOLIO - ------------------------------------------------------------------------------------------------------------------ NT Equity Growth Fund Institutional Class -- $ 4,879,022 $ 250,440 $ (4,514) $ 4,547 466,081 $ 4,604,880 - -------------------------- NT Growth Fund Institutional Class(2) -- 2,456,323 127,090 (4,077) -- 235,532 2,275,239 - -------------------------- NT Large Company Value Fund Institutional Class -- 4,077,311 208,449 (342) 6,120 388,517 3,916,251 - -------------------------- NT Mid Cap Value Fund Institutional Class -- 1,479,119 77,493 (1,773) 1,860 141,077 1,379,733 - -------------------------- NT Small Company Fund Institutional Class -- 776,752 41,080 (3,185) 176 75,409 687,730 - -------------------------- NT Vista Fund Institutional Class(2) -- 1,015,906 53,510 (6,165) -- 100,680 881,957 - -------------------------- Real Estate Fund Institutional Class 36,908 529,214 1,136,580 114,685 40,872 12,122 356,387 - -------------------------- High-Yield Fund Institutional Class 135,990 863,316 435,828 (16,439) 77,559 205,631 1,287,250 - -------------------------- Inflation-Adjusted Bond Fund Institutional Class 77,632 2,280,239 501,525 (24,533) 104,509 243,667 2,597,490 - -------------------------- NT Diversified Bond Fund Institutional Class -- 9,842,770 831,407 2,062 94,003 901,183 9,074,921 - -------------------------- Premium Money Market Fund Investor Class 1,950,577 2,147,956 692,738 -- 112,428 3,405,795 3,405,795 - -------------------------- International Bond Fund Institutional Class 142,415 1,719,290 1,331,747 (99,874) 58,662 177,722 2,417,019 - -------------------------- NT International Growth Fund Institutional Class(2) -- 2,002,790 102,200 (7,576) -- 196,623 1,832,526 - -------------------------- Diversified Bond Fund Institutional Class 683,389 5,067,447 12,060,455 (378,471) 274,790 -- -- - -------------------------- Income & Growth Fund Institutional Class 63,205 2,479,947 4,356,884 66,839 204,751 -- -- - -------------------------- International Growth Fund Institutional Class -- 1,658,147 1,658,147 266,429 26,153 -- -- - -------------------------- Large Company Value Fund Institutional Class 255,484 2,064,201 3,674,898 179,024 105,450 -- -- - -------------------------- Small Company Fund Institutional Class 28,299 381,329 657,894 17,375 49,729 -- -- - -------------------------- Ultra Fund Institutional Class 33,757 1,241,205 2,194,794 (3,745) 5,291 -- -- - -------------------------- Value Fund Institutional Class 78,612 815,928 1,400,497 (32,848) 109,134 -- -- - -------------------------- Vista Fund Institutional Class(2) 26,609 432,515 807,664 169,122 -- -- -- - ------------------------------------------------------------------------------------------------------------------ $48,210,727 $32,601,320 $231,994 $1,276,034 $34,717,178 ================================================================================================================== (1) Distributions received includes distributions from net investment income and from capital gains from the underlying funds. (2) Non-income producing. (continued) - ------ 31 Notes to Financial Statements JULY 31, 2006 5. AFFILIATED COMPANY TRANSACTIONS (CONTINUED) - ------------------------------------------------------------------------------------------------------------------ JULY 31, 2005 JULY 31, 2006 SHARE PURCHASE SALES REALIZED DISTRIBUTIONS SHARE MARKET FUND/UNDERLYING FUND BALANCE COST COST GAIN (LOSS) RECEIVED(1) BALANCE VALUE - ------------------------------------------------------------------------------------------------------------------ LIVESTRONG 2015 PORTFOLIO - ------------------------------------------------------------------------------------------------------------------ NT Equity Growth Fund Institutional Class -- $ 13,902,083 $ 148,780 $ (4,807) $ 13,920 1,380,570 $ 13,640,032 - -------------------------- NT Growth Fund Institutional Class(2) -- 10,289,521 110,020 (4,235) -- 1,024,610 9,897,733 - -------------------------- NT Large Company Value Fund Institutional Class -- 12,597,581 135,813 (3,604) 20,338 1,248,519 12,585,072 - -------------------------- NT Mid Cap Value Fund Institutional Class -- 5,875,977 76,305 (2,425) 7,932 581,803 5,690,033 - -------------------------- NT Small Company Fund Institutional Class -- 2,649,186 28,330 (1,850) 644 266,651 2,431,857 - -------------------------- NT Vista Fund Institutional Class(2) -- 5,252,433 56,090 (6,112) -- 537,679 4,710,068 - -------------------------- Real Estate Fund Institutional Class 82,093 1,440,344 2,032,587 217,649 124,596 55,301 1,625,849 - -------------------------- High-Yield Fund Institutional Class 248,403 2,451,827 254,162 (12,175) 180,011 595,761 3,729,464 - -------------------------- Inflation-Adjusted Bond Fund Institutional Class 141,771 6,631,126 553,544 (34,635) 262,047 706,080 7,526,813 - -------------------------- NT Diversified Bond Fund Institutional Class -- 27,839,537 1,620,174 6,999 276,649 2,622,086 26,404,395 - -------------------------- NT Emerging Markets Fund Institutional Class(2) -- 2,480,065 26,580 (3,044) -- 253,841 2,335,337 - -------------------------- NT International Growth Fund Institutional Class(2) -- 7,911,511 84,460 (8,044) -- 802,143 7,475,973 - -------------------------- Premium Money Market Fund Investor Class 2,166,265 4,150,529 422,577 -- 162,729 5,894,217 5,894,217 - -------------------------- International Bond Fund Institutional Class 158,164 3,777,881 419,391 (38,579) 102,175 415,182 5,646,475 - -------------------------- Diversified Bond Fund Institutional Class 1,248,070 15,320,870 28,088,681 (841,379) 584,078 -- -- - -------------------------- Emerging Markets Fund Institutional Class 126,701 1,108,672 1,932,701 465,346 209,577 -- -- - -------------------------- Income & Growth Fund Institutional Class 154,555 7,519,774 12,142,750 177,123 450,730 -- -- - -------------------------- International Growth Fund Institutional Class 289,887 3,685,441 6,241,398 1,283,985 77,954 -- -- - -------------------------- Large Company Value Fund Institutional Class 667,962 6,804,697 11,045,039 479,008 252,234 -- -- - -------------------------- Small Company Fund Institutional Class 83,960 1,350,599 2,177,425 50,506 127,165 -- -- - -------------------------- Ultra Fund Institutional Class 120,071 5,637,836 9,046,370 (90,643) 16,563 -- -- - -------------------------- Value Fund Institutional Class 291,215 3,208,753 5,366,817 (51,591) 329,652 -- -- - -------------------------- Vista Fund Institutional Class(2) 118,404 2,367,528 4,048,926 750,425 -- -- -- - ------------------------------------------------------------------------------------------------------------------ $154,253,771 $86,058,920 $2,327,918 $3,198,994 $109,593,318 ================================================================================================================== (1) Distributions received includes distributions from net investment income and from capital gains from the underlying funds. (2) Non-income producing. (continued) - ------ 32 Notes to Financial Statements JULY 31, 2006 5. AFFILIATED COMPANY TRANSACTIONS (CONTINUED) - ------------------------------------------------------------------------------------------------------------------ JULY 31, 2005 JULY 31, 2006 SHARE PURCHASE SALES REALIZED DISTRIBUTIONS SHARE MARKET FUND/UNDERLYING FUND BALANCE COST COST GAIN (LOSS) RECEIVED(1) BALANCE VALUE - ------------------------------------------------------------------------------------------------------------------ LIVESTRONG 2025 PORTFOLIO - ------------------------------------------------------------------------------------------------------------------ NT Equity Growth Fund Institutional Class -- $ 19,616,576 $ 284,220 $ (5,944) $ 20,690 1,937,538 $ 19,142,875 - -------------------------- NT Growth Fund Institutional Class(2) -- 19,375,104 282,510 (9,801) -- 1,917,716 18,525,137 - -------------------------- NT Large Company Value Fund Institutional Class -- 19,157,156 485,096 (12,073) 32,287 1,869,552 18,845,084 - -------------------------- NT Mid Cap Value Fund Institutional Class -- 8,248,941 272,710 (9,634) 11,562 799,340 7,817,545 - -------------------------- NT Small Company Fund Institutional Class -- 6,524,610 96,850 (7,777) 1,671 651,704 5,943,540 - -------------------------- NT Vista Fund Institutional Class(2) -- 9,007,494 132,920 (16,025) -- 913,828 8,005,133 - -------------------------- Real Estate Fund Institutional Class 139,097 2,132,832 2,971,265 284,738 259,734 102,308 3,007,855 - -------------------------- High-Yield Fund Institutional Class 318,470 2,602,714 329,049 (17,105) 225,484 677,982 4,244,167 - -------------------------- Inflation-Adjusted Bond Fund Institutional Class 181,692 7,400,174 772,125 (49,259) 318,147 796,775 8,493,622 - -------------------------- NT Diversified Bond Fund Institutional Class -- 31,780,378 2,497,462 11,055 319,185 2,928,445 29,489,456 - -------------------------- NT Emerging Markets Fund Institutional Class(2) -- 5,422,430 77,370 (7,228) -- 550,499 5,064,591 - -------------------------- NT International Growth Fund Institutional Class(2) -- 15,617,292 223,540 (17,608) -- 1,571,037 14,642,065 - -------------------------- Premium Money Market Fund Investor Class 3,669,778 4,323,155 630,708 -- 230,239 7,362,225 7,362,225 - -------------------------- International Bond Fund Institutional Class -- 782,917 60,026 (525) 15,915 54,841 745,838 - -------------------------- Diversified Bond Fund Institutional Class 1,599,799 14,655,137 31,038,168 (1,059,570) 739,482 -- -- - -------------------------- Emerging Markets Fund Institutional Class 322,167 1,947,796 4,020,835 1,161,717 536,900 -- -- - -------------------------- Equity Growth Fund Institutional Class 391,775 7,207,608 15,616,968 1,285,558 164,376 -- -- - -------------------------- Income & Growth Fund Institutional Class -- 1,814,998 1,814,998 (42,054) 69,564 -- -- - -------------------------- International Growth Fund Institutional Class 736,854 5,758,078 12,233,461 2,952,995 181,450 -- -- - -------------------------- Large Company Value Fund Institutional Class 1,358,268 7,965,939 16,560,306 910,638 450,359 -- -- - -------------------------- Small Company Fund Institutional Class 284,592 2,514,989 5,298,263 221,316 370,603 -- -- - -------------------------- Ultra Fund Institutional Class 305,255 8,559,858 17,227,655 17,067 36,880 -- -- - -------------------------- Value Fund Institutional Class 493,523 3,935,597 7,601,937 (103,806) 538,445 -- -- - -------------------------- Vista Fund Institutional Class(2) 250,801 3,303,216 6,842,704 1,496,847 -- -- -- - ------------------------------------------------------------------------------------------------------------------ $209,654,989 $127,371,146 $6,983,522 $4,522,973 $151,329,133 ================================================================================================================== (1) Distributions received includes distributions from net investment income and from capital gains from the underlying funds. (2) Non-income producing. (continued) - ------ 33 Notes to Financial Statements JULY 31, 2006 5. AFFILIATED COMPANY TRANSACTIONS (CONTINUED) - ------------------------------------------------------------------------------------------------------------------ JULY 31, 2005 JULY 31, 2006 SHARE PURCHASE SALES REALIZED DISTRIBUTIONS SHARE MARKET FUND/UNDERLYING FUND BALANCE COST COST GAIN (LOSS) RECEIVED(1) BALANCE VALUE - ------------------------------------------------------------------------------------------------------------------ LIVESTRONG 2035 PORTFOLIO - ------------------------------------------------------------------------------------------------------------------ NT Equity Growth Fund Institutional Class -- $ 10,107,580 $ 146,340 $ (2,772) $ 10,701 998,380 $ 9,863,994 - -------------------------- NT Growth Fund Institutional Class(2) -- 10,185,482 146,770 (4,635) -- 1,008,391 9,741,057 - -------------------------- NT Large Company Value Fund Institutional Class -- 10,306,155 319,796 (9,557) 18,026 1,000,250 10,082,521 - -------------------------- NT Mid Cap Value Fund Institutional Class -- 4,998,369 192,834 (7,034) 6,993 481,782 4,711,828 - -------------------------- NT Small Company Fund Institutional Class -- 2,948,117 42,960 (3,028) 759 294,609 2,686,834 - -------------------------- NT Vista Fund Institutional Class(2) -- 5,425,453 78,390 (8,546) -- 550,757 4,824,631 - ------------------------- Real Estate Fund Institutional Class 46,111 1,320,237 959,297 65,913 114,836 58,093 1,707,934 - -------------------------- High-Yield Fund Institutional Class 67,923 1,059,793 118,638 (5,918) 63,206 216,648 1,356,216 - -------------------------- Inflation-Adjusted Bond Fund Institutional Class 38,763 2,654,914 272,150 (16,967) 94,144 259,945 2,771,014 - -------------------------- NT Diversified Bond Fund Institutional Class -- 10,721,870 893,372 3,480 106,422 982,924 9,898,049 - -------------------------- NT Emerging Markets Fund Institutional Class(2) -- 3,887,227 55,080 (5,177) -- 394,918 3,633,246 - -------------------------- NT International Growth Fund Institutional Class(2) -- 7,626,138 108,130 (8,367) -- 767,610 7,154,125 - -------------------------- Premium Money Market Fund Investor Class 487,118 360,102 514,430 -- 14,258 332,790 332,790 - -------------------------- Diversified Bond Fund Institutional Class 341,334 6,456,264 9,947,258 (294,725) 202,681 -- -- - -------------------------- Emerging Markets Fund Institutional Class 178,035 1,816,663 2,979,448 712,219 310,416 -- -- - -------------------------- Equity Growth Fund Institutional Class 151,602 5,288,057 8,562,886 519,362 77,631 -- -- - -------------------------- International Growth Fund Institutional Class 271,606 3,633,915 6,030,137 1,237,048 70,477 -- -- - -------------------------- Large Company Value Fund Institutional Class 525,715 5,525,119 8,863,424 398,383 194,426 -- -- - -------------------------- Small Company Fund Institutional Class 94,342 1,480,834 2,407,704 73,191 133,507 -- -- - -------------------------- Ultra Fund Institutional Class 118,114 5,726,658 9,071,146 (74,594) 15,413 -- -- - -------------------------- Value Fund Institutional Class 229,177 2,823,111 4,511,346 (16,071) 257,525 -- -- - -------------------------- Vista Fund Institutional Class(2) 116,408 2,542,851 4,194,239 771,912 -- -- -- - ------------------------------------------------------------------------------------------------------------------ $106,894,909 $60,415,775 $3,324,117 $1,691,421 $68,764,239 ================================================================================================================== (1) Distributions received includes distributions from net investment income and from capital gains from the underlying funds. (2) Non-income producing. (continued) - ------ 34 Notes to Financial Statements JULY 31, 2006 5. AFFILIATED COMPANY TRANSACTIONS (CONTINUED) - ------------------------------------------------------------------------------------------------------------------ JULY 31, 2005 JULY 31, 2006 SHARE PURCHASE SALES REALIZED DISTRIBUTIONS SHARE MARKET FUND/UNDERLYING FUND BALANCE COST COST GAIN (LOSS) RECEIVED(1) BALANCE VALUE - ------------------------------------------------------------------------------------------------------------------ LIVESTRONG 2045 PORTFOLIO - ------------------------------------------------------------------------------------------------------------------ NT Equity Growth Fund Institutional Class -- $ 6,356,635 $ 153,090 $ (5,228) $ 6,722 622,511 $ 6,150,409 - -------------------------- NT Growth Fund Institutional Class(2) -- 6,369,607 115,910 (4,188) -- 628,776 6,073,976 - -------------------------- NT Large Company Value Fund Institutional Class -- 6,473,038 257,983 (7,923) 11,150 623,017 6,280,012 - -------------------------- NT Mid Cap Value Fund Institutional Class -- 3,145,269 147,858 (5,536) 4,394 300,760 2,941,433 - -------------------------- NT Small Company Fund Institutional Class -- 2,044,064 38,070 (3,247) 531 203,767 1,858,355 - -------------------------- NT Vista Fund Institutional Class(2) -- 3,388,263 62,820 (7,867) -- 343,690 3,010,724 - -------------------------- Real Estate Fund Institutional Class 27,584 889,277 517,599 25,679 80,337 40,745 1,197,903 - -------------------------- NT Emerging Markets Fund Institutional Class(2) -- 2,942,075 52,970 (5,332) -- 299,005 2,750,846 - -------------------------- NT International Growth Fund Institutional Class(2) -- 4,221,695 75,800 (6,182) -- 424,763 3,958,791 - -------------------------- High-Yield Fund Institutional Class 29,301 457,590 59,218 (2,861) 26,355 92,365 578,205 - -------------------------- Inflation-Adjusted Bond Fund Institutional Class 16,707 1,124,566 126,906 (7,045) 38,904 109,499 1,167,259 - -------------------------- NT Diversified Bond Fund Institutional Class -- 4,575,433 409,717 1,012 44,555 416,572 4,194,872 - -------------------------- Diversified Bond Fund Institutional Class 147,197 2,424,706 3,933,162 (121,669) 83,709 -- -- - -------------------------- Emerging Markets Fund Institutional Class 127,781 1,161,232 1,966,006 525,252 238,887 -- -- - -------------------------- Equity Growth Fund Institutional Class 97,079 2,863,779 4,924,922 354,591 48,594 -- -- - -------------------------- International Growth Fund Institutional Class 146,045 1,766,854 3,035,258 673,792 39,823 -- -- - -------------------------- Large Company Value Fund Institutional Class 336,548 3,003,751 5,113,695 263,205 122,192 -- -- - -------------------------- Premium Money Market Fund Investor Class 290,954 100,570 391,524 -- 3,851 -- -- - -------------------------- Small Company Fund Institutional Class 70,540 894,378 1,579,034 61,169 94,403 -- -- - -------------------------- Ultra Fund Institutional Class 75,644 3,119,052 5,253,249 (23,005) 9,820 -- -- - -------------------------- Value Fund Institutional Class 146,755 1,552,206 2,651,812 (35,596) 163,172 -- -- - -------------------------- Vista Fund Institutional Class(2) 74,600 1,368,362 2,412,348 478,574 -- -- -- - ------------------------------------------------------------------------------------------------------------------ $60,242,402 $33,278,951 $2,147,595 $1,017,399 $40,162,785 ================================================================================================================== (1) Distributions received includes distributions from net investment income and from capital gains from the underlying funds. (2) Non-income producing. (continued) - ------ 35 Notes to Financial Statements JULY 31, 2006 6. INVESTMENTS IN UNDERLYING FUNDS The funds do not invest in the underlying funds for the purpose of exercising management or control; however, investments by the funds within their investment strategies may represent a significant portion of the underlying funds' net assets. As of July 31, 2006, the following LIVESTRONG Portfolios owned 25% or more of the total outstanding shares of the underlying funds: - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG LIVESTRONG 2015 PORTFOLIO 2025 PORTFOLIO 2035 PORTFOLIO - -------------------------------------------------------------------------------- NT Diversified Bond Fund 33% 37% -- - -------------------------------------------------------------------------------- NT Emerging Markets Fund -- 37% 26% - -------------------------------------------------------------------------------- NT Equity Growth Fund 26% 36% -- - -------------------------------------------------------------------------------- NT Growth Fund -- 40% -- - -------------------------------------------------------------------------------- NT International Growth Fund -- 42% -- - -------------------------------------------------------------------------------- NT Large Company Value Fund -- 36% -- - -------------------------------------------------------------------------------- NT Mid Cap Value Fund 25% 35% -- - -------------------------------------------------------------------------------- NT Small Company Fund -- 44% -- - -------------------------------------------------------------------------------- NT Vista Fund -- 37% -- - -------------------------------------------------------------------------------- As of July 31, 2006, the funds, in aggregate, owned 100% of the total outstanding shares of the underlying NT Diversified Bond, NT Emerging Markets, NT Equity Growth, NT Growth, NT International Growth, NT Large Company Value, NT Mid Cap Value, NT Small Company and NT Vista funds. 7. FEDERAL TAX INFORMATION The tax character of distributions paid during the year ended July 31, 2006 and period from August 31, 2004 (fund inception) through July 31, 2005 were as follows: - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG INCOME PORTFOLIO 2015 PORTFOLIO - -------------------------------------------------------------------------------- 2006 2005 2006 2005 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $912,480 $229,270 $1,669,219 $166,534 - -------------------------------------------------------------------------------- Long-term capital gains $32,762 -- $ 64,797 -- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG 2025 PORTFOLIO 2035 PORTFOLIO - -------------------------------------------------------------------------------- 2006 2005 2006 2005 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $2,673,015 $245,406 $898,223 $52,479 - -------------------------------------------------------------------------------- Long-term capital gains $139,143 -- $35,644 -- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LIVESTRONG 2045 PORTFOLIO - --------------------------------------------------------- 2006 2005 - --------------------------------------------------------- DISTRIBUTIONS PAID FROM - --------------------------------------------------------- Ordinary income $579,035 $79,440 - --------------------------------------------------------- Long-term capital gains $57,216 -- - --------------------------------------------------------- (continued) - ------ 36 Notes to Financial Statements JULY 31, 2006 7. FEDERAL TAX INFORMATION (CONTINUED) The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements. As of July 31, 2006, the components of distributable earnings on a tax-basis and the federal tax cost of investments were as follows: - ------------------------------------------------------------------------------------------ LIVESTRONG LIVESTRONG LIVESTRONG LIVESTRONG LIVESTRONG INCOME 2015 2025 2035 2045 PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------ Federal tax cost of investments $35,035,692 $111,036,823 $154,238,574 $70,320,794 $41,086,188 ========================================================================================== Gross tax appreciation of investments $ 173,438 $ 522,830 $ 824,332 $ 372,745 $ 231,423 - --------------------- Gross tax depreciation of investments (491,952) (1,966,335) (3,733,773) (1,929,300) (1,154,826) - ------------------------------------------------------------------------------------------ Net tax appreciation (depreciation) of investments $(318,514) $(1,443,505) $(2,909,441) $(1,556,555) $(923,403) ========================================================================================== Undistributed ordinary income $302,707 $1,797,171 $3,105,211 $1,667,177 $ 813,756 - --------------------- Accumulated long-term gains $403,924 $2,332,911 $6,167,649 $2,534,164 $1,799,918 - ------------------------------------------------------------------------------------------ The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales. 8. CORPORATE EVENT Effective May 15, 2006, My Retirement Portfolios (MRP), which includes all of the funds, was repositioned and rebranded as LIVESTRONG(tm) Portfolios from American Century Investments. At that time, the underlying funds in which LIVESTRONG Portfolios invest are prohibited from investing in securities issued by companies assigned the Global Industry Classification Standard (GICS) for the tobacco industry. Accordingly, some of the underlying funds were exchanged for no-tobacco (NT) tracker funds resulting in the funds realizing capital gains (losses). This could affect the tax liability of shareholders with taxable accounts, if the funds make year-end distributions. 9. RECENTLY ISSUED ACCOUNTING STANDARDS In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109" (the Interpretation). The Interpretation establishes a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures. The Interpretation is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. Management has recently begun to evaluate the application of the Interpretation to each fund, and is not in a position at this time to estimate the significance of its impact, if any, on each fund's financial statements. (continued) - ------ 38 Notes to Financial Statements JULY 31, 2006 10. OTHER TAX INFORMATION (UNAUDITED) The following information is provided pursuant to provisions of the Internal Revenue Code. The funds hereby designate capital gain distributions for the fiscal year ended July 31, 2006, as follows: - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG LIVESTRONG LIVESTRONG LIVESTRONG INCOME 2015 2025 2035 2045 PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - -------------------------------------------------------------------------------- $32,762 $64,797 $139,143 $35,644 $57,216 - -------------------------------------------------------------------------------- The funds hereby designate qualified dividend income for the fiscal year ended July 31, 2006, as follows: - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG LIVESTRONG LIVESTRONG LIVESTRONG INCOME 2015 2025 2035 2045 PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - -------------------------------------------------------------------------------- $169,882 $451,173 $586,411 $278,422 $163,736 - -------------------------------------------------------------------------------- For corporate taxpayers, the following ordinary income distributions paid during the fiscal year ended July 31, 2006, qualify for the corporate dividends received deduction: - -------------------------------------------------------------------------------- LIVESTRONG LIVESTRONG LIVESTRONG LIVESTRONG LIVESTRONG INCOME 2015 2025 2035 2045 PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - -------------------------------------------------------------------------------- $161,659 $410,476 $569,444 $335,405 $162,004 - -------------------------------------------------------------------------------- - ------ 38 LIVESTRONG Income Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.51 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.37 0.29 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) (0.07) 0.52 - -------------------------------------------------------------------------------- Total From Investment Operations 0.30 0.81 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.35) (0.30) - ------------------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.36) (0.30) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.45 $10.51 ================================================================================ TOTAL RETURN(3) 2.99% 8.14% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.20% 0.20%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.51% 3.16%(5) - ------------------------------------------------------- Portfolio Turnover Rate 120% 6% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $27,374 $15,572 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 39 LIVESTRONG Income Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- INSTITUTIONAL CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.51 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.37 0.34 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) (0.05) 0.48 - -------------------------------------------------------------------------------- Total From Investment Operations 0.32 0.82 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.37) (0.31) - ------------------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.38) (0.31) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.45 $10.51 ================================================================================ TOTAL RETURN(3) 3.20% 8.31% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.00% 0.00%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.71% 3.36%(5) - ------------------------------------------------------- Portfolio Turnover Rate 120% 6% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $4,409 $3,169 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 40 LIVESTRONG Income Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- ADVISOR CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.51 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.33 0.18 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) (0.05) 0.61 - -------------------------------------------------------------------------------- Total From Investment Operations 0.28 0.79 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.33) (0.28) - ------------------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.34) (0.28) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.45 $10.51 ================================================================================ TOTAL RETURN(3) 2.83% 7.82% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.45% 0.45%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.26% 2.91%(5) - ------------------------------------------------------- Portfolio Turnover Rate 120% 6% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $2,966 $940 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 41 LIVESTRONG Income Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- R CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.50 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.26 0.29 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) (0.01) 0.46 - -------------------------------------------------------------------------------- Total From Investment Operations 0.25 0.75 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.30) (0.25) - ------------------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.31) (0.25) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.44 $10.50 ================================================================================ TOTAL RETURN(3) 2.48% 7.61% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.70% 0.70%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.01% 2.66%(5) - ------------------------------------------------------- Portfolio Turnover Rate 120% 6% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $37 $9 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 42 LIVESTRONG 2015 Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.93 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.37 0.25 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.11 0.86 - -------------------------------------------------------------------------------- Total From Investment Operations 0.48 1.11 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.31) (0.18) - ------------------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.32) (0.18) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.09 $10.93 ================================================================================ TOTAL RETURN(3) 4.46% 11.17% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.20% 0.20%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.27% 2.61%(5) - ------------------------------------------------------- Portfolio Turnover Rate 123% 2% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $89,431 $40,717 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 43 LIVESTRONG 2015 Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- INSTITUTIONAL CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.94 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.33 0.29 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.17 0.84 - -------------------------------------------------------------------------------- Total From Investment Operations 0.50 1.13 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.33) (0.19) - ------------------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.34) (0.19) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.10 $10.94 ================================================================================ TOTAL RETURN(3) 4.67% 11.32% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.00% 0.00%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.47% 2.81%(5) - ------------------------------------------------------- Portfolio Turnover Rate 123% 2% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $10,439 $3,011 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 44 LIVESTRONG 2015 Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- ADVISOR CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.91 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.31 0.17 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.14 0.91 - -------------------------------------------------------------------------------- Total From Investment Operations 0.45 1.08 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.28) (0.17) - ------------------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.29) (0.17) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.07 $10.91 ================================================================================ TOTAL RETURN(3) 4.22% 10.88% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.45% 0.45%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.02% 2.36%(5) - ------------------------------------------------------- Portfolio Turnover Rate 123% 2% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $9,556 $323 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 45 LIVESTRONG 2015 Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- R CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.90 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.19 0.24 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.23 0.82 - -------------------------------------------------------------------------------- Total From Investment Operations 0.42 1.06 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.25) (0.16) - ------------------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.26) (0.16) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.06 $10.90 ================================================================================ TOTAL RETURN(3) 4.05% 10.59% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.70% 0.70%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 2.77% 2.11%(5) - ------------------------------------------------------- Portfolio Turnover Rate 123% 2% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $351 $14 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 46 LIVESTRONG 2025 Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.21 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.34 0.18 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.27 1.17 - -------------------------------------------------------------------------------- Total From Investment Operations 0.61 1.35 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.31) (0.14) - ------------------------------------------------------- From Net Realized Gains (0.02) -- - -------------------------------------------------------------------------------- Total Distributions (0.33) (0.14) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.49 $11.21 ================================================================================ TOTAL RETURN(3) 5.48% 13.57% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.20% 0.20%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 2.98% 2.08%(5) - ------------------------------------------------------- Portfolio Turnover Rate 120% 2% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $112,202 $53,285 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. LIVESTRONG 2025 Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- INSTITUTIONAL CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.23 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.37 0.27 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.26 1.11 - -------------------------------------------------------------------------------- Total From Investment Operations 0.63 1.38 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.33) (0.15) - ------------------------------------------------------- From Net Realized Gains (0.02) -- - -------------------------------------------------------------------------------- Total Distributions (0.35) (0.15) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.51 $11.23 ================================================================================ TOTAL RETURN(3) 5.77% 13.74% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.00% 0.00%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.18% 2.28%(5) - ------------------------------------------------------- Portfolio Turnover Rate 120% 2% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $31,399 $21,458 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 48 LIVESTRONG 2025 Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- ADVISOR CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.19 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.29 0.12 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.30 1.20 - -------------------------------------------------------------------------------- Total From Investment Operations 0.59 1.32 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.28) (0.13) - ------------------------------------------------------- From Net Realized Gains (0.02) -- - -------------------------------------------------------------------------------- Total Distributions (0.30) (0.13) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.48 $11.19 ================================================================================ TOTAL RETURN(3) 5.30% 13.28% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.45% 0.45%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 2.73% 1.83%(5) - ------------------------------------------------------- Portfolio Turnover Rate 120% 2% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $7,404 $388 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 49 LIVESTRONG 2025 Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- R CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.18 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.19 0.15 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.36 1.15 - -------------------------------------------------------------------------------- Total From Investment Operations 0.55 1.30 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.25) (0.12) - ------------------------------------------------------- From Net Realized Gains (0.02) -- - -------------------------------------------------------------------------------- Total Distributions (0.27) (0.12) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.46 $11.18 ================================================================================ TOTAL RETURN(3) 4.95% 13.10% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.70% 0.70%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 2.48% 1.58%(5) - ------------------------------------------------------- Portfolio Turnover Rate 120% 2% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $545 $65 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 50 LIVESTRONG 2035 Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.43 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.31 0.17 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.42 1.39 - -------------------------------------------------------------------------------- Total From Investment Operations 0.73 1.56 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.30) (0.13) - ------------------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.31) (0.13) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.85 $11.43 ================================================================================ TOTAL RETURN(3) 6.45% 15.71% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.20% 0.20%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 2.61% 1.62%(5) - ------------------------------------------------------- Portfolio Turnover Rate 141% 3% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $52,206 $21,537 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 51 LIVESTRONG 2035 Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- INSTITUTIONAL CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.45 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.30 0.16 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.45 1.43 - -------------------------------------------------------------------------------- Total From Investment Operations 0.75 1.59 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.32) (0.14) - ------------------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.33) (0.14) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.87 $11.45 ================================================================================ TOTAL RETURN(3) 6.66% 15.98% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.00% 0.00%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 2.81% 1.82%(5) - ------------------------------------------------------- Portfolio Turnover Rate 141% 3% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $11,104 $3,435 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ----- 52 LIVESTRONG 2035 Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- ADVISOR CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.42 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.26 0.11 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.43 1.44 - -------------------------------------------------------------------------------- Total From Investment Operations 0.69 1.55 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.27) (0.13) - ------------------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.28) (0.13) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.83 $11.42 ================================================================================ TOTAL RETURN(3) 6.10% 15.53% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.45% 0.45%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 2.36% 1.37%(5) - ------------------------------------------------------- Portfolio Turnover Rate 141% 3% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $5,224 $113 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 53 LIVESTRONG 2035 Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- R CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.40 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.16 0.22 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.51 1.30 - -------------------------------------------------------------------------------- Total From Investment Operations 0.67 1.52 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.24) (0.12) - ------------------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.25) (0.12) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.82 $11.40 ================================================================================ TOTAL RETURN(3) 5.93% 15.24% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.70% 0.70%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 2.11% 1.12%(5) - ------------------------------------------------------- Portfolio Turnover Rate 141% 3% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $296 $6 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 54 LIVESTRONG 2045 Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.54 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.31 0.12 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.46 1.56 - -------------------------------------------------------------------------------- Total From Investment Operations 0.77 1.68 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.32) (0.14) - ------------------------------------------------------- From Net Realized Gains (0.03) -- - -------------------------------------------------------------------------------- Total Distributions (0.35) (0.14) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.96 $11.54 ================================================================================ TOTAL RETURN(3) 6.76% 16.86% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.20% 0.20%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 2.62% 1.83%(5) - ------------------------------------------------------- Portfolio Turnover Rate 137% 17% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $22,437 $7,465 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 55 LIVESTRONG 2045 Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- INSTITUTIONAL CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.56 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.35 0.25 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.44 1.45 - -------------------------------------------------------------------------------- Total From Investment Operations 0.79 1.70 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.34) (0.14) - ------------------------------------------------------- From Net Realized Gains (0.03) -- - -------------------------------------------------------------------------------- Total Distributions (0.37) (0.14) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.98 $11.56 ================================================================================ TOTAL RETURN(3) 6.96% 17.11% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.00% 0.00%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 2.82% 2.03%(5) - ------------------------------------------------------- Portfolio Turnover Rate 137% 17% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $13,397 $7,181 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 56 LIVESTRONG 2045 Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- ADVISOR CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.53 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.20 0.07 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.53 1.59 - -------------------------------------------------------------------------------- Total From Investment Operations 0.73 1.66 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.29) (0.13) - ------------------------------------------------------- From Net Realized Gains (0.03) -- - -------------------------------------------------------------------------------- Total Distributions (0.32) (0.13) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.94 $11.53 ================================================================================ TOTAL RETURN(3) 6.51% 16.57% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.45% 0.45%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 2.37% 1.58%(5) - ------------------------------------------------------- Portfolio Turnover Rate 137% 17% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $4,177 $380 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 57 LIVESTRONG 2045 Portfolio - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- R CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.51 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------- Net Investment Income (Loss)(2) 0.12 0.18 - ------------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.59 1.45 - -------------------------------------------------------------------------------- Total From Investment Operations 0.71 1.63 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------- From Net Investment Income (0.26) (0.12) - ------------------------------------------------------- From Net Realized Gains (0.03) -- - -------------------------------------------------------------------------------- Total Distributions (0.29) (0.12) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.93 $11.51 ================================================================================ TOTAL RETURN(3) 6.24% 16.38% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.70% 0.70%(5) - ------------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 2.12% 1.33%(5) - ------------------------------------------------------- Portfolio Turnover Rate 137% 17% - ------------------------------------------------------- Net Assets, End of Period (in thousands) $165 $6 - -------------------------------------------------------------------------------- (1) August 31, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 58 Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders, American Century Asset Allocation Portfolios, Inc.: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of LIVESTRONG Income Portfolio, LIVESTRONG 2015 Portfolio, LIVESTRONG 2025 Portfolio, LIVESTRONG 2035 Portfolio, and LIVESTRONG 2045 Portfolio, (the "Funds"), five of the mutual funds comprising American Century Asset Allocation Portfolios, Inc., as of July 31, 2006, and the related statements of operations for the year then ended and the statements of changes in net assets and the financial highlights for the year then ended and the period August 31, 2004 (fund inception) through July 31, 2005. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2006, by correspondence with the transfer agent. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Funds as of July 31, 2006, the results of their operations for the year then ended, and the changes in their net assets and the financial highlights for the year then ended and the period August 31, 2004 (fund inception) through July 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Kansas City, Missouri September 12, 2006 - ------ 59 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); 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 subsidiaries, including ACIM, ACIS, and ACS. The directors serve in this capacity for seven registered investment companies in the American Century family of funds. All persons named as officers of the funds also serve in a similar capacity for the other 14 investment companies advised by ACIM or American Century Global Investment Management, Inc. (ACGIM), 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 are appointed or re-appointed on an annual basis. INDEPENDENT DIRECTORS - -------------------------------------------------------------------------------- THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1940 POSITION(S) HELD WITH FUND: 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 FUND: 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 FUND: 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. - -------------------------------------------------------------------------------- (continued) - ------ 60 Management - -------------------------------------------------------------------------------- INDEPENDENT DIRECTORS (CONTINUED) - -------------------------------------------------------------------------------- JAMES A. OLSON, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1942 POSITION(S) HELD WITH FUND: Advisory Board Member FIRST YEAR OF SERVICE: 2006 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Principal and Chief Financial Officer, Plaza Belmont LLC NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, SCS Transportation, Inc. and Entertainment Properties Trust - -------------------------------------------------------------------------------- DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1937 POSITION(S) HELD WITH FUND: 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 FUND: 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 service 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 FUND: 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 FUND: 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 - -------------------------------------------------------------------------------- INTERESTED DIRECTORS - -------------------------------------------------------------------------------- JAMES E. STOWERS, JR.(1), 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1924 POSITION(S) HELD WITH FUND: 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 FUND: Director, Co-Vice Chairman FIRST YEAR OF SERVICE: 1990 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, ACC (January 2005 to present); Co-Chairman, ACC (September 2000 to December 2004); Chairman, ACS and other ACC subsidiaries; Director, ACC, ACIM, ACGIM, ACS, ACIS and other ACC subsidiaries NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66 OTHER DIRECTORSHIPS HELD BY DIRECTOR: None - -------------------------------------------------------------------------------- (1) James E. Stowers, Jr. is the father of James E. Stowers III. (continued) - ------ 61 Management - -------------------------------------------------------------------------------- OFFICERS - -------------------------------------------------------------------------------- WILLIAM M. LYONS, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUND: President FIRST YEAR OF SERVICE: 2000 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC (September 2000 to present); President, ACC (June 1997 to present); Also serves as: Chief Executive Officer, ACIM, ACGIM, ACIS and other ACC subsidiaries; President, ACIM, ACGIM and other ACC subsidiaries; Executive Vice President, ACS; Director, ACC, ACIM, ACGIM, ACS, ACIS and other ACC subsidiaries - -------------------------------------------------------------------------------- JONATHAN THOMAS, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1963 POSITION(S) HELD WITH FUND: 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) - -------------------------------------------------------------------------------- MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1956 POSITION(S) HELD WITH FUND: Chief Compliance Officer(1), Senior Vice President, Treasurer, and Chief Financial Officer 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 present); Also serves as: Senior Vice President, ACS; Assistant Treasurer, ACIM, ACGIM, ACS, ACIS and other ACC subsidiaries - -------------------------------------------------------------------------------- DAVID C. TUCKER, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1958 POSITION(S) HELD WITH FUND: 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 FUND: Controller FIRST YEAR OF SERVICE: 1997 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February 2000 to present); Controller-Fund Accounting, ACS (June 1997 to present) - -------------------------------------------------------------------------------- JON ZINDEL, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1967 POSITION(S) HELD WITH FUND: Tax Officer FIRST YEAR OF SERVICE: 1997 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACC (October 2001 to present); Vice President, Corporate Tax, ACS (April 1998 to present); Also serves as: Vice President, ACIM, ACGIM, ACIS and other ACC subsidiaries - -------------------------------------------------------------------------------- (1) Effective August 1, 2006. The SAI has additional information about the funds' directors and is available without charge, upon request, by calling 1-800-345-2021. - ------ 62 Approval of Management Agreement for LIVESTRONG Portfolios Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated and approved by a majority of a fund's independent directors or trustees (the "Directors") each year. At American Century, this process is referred to as the "15(c) Process." As a part of this process, the board reviews fund performance, shareholder services, audit and compliance information, and a variety of other reports from the advisor concerning fund operations. In addition to this annual review, the board of directors oversees and evaluates on a continuous basis at its quarterly meetings the nature and quality of significant services performed by the advisor, fund performance, audit and compliance information, and a variety of other reports relating to fund operations. The board, or committees of the board, also holds special meetings as needed. Under a Securities and Exchange Commission rule, each fund is required to disclose in its annual or semiannual report, as appropriate, the material factors and conclusions that formed the basis for the board's approval or renewal of any advisory agreements within the fund's most recently completed fiscal half-year period. ANNUAL CONTRACT REVIEW PROCESS As part of the annual 15(c) Process undertaken during the most recent fiscal half-year period, the Directors reviewed extensive data and information compiled by the advisor and certain independent providers of evaluative data (the "15(c) Providers") concerning LIVESTRONG Income Portfolio, LIVESTRONG 2015 Portfolio, LIVESTRONG 2025 Portfolio, LIVESTRONG 2035 Portfolio and LIVESTRONG 2045 Portfolio (the "funds") and the services provided to the funds under the management agreement. The information considered and the discussions held at the meetings included, but were not limited to: * the nature, extent and quality of investment management, shareholder services and other services provided to the funds under the management agreement; * reports on the advisor's activities relating to the wide range of programs and services the advisor provides to the funds and its shareholders on a routine and non-routine basis; * data comparing the cost of owning the funds to the cost of owning similar funds; * data comparing the funds' performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; * financial data showing the profitability of the funds to the advisor and the overall profitability of the advisor; and * data comparing services provided and charges to other investment management clients of the advisor. In keeping with its practice, the funds' board of directors held two regularly scheduled meetings and one special meeting to review and discuss the information provided by the advisor and to complete its negotiations with the advisor regarding the renewal of the (continued) - ------ 63 Approval of Management Agreement for LIVESTRONG Portfolios management agreement. The board also had the benefit of the advice of its independent counsel throughout the period. FACTORS CONSIDERED The Directors considered all of the information provided by the advisor, the 15(c) Providers, and the board's independent counsel, and evaluated such information for each fund for which the board has responsibility. The Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the agreement under the terms ultimately determined by the board to be appropriate, the Directors' decision was based on the following factors. NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management agreement, the advisor is responsible for providing or arranging for all services necessary for the operation of the funds. The board noted that under the management agreement, the advisor provides or arranges at its own expense a wide variety of services including: * fund construction and design * portfolio security selection * initial capitalization/funding * securities trading * custody of fund assets * daily valuation of the funds' portfolio * shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping and communications * legal services * regulatory and portfolio compliance * financial reporting * marketing and distribution The Directors noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry and the changing regulatory environment. In performing their evaluation, the Directors considered information received in connection with the annual review, as well as information provided on an ongoing basis at their regularly scheduled board and committee meetings. INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services provided is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes, and liquidity. In evaluating investment performance, the board expects the advisor to manage the funds in accordance with its investment objectives and approved strategies. In providing these services, the advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. At each quarterly meeting the Directors review investment performance information for the funds, together with comparative information for appropriate benchmarks and peer groups of funds (continued) - ------ 64 Approval of Management Agreement for LIVESTRONG Portfolios managed similarly to the funds. The Directors also review detailed performance information during the 15(c) Process comparing the funds' performance with that of similar funds not managed by the advisor. If performance concerns are identified, the Directors discuss with the advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Performance information presented to the Directors showed that LIVESTRONG Income Portfolio's and LIVESTRONG 2015 Portfolio's performance fell below their benchmark for both the one year and since inception periods. The board discussed the funds' performance with the advisor and was satisfied with the efforts being undertaken by the advisor. Performance information presented to the Directors showed that LIVESTRONG 2025 Portfolio's and LIVESTRONG 2035 Portfolio's performance fell below their benchmark for the one year period and above the benchmark for the since inception period. Performance information presented to the Directors showed that LIVESTRONG 2045 Portfolio's performance was above its benchmark for both the one year and since inception periods. SHAREHOLDER AND OTHER SERVICES. The advisor provides the funds with a comprehensive package of transfer agency, shareholder, and other services. The Directors review reports and evaluations of such services at their regular quarterly meetings, including the annual meeting concerning contract review, and reports to the board. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the advisor. COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor provides detailed information concerning its cost of providing various services to the funds, its profitability in managing the funds, its overall profitability, and its financial condition. The Directors have reviewed with the advisor the methodology used to prepare this financial information. This financial information regarding the advisor is considered in order to evaluate the advisor's financial condition, its ability to continue to provide services under the management agreement, and the reasonableness of the management agreement. ETHICS OF THE ADVISOR. The Directors generally consider the advisor's commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the advisor's practices generally meet or exceed industry best practices and that the advisor was not implicated in the industry scandals of 2003 and 2004. ECONOMIES OF SCALE. The Directors review reports provided by the advisor on economies of scale for the complex (continued) - ------ 65 Approval of Management Agreement for LIVESTRONG Portfolios as a whole and the year-over-year changes in revenue, costs, and profitability. The Directors concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. This analysis is also complicated by the additional services and content provided by the advisor and its reinvestment in its ability to provide and expand those services. Accordingly, the Directors also seek to evaluate economies of scale by reviewing other information, such as year-over-year profitability of the advisor generally, the profitability of its management of the funds specifically, and the expenses incurred by the advisor in providing various functions to the funds. The Directors believe the advisor is appropriately sharing economies of scale through its competitive fee structure and through reinvestment in its business to provide shareholders additional content and services. COMPARISON TO OTHER FUNDS' FEES. The funds invest their non-cash assets entirely in other American Century funds. The funds do not pay an investment advisor fee to the advisor. Rather, each fund indirectly bears its pro rata share of the expenses incurred by the underlying funds. Each of the underlying funds pays the advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the underlying funds, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the funds' independent directors (including their independent legal counsel). Under the unified fee structure, the advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The board believes the unified fee structure is a benefit to fund shareholders because it clearly discloses to shareholders the cost of owning fund shares, and, since the unified fee cannot be increased without a vote of fund shareholders, it shifts to the advisor the risk of increased costs of operating the funds and provides a direct incentive to minimize administrative inefficiencies. Part of the Directors' analysis of fee levels involves reviewing certain evaluative data compiled by a 15(c) Provider comparing the funds' portion of the expenses incurred by the underlying funds to the total expense ratio of other funds in the fund's peer group. The expenses of LIVESTRONG Income Portfolio and LIVESTRONG 2025 Portfolio were below the median of the total expense ratios of their peer groups. The expenses of LIVESTRONG 2015 Portfolio were above the median of the total expense ratios of its peer group. The expenses of LIVESTRONG 2035 Portfolio and LIVESTRONG 2045 Portfolio were at the median of the total expense ratios of their peer groups. (continued) - ------ 66 Approval of Management Agreement for LIVESTRONG Portfolios COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The Directors also requested and received information from the advisor concerning the nature of the services, fees, and profitability of its advisory services to advisory clients other than the funds. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the funds. The Directors analyzed this information and concluded that the fees charged and services provided to the funds were reasonable by comparison. COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information from the advisor concerning collateral benefits it receives as a result of its relationship with the funds. They concluded that the advisor's primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. CONCLUSIONS OF THE DIRECTORS As a result of this process, the independent directors, in the absence of particular circumstances and assisted by the advice of legal counsel that is independent of the advisor, taking into account all of the factors discussed above and the information provided by the advisor concluded that the investment management agreement between the funds and the advisor is fair and reasonable in light of the services provided and should be renewed. - ------- 67 Share Class Information Four classes of shares are authorized for sale by the funds: Investor Class, Institutional Class, Advisor Class and R Class. The total expense ratio of Institutional Class shares is lower than that of Investor Class shares; the total expense ratios of the Advisor Class and R Class shares is higher than that of Investor Class shares. INVESTOR CLASS shares are available for purchase in two ways: 1) directly from American Century without any commissions or other fees; or 2) through certain financial intermediaries (such as banks, broker-dealers, insurance companies and investment advisors), which may require payment of a transaction fee to the financial intermediary. INSTITUTIONAL CLASS shares are available to large investors such as endowments, foundations, and retirement plans, and to financial intermediaries serving these investors. This class recognizes the relatively lower cost of serving institutional customers and others who invest at least $5 million ($3 million for endowments and foundations) in an American Century fund or at least $10 million in multiple funds. In recognition of the larger investments and account balances and comparatively lower transaction costs, the total expense ratio of Institutional Class shares is 0.20% less than the total expense ratio of Investor Class shares. ADVISOR CLASS shares are sold primarily through institutions such as investment advisors, banks, broker-dealers, insurance companies, and financial advisors. Advisor Class shares are subject to a 0.25% annual Rule 12b-1 distribution and service fee. The total expense ratio of Advisor Class shares is 0.25% higher than the total expense ratio of Investor Class shares. R CLASS shares are sold primarily through employer-sponsored retirement plans and through institutions such as investment advisors, banks, broker-dealers, and insurance companies. R Class shares are subject to a 0.50% annual Rule 12b-1 distribution and service fee. All classes of shares represent a pro rata interest in the funds and generally have the same rights and preferences. - ------ 68 Additional Information RETIREMENT ACCOUNT INFORMATION As required by law, any distributions you receive from an IRA or certain 403(b), 457 and qualified plans [those not eligible for rollover to an IRA or to another qualified plan] are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld. If you don't want us to withhold on this amount, you must notify us to not withhold the federal income tax. Even if you plan to roll over the amount you withdraw to another tax-deferred account, the withholding rate still applies to the withdrawn amount unless we have received notice not to withhold federal income tax prior to the withdrawal. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election. Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don't have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the funds' investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the funds. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century's Web site at americancentury.com and on the Securities and Exchange Commission's Web site at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The funds' Forms N-Q are available on the SEC's Web site at sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The funds also make their complete schedule of portfolio holdings for the most recent quarter of their fiscal year available on their Web site at americancentury.com and, upon request, by calling 1-800-345-2021. - ------ 69 Index Definitions The following indices are used to illustrate investment market, sector, or style performance or to serve as fund performance comparisons. They are not investment products available for purchase. The 90-DAY U.S. TREASURY BILL INDEX is derived from secondary market interest rates as published by the Federal Reserve Bank and includes three-month, six-month, and one-year instruments. The CITIGROUP NON-U.S. WORLD GOVERNMENT BOND INDEX is based on the Citigroup World Bond Index, and excludes issues denominated in U.S. dollars. The index measures the total return of government securities in major sectors of the international bond market. The LEHMAN BROTHERS U.S. AGGREGATE INDEX represents securities that are taxable, registered with the Securities and Exchange Commission, and U.S. dollar-denominated. The index covers the U.S. investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. Morgan Stanley Capital International (MSCI) has developed several indices that measure the performance of foreign stock markets. The MSCI EAFE(reg.tm) (Europe, Australasia, Far East) INDEX is designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI EM(reg.tm) (Emerging Markets) INDEX represents the performance of stocks in global emerging market countries. The RUSSELL 1000(reg.tm) INDEX is a market-capitalization weighted, large-cap index created by Frank Russell Company to measure the performance of the 1,000 largest companies in the Russell 3000 Index (the 3,000 largest publicly traded U.S. companies, based on total market capitalization). The RUSSELL 1000(reg.tm) GROWTH INDEX measures the performance of those Russell 1000 Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S. companies, based on total market capitalization) with higher price-to-book ratios and higher forecasted growth rates. The RUSSELL 1000(reg.tm) VALUE INDEX measures the performance of those Russell 1000 Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S. companies, based on total market capitalization) with lower price-to-book ratios and lower forecasted growth rates. The RUSSELL 2000(reg.tm) INDEX is a market-capitalization weighted index created by Frank Russell Company to measure the performance of the 2,000 smallest of the 3,000 largest publicly traded U.S. companies, based on total market capitalization. The RUSSELL 3000(reg.tm) INDEX measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. The RUSSELL MIDCAP(reg.tm) INDEX measures the performance of the 800 smallest of the 1,000 largest publicly traded U.S. companies, based on total market capitalization. - ------ 70 Notes - ------ 71 Notes - ------ 72 CONTACT US AMERICANCENTURY.COM AUTOMATED INFORMATION LINE: 1-800-345-8765 INVESTOR SERVICES REPRESENTATIVE: 1-800-345-2021 or 816-531-5575 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS: 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL PROFESSIONALS, INSURANCE COMPANIES: 1-800-345-6488 TELECOMMUNICATIONS DEVICE FOR THE DEAF: 1-800-634-4113 or 816-444-3485 AMERICAN CENTURY ASSET ALLOCATION PORTFOLIOS, INC. INVESTMENT ADVISOR: American Century Investment Management, Inc. Kansas City, Missouri THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. The American Century Investments logo, American Century and American Century Investments are service marks of American Century Proprietary Holdings, Inc. American Century Investment Services, Inc., Distributor ©2006 American Century Proprietary Holdings, Inc. All rights reserved. 0609 SH-ANN-51159N
[front cover] American Century Investments Annual Report July 31, 2006 [photo of fall trees] One Choice Portfolio(sm): Very Conservative One Choice Portfolio(sm): Conservative One Choice Portfolio(sm): Moderate One Choice Portfolio(sm): Aggressive One Choice Portfolio(sm): Very Aggressive [american century investments logo and text logo] Table of Contents Our Message to You. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ONE CHOICE PORTFOLIOS Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Market Index Total Returns . . . . . . . . . . . . . . . . . . . . . . . 6 Types of Investments in Portfolios . . . . . . . . . . . . . . . . . . . 8 Underlying Fund Allocations . . . . . . . . . . . . . . . . . . . . . . 9 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Shareholder Fee Examples. . . . . . . . . . . . . . . . . . . . . . . . . . 13 FINANCIAL STATEMENTS Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . 15 Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . . 19 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 22 Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Report of Independent Registered Public Accounting Firm . . . . . . . . . . 34 OTHER INFORMATION Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Approval of Management Agreement for One Choice Portfolios. . . . . . . . . 38 Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 The opinions expressed in the Portfolio Commentary reflect those of the portfolio management team as of the date of the report, and do not necessarily represent the opinions of American Century or any other person in the American Century organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century by third party vendors. To the best of American Century's knowledge, such information is accurate at the time of printing. Our Message to You [photo of James E. Stowers III and James E. Stowers, Jr.] JAMES E. STOWERS III WITH JAMES E. STOWERS, JR. We are pleased to provide you with the annual report for the One Choice Portfolios(sm) for the year ended July 31, 2006. We hope you find this information helpful in monitoring your investment. Another useful resource we offer is our Web site, americancentury.com, where we post quarterly portfolio commentaries, the views of our senior investment officers, and other communications about investments, portfolio strategy, and the markets. Our Web site presents American Century's strategic collaboration with Lance Armstrong and the Lance Armstrong Foundation (LAF). Our campaign, featuring Lance, is designed to encourage investors to take a more active role in planning their financial futures and make every investment decision count. American Century's collaboration with Lance Armstrong and the LAF is a perfect fit. Like members of our family, Lance is a cancer survivor and shares our values of optimism, focus, and determination. In addition, Lance and our family have dedicated our success to improving lives, through the LAF and the Stowers Institute for Medical Research, respectively. To learn more about American Century's collaboration with Lance Armstrong and the LAF, please visit www.lanceface.com on the Web and click on the links to related sites. Besides this exciting collaboration, we've enjoyed other good news -- in January, American Century was named, for the seventh consecutive year, one of FORTUNE magazine's 100 Best Companies to Work For in America. Fostering a positive work environment can benefit fund investors as well as our company -- it helps us continue to attract and retain talented people. As always, we deeply appreciate your investment with American Century Investments. Sincerely, /s/James E. Stowers, Jr. James E. Stowers, Jr. FOUNDER AMERICAN CENTURY COMPANIES, INC. /s/James E. Stowers III James E. Stowers III CHAIRMAN OF THE BOARD AMERICAN CENTURY COMPANIES, INC. - ------ 1 One Choice Portfolios - Performance TOTAL RETURNS AS OF JULY 31, 2006 ------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR INCEPTION DATE - -------------------------------------------------------------------------------- ONE CHOICE PORTFOLIO: VERY CONSERVATIVE -- INVESTOR CLASS 3.27% 4.75% 9/30/04 - -------------------------------------------------------------------------------- ONE CHOICE PORTFOLIO: CONSERVATIVE -- INVESTOR CLASS 4.45% 6.84% 9/30/04 - -------------------------------------------------------------------------------- ONE CHOICE PORTFOLIO: MODERATE -- INVESTOR CLASS 6.68% 10.04% 9/30/04 - -------------------------------------------------------------------------------- ONE CHOICE PORTFOLIO: AGGRESSIVE -- INVESTOR CLASS 7.84% 11.72% 9/30/04 - -------------------------------------------------------------------------------- ONE CHOICE PORTFOLIO: VERY AGGRESSIVE -- INVESTOR CLASS 9.00% 13.55% 9/30/04 - -------------------------------------------------------------------------------- RUSSELL 3000 INDEX(1) 5.14% 10.74% -- - -------------------------------------------------------------------------------- LEHMAN BROTHERS U.S. AGGREGATE INDEX(1) 1.46% 2.19% -- - -------------------------------------------------------------------------------- (1) Data provided by Lipper Inc. -- A Reuters Company. ©2006 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. The data contained herein has been obtained from company reports, financial reporting services, periodicals and other resources believed to be reliable. Although carefully verified, data on compilations is not guaranteed by Lipper and may be incomplete. No offer or solicitations to buy or sell any of the securities herein is being made by Lipper. The Russell 3000 Index represents approximately 98% of the investable U.S. equity market and provides a broad measure of equity performance. The Lehman Brothers U.S. Aggregate Index represents the U.S. investment-grade fixed-rate bond market and provides a broad measure of bond market performance. Performance for these indices is provided for reference only. Neither index is intended to represent the composition of the fund, which invests in a mix of equity and fixed-income securities. (See the Schedule of Investments for the funds' asset allocations as of July 31, 2006.) Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. The performance of the portfolios is dependent on the performance of their underlying American Century funds, and will assume the risks associated with these funds. The risks will vary according to each portfolio's asset allocation, and the risk level assigned to each portfolio is intended to reflect the relative short-term price volatility among the funds in each. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund's total returns include operating expenses that reduce returns, while the total returns of the indices do not. (continued) - ------ 2 One Choice Portfolios - Performance GROWTH OF $10,000 OVER LIFE OF ONE CHOICE PORTFOLIO: VERY CONSERVATIVE $10,000 investment made September 30, 2004
* From 9/30/04, the Investor Class's inception date. Not annualized. GROWTH OF $10,000 OVER LIFE OF ONE CHOICE PORTFOLIO: CONSERVATIVE $10,000 investment made September 30, 2004
* From 9/30/04, the Investor Class's inception date. Not annualized. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. The performance of the portfolios is dependent on the performance of their underlying American Century funds, and will assume the risks associated with these funds. The risks will vary according to each portfolio's asset allocation, and the risk level assigned to each portfolio is intended to reflect the relative short-term price volatility among the funds in each. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund's total returns include operating expenses that reduce returns, while the total returns of the indices do not. (continued) - ------ 3 One Choice Portfolios - Performance GROWTH OF $10,000 OVER LIFE OF ONE CHOICE PORTFOLIO: MODERATE $10,000 investment made September 30, 2004
* From 9/30/04, the Investor Class's inception date. Not annualized. GROWTH OF $10,000 OVER LIFE OF ONE CHOICE PORTFOLIO: AGGRESSIVE $10,000 investment made September 30, 2004
* From 9/30/04, the Investor Class's inception date. Not annualized. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. The performance of the portfolios is dependent on the performance of their underlying American Century funds, and will assume the risks associated with these funds. The risks will vary according to each portfolio's asset allocation, and the risk level assigned to each portfolio is intended to reflect the relative short-term price volatility among the funds in each. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund's total returns include operating expenses that reduce returns, while the total returns of the indices do not. (continued) - ------ 4 One Choice Portfolios - Performance GROWTH OF $10,000 OVER LIFE OF ONE CHOICE PORTFOLIO: VERY AGGRESSIVE $10,000 investment made September 30, 2004
* From 9/30/04, the Investor Class's inception date. Not annualized. ONE-YEAR RETURNS OVER LIFE OF CLASS Periods ended July 31 - -------------------------------------------------------------------------------- 2005* 2006 - -------------------------------------------------------------------------------- One Choice Portfolio: Very Conservative -- Investor Class 5.43% 3.27% - -------------------------------------------------------------------------------- One Choice Portfolio: Conservative -- Investor Class 8.08% 4.45% - -------------------------------------------------------------------------------- One Choice Portfolio: Moderate -- Investor Class 11.71% 6.68% - -------------------------------------------------------------------------------- One Choice Portfolio: Aggressive -- Investor Class 13.61% 7.84% - -------------------------------------------------------------------------------- One Choice Portfolio: Very Aggressive -- Investor Class 15.81% 9.00% - -------------------------------------------------------------------------------- Russell 3000 Index 14.67% 5.14% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Aggregate Index 2.55% 1.46% - -------------------------------------------------------------------------------- * From 9/30/04, the Investor Class's inception date. Not annualized. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. The performance of the portfolios is dependent on the performance of their underlying American Century funds, and will assume the risks associated with these funds. The risks will vary according to each portfolio's asset allocation, and the risk level assigned to each portfolio is intended to reflect the relative short-term price volatility among the funds in each. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund's total returns include operating expenses that reduce returns, while the total returns of the indices do not. - ------ 5 One Choice Portfolios - Portfolio Commentary PORTFOLIO MANAGERS: JEFF TYLER AND IRINA TORELLI PERFORMANCE SUMMARY The five American Century One Choice Portfolios posted positive returns for year ended July 31, 2006, mostly due to positive performances in domestic and international stock markets. Returns from international stocks--especially emerging markets--were the biggest contributors to the Portfolios' gains, while domestic bond market returns added only modestly to the Portfolios' returns. One Choice Portfolio one-year returns ranged from 3.27% for One Choice: Very Conservative, which is heavily weighted toward bonds, to 9.00% for One Choice: Very Aggressive, which had roughly 96% of its assets in international and domestic stocks as of July 31, 2006. Because of these Portfolios' broad exposure to a variety of asset classes and investment styles, a review of the economy and financial markets helps explain each Portfolio's return. STOCK MARKET REVIEW In spite of rising interest rates and spiraling fuel costs, U.S. corporations generally enjoyed strong earnings growth, helping most of the major indices post gains for the year. The large-cap Russell 1000 Index outperformed the small-cap Russell 2000 Index, but both trailed the Russell Midcap Index. Investors favored value stocks, which outperformed growth stocks by a wide margin in large-, medium-, and small-cap arenas. For example, the Russell 1000 Growth Index returned -0.76%, while the Russell 1000 Value Index gained 11.59%. MARKET INDEX TOTAL RETURNS AS OF JULY 31, 2006 - -------------------------------------------------------------------------------- 1 YEAR - -------------------------------------------------------------------------------- U.S. STOCKS - ---------------------------------------------------- Russell 1000 Index(1) 5.23% - -------------------------------------------------------------------------------- Russell Midcap Index(1) 5.60% - -------------------------------------------------------------------------------- Russell 2000 Index(1) 4.24% - -------------------------------------------------------------------------------- INTERNATIONAL STOCKS - ---------------------------------------------------- MSCI EAFE Index 24.01% - -------------------------------------------------------------------------------- MSCI Emerging Markets Index 28.82% - -------------------------------------------------------------------------------- U.S. FIXED INCOME - ---------------------------------------------------- Lehman Brothers U.S. Aggregate Index(1) 1.46% - -------------------------------------------------------------------------------- 10-Year U.S. Treasury Note -2.00% - -------------------------------------------------------------------------------- 90-Day U.S. Treasury Bill Index(1) 4.16% - -------------------------------------------------------------------------------- INTERNATIONAL BONDS - ---------------------------------------------------- Citigroup Non-U.S. World Government Bond Index 1.57% - -------------------------------------------------------------------------------- (1) Data provided by Lipper Inc. -- A Reuters Company. ©2006 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. The data contained herein has been obtained from company reports, financial reporting services, periodicals and other resources believed to be reliable. Although carefully verified, data on compilations is not guaranteed by Lipper and may be incomplete. No offer or solicitations to buy or sell any of the securities herein is being made by Lipper. (continued) - ------ 6 One Choice Portfolios - Portfolio Commentary Foreign stock market returns were significantly higher than those of their U.S. counterparts, with emerging market stocks offering the highest returns overall. European stocks posted healthy returns, as companies were boosted by strong global demand. Japanese stocks did even better as the country's economy continued to improve. BOND MARKET REVIEW The broad U.S. bond market -- as represented by the Lehman Brothers U.S. Aggregate Index -- managed a small positive total return as price declines were offset by coupon payments. Yields rose across the Treasury yield curve as the Federal Reserve raised short-term interest rates eight times, moving the federal funds rate target from 3.25% to 5.25%. Yields rose more at the short end of the curve than the long end, "flattening" the curve, and even inverting it periodically. A yield-curve inversion occurs when shorter-maturity yields are higher than longer-maturity yields. Very short-term Treasurys, high-yield corporate securities, and mortgage-backed securities were among the best performers, while longer-term Treasurys had negative returns for the period. Money market rates rose significantly as the Fed pushed interest rates higher. Foreign bonds had flat to negative returns in local currency terms, but the dollar's weakness versus the euro and other major foreign currencies in the first half of 2006 pushed some returns for U.S. investors into positive territory. Japanese bond returns didn't get this boost in dollar terms, since the dollar rose 2% versus the yen during the year. But the dollar fell about 5% versus the euro and around 6% versus the British pound for the year ended July 31, 2006. PORTFOLIO STRATEGY The One Choice Portfolios seek the highest total return consistent with their particular asset mix. Each Portfolio is a "fund of funds," which means it invests in other American Century mutual funds to achieve its investment objective and target asset allocation. The table on page 9 shows the specific underlying fund allocations for each One Choice Portfolio. The neutral asset mix for each Portfolio (which generally represents its long-term asset allocation strategy) is given at the end of this discussion, on page 9. As of July 31, 2006, the Portfolios' asset allocations did not deviate significantly from their neutral asset mixes. Going forward, however, we may make adjustments to the asset mixes to take advantage of opportunities that we believe will help the Portfolios better meet their investment objectives. Given the strong performance of international stocks, the higher-risk funds among the One Choice Portfolios' underlying funds offered the highest returns during the year. American Century Emerging Markets (37.96%) and American Century International Growth (20.88%) were the top-performing funds among the One Choice Portfolios' basket of mutual fund investments. American Century Large Company Value (8.57%) was the top-performing domestic stock fund among the Portfolios' basket of funds. (continued) - ------ 7 One Choice Portfolios - Portfolio Commentary As is typical with lower-risk, higher-quality investments, bond fund returns were more modest. American Century's Premium Money Market returned 4.10%, aided by rising short-term interest rates, helping the money market fund outperform the bond portfolios among the One Choice Portfolios' underlying investments. American Century High-Yield (2.98%) and American Century International Bond (2.61%) were the best performers among the Portfolios' bond funds, the first reflecting high-yield corporate bonds' relatively good performance for the period, and the second reflecting the dollar's weakness versus the euro and the British pound. The returns of each One Choice Portfolio were consistent with their respective asset mixes. Those with the highest allocations in foreign stocks--One Choice: Very Aggressive and One Choice: Aggressive-- offered the strongest returns, while One Choice: Very Conservative, with the highest allocation in bonds and money market securities, offered the most modest returns. TYPES OF INVESTMENTS IN PORTFOLIOS AS A % OF NET ASSETS AS OF JULY 31, 2006 - ----------------------------------------------------------------------------------------- VERY VERY CONSERVATIVE CONSERVATIVE MODERATE AGGRESSIVE AGGRESSIVE - ----------------------------------------------------------------------------------------- EQUITY - --------------- Large Cap Value 12.1% 16.8% 14.2% 12.5% 15.9% - ----------------------------------------------------------------------------------------- Large Cap Blend 5.0% 8.9% 15.9% 14.6% 17.9% - ----------------------------------------------------------------------------------------- Large Cap Blend -- International -- 6.5% 10.5% 13.1% 16.2% - ----------------------------------------------------------------------------------------- Large Cap Growth 2.9% 4.9% 8.4% 14.8% 18.2% - ----------------------------------------------------------------------------------------- Large Cap Growth -- International -- -- 3.5% 6.1% 7.1% - ----------------------------------------------------------------------------------------- Mid Cap Growth 1.9% 4.0% 7.1% 13.3% 16.2% - ----------------------------------------------------------------------------------------- Small Cap Value 0.9% 1.4% 1.9% 2.2% 2.4% - ----------------------------------------------------------------------------------------- Real Estate 2.0% 2.0% 2.0% 2.0% 2.1% - ----------------------------------------------------------------------------------------- TOTAL EQUITY 24.8% 44.5% 63.5% 78.6% 96.0% - ----------------------------------------------------------------------------------------- FIXED INCOME - --------------- Investment Grade 39.1% 36.2% 23.8% 13.8% 1.0% - ----------------------------------------------------------------------------------------- High-Yield -- -- 2.5% 4.5% -- - ----------------------------------------------------------------------------------------- International 11.1% 9.1% 4.1% 1.0% 1.0% - ----------------------------------------------------------------------------------------- TOTAL FIXED-INCOME 50.2% 45.3% 30.4% 19.3% 2.0% - ----------------------------------------------------------------------------------------- MONEY MARKET 24.8% 10.0% 6.0% 2.0% 2.0% - ----------------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES 0.2% 0.2% 0.1% 0.1% --(1) - ----------------------------------------------------------------------------------------- (1) Category is less than 0.05% of total net assets. (continued) - ------ 8 One Choice Portfolios - Portfolio Commentary NEUTRAL ASSET MIXES An investment in the One Choice Portfolios entails some risks, including those associated with investing in stocks, bonds, and foreign securities. The value of the Portfolios' shares will fluctuate over time. The neutral asset mix for ONE CHOICE PORTFOLIO: VERY CONSERVATIVE is 25% stocks, 50% bonds, and 25% cash equivalents. This Portfolio is expected to have the least short-term price volatility of the One Choice Portfolios. The neutral asset mix for ONE CHOICE PORTFOLIO: CONSERVATIVE is 45% stocks, 45% bonds, and 10% cash equivalents. The neutral asset mix for ONE CHOICE PORTFOLIO: MODERATE is 64% stocks, 30% bonds, and 6% cash equivalents. The neutral asset mix for ONE CHOICE PORTFOLIO: AGGRESSIVE is 79% stocks, 19% bonds, and 2% cash equivalents. The neutral asset mix for ONE CHOICE PORTFOLIO: VERY AGGRESSIVE is 96% stocks, 2% bonds, and 2% cash equivalents. UNDERLYING FUND ALLOCATIONS AS A % OF NET ASSETS AS OF JULY 31, 2006 -- INVESTOR CLASS - ----------------------------------------------------------------------------------------- VERY VERY CONSERVATIVE CONSERVATIVE MODERATE AGGRESSIVE AGGRESSIVE - ----------------------------------------------------------------------------------------- Equity Growth Fund 5.0% 8.9% 15.9% 14.6% 17.9% - ----------------------------------------------------------------------------------------- Growth Fund 2.9% 4.9% 8.4% 14.8% 18.2% - ----------------------------------------------------------------------------------------- Large Company Value Fund 7.6% 10.5% 9.2% 8.2% 10.3% - ----------------------------------------------------------------------------------------- Real Estate Fund 2.0% 2.0% 2.0% 2.0% 2.1% - ----------------------------------------------------------------------------------------- Small Company Fund 0.9% 1.4% 1.9% 2.2% 2.4% - ----------------------------------------------------------------------------------------- Value Fund 4.5% 6.3% 5.0% 4.3% 5.6% - ----------------------------------------------------------------------------------------- Vista Fund 1.9% 4.0% 7.1% 13.3% 16.2% - ----------------------------------------------------------------------------------------- Emerging Markets Fund -- -- 3.5% 6.1% 7.1% - ----------------------------------------------------------------------------------------- International Growth Fund -- 6.5% 10.5% 13.1% 16.2% - ----------------------------------------------------------------------------------------- Diversified Bond Fund 39.1% 36.2% 23.8% 13.8% 1.0% - ----------------------------------------------------------------------------------------- High-Yield Fund -- -- 2.5% 4.5% -- - ----------------------------------------------------------------------------------------- International Bond Fund 11.1% 9.1% 4.1% 1.0% 1.0% - ----------------------------------------------------------------------------------------- Prime Money Market Fund 24.8% 10.0% 6.0% 2.0% 2.0% - ----------------------------------------------------------------------------------------- Other Assets and Liabilities 0.2% 0.2% 0.1% 0.1% --(1) - ----------------------------------------------------------------------------------------- (1) Category is less than 0.05% of total net assets. - ------ 9 One Choice Portfolios - Schedule of Investments JULY 31, 2006 Shares Value - -------------------------------------------------------------------------------- ONE CHOICE PORTFOLIO: VERY CONSERVATIVE - -------------------------------------------------------------------------------- MUTUAL FUNDS(1) - 99.8% - -------------------------------------------------------------------------------- DOMESTIC FIXED INCOME FUNDS - 39.1% - -------------------------------------------------------------------------------- 788,890 Diversified Bond Fund Investor Class $ 7,762,678 - -------------------------------------------------------------------------------- MONEY MARKET FUNDS - 24.8% - -------------------------------------------------------------------------------- 4,928,595 Prime Money Market Fund Investor Class 4,928,595 - -------------------------------------------------------------------------------- DOMESTIC EQUITY FUNDS - 24.8% - -------------------------------------------------------------------------------- 40,991 Equity Growth Fund Investor Class 982,554 - -------------------------------------------------------------------------------- 28,952 Growth Fund Investor Class 581,935 - -------------------------------------------------------------------------------- 218,520 Large Company Value Fund Investor Class 1,503,419 - -------------------------------------------------------------------------------- 13,617 Real Estate Fund Investor Class 399,931 - -------------------------------------------------------------------------------- 19,521 Small Company Fund Investor Class 187,987 - -------------------------------------------------------------------------------- 124,597 Value Fund Investor Class 895,852 - -------------------------------------------------------------------------------- 23,366 Vista Fund Investor Class(2) 372,220 - -------------------------------------------------------------------------------- 4,923,898 - -------------------------------------------------------------------------------- INTERNATIONAL FIXED INCOME FUNDS - 11.1% - -------------------------------------------------------------------------------- 161,605 International Bond Fund Investor Class 2,194,596 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES - 99.8% (Cost $19,685,215) 19,809,767 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES - 0.2% 42,369 - -------------------------------------------------------------------------------- TOTAL NET ASSETS - 100.0% $ 19,852,136 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS (1) Investments are funds within the American Century family of funds, of which certain funds may be deemed to be under common control because of the same board of directors. (See Note 4 in Notes to Financial Statements.) (2) Non-income producing. Shares Value - -------------------------------------------------------------------------------- ONE CHOICE PORTFOLIO: CONSERVATIVE - -------------------------------------------------------------------------------- MUTUAL FUNDS(1) - 99.8% - -------------------------------------------------------------------------------- DOMESTIC EQUITY FUNDS - 38.0% - -------------------------------------------------------------------------------- 410,926 Equity Growth Fund Investor Class $ 9,849,896 - -------------------------------------------------------------------------------- 268,644 Growth Fund Investor Class 5,399,744 - -------------------------------------------------------------------------------- 1,703,728 Large Company Value Fund Investor Class 11,721,650 - -------------------------------------------------------------------------------- 75,911 Real Estate Fund Investor Class 2,229,506 - -------------------------------------------------------------------------------- 162,944 Small Company Fund Investor Class 1,569,151 - -------------------------------------------------------------------------------- 963,764 Value Fund Investor Class 6,929,463 - -------------------------------------------------------------------------------- 276,338 Vista Fund Investor Class(2) 4,402,064 - -------------------------------------------------------------------------------- 42,101,474 - -------------------------------------------------------------------------------- DOMESTIC FIXED INCOME FUNDS - 36.2% - -------------------------------------------------------------------------------- 4,061,092 Diversified Bond Fund Investor Class 39,961,145 - -------------------------------------------------------------------------------- MONEY MARKET FUNDS - 10.0% - -------------------------------------------------------------------------------- 10,993,126 Prime Money Market Fund Investor Class 10,993,126 - -------------------------------------------------------------------------------- INTERNATIONAL FIXED INCOME FUNDS - 9.1% - -------------------------------------------------------------------------------- 737,059 International Bond Fund Investor Class 10,009,261 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - 6.5% - -------------------------------------------------------------------------------- 653,301 International Growth Fund Investor Class 7,147,113 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES - 99.8% (Cost $108,704,001) 110,212,119 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES - 0.2% 172,197 - -------------------------------------------------------------------------------- TOTAL NET ASSETS - 100.0% $ 110,384,316 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS (1) Investments are funds within the American Century family of funds, of which certain funds may be deemed to be under common control because of the same board of directors. (See Note 4 in Notes to Financial Statements.) (2) Non-income producing. See Notes to Financial Statements. (continued) - ------ 10 One Choice Portfolios - Schedule of Investments JULY 31, 2006 Shares Value - -------------------------------------------------------------------------------- ONE CHOICE PORTFOLIO: MODERATE - -------------------------------------------------------------------------------- MUTUAL FUNDS(1) - 99.9% - -------------------------------------------------------------------------------- DOMESTIC EQUITY FUNDS - 49.5% - -------------------------------------------------------------------------------- 1,687,245 Equity Growth Fund Investor Class $ 40,443,263 - -------------------------------------------------------------------------------- 1,055,431 Growth Fund Investor Class 21,214,163 - -------------------------------------------------------------------------------- 3,373,572 Large Company Value Fund Investor Class 23,210,175 - -------------------------------------------------------------------------------- 175,411 Real Estate Fund Investor Class 5,151,821 - -------------------------------------------------------------------------------- 501,537 Small Company Fund Investor Class 4,829,801 - -------------------------------------------------------------------------------- 1,781,053 Value Fund Investor Class 12,805,771 - -------------------------------------------------------------------------------- 1,126,585 Vista Fund Investor Class(2) 17,946,499 - -------------------------------------------------------------------------------- 125,601,493 - -------------------------------------------------------------------------------- DOMESTIC FIXED INCOME FUNDS - 26.3% - -------------------------------------------------------------------------------- 6,125,114 Diversified Bond Fund Investor Class 60,271,122 - -------------------------------------------------------------------------------- 1,015,623 High-Yield Fund Investor Class 6,357,800 - -------------------------------------------------------------------------------- 66,628,922 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - 14.0% - -------------------------------------------------------------------------------- 1,068,723 Emerging Markets Fund Investor Class 8,934,524 - -------------------------------------------------------------------------------- 2,434,874 International Growth Fund Investor Class 26,637,522 - -------------------------------------------------------------------------------- 35,572,046 - -------------------------------------------------------------------------------- MONEY MARKET FUNDS - 6.0% - -------------------------------------------------------------------------------- 15,237,051 Prime Money Market Fund Investor Class 15,237,051 - -------------------------------------------------------------------------------- INTERNATIONAL FIXED INCOME FUNDS - 4.1% - -------------------------------------------------------------------------------- 757,510 International Bond Fund Investor Class 10,286,986 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES - 99.9% (Cost $246,987,487) 253,326,498 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES - 0.1% 283,745 - -------------------------------------------------------------------------------- TOTAL NET ASSETS - 100.0% $ 253,610,243 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS (1) Investments are funds within the American Century family of funds, of which certain funds may be deemed to be under common control because of the same board of directors. (See Note 4 in Notes to Financial Statements.) (2) Non-income producing. Shares Value - -------------------------------------------------------------------------------- ONE CHOICE PORTFOLIO: AGGRESSIVE - -------------------------------------------------------------------------------- MUTUAL FUNDS(1) - 99.9% - -------------------------------------------------------------------------------- DOMESTIC EQUITY FUNDS - 59.4% - -------------------------------------------------------------------------------- 1,161,627 Equity Growth Fund Investor Class $ 27,844,199 - -------------------------------------------------------------------------------- 1,414,558 Growth Fund Investor Class 28,432,616 - -------------------------------------------------------------------------------- 2,279,282 Large Company Value Fund Investor Class 15,681,460 - -------------------------------------------------------------------------------- 133,370 Real Estate Fund Investor Class 3,917,077 - -------------------------------------------------------------------------------- 428,074 Small Company Fund Investor Class 4,122,353 - -------------------------------------------------------------------------------- 1,150,600 Value Fund Investor Class 8,272,814 - -------------------------------------------------------------------------------- 1,594,954 Vista Fund Investor Class(2) 25,407,617 - -------------------------------------------------------------------------------- 113,678,136 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - 19.2% - -------------------------------------------------------------------------------- 1,391,260 Emerging Markets Fund Investor Class 11,630,934 - -------------------------------------------------------------------------------- 2,288,519 International Growth Fund Investor Class 25,036,397 - -------------------------------------------------------------------------------- 36,667,331 - -------------------------------------------------------------------------------- DOMESTIC FIXED INCOME FUNDS - 18.3% - -------------------------------------------------------------------------------- 2,675,997 Diversified Bond Fund Investor Class 26,331,810 - -------------------------------------------------------------------------------- 1,390,222 High-Yield Fund Investor Class 8,702,790 - -------------------------------------------------------------------------------- 35,034,600 - -------------------------------------------------------------------------------- MONEY MARKET FUNDS - 2.0% - -------------------------------------------------------------------------------- 3,862,210 Prime Money Market Fund Investor Class 3,862,210 - -------------------------------------------------------------------------------- INTERNATIONAL FIXED INCOME FUNDS - 1.0% - -------------------------------------------------------------------------------- 144,708 International Bond Fund Investor Class 1,965,135 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES - 99.9% (Cost $186,136,708) 191,207,412 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES - 0.1% 142,473 - -------------------------------------------------------------------------------- TOTAL NET ASSETS - 100.0% $ 191,349,885 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS (1) Investments are funds within the American Century family of funds, of which certain funds may be deemed to be under common control because of the same board of directors. (See Note 4 in Notes to Financial Statements.) (2) Non-income producing. See Notes to Financial Statements. (continued) - ------ 11 One Choice Portfolios - Schedule of Investments JULY 31, 2006 Shares Value - -------------------------------------------------------------------------------- ONE CHOICE PORTFOLIO: VERY AGGRESSIVE - -------------------------------------------------------------------------------- MUTUAL FUNDS(1) - 100.0% - -------------------------------------------------------------------------------- DOMESTIC EQUITY FUNDS - 72.7% - -------------------------------------------------------------------------------- 576,860 Equity Growth Fund Investor Class $ 13,827,334 - -------------------------------------------------------------------------------- 697,982 Growth Fund Investor Class 14,029,437 - -------------------------------------------------------------------------------- 1,156,008 Large Company Value Fund Investor Class 7,953,335 - -------------------------------------------------------------------------------- 54,124 Real Estate Fund Investor Class 1,589,622 - -------------------------------------------------------------------------------- 192,812 Small Company Fund Investor Class 1,856,780 - -------------------------------------------------------------------------------- 604,033 Value Fund Investor Class 4,342,997 - -------------------------------------------------------------------------------- 784,706 Vista Fund Investor Class(2) 12,500,367 - -------------------------------------------------------------------------------- 56,099,872 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - 23.3% - -------------------------------------------------------------------------------- 658,305 Emerging Markets Fund Investor Class 5,503,430 - -------------------------------------------------------------------------------- 1,142,021 International Growth Fund Investor Class 12,493,710 - -------------------------------------------------------------------------------- 17,997,140 - -------------------------------------------------------------------------------- MONEY MARKET FUNDS - 2.0% - -------------------------------------------------------------------------------- 1,567,786 Prime Money Market Fund Investor Class 1,567,786 - -------------------------------------------------------------------------------- INTERNATIONAL FIXED INCOME FUNDS - 1.0% - -------------------------------------------------------------------------------- 58,738 International Bond Fund Investor Class 797,662 - -------------------------------------------------------------------------------- DOMESTIC FIXED INCOME FUNDS - 1.0% - -------------------------------------------------------------------------------- 80,339 Diversified Bond Fund Investor Class 790,536 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES - 100.0% (Cost $74,566,034) 77,252,996 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES(3) 8,653 - -------------------------------------------------------------------------------- TOTAL NET ASSETS - 100.0% $ 77,261,649 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS (1) Investments are funds within the American Century family of funds, of which certain funds may be deemed to be under common control because of the same board of directors. (See Note 4 in Notes to Financial Statements.) (2) Non-income producing. (3) Category is less than 0.05% of total net assets. See Notes to Financial Statements. - ------ 12 Shareholder Fee Examples (Unaudited) Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1)fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds. As a shareholder in the underlying American Century funds, your fund will indirectly bear its pro rata share of the expenses incurred by the underlying funds. These expenses are not included in the fund's annualized expense ratio or the expenses paid during the period. These expenses are, however, included in the effective expenses paid during the period. The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from February 1, 2006 to July 31, 2006. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century account (i.e., not a financial intermediary or retirement plan account), American Century may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all PERSONAL ACCOUNTS (including American Century Brokerage accounts) registered under your Social Security number. PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypo- (continued) - ------ 13 Shareholder Fee Examples (Unaudited) thetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------------------------------------------------------------------------------------------------------- EFFECTIVE BEGINNING ENDING EXPENSES PAID EXPENSES PAID EFFECTIVE ACCOUNT ACCOUNT DURING PERIOD(1) ANNUALIZED DURING PERIOD(2) ANNUALIZED VALUE VALUE 2/1/06 - EXPENSE 2/1/06 - EXPENSE 2/1/06 7/31/06 7/31/06 RATIO(1) 7/31/06 RATIO(2) - ------------------------------------------------------------------------------------------------------- ONE CHOICE PORTFOLIO: VERY CONSERVATIVE -- INVESTOR CLASS SHAREHOLDER FEE EXAMPLE - ------------------------------------------------------------------------------------------------------- Actual $1,000 $1,012.70 $0.00 0.00%(3) $3.49 0.70% - ------------------------------------------------------------------------------------------------------- Hypothetical $1,000 $1,024.79 $0.00 0.00%(3) $3.51 0.70% - ------------------------------------------------------------------------------------------------------- ONE CHOICE PORTFOLIO: CONSERVATIVE -- INVESTOR CLASS SHAREHOLDER FEE EXAMPLE - ------------------------------------------------------------------------------------------------------- Actual $1,000 $1,006.80 $0.00 0.00%(3) $3.88 0.78% - ------------------------------------------------------------------------------------------------------- Hypothetical $1,000 $1,024.79 $0.00 0.00%(3) $3.92 0.78% - ------------------------------------------------------------------------------------------------------- ONE CHOICE PORTFOLIO: MODERATE -- INVESTOR CLASS SHAREHOLDER FEE EXAMPLE - ------------------------------------------------------------------------------------------------------- Actual $1,000 $1,001.10 $0.00 0.00%(3) $4.32 0.87% - ------------------------------------------------------------------------------------------------------- Hypothetical $1,000 $1,024.79 $0.00 0.00%(3) $4.37 0.87% - ------------------------------------------------------------------------------------------------------- ONE CHOICE PORTFOLIO: AGGRESSIVE -- INVESTOR CLASS SHAREHOLDER FEE EXAMPLE - ------------------------------------------------------------------------------------------------------- Actual $1,000 $990.00 $0.00 0.00%(3) $4.74 0.96% - ------------------------------------------------------------------------------------------------------- Hypothetical $1,000 $1,024.79 $0.00 0.00%(3) $4.82 0.96% - ------------------------------------------------------------------------------------------------------- ONE CHOICE PORTFOLIO: VERY AGGRESSIVE -- INVESTOR CLASS SHAREHOLDER FEE EXAMPLE - ------------------------------------------------------------------------------------------------------- Actual $1,000 $986.30 $0.00 0.00%(3) $4.97 1.01% - ------------------------------------------------------------------------------------------------------- Hypothetical $1,000 $1,024.79 $0.00 0.00%(3) $5.07 1.01% - ------------------------------------------------------------------------------------------------------- (1) Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 181, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. The fees and expenses of the underlying American Century funds in which the fund invests are not included in the class's annualized expense ratio. (2) Effective expenses reflect the sum of expenses borne directly by the class plus the fund's pro rata share of the weighted average expense ratio of the underlying funds in which it invests. The effective annualized expense ratio combines the class's annualized expense ratio and the annualized weighted average expense ratio of the underlying funds. The annualized weighted average expense ratio of the underlying funds for the one-half year period reflects the actual expense ratio of each underlying fund from its most recent shareholder report, annualized and weighted for the fund's relative average investment therein during the period. (3) Other expenses, which include the fees and expenses of the fund's independent directors and its legal counsel, as well as interest, did not exceed 0.005%. - ------ 14 Statement of Assets and Liabilities JULY 31, 2006 - -------------------------------------------------------------------------------- VERY CONSERVATIVE CONSERVATIVE MODERATE - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investment securities in affiliates, at value (cost of $19,685,215, $108,704,001 and $246,987,487, respectively) $19,809,767 $110,212,119 $253,326,498 - ---------------------------- Cash 72 125 -- - ---------------------------- Receivable for capital shares sold -- -- 215 - ---------------------------- Distributions receivable from affiliates 42,297 172,072 291,242 - -------------------------------------------------------------------------------- 19,852,136 110,384,316 253,617,955 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Disbursements in excess of demand deposit cash -- -- 7,712 - -------------------------------------------------------------------------------- NET ASSETS $19,852,136 $110,384,316 $253,610,243 ================================================================================ INVESTOR CLASS CAPITAL SHARES, $0.01 PAR VALUE - -------------------------------------------------------------------------------- Outstanding 1,940,716 10,350,849 22,365,154 ================================================================================ NET ASSET VALUE PER SHARE $10.23 $10.66 $11.34 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Capital (par value and paid-in surplus) $19,731,823 $108,433,495 $245,868,323 - ---------------------------- Undistributed net investment income 62,169 253,880 433,976 - ---------------------------- Accumulated undistributed net realized gain (loss) on investment transactions (66,408) 188,823 968,933 - ---------------------------- Net unrealized appreciation on investments 124,552 1,508,118 6,339,011 - -------------------------------------------------------------------------------- $19,852,136 $110,384,316 $253,610,243 ================================================================================ See Notes to Financial Statements. (continued) - ------ 15 Statement of Assets and Liabilities JULY 31, 2006 - -------------------------------------------------------------------------------- VERY AGGRESSIVE AGGRESSIVE - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investment securities in affiliates, at value (cost of $186,136,708 and $74,566,034, respectively) $191,207,412 $77,252,996 - ------------------------------------------------ Cash -- 82 - ------------------------------------------------ Distributions receivable from affiliates 151,309 8,571 - -------------------------------------------------------------------------------- 191,358,721 77,261,649 ================================================================================ LIABILITIES - -------------------------------------------------------------------------------- Disbursements in excess of demand deposit cash 8,836 -- - -------------------------------------------------------------------------------- NET ASSETS $191,349,885 $77,261,649 ================================================================================ INVESTOR CLASS CAPITAL SHARES, $0.01 PAR VALUE - -------------------------------------------------------------------------------- Outstanding 16,168,185 6,318,794 ================================================================================ NET ASSET VALUE PER SHARE $11.83 $12.23 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Capital (par value and paid-in surplus) $184,405,816 $74,148,606 - ------------------------------------------------ Undistributed net investment income 1,083,618 203,962 - ------------------------------------------------ Undistributed net realized gain on investment transactions 789,747 222,119 - ------------------------------------------------ Net unrealized appreciation on investments 5,070,704 2,686,962 - -------------------------------------------------------------------------------- $191,349,885 $77,261,649 ================================================================================ See Notes to Financial Statements. - ------ 16 Statement of Operations FOR THE YEAR ENDED JULY 31, 2006 - -------------------------------------------------------------------------------- VERY CONSERVATIVE CONSERVATIVE MODERATE - -------------------------------------------------------------------------------- INVESTMENT INCOME (LOSS) - -------------------------------------------------------------------------------- INCOME: - ------------------------------ Income distributions from underlying funds - affiliates $482,764 $2,294,403 $4,957,531 - -------------------------------------------------------------------------------- EXPENSES: - ------------------------------ Directors' fees and expenses 198 1,046 2,408 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) 482,566 2,293,357 4,955,123 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON AFFILIATES - -------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS) ON: - ------------------------------ Sale of investments in underlying funds (101,017) (208,684) (302,518) - ------------------------------ Capital gain distributions received from underlying funds 68,464 450,278 1,318,501 - -------------------------------------------------------------------------------- (32,553) 241,594 1,015,983 - -------------------------------------------------------------------------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 10,991 639,449 3,109,672 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (21,562) 881,043 4,125,655 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $461,004 $3,174,400 $9,080,778 ================================================================================ See Notes to Financial Statements. (continued) - ----- 17 Statement of Operations FOR THE YEAR ENDED JULY 31, 2006 - -------------------------------------------------------------------------------- VERY AGGRESSIVE AGGRESSIVE - -------------------------------------------------------------------------------- INVESTMENT INCOME (LOSS) - -------------------------------------------------------------------------------- INCOME: - --------------------------------------------- Income distributions from underlying funds - affiliates $3,223,983 $1,031,924 - -------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------- Directors' fees and expenses 1,745 720 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) 3,222,238 1,031,204 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON AFFILIATES - -------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS) ON: - --------------------------------------------- Sale of investments in underlying funds (199,769) (225,106) - --------------------------------------------- Capital gain distributions received from underlying funds 1,021,314 478,223 - -------------------------------------------------------------------------------- 821,545 253,117 - -------------------------------------------------------------------------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 2,197,038 1,333,630 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) 3,018,583 1,568,747 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $6,240,821 $2,617,951 ================================================================================ See Notes to Financial Statements. - ------ 18 Statement of Changes in Net Assets YEAR ENDED JULY 31, 2006 AND PERIOD ENDED JULY 31, 2005 - ---------------------------------------------------------------------------------------- VERY CONSERVATIVE CONSERVATIVE - ---------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 2006 2005(1) 2006 2005(1) - ---------------------------------------------------------------------------------------- OPERATIONS - ---------------------------------------------------------------------------------------- Net investment income (loss) $ 482,566 $ 128,039 $ 2,293,357 $ 446,428 - ------------------------------- Net realized gain (loss) (32,553) (21,506) 241,594 1,314 - ------------------------------- Change in net unrealized appreciation (depreciation) 10,991 113,561 639,449 868,669 - ---------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 461,004 220,094 3,174,400 1,316,411 - ---------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - ---------------------------------------------------------------------------------------- From net investment income (445,170) (103,266) (2,121,359) (364,546) - ------------------------------- From net realized gains (12,349) -- (54,085) -- - ---------------------------------------------------------------------------------------- Decrease in net assets from distributions (457,519) (103,266) (2,175,444) (364,546) - ---------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - ---------------------------------------------------------------------------------------- Proceeds from shares sold 15,527,335 12,311,886 85,607,594 47,353,379 - ------------------------------- Proceeds from reinvestment of distributions 438,945 101,931 2,099,406 357,741 - ------------------------------- Payments for shares redeemed (6,249,815) (2,398,459) (21,504,844) (5,479,781) - ---------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions 9,716,465 10,015,358 66,202,156 42,231,339 - ---------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 9,719,950 10,132,186 67,201,112 43,183,204 - ---------------------------------------------------------------------------------------- NET ASSETS - ---------------------------------------------------------------------------------------- Beginning of period 10,132,186 -- 43,183,204 -- - ---------------------------------------------------------------------------------------- End of period $19,852,136 $10,132,186 $110,384,316 $43,183,204 ======================================================================================== Undistributed net investment income $62,169 $24,773 $253,880 $81,882 ======================================================================================== TRANSACTIONS IN SHARES OF THE FUND - ---------------------------------------------------------------------------------------- Sold 1,524,331 1,212,135 8,083,889 4,591,865 - ------------------------------- Issued in reinvestment of distributions 43,390 10,054 200,128 34,607 - ------------------------------- Redeemed (613,143) (236,051) (2,030,348) (529,292) - ---------------------------------------------------------------------------------------- Net increase (decrease) in shares of the fund 954,578 986,138 6,253,669 4,097,180 ======================================================================================== (1) September 30, 2004 (fund inception) through July 31, 2005. See Notes to Financial Statements. (continued) - ------ 19 Statement of Changes in Net Assets YEAR ENDED JULY 31, 2006 AND PERIOD ENDED JULY 31, 2005 - -------------------------------------------------------------------------------- MODERATE AGGRESSIVE - ---------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 2006 2005(1) 2006 2005(1) - ---------------------------------------------------------------------------------------- OPERATIONS - ---------------------------------------------------------------------------------------- Net investment income (loss) $ 4,955,123 $ 726,877 $ 3,222,238 $ 371,007 - ------------------------------- Net realized gain (loss) 1,015,983 38,414 821,545 28,692 - ------------------------------- Change in net unrealized appreciation (depreciation) 3,109,672 3,229,339 2,197,038 2,873,666 - ---------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 9,080,778 3,994,630 6,240,821 3,273,365 - ---------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - ---------------------------------------------------------------------------------------- From net investment income (4,656,349) (591,675) (2,399,441) (110,186) - ------------------------------- From net realized gains (85,464) -- (60,490) -- - ---------------------------------------------------------------------------------------- Decrease in net assets from distributions (4,741,813) (591,675) (2,459,931) (110,186) - ---------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - ---------------------------------------------------------------------------------------- Proceeds from shares sold 184,059,502 100,255,773 145,803,669 66,267,797 - ------------------------------- Proceeds from reinvestment of distributions 4,577,903 569,483 2,416,686 109,534 - ------------------------------- Payments for shares redeemed (36,678,759) (6,915,579) (25,274,500) (4,917,370) - ---------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions 151,958,646 93,909,677 122,945,855 61,459,961 - ---------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 156,297,611 97,312,632 126,726,745 64,623,140 - ---------------------------------------------------------------------------------------- NET ASSETS - ---------------------------------------------------------------------------------------- Beginning of period 97,312,632 -- 64,623,140 -- - ---------------------------------------------------------------------------------------- End of period $253,610,243 $97,312,632 $191,349,885 $64,623,140 ======================================================================================== Undistributed net investment income $433,976 $135,202 $1,083,618 $260,821 ======================================================================================== TRANSACTIONS IN SHARES OF THE FUND - ---------------------------------------------------------------------------------------- Sold 16,339,558 9,472,568 12,363,087 6,188,212 - ------------------------------- Issued in reinvestment of distributions 413,171 53,589 210,696 10,324 - ------------------------------- Redeemed (3,261,353) (652,379) (2,147,138) (456,996) - ---------------------------------------------------------------------------------------- Net increase (decrease) in shares of the fund 13,491,376 8,873,778 10,426,645 5,741,540 ======================================================================================== (1) September 30, 2004 (fund inception) through July 31, 2005. See Notes to Financial Statements. (continued) - ------ 20 Statement of Changes in Net Assets YEAR ENDED JULY 31, 2006 AND PERIOD ENDED JULY 31, 2005 - -------------------------------------------------------------------------------- VERY AGGRESSIVE - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 2006 2005(1) - -------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------- Net investment income (loss) $ 1,031,204 $ 84,733 - ------------------------------------------------ Net realized gain (loss) 253,117 (4,586) - ------------------------------------------------ Change in net unrealized appreciation (depreciation) 1,333,630 1,353,332 - -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 2,617,951 1,433,479 - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - -------------------------------------------------------------------------------- From net investment income (877,225) (34,750) - ------------------------------------------------ From net realized gains (26,412) -- - -------------------------------------------------------------------------------- Decrease in net assets from distributions (903,637) (34,750) - -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - -------------------------------------------------------------------------------- Proceeds from shares sold 62,885,135 27,501,415 - ------------------------------------------------ Proceeds from reinvestment of distributions 882,423 34,434 - ------------------------------------------------ Payments for shares redeemed (13,869,437) (3,285,364) - -------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions 49,898,121 24,250,485 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 51,612,435 25,649,214 - -------------------------------------------------------------------------------- NET ASSETS - -------------------------------------------------------------------------------- Beginning of period 25,649,214 -- - -------------------------------------------------------------------------------- End of period $77,261,649 $25,649,214 ================================================================================ Undistributed net investment income $203,962 $49,983 ================================================================================ TRANSACTIONS IN SHARES OF THE FUND - -------------------------------------------------------------------------------- Sold 5,154,430 2,531,600 - ---------------------------------------------------------- Issued in reinvestment of distributions 74,592 3,203 - ---------------------------------------------------------- Redeemed (1,143,694) (301,337) - -------------------------------------------------------------------------------- Net increase (decrease) in shares of the fund 4,085,328 2,233,466 ================================================================================ (1) September 30, 2004 (fund inception) through July 31, 2005. See Notes to Financial Statements. - ------ 21 Notes to Financial Statements JULY 31, 2006 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- American Century Asset Allocation Portfolios, Inc. (the corporation) is registered under the Investment Company Act of 1940 (the 1940 Act), as amended, as an open-end management investment company. One Choice Portfolio: Very Conservative (Very Conservative), One Choice Portfolio: Conservative (Conservative), One Choice Portfolio: Moderate (Moderate), One Choice Portfolio: Aggressive (Aggressive), and One Choice Portfolio: Very Aggressive (Very Aggressive) (collectively, the funds) are five funds in a series issued by the corporation. The funds operate as "fund of funds," meaning that substantially all of the funds' assets will be invested in other funds in the American Century family of funds (the underlying funds). Because the funds directly invest in a relatively small number of underlying funds, they are not diversified as defined by the 1940 Act. However, the underlying funds are generally diversified and so indirectly provide broad exposure to a large number of securities. The funds' investment objectives are to seek the highest total return consistent with their respective asset mix. The funds pursue their objectives by investing in underlying funds that represent a variety of asset classes and investment styles. Generally, more conservative funds emphasize investments in bonds and cash equivalents while more aggressive funds emphasize investments in stocks. The corporation is authorized to issue 3,000,000,000 shares. The following is a summary of the funds' significant accounting policies. UNDERLYING FUNDS -- Each fund's assets are allocated among underlying funds that represent major asset classes, including equity securities (stocks), fixed-income securities (bonds) and cash-equivalent instruments (money markets). A brief description of each of the underlying funds follows. DOMESTIC EQUITY FUNDS EQUITY GROWTH seeks long-term capital growth. It uses a quantitative investment strategy to construct an optimized portfolio drawn primarily from the 1,500 largest publicly traded U.S. companies without regard to dividend yield. GROWTH seeks long-term capital growth. It uses a growth investment strategy and generally invests in larger U.S. companies. LARGE COMPANY VALUE seeks long-term capital growth with income as a secondary objective. It uses a value investment strategy and invests primarily in larger U.S. companies. REAL ESTATE seeks long-term capital appreciation with income as a secondary objective. It invests primarily in equity securities issued by real estate investment trusts and companies engaged in the real estate industry. SMALL COMPANY seeks long-term capital growth. It uses a quantitative investment strategy and invests primarily in smaller U.S. companies. VALUE seeks long-term capital growth with income as a secondary objective. It uses a value investment strategy and invests primarily in U.S. companies of all sizes. VISTA seeks long-term capital growth. It uses a growth investment strategy and generally invests in medium-sized and smaller U.S. companies. INTERNATIONAL EQUITY FUNDS EMERGING MARKETS seeks capital growth. It uses a growth investment strategy and invests primarily in securities of companies located in emerging market countries and companies that derive a significant portion of their business from emerging market countries. INTERNATIONAL GROWTH seeks capital growth. It uses a growth investment strategy and invests primarily in securities of companies located in developed countries other than the United States. DOMESTIC FIXED INCOME FUNDS DIVERSIFIED BOND seeks a high level of income by investing primarily in high- and medium-grade non-money market debt securities. These securities, which may be payable in U.S. or foreign currencies, may include corporate bonds and notes, government securities and securities backed by mortgages or other assets. HIGH-YIELD seeks high current income by investing in a diversified portfolio of high-yield corporate bonds and other debt securities. INTERNATIONAL FIXED INCOME FUNDS INTERNATIONAL BOND seeks high total return by investing in high-quality, nondollar-denominated government and corporate debt securities outside the United States. MONEY MARKET FUNDS PRIME MONEY MARKET seeks to earn the highest level of current income while preserving the value of shareholder investments by investing in high-quality, cash-equivalent securities. SECURITY VALUATIONS -- Investments in the underlying funds are valued at their reported net asset value. The underlying funds have specific valuation policies. If the underlying funds determine that the market price of a security is not readily available, or that the specific valuation methods do not reflect the security's fair value, such secu- (continued) - ------ 22 Notes to Financial Statements JULY 31, 2006 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) rity is valued at its fair value as determined by, or in accordance with procedures adopted by, the underlying funds' Board of Directors/Trustees or its designee if such fair value determination would materially impact an underlying fund's net asset value. SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME -- Income and capital gain distributions, if any, from the underlying funds are recorded as of the ex-dividend date. Long-term capital gain distributions, if any, from the underlying funds are a component of net realized gain (loss). INCOME TAX STATUS -- It is each fund's policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state income taxes. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on the ex-dividend date. Distributions from net investment income, if any, are generally declared and paid quarterly for Very Conservative, Conservative, and Moderate. Distributions from net investment income, if any, are generally declared and paid annually for Aggressive and Very Aggressive. Distributions from net realized gains, if any, are generally declared and paid annually for all funds. INDEMNIFICATIONS -- Under the corporation's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the funds. In addition, in the normal course of business, the funds enter into contracts that provide general indemnifications. The funds maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. The risk of material loss from such claims is considered by management to be remote. USE OF ESTIMATES -- The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. 2. FEES AND TRANSACTIONS WITH RELATED PARTIES MANAGEMENT FEES -- The corporation's investment advisor, American Century Investment Management, Inc. (ACIM), does not receive an administrative fee for services provided to the funds. Each fund will indirectly realize its pro rata share of the fees and expenses of the underlying funds in which it invests. These fees and expenses are already reflected in the valuation of the underlying funds. RELATED PARTIES -- Certain officers and directors of the corporation are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc. (ACC), the parent of the corporation's investment advisor, ACIM, the distributor of the corporation, American Century Investment Services, Inc., and the corporation's transfer agent, American Century Services, LLC. The directors of the corporation are also directors of some underlying funds and therefore those underlying funds may be deemed to be under common control with the corporation. The officers of the corporation are also officers of all the underlying funds. ACIM or American Century Global Investment Management, Inc., a wholly-owned subsidiary of ACIM, serves as the investment advisor for the underlying funds. 3. INVESTMENT TRANSACTIONS Investment transactions for the year ended July 31, 2006, were as follows: - -------------------------------------------------------------------------------- VERY VERY CONSERVATIVE CONSERVATIVE MODERATE AGGRESSIVE AGGRESSIVE - -------------------------------------------------------------------------------- Purchases $14,196,582 $72,551,335 $164,029,183 $132,015,241 $54,794,939 - -------------------------------------------------------------------------------- Proceeds from sales $4,411,774 $5,897,596 $10,722,006 $7,356,533 $4,296,112 - -------------------------------------------------------------------------------- (continued) - ------ 23 Notes to Financial Statements JULY 31, 2006 4. AFFILIATED COMPANY TRANSACTIONS Investments are funds within the American Century family of funds, of which certain funds may be deemed to be under common control because of the same board of directors. The funds do not invest in the underlying funds for the purpose of exercising management or control; however, investments by the funds within their investment strategies may represent a significant portion of the underlying funds' net assets. As of July 31, 2006, the funds did not own a significant percentage of total outstanding shares of the underlying funds. A summary of transactions for each underlying fund during the year ended July 31, 2006 follows: - ---------------------------------------------------------------------------------------------------- JULY 31, 2005 REALIZED JULY 31, 2006 FUND/ SHARE PURCHASE SALES GAIN DISTRIBUTIONS SHARE MARKET UNDERLYING FUND BALANCE COST COST (LOSS) RECEIVED(1) BALANCE VALUE - ---------------------------------------------------------------------------------------------------- VERY CONSERVATIVE - ---------------------------------------------------------------------------------------------------- Diversified Bond Fund Investor Class 391,418 $ 5,556,747 $1,664,515 $ (44,338) $227,506 788,890 $ 7,762,678 - ------------------ Prime Money Market Fund Investor Class 2,516,885 3,371,234 959,524 -- 130,976 4,928,595 4,928,595 - ------------------ Equity Growth Fund Investor Class 22,761 669,548 243,505 (3,100) 9,603 40,991 982,554 - ------------------ Growth Fund Investor Class 11,903 546,427 202,907 (4,406) 1,261 28,952 581,935 - ------------------ Large Company Value Fund Investor Class 124,165 1,049,151 422,300 (3,849) 39,882 218,520 1,503,419 - ------------------ Real Estate Fund Investor Class 8,158 265,560 114,828 (1,199) 32,021 13,617 399,931 - ------------------ Small Company Fund Investor Class 9,958 141,302 45,928 (1,385) 11,645 19,521 187,987 - ------------------ Value Fund Investor Class 67,880 655,676 259,275 (10,089) 64,677 124,597 895,852 - ------------------ Vista Fund Investor Class(2) 12,240 342,361 167,041 (4,327) -- 23,366 372,220 - ------------------ International Bond Fund Investor Class 72,312 1,598,576 432,968 (28,324) 33,657 161,605 2,194,596 - ---------------------------------------------------------------------------------------------------- $14,196,582 $4,512,791 $(101,017) $551,228 $19,809,767 ==================================================================================================== (1) Distributions received includes distributions from net investment income and from capital gains from the underlying funds. (2) Non-income producing. (continued) - ------ 24 Notes to Financial Statements JULY 31, 2006 4. AFFILIATED COMPANY TRANSACTIONS (CONTINUED) - --------------------------------------------------------------------------------------------------------- JULY 31, 2005 REALIZED JULY 31, 2006 FUND/ SHARE PURCHASE SALES GAIN DISTRIBUTIONS SHARE MARKET UNDERLYING FUND BALANCE COST COST (LOSS) RECEIVED(1) BALANCE VALUE - --------------------------------------------------------------------------------------------------------- CONSERVATIVE - --------------------------------------------------------------------------------------------------------- Equity Growth Fund Investor Class 173,586 $ 6,181,914 $ 582,631 $ (6,615) $ 93,685 410,926 $ 9,849,896 - ------------------ Growth Fund Investor Class 99,540 4,230,245 788,346 (32,093) 12,886 268,644 5,399,744 - ------------------ Large Company Value Fund Investor Class 723,578 7,449,015 909,087 (9,395) 291,652 1,703,728 11,721,650 - ------------------ Real Estate Fund Investor Class 34,730 1,368,256 241,109 (3,865) 165,701 75,911 2,229,506 - ------------------ Small Company Fund Investor Class 63,454 1,102,411 80,511 (2,451) 90,520 162,944 1,569,151 - ------------------ Value Fund Investor Class 388,674 4,605,668 505,689 (46,354) 452,969 963,764 6,929,463 - ------------------ Vista Fund Investor Class(2) 125,808 3,216,689 829,943 (47,805) -- 276,338 4,402,064 - ------------------ Diversified Bond Fund Investor Class 1,527,420 26,208,358 1,103,878 (47,333) 1,130,922 4,061,092 39,961,145 - ------------------ Prime Money Market Fund Investor Class 4,247,877 6,995,014 249,765 -- 284,880 10,993,126 10,993,126 - ------------------ International Bond Fund Investor Class 246,436 6,728,980 198,817 (20,185) 149,860 737,059 10,009,261 - ------------------ International Growth Fund Investor Class 283,278 4,464,785 616,504 7,412 71,606 653,301 7,147,113 - --------------------------------------------------------------------------------------------------------- $72,551,335 $6,106,280 $(208,684) $2,744,681 $110,212,119 ========================================================================================================= MODERATE - --------------------------------------------------------------------------------------------------------- Equity Growth Fund Investor Class 685,502 $ 24,617,948 $ 882,078 $ (23,835) $ 372,132 1,687,245 $ 40,443,263 - ------------------ Growth Fund Investor Class 381,958 14,640,562 788,889 (41,578) 46,932 1,055,431 21,214,163 - ------------------ Large Company Value Fund Investor Class 1,386,210 14,426,101 1,152,760 (6,918) 552,280 3,373,572 23,210,175 - ------------------ Real Estate Fund Investor Class 77,163 3,036,177 346,982 (3,419) 359,667 175,411 5,151,821 - ------------------ Small Company Fund Investor Class 187,605 3,325,430 78,364 (6,775) 260,309 501,537 4,829,801 - ------------------ Value Fund Investor Class 700,896 8,476,462 782,997 (67,024) 791,111 1,781,053 12,805,771 - ------------------ Vista Fund Investor Class(2) 474,302 11,823,002 1,221,897 (92,383) -- 1,126,585 17,946,499 - ------------------ Diversified Bond Fund Investor Class 2,193,900 39,757,407 766,570 (31,484) 1,673,997 6,125,114 60,271,122 - ------------------ High-Yield Fund Investor Class 433,575 4,812,944 1,156,531 (65,590) 323,555 1,015,623 6,357,800 - ------------------ Emerging Markets Fund Investor Class 567,697 6,095,204 2,029,644 126,363 1,111,208 1,068,723 8,934,524 - ------------------ International Growth Fund Investor Class 1,050,840 15,959,554 1,507,959 (76,582) 257,879 2,434,874 26,637,522 - ------------------ Prime Money Market Fund Investor Class 5,669,078 9,756,973 189,000 -- 393,149 15,237,051 15,237,051 - ------------------ International Bond Fund Investor Class 218,795 7,301,419 120,854 (13,294) 133,813 757,510 10,286,986 - --------------------------------------------------------------------------------------------------------- $164,029,183 $11,024,525 $(302,519) $6,276,032 $253,326,498 ========================================================================================================= (1) Distributions received includes distributions from net investment income and from capital gains from the underlying funds. (2) Non-income producing. (continued) - ------ 25 Notes to Financial Statements JULY 31, 2006 4. AFFILIATED COMPANY TRANSACTIONS (CONTINUED) - --------------------------------------------------------------------------------------------------------- JULY 31, 2005 REALIZED JULY 31, 2006 FUND/ SHARE PURCHASE SALES GAIN DISTRIBUTIONS SHARE MARKET UNDERLYING FUND BALANCE COST COST (LOSS) RECEIVED(1) BALANCE VALUE - --------------------------------------------------------------------------------------------------------- AGGRESSIVE - --------------------------------------------------------------------------------------------------------- Equity Growth Fund Investor Class 408,491 $ 18,285,781 $ 380,772 $ (12,633) $ 241,923 1,161,627 $ 27,844,199 - ------------------ Growth Fund Investor Class 458,526 20,397,536 640,361 (31,388) 58,642 1,414,558 28,432,616 - ------------------ Large Company Value Fund Investor Class 815,588 10,184,746 388,694 (273) 348,301 2,279,282 15,681,460 - ------------------ Real Estate Fund Investor Class 50,678 2,476,688 213,020 (824) 250,042 133,370 3,917,077 - ------------------ Small Company Fund Investor Class 138,854 3,030,807 10,410 (461) 202,351 428,074 4,122,353 - ------------------ Value Fund Investor Class 397,845 5,751,888 369,803 (32,234) 469,937 1,150,600 8,272,814 - ------------------ Vista Fund Investor Class(2) 592,325 17,748,808 1,250,031 (62,169) -- 1,594,954 25,407,617 - ------------------ Emerging Markets Fund Investor Class 606,944 8,074,974 1,651,689 87,945 1,248,040 1,391,260 11,630,934 - ------------------ International Growth Fund Investor Class 863,460 16,160,820 1,173,732 (76,480) 222,241 2,288,519 25,036,397 - ------------------ Diversified Bond Fund Investor Class 847,859 18,287,041 145,186 (7,171) 709,272 2,675,997 26,331,810 - ------------------ High-Yield Fund Investor Class 475,460 6,735,252 953,725 (55,644) 397,781 1,390,222 8,702,790 - ------------------ Prime Money Market Fund Investor Class 1,242,908 2,683,547 64,245 -- 96,767 3,862,210 3,862,210 - ------------------ International Bond Fund Investor Class 3,550 2,197,353 314,634 (8,437) -- 144,708 1,965,135 - --------------------------------------------------------------------------------------------------------- $132,015,241 $7,556,302 $(199,769) $4,245,297 $191,207,412 ========================================================================================================= VERY AGGRESSIVE - --------------------------------------------------------------------------------------------------------- Equity Growth Fund Investor Class 197,296 $ 9,560,294 $ 534,987 $ (22,438) $ 120,888 576,860 $13,827,334 - ------------------ Growth Fund Investor Class 222,764 10,435,204 597,041 (33,715) 28,733 697,982 14,029,437 - ------------------ Large Company Value Fund Investor Class 397,942 5,262,888 195,876 (8,070) 175,240 1,156,008 7,953,335 - ------------------ Real Estate Fund Investor Class 20,073 1,034,678 106,778 (1,401) 100,118 54,124 1,589,622 - ------------------ Small Company Fund Investor Class 60,748 1,434,328 54,155 (5,672) 89,714 192,812 1,856,780 - ------------------ Value Fund Investor Class 198,919 3,036,379 133,888 (14,503) 239,553 604,033 4,342,997 - ------------------ Vista Fund Investor Class(2) 282,778 8,990,163 723,688 (67,746) -- 784,706 12,500,367 - ------------------ Emerging Markets Fund Investor Class 275,063 3,924,831 795,434 13,656 572,961 658,305 5,503,430 - ------------------ International Growth Fund Investor Class 421,740 8,316,870 749,070 (60,712) 109,899 1,142,021 12,493,710 - ------------------ Prime Money Market Fund Investor Class 490,724 1,140,979 63,917 -- 39,916 1,567,786 1,567,786 - ------------------ International Bond Fund Investor Class 1,119 899,740 131,212 (2,938) -- 58,738 797,662 - ------------------ Diversified Bond Fund Investor Class 46,535 758,585 435,172 (21,567) 33,125 80,339 790,536 - --------------------------------------------------------------------------------------------------------- $54,794,939 $4,521,218 $(225,106) $1,510,147 $77,252,996 ========================================================================================================= (1) Distributions received includes distributions from net investment income and from capital gains from the underlying funds. (2) Non-income producing. (continued) - ------ 26 Notes to Financial Statements JULY 31, 2006 5. FEDERAL TAX INFORMATION The tax character of distributions paid during the year ended July 31, 2006 and period from September 30, 2004 (fund inception) through July 31, 2005 were as follows: - -------------------------------------------------------------------------------- VERY CONSERVATIVE CONSERVATIVE - -------------------------------------------------------------------------------- 2006 2005 2006 2005 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $445,170 $103,266 $2,121,359 $364,546 - -------------------------------------------------------------------------------- Long-term capital gains $12,349 -- $54,085 -- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MODERATE AGGRESSIVE - -------------------------------------------------------------------------------- 2006 2005 2006 2005 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $4,656,349 $591,675 $2,399,441 $110,186 - -------------------------------------------------------------------------------- Long-term capital gains $85,464 -- $60,490 -- - -------------------------------------------------------------------------------- - ----------------------------------------------------- VERY AGGRESSIVE - ----------------------------------------------------- 2006 2005 - ----------------------------------------------------- DISTRIBUTIONS PAID FROM - ----------------------------------------------------- Ordinary income $877,225 $34,750 - ----------------------------------------------------- Long-term capital gains $26,412 -- - ----------------------------------------------------- The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements. As of July 31, 2006, the components of distributable earnings on a tax-basis and the federal tax cost of investments were as follows: - -------------------------------------------------------------------------------- VERY VERY CONSERVATIVE CONSERVATIVE MODERATE AGGRESSIVE AGGRESSIVE - ------------------------------------------------------------------------------------------- Federal tax cost of investments $19,818,725 $108,980,287 $247,487,964 $186,456,455 $74,826,644 =========================================================================================== Gross tax appreciation of investments $219,385 $2,293,456 $7,702,141 $6,035,038 $2,751,000 - --------------------- Gross tax depreciation of investments (228,343) (1,061,624) (1,863,607) (1,284,081) (324,648) - ------------------------------------------------------------------------------------------- Net tax appreciation (depreciation) of investments $ (8,958) $1,231,832 $5,838,534 $4,750,957 $2,426,352 =========================================================================================== Undistributed ordinary income $77,553 $271,863 $ 600,064 $1,178,746 $223,476 - --------------------- Accumulated long-term gains $51,718 $447,126 $1,303,322 $1,014,366 $463,215 - ------------------------------------------------------------------------------------------- The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales. (continued) - ------ 27 Notes to Financial Statements JULY 31, 2006 6. RECENTLY ISSUED ACCOUNTING STANDARDS In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109" (the Interpretation). The Interpretation establishes a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures. The Interpretation is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. Management has recently begun to evaluate the application of the Interpretation to each fund, and is not in a position at this time to estimate the significance of its impact, if any, on each fund's financial statements. 7. OTHER TAX INFORMATION (UNAUDITED) The following information is provided pursuant to provisions of the Internal Revenue Code. The funds hereby designate capital gain distributions for the fiscal year ended July 31, 2006, as follows: - -------------------------------------------------------------------------------- VERY CONSERVATIVE CONSERVATIVE MODERATE AGGRESSIVE VERY AGGRESSIVE - -------------------------------------------------------------------------------- $12,349 $54,085 $85,464 $60,490 $26,412 - -------------------------------------------------------------------------------- The funds hereby designate qualified dividend income for the year ended July 31, 2006, as follows: - -------------------------------------------------------------------------------- VERY CONSERVATIVE CONSERVATIVE MODERATE AGGRESSIVE VERY AGGRESSIVE - -------------------------------------------------------------------------------- $44,991 $344,353 $813,453 $540,536 $266,865 - -------------------------------------------------------------------------------- For corporate taxpayers, the following ordinary income distributions paid during the fiscal year ended July 31, 2006, qualify for the corporate dividends received deduction. - -------------------------------------------------------------------------------- VERY CONSERVATIVE CONSERVATIVE MODERATE AGGRESSIVE VERY AGGRESSIVE - -------------------------------------------------------------------------------- $43,562 $337,908 $769,161 $510,107 $253,350 - -------------------------------------------------------------------------------- - ------ 28 One Choice Portfolio: Very Conservative - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.27 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - -------------------------------------------- Net Investment Income (Loss)(2) 0.37 0.25 - -------------------------------------------- Net Realized and Unrealized Gain (Loss) (0.04) 0.29 - -------------------------------------------------------------------------------- Total From Investment Operations 0.33 0.54 - -------------------------------------------------------------------------------- Distributions - -------------------------------------------- From Net Investment Income (0.36) (0.27) - -------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.37) (0.27) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.23 $10.27 ================================================================================ TOTAL RETURN(3) 3.27% 5.43% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.00% 0.00%(5) - -------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.67% 3.00%(5) - -------------------------------------------- Portfolio Turnover Rate 34% 38% - -------------------------------------------- Net Assets, End of Period (in thousands) $19,852 $10,132 - -------------------------------------------------------------------------------- (1) September 30, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 29 One Choice Portfolio: Conservative - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.54 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - -------------------------------------------- Net Investment Income (Loss)(2) 0.34 0.22 - -------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.12 0.58 - -------------------------------------------------------------------------------- Total From Investment Operations 0.46 0.80 - -------------------------------------------------------------------------------- Distributions - -------------------------------------------- From Net Investment Income (0.33) (0.26) - -------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.34) (0.26) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.66 $10.54 ================================================================================ TOTAL RETURN(3) 4.45% 8.08% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.00% 0.00%(5) - -------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.23% 2.63%(5) - -------------------------------------------- Portfolio Turnover Rate 8% 12% - -------------------------------------------- Net Assets, End of Period (in thousands) $110,384 $43,183 - -------------------------------------------------------------------------------- (1) September 30, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 30 One Choice Portfolio: Moderate - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.97 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - -------------------------------------------- Net Investment Income (Loss)(2) 0.34 0.17 - -------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.38 0.99 - -------------------------------------------------------------------------------- Total From Investment Operations 0.72 1.16 - -------------------------------------------------------------------------------- Distributions - -------------------------------------------- From Net Investment Income (0.34) (0.19) - -------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.35) (0.19) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.34 $10.97 ================================================================================ TOTAL RETURN(3) 6.68% 11.71% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.00% 0.00%(5) - -------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.02% 1.98%(5) - -------------------------------------------- Portfolio Turnover Rate 7% 3% - -------------------------------------------- Net Assets, End of Period (in thousands) $253,610 $97,313 - -------------------------------------------------------------------------------- (1) September 30, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 31 One Choice Portfolio: Aggressive - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.26 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - -------------------------------------------- Net Investment Income (Loss)(2) 0.31 0.14 - -------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.56 1.22 - -------------------------------------------------------------------------------- Total From Investment Operations 0.87 1.36 - -------------------------------------------------------------------------------- Distributions - -------------------------------------------- From Net Investment Income (0.29) (0.10) - -------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.30) (0.10) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.83 $11.26 ================================================================================ TOTAL RETURN(3) 7.84% 13.61% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.00% 0.00%(5) - -------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 2.68% 1.52%(5) - -------------------------------------------- Portfolio Turnover Rate 6% 3% - -------------------------------------------- Net Assets, End of Period (in thousands) $191,350 $64,623 - -------------------------------------------------------------------------------- (1) September 30, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 32 One Choice Portfolio: Very Aggressive - Financial Highlights For a Share Outstanding Throughout the Years Ended July 31 (except as noted) - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- 2006 2005(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.48 $10.00 - -------------------------------------------------------------------------------- Income From Investment Operations - -------------------------------------------- Net Investment Income (Loss)(2) 0.25 0.08 - -------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.78 1.49 - -------------------------------------------------------------------------------- Total From Investment Operations 1.03 1.57 - -------------------------------------------------------------------------------- Distributions - -------------------------------------------- From Net Investment Income (0.27) (0.09) - -------------------------------------------- From Net Realized Gains (0.01) -- - -------------------------------------------------------------------------------- Total Distributions (0.28) (0.09) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $12.23 $11.48 ================================================================================ TOTAL RETURN(3) 9.00% 15.81% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets(4) 0.00% 0.00%(5) - -------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 2.08% 0.84%(5) - -------------------------------------------- Portfolio Turnover Rate 9% 8% - -------------------------------------------- Net Assets, End of Period (in thousands) $77,262 $25,649 - -------------------------------------------------------------------------------- (1) September 30, 2004 (fund inception) through July 31, 2005. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (4) Ratio of operating expenses to average net assets does not include any expenses of the underlying funds. (5) Annualized. See Notes to Financial Statements. - ------ 33 Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders, American Century Asset Allocation Portfolios, Inc.: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of One Choice Portfolio: Very Conservative, One Choice Portfolio: Conservative, One Choice Portfolio: Moderate, One Choice Portfolio: Aggressive, and One Choice Portfolio: Very Aggressive, (the "Funds"), five of the mutual funds comprising American Century Asset Allocation Portfolios, Inc., as of July 31, 2006, and the related statements of operations for the year then ended and the statements of changes in net assets and the financial highlights for the year then ended and the period September 30, 2004 (fund inception) through July 31, 2005. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2006, by correspondence with the transfer agent. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Funds as of July 31, 2006, the results of their operations for the year then ended, and the changes in their net assets and the financial highlights for the year then ended and the period September 30, 2004 (fund inception) through July 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Kansas City, Missouri September 12, 2006 - ------ 34 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); 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 subsidiaries, including ACIM, ACIS, and ACS. The directors serve in this capacity for seven registered investment companies in the American Century family of funds. All persons named as officers of the funds also serve in a similar capacity for the other 14 investment companies advised by ACIM or American Century Global Investment Management, Inc. (ACGIM), 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 are appointed or re-appointed on an annual basis. INDEPENDENT DIRECTORS - -------------------------------------------------------------------------------- THOMAS A. BROWN, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1940 POSITION(S) HELD WITH FUND: 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 FUND: 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 FUND: 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. - -------------------------------------------------------------------------------- (continued) - ------ 35 Management INDEPENDENT DIRECTORS (CONTINUED) - -------------------------------------------------------------------------------- JAMES A. OLSON, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1942 POSITION(S) HELD WITH FUND: Advisory Board Member FIRST YEAR OF SERVICE: 2006 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Principal and Chief Financial Officer, Plaza Belmont LLC NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Director, SCS Transportation, Inc. and Entertainment Properties Trust - -------------------------------------------------------------------------------- DONALD H. PRATT, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1937 POSITION(S) HELD WITH FUND: 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 FUND: 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 service 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 FUND: 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 FUND: 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 - -------------------------------------------------------------------------------- INTERESTED DIRECTORS - -------------------------------------------------------------------------------- JAMES E. STOWERS, JR.(1), 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1924 POSITION(S) HELD WITH FUND: 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 FUND: Director, Co-Vice Chairman FIRST YEAR OF SERVICE: 1990 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, ACC (January 2005 to present); Co-Chairman, ACC (September 2000 to December 2004); Chairman, ACS and other ACC subsidiaries; Director, ACC, ACIM, ACGIM, ACS, ACIS and other ACC subsidiaries NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 66 OTHER DIRECTORSHIPS HELD BY DIRECTOR: None - -------------------------------------------------------------------------------- (1) James E. Stowers, Jr. is the father of James E. Stowers III. (continued) - ------ 36 Management OFFICERS - -------------------------------------------------------------------------------- WILLIAM M. LYONS, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUND: President FIRST YEAR OF SERVICE: 2000 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC (September 2000 to present); President, ACC (June 1997 to present); Also serves as: Chief Executive Officer, ACIM, ACGIM, ACIS and other ACC subsidiaries; President, ACIM, ACGIM and other ACC subsidiaries; Executive Vice President, ACS; Director, ACC, ACIM, ACGIM, ACS, ACIS and other ACC subsidiaries - -------------------------------------------------------------------------------- JONATHAN THOMAS, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1963 POSITION(S) HELD WITH FUND: 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) - -------------------------------------------------------------------------------- MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1956 POSITION(S) HELD WITH FUND: Chief Compliance Officer(1), Senior Vice President, Treasurer, and Chief Financial Officer 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 present); Also serves as: Senior Vice President, ACS; Assistant Treasurer, ACIM, ACGIM, ACS, ACIS and other ACC subsidiaries - -------------------------------------------------------------------------------- DAVID C. TUCKER, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1958 POSITION(S) HELD WITH FUND: 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 FUND: Controller FIRST YEAR OF SERVICE: 1997 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February 2000 to present); Controller-Fund Accounting, ACS (June 1997 to present) - -------------------------------------------------------------------------------- JON ZINDEL, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1967 POSITION(S) HELD WITH FUND: Tax Officer FIRST YEAR OF SERVICE: 1997 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACC (October 2001 to present); Vice President, Corporate Tax, ACS (April 1998 to present); Also serves as: Vice President, ACIM, ACGIM, ACIS and other ACC subsidiaries - -------------------------------------------------------------------------------- (1) Effective August 1, 2006. The SAI has additional information about the funds' directors and is available without charge, upon request, by calling 1-800-345-2021. - ------ 37 Approval of Management Agreement for One Choice Portfolios Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated and approved by a majority of a fund's independent directors or trustees (the "Directors") each year. At American Century, this process is referred to as the "15(c) Process." As a part of this process, the board reviews fund performance, shareholder services, audit and compliance information, and a variety of other reports from the advisor concerning fund operations. In addition to this annual review, the board of directors oversees and evaluates on a continuous basis at its quarterly meetings the nature and quality of significant services performed by the advisor, fund performance, audit and compliance information, and a variety of other reports relating to fund operations. The board, or committees of the board, also holds special meetings as needed. Under a Securities and Exchange Commission rule, each fund is required to disclose in its annual or semiannual report, as appropriate, the material factors and conclusions that formed the basis for the board's approval or renewal of any advisory agreements within the fund's most recently completed fiscal half-year period. ANNUAL CONTRACT REVIEW PROCESS As part of the annual 15(c) Process undertaken during the most recent fiscal half-year period, the Directors reviewed extensive data and information compiled by the advisor and certain independent providers of evaluative data (the "15(c) Providers") concerning the One Choice Portfolio: Very Conservative, One Choice Portfolio: Conservative, One Choice Portfolio: Moderate, One Choice Portfolio: Aggressive, One Choice Portfolio: Very Aggressive (the "funds") and the services provided to the funds under the management agreement. The information considered and the discussions held at the meetings included, but were not limited to: * the nature, extent and quality of investment management, share-holder services and other services provided to the funds under the management agreement; * reports on the advisor's activities relating to the wide range of programs and services the advisor provides to the funds and its shareholders on a routine and non-routine basis; * data comparing the cost of owning the funds to the cost of owning similar funds; * data comparing the funds' performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; * financial data showing the profitability of the funds to the advisor and the overall profitability of the advisor; and * data comparing services provided and charges to other investment management clients of the advisor. In keeping with its practice, the funds' board of directors held two regularly scheduled meetings and one special meeting to review and discuss the (continued) - ------ 38 Approval of Management Agreement for One Choice Portfolios information provided by the advisor and to complete its negotiations with the advisor regarding the renewal of the management agreement. The board also had the benefit of the advice of its independent counsel throughout the period. FACTORS CONSIDERED The Directors considered all of the information provided by the advisor, the 15(c) Providers, and the board's independent counsel, and evaluated such information for each fund for which the board has responsibility. The Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the agreement under the terms ultimately determined by the board to be appropriate, the Directors' decision was based on the following factors. NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management agreement, the advisor is responsible for providing or arranging for all services necessary for the operation of the funds. The board noted that under the management agreement, the advisor provides or arranges at its own expense a wide variety of services including: * fund construction and design * portfolio security selection * initial capitalization/funding * securities trading * custody of fund assets * daily valuation of the funds' portfolio * shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping and communications * legal services * regulatory and portfolio compliance * financial reporting * marketing and distribution The Directors noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry and the changing regulatory environment. In performing their evaluation, the Directors considered information received in connection with the annual review, as well as information provided on an ongoing basis at their regularly scheduled board and committee meetings. INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services provided is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes, and liquidity. In evaluating investment performance, the board expects the advisor to manage the funds in accordance with its investment objectives and approved strategies. In providing these services, the advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. At each quar- (continued) - ------ 39 Approval of Management Agreement for One Choice Portfolios terly meeting the Directors review investment performance information for the funds, together with comparative information for appropriate benchmarks and peer groups of funds managed similarly to the funds. The Directors also review detailed performance information during the 15(c) Process comparing the funds' performance with that of similar funds not managed by the advisor. If performance concerns are identified, the Directors discuss with the advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The performance information presented to the Directors showed that the funds' performance was slightly below their benchmark for both the one year and since inception periods. The board discussed the funds' performance with the advisor and was satisfied with the efforts being undertaken by the advisor. SHAREHOLDER AND OTHER SERVICES. The advisor provides the funds with a comprehensive package of transfer agency, shareholder, and other services. The Directors review reports and evaluations of such services at their regular quarterly meetings, including the annual meeting concerning contract review, and reports to the board. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the advisor. COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor provides detailed information concerning its cost of providing various services to the funds, its profitability in managing the funds, its overall profitability, and its financial condition. The Directors have reviewed with the advisor the methodology used to prepare this financial information. This financial information regarding the advisor is considered in order to evaluate the advisor's financial condition, its ability to continue to provide services under the management agreement, and the reasonableness of the management agreement. ETHICS OF THE ADVISOR. The Directors generally consider the advisor's commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the advisor's practices generally meet or exceed industry best practices and that the advisor was not implicated in the industry scandals of 2003 and 2004. ECONOMIES OF SCALE. The Directors review reports provided by the advisor on economies of scale for the complex as a whole and the year-over-year changes in revenue, costs, and profitability. The Directors concluded that economies of scale are difficult to (continued) - ------ 40 Approval of Management Agreement for One Choice Portfolios measure and predict with precision, especially on a fund-by-fund basis. This analysis is also complicated by the additional services and content provided by the advisor and its reinvestment in its ability to provide and expand those services. Accordingly, the Directors also seek to evaluate economies of scale by reviewing other information, such as year-over-year profitability of the advisor generally, the profitability of its management of the funds specifically, the expenses incurred by the advisor in providing various functions to the funds. The Directors believe the advisor is appropriately sharing economies of scale through its competitive fee structure and through reinvestment in its business to provide shareholders additional content and services. COMPARISON TO OTHER FUNDS' FEES. The funds invest their non-cash assets entirely in other American Century funds. The funds do not pay an investment advisor fee to the advisor. Rather, each fund indirectly bears its pro rata share of the expenses incurred by the underlying funds. Each of the underlying funds pays the advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the underlying funds, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the funds' independent directors (including their independent legal counsel). Under the unified fee structure, the advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The board believes the unified fee structure is a benefit to fund shareholders because it clearly discloses to shareholders the cost of owning fund shares, and, since the unified fee cannot be increased without a vote of fund shareholders, it shifts to the advisor the risk of increased costs of operating the funds and provides a direct incentive to minimize administrative inefficiencies. Part of the Directors' analysis of fee levels involves reviewing certain evaluative data compiled by a 15(c) Provider comparing the portion of the expenses incurred by the underlying funds to the total expense ratio of other funds in the fund's peer group. The expenses of One Choice Portfolio: Moderate, One Choice Portfolio: Conservative, and One Choice Portfolio: Very Conservative were below the median of the total expense ratios of their peer groups. The expenses of One Choice Portfolios: Very Aggressive and One Choice Portfolios: Aggressive were equal to the median of the total expense ratios of their peer groups. COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The Directors also requested and received information from the (continued) - ------- 41 Approval of Management Agreement for One Choice Portfolios advisor concerning the nature of the services, fees, and profitability of its advisory services to advisory clients other than the funds. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the funds. The Directors analyzed this information and concluded that the fees charged and services provided to the funds were reasonable by comparison. COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information from the advisor concerning collateral benefits it receives as a result of its relationship with the funds. They concluded that the advisor's primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. CONCLUSIONS OF THE DIRECTORS As a result of this process, the independent directors, in the absence of particular circumstances and assisted by the advice of legal counsel that is independent of the advisor, taking into account all of the factors discussed above and the information provided by the advisor concluded that the investment management agreement between the funds and the advisor is fair and reasonable in light of the services provided and should be renewed. - ------ 42 Additional Information RETIREMENT ACCOUNT INFORMATION As required by law, any distributions you receive from an IRA or certain 403(b), 457 and qualified plans [those not eligible for rollover to an IRA or to another qualified plan] are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld. If you don't want us to withhold on this amount, you must notify us to not withhold the federal income tax. Even if you plan to roll over the amount you withdraw to another tax-deferred account, the withholding rate still applies to the withdrawn amount unless we have received notice not to withhold federal income tax prior to the withdrawal. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election. Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don't have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the funds' investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the funds. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century's Web site at americancentury.com and on the Securities and Exchange Commission's Web site at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The funds' Forms N-Q are available on the SEC's Web site at sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The funds also make their complete schedule of portfolio holdings for the most recent quarter of their fiscal year available on their Web site at americancentury.com and, upon request, by calling 1-800-345-2021. - ------ 43 Index Definitions The following indices are used to illustrate investment market, sector, or style performance or to serve as fund performance comparisons. They are not investment products available for purchase. The 90-DAY U.S. TREASURY BILL INDEX is derived from secondary market interest rates as published by the Federal Reserve Bank and includes three-month, six-month, and one-year instruments. The CITIGROUP NON-U.S. WORLD GOVERNMENT BOND INDEX is based on the Citigroup World Bond Index, and excludes issues denominated in U.S. dollars. The index measures the total return of government securities in major sectors of the international bond market. The CREDIT SUISSE FIRST BOSTON (CSFB) HIGH YIELD INDEX II is designed to mirror the investable universe of the U.S. dollar-denominated high-yield debt market. Prior to October 2001, the index was known as the Donaldson, Lufkin, & Jenrette (DLJ) High-Yield Index. The LEHMAN BROTHERS U.S. AGGREGATE INDEX represents securities that are taxable, registered with the Securities and Exchange Commission, and U.S. dollar-denominated. The index covers the U.S. investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. Morgan Stanley Capital International (MSCI) has developed several indices that measure the performance of foreign stock markets. The MSCI EAFE(reg.tm) (Europe, Australasia, Far East) INDEX is designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI EM (Emerging Markets) INDEX represents the performance of stocks in global emerging market countries. The RUSSELL 1000(reg.tm) INDEX is a market-capitalization weighted, large-cap index created by Frank Russell Company to measure the performance of the 1,000 largest companies in the Russell 3000 Index (the 3,000 largest publicly traded U.S. companies, based on total market capitalization). The RUSSELL 1000(reg.tm) GROWTH INDEX measures the performance of those Russell 1000 Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S. companies, based on total market capitalization) with higher price-to-book ratios and higher forecasted growth rates. The RUSSELL 1000(reg.tm) VALUE INDEX measures the performance of those Russell 1000 Index companies (the 1,000 largest of the 3,000 largest publicly traded U.S. companies, based on total market capitalization) with lower price-to-book ratios and lower forecasted growth rates. The RUSSELL 2000(reg.tm) INDEX is a market-capitalization weighted index created by Frank Russell Company to measure the performance of the 2,000 smallest of the 3,000 largest publicly traded U.S. companies, based on total market capitalization. The RUSSELL 3000(reg.tm) INDEX measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. The RUSSELL MIDCAP(reg.tm) INDEX measures the performance of the 800 smallest of the 1,000 largest publicly traded U.S. companies, based on total market capitalization. - ------ 44 [inside back cover - blank] [back cover] CONTACT US AMERICANCENTURY.COM AUTOMATED INFORMATION LINE: 1-800-345-8765 INVESTOR SERVICES REPRESENTATIVE: 1-800-345-2021 or 816-531-5575 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS: 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL PROFESSIONALS, INSURANCE COMPANIES: 1-800-345-6488 TELECOMMUNICATIONS DEVICE FOR THE DEAF: 1-800-634-4113 or 816-444-3485 AMERICAN CENTURY ASSET ALLOCATION PORTFOLIOS, INC. INVESTMENT ADVISOR: American Century Investment Management, Inc. Kansas City, Missouri THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. The American Century Investments logo, American Century and American Century Investments are service marks of American Century Proprietary Holdings, Inc. American Century Investment Services, Inc., Distributor ©2006 American Century Proprietary Holdings, Inc. All rights reserved. 0609 SH-ANN-51158N ITEM 2. CODE OF ETHICS. a. The registrant has adopted a Code of Ethics for Senior Financial Officers that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions. b. No response required. c. None. d. None. e. Not applicable. f. The registrant's Code of Ethics for Senior Financial Officers was filed as Exhibit 12 (a)(1) to American Century Asset Allocation Portfolios, Inc.'s Annual Certified Shareholder Report on Form N-CSR, File No. 811-21591, on September 29, 2005, and is incorporated herein by reference. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1) The registrant's board has determined that the registrant has at least one audit committee financial expert serving on its audit committee. (a)(2) D.D. (Del) Hock, Donald H. Pratt and Thomas A. Brown are the registrant's designated audit committee financial experts. They are "independent" as defined in Item 3 of Form N-CSR. (a)(3) Not applicable. (b) No response required. (c) No response required. (d) No response required. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fees. The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were as follows: FY 2005: $57,990 FY 2006: $69,670 (b) Audit-Related Fees. The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item were as follows: For services rendered to the registrant: FY 2005: $0 FY 2006: $0 Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X (relating to certain engagements for non-audit services with the registrant's investment adviser and its affiliates): FY 2005: $0 FY 2006: $0 (c) Tax Fees. The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were as follows: For services rendered to the registrant: FY 2005: $13,970 FY 2006: $15,000 These services included review of federal and state income tax forms and federal excise tax forms. Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X (relating to certain engagements for non-audit services with the registrant's investment adviser and its affiliates): FY 2005: $0 FY 2006: $0 (d) All Other Fees. The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item were as follows: For services rendered to the registrant: FY 2005: $0 FY 2006: $0 Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X (relating to certain engagements for non-audit services with the registrant's investment adviser and its affiliates): FY 2005: $0 FY 2006: $0 (e)(1) In accordance with paragraph (c)(7)(i)(A) of Rule 2-01 of Regulation S-X, before the accountant is engaged by the registrant to render audit or non-audit services, the engagement is approved by the registrant's audit committee. Pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, the registrant's audit committee also pre-approves its accountant's engagements for non-audit services with the registrant's investment adviser, its parent company, and any entity controlled by, or under common control with the investment adviser that provides ongoing services to the registrant, if the engagement relates directly to the operations and financial reporting of the registrant. (e)(2) All services described in each of paragraphs (b) through (d) of this Item were pre-approved before the engagement by the registrant's audit committee pursuant to paragraph (c)(7)(i)(A) of Rule 2-01 of Regulation S-X. Consequently, none of such services were required to be approved by the audit committee pursuant to paragraph (c)(7)(i)(C). (f) The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was less than 50%. (g) The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant were as follows: FY 2005: $167,076 FY 2006: $179,156 (h) The registrant's investment adviser and accountant have notified the registrant's audit committee of all non-audit services that were rendered by the registrant's accountant to the registrant's investment adviser, its parent company, and any entity controlled by, or under common control with the investment adviser that provides services to the registrant, which services were not required to be pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. The notification provided to the registrant's audit committee included sufficient details regarding such services to allow the registrant's audit committee to consider the continuing independence of its principal accountant. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. The schedule of investments is included as part of the report to stockholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. During the reporting period, there were no material changes to the procedures by which shareholders may recommend nominees to the registrant's board. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant's second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Registrant's Code of Ethics for Senior Financial Officers, which is the subject of the disclosure required by Item 2 of Form N-CSR, was filed as Exhibit 12(a)(1) to American Century Asset Allocation Portfolios, Inc.'s Certified Shareholder Report on Form N-CSR, File No. 811-21591, on September 29, 2005. (a)(2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are filed and attached hereto as Exhibit 99.302CERT. (a)(3) Not applicable. (b) A certification by the registrant's chief executive officer and chief financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is furnished and attached hereto as Exhibit 99.906CERT.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: AMERICAN CENTURY ASSET ALLOCATION PORTFOLIOS, INC. By: /s/ William M. Lyons ----------------------------------------------- Name: William M. Lyons Title: President Date: September 29, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ William M. Lyons ----------------------------------------------- Name: William M. Lyons Title: President (principal executive officer) Date: September 29, 2006 By: /s/ Robert J. Leach ----------------------------------------------- Name: Robert J. Leach Title: Vice President, Treasurer, and Chief Financial Officer (principal financial officer) Date: September 29, 2006