SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-----
File No. 2-82734:
Pre-Effective Amendment No.____
Post-Effective Amendment No._24_ X
-----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-----
File No. 811-3706:
Amendment No._28_
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
(Exact Name of Registrant as Specified in Charter)
4500 Main Street, Kansas City, MO 64141-6200
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 415-965-8300
Douglas A. Paul
General Counsel
1665 Charleston Road, Mountain View, CA 94043
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Immediately, upon effectiveness
(first offered 8/1/84)
It is proposed that this filing become effective:
__X__ immediately upon filing pursuant to paragraph (b) of Rule 485
_____ on (date) pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
_____ 75 days after filing pursuant to paragraph (a) (2) of Rule 485
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
- --------------------------------------------------------------------------------
Registrant has elected to register an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. On October 16, 1996, the Registrant filed a Rule
24f-2 Notice on Form 24f-2 with respect to its fiscal year ended August 31,
1996.
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
1933 Act Post-Effective Amendment No. 24
1940 Act Amendment No. 28
FORM N-1A
CROSS-REFERENCE SHEET
PART A: PROSPECTUS
ITEM PROSPECTUS CAPTION
1 Cover Page
2 Transaction and Operating Expense Table
3 Financial Highlights, Performance Advertising
4 Further Information About American Century, Investment
Policies of the Funds, Investment Objectives of the Funds, Risk
Factors and Investment Techniques, Other Investment Practices,
Their Characteristics and Risks
5 Investment Management, Transfer and Administrative Services, Financial
Highlights
5A Not Applicable
6 Further Information About American Century, How to Redeem Shares,
Cover Page, Distributions, Taxes
7 How to Open an Account, Distribution of Fund Shares, Cover Page, Share
Price, Transfer and Administrative Services, How to Exchange from One
Account to Another
8 How to Redeem Shares, Transfer and Administrative Services
9 Not Applicable
PART B: STATEMENT OF ADDITIONAL INFORMATION
ITEM STATEMENT OF ADDITIONAL INFORMATION CAPTION
10 Cover Page
11 Table of Contents
12 About the Trust
13 Investment Policies and Techniques, Investment Restrictions, Portfolio
Transactions
14 Trustee and Officers
15 Additional Purchase and Redemption Information, Trustees and Officers
16 Investment Advisory Services, Transfer and Administrative Services,
About the Trust, Expense Limitation Agreement
17 Portfolio Transactions
18 About the Trust
19 Additional Purchase and Redemption Information, Valuation of Portfolio
Securities
20 Taxes
21 Distribution of Fund Shares, Additional Purchase and Redemption
Information
22 Performance
23 Cover Page
PROSPECTUS
[company logo]
American
Century(sm)
January 1, 1997
BENHAM
GROUP(R)
California Tax-Free Money Market
California Municipal Money Market
California Limited-Term Tax-Free
California Intermediate-Term Tax-Free
California Long-Term Tax-Free
California High-Yield Municipal
California Insured Tax-Free
[cover page]
AMERICAN CENTURY INVESTMENTS
FAMILY OF FUNDS
American Century Investments offers you nearly 70 fund choices covering stocks,
bonds, money markets, specialty investments and blended portfolios. To help you
find the funds that may meet your investment needs, American Century funds have
been divided into three groups based on investment style and objectives. These
groups, which appear below, are designed to help simplify your fund decisions.
AMERICAN CENTURY INVESTMENTS
Benham Group American Century Group Twentieth Century(R) Group
MONEY MARKET FUNDS ASSET ALLOCATION &
GOVERNMENT BOND FUNDS BALANCED FUNDS GROWTH FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONALFUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
California Tax-Free
Money Market Fund o
California Municipal
Money Market Fund o
California Limited-Term
Tax-Free Fund o
California Intermediate-
Term Tax-Free Fund o
California Long-Term
Tax-Free Fund o
California High-Yield
Municipal Fund o
California Insured
Tax-Free Fund
PROSPECTUS
JANUARY 1, 1997
CALIFORNIA TAX-FREE MONEY MARKET o CALIFORNIA MUNICIPAL
MONEY MARKET o CALIFORNIA LIMITED-TERM TAX-FREE o CALIFORNIA
INTERMEDIATE-TERM TAX-FREE o CALIFORNIA LONG-TERM TAX-FREE o
CALIFORNIA HIGH-YIELD MUNICIPAL o CALIFORNIA INSURED TAX-FREE
AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
American Century California Tax-Free and Municipal Funds are a part of American
Century Investments, a family of funds that includes nearly 70 no-load mutual
funds covering a variety of investment opportunities. Seven of the funds from
our Benham Group, which seek to obtain interest income that is exempt from
federal and California income taxes, are described in this Prospectus. Their
investment objectives are listed on page 2 of this Prospectus. The other funds
are described in separate prospectuses.
American Century offers investors a full line of no-load funds, investments that
have no sales charges or commissions.
This Prospectus gives you information about the Funds that you should know
before investing. Please read this Prospectus carefully and retain it for future
reference. Additional information is included in the Statement of Additional
Information dated January 1, 1997, and filed with the Securities and Exchange
Commission ("SEC"). It is incorporated into this Prospectus by reference. To
obtain a copy without charge, call or write:
American Century Investments
4500 Main Street o P.O. Box 419200
Kansas City, Missouri 64141-6200 o 1-800-345-2021
International calls: 816-531-5575
Telecommunications Device for the Deaf:
1-800-634-4113 o In Missouri: 816-753-1865
Internet: www.americancentury.com
Additional information, including this Prospectus and the Statement of
Additional Information, may be obtained by accessing the Web site maintained by
the SEC (www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus 1
INVESTMENT OBJECTIVES OF THE FUNDS
AMERICAN CENTURY - BENHAM CALIFORNIA TAX-FREE
MONEY MARKET FUND
AMERICAN CENTURY - BENHAM CALIFORNIA MUNICIPAL
MONEY MARKET FUND
California Tax-Free Money Market and California Municipal Money Market are money
market funds which seek to obtain as high a level of interest income exempt from
federal and California income taxes as is consistent with prudent investment
management and conservation of shareholders' capital. THERE CAN BE NO ASSURANCE
THAT THESE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE PER SHARE.
AMERICAN CENTURY - BENHAM CALIFORNIA
LIMITED-TERM TAX-FREE FUND
AMERICAN CENTURY - BENHAM CALIFORNIA
INTERMEDIATE-TERM TAX-FREE FUND
AMERICAN CENTURY - BENHAM CALIFORNIA
LONG-TERM TAX-FREE FUND
California Limited-Term Tax-Free, California Intermediate-Term Tax-Free and
California Long-Term Tax-Free seek to obtain as high a level of interest income
exempt from federal and California income taxes as is consistent with prudent
investment management and conservation of shareholders' capital.
AMERICAN CENTURY - BENHAM CALIFORNIA
HIGH-YIELD MUNICIPAL FUND
California High-Yield Municipal seeks to provide as high a level of current
income exempt from federal and California income taxes as is consistent with its
investment policies, which permit investment in lower-rated and unrated
municipal securities.
AMERICAN CENTURY - BENHAM CALIFORNIA
INSURED TAX-FREE FUND
California Insured Tax-Free seeks to provide as high a level of current income
exempt from federal and California income taxes as is consistent with safety of
principal through investment in insured California municipal securities.
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT.
For ease of reference, the Funds sometimes will be referred to in this
Prospectus by their investment category or fund type. California Tax-Free Money
Market and California Municipal Money Market are referred to as the "Money
Market Funds." The other five funds are sometimes referred to as the "Variable
Price Funds."
EACH OF THE FUNDS CONCENTRATES ITS INVESTMENTS GEOGRAPHICALLY BY INVESTING IN
SECURITIES ISSUED BY AGENCIES, INSTRUMENTALITIES AND MUNICIPALITIES OF THE STATE
OF CALIFORNIA. BECAUSE OF THIS CONCENTRATION, THE FUNDS MAY BE RISKIER THAN
SIMILAR MUTUAL FUNDS WITH NO GEOGRAPHIC CONCENTRATION.
There is no assurance that the Funds will achieve their respective investment
objectives.
NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED
OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUNDS, AND YOU SHOULD NOT RELY
ON ANY OTHER INFORMATION OR REPRESENTATION.
2 Investment Objectives American Century Investments
TABLE OF CONTENTS
Transaction and Operating Expense Table......................4
Financial Highlights.........................................5
INFORMATION REGARDING THE FUNDS
Investment Policies of the Funds............................12
California Tax-Free Money Market, California
Municipal Money Market, California Limited-Term
Tax-Free, California Intermediate-Term Tax-Free,
California Long-Term Tax-Free............................12
California High-Yield Municipal..........................12
California Insured Tax-Free..............................12
Portfolio Investment Quality and Maturity
Guidelines...............................................13
Money Market Funds.......................................13
Variable Price Funds.....................................13
Risk Factors and Investment Techniques......................14
Basic Fixed Income Investment Risks......................14
Interest Rate Risk.....................................15
Credit Risk............................................15
Liquidity Risk.........................................15
Concentration Risk.....................................15
Call Risk..............................................15
California Obligations...................................15
Special Considerations Regarding
California High-Yield Municipal........................16
California Insured Tax-Free: Insurance Feature...........16
Municipal Securities.....................................16
Tax-Exempt Securities.......................................18
Other Investment Practices, Their Characteristics
and Risks................................................18
Portfolio Turnover.......................................18
When-Issued and Forward Commitment
Agreements.............................................18
Interest Rate Futures Contracts and
Options Thereon........................................18
Rule 144A Securities.....................................19
Cash Management..........................................19
Other Techniques.........................................19
Performance Advertising.....................................20
HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS
American Century Investments................................21
Investing in American Century...............................21
How to Open an Account......................................21
By Mail................................................21
By Wire................................................21
By Exchange............................................22
In Person..............................................22
Subsequent Investments...................................22
By Mail................................................22
By Telephone...........................................22
By Online Access.......................................22
By Wire................................................22
In Person..............................................22
Automatic Investment Plan................................22
How to Exchange from One Account to Another ................22
By Mail ...............................................22
By Telephone...........................................23
By Online Access.......................................23
How to Redeem Shares........................................23
By Mail................................................23
By Telephone...........................................23
By Check-A-Month.......................................23
Other Automatic Redemptions............................23
Redemption Proceeds......................................23
By Check...............................................23
By Wire and ACH........................................23
Redemption of Shares in Low-Balance Accounts.............23
Signature Guarantee.........................................24
Special Shareholder Services................................24
Automated Information Line.............................24
Online Account Access..................................24
CheckWriting...........................................24
Open Order Service.....................................25
Tax-Qualified Retirement Plans.........................25
Important Policies Regarding Your Investments...............25
Reports to Shareholders.....................................26
Employer-Sponsored Retirement Plans and
Institutional Accounts...................................26
ADDITIONAL INFORMATION YOU SHOULD KNOW
Share Price.................................................27
When Share Price Is Determined...........................27
How Share Price Is Determined............................27
Where to Find Information About Share Price..............28
Distributions...............................................28
Taxes.......................................................28
Tax-Deferred Accounts....................................28
Taxable Accounts.........................................28
Special Tax Information..................................29
Municipal Securities.....................................29
AMT Liability............................................30
Exempt-Interest Dividends................................30
Management..................................................30
Investment Management....................................30
Code of Ethics...........................................31
Transfer and Administrative Services.....................32
Distribution of Fund Shares.................................32
Expenses....................................................32
Further Information About American Century..................33
Prospectus Table of Contents 3
<TABLE>
<CAPTION>
TRANSACTION AND OPERATING EXPENSE TABLE
California California California California California California California
Tax-Free Municipal Limited-Term Intermediate- Long-Term High Yield Insured
Money Market Money Market Tax-Free Term Tax-Free Tax-Free Municipal Tax-Free
SHAREHOLDER TRANSACTION EXPENSES:
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed
on Purchases.................................. none none none none none none none
Maximum Sales Load Imposed on
Reinvested Dividends.......................... none none none none none none none
Deferred Sales Load.............................. none none none none none none none
Redemption Fee(1)................................ none none none none none none none
Exchange Fee..................................... none none none none none none none
ANNUAL FUND OPERATING EXPENSES:(2)
(as a percentage of net assets)
Management Fees................................. .29% .29% .29% .29% .29% .29% .29%
12b-1 Fees....................................... none none none none none none none
Other Expenses.................................. .20% .24% .20% .19% .19% .22% .20%
Total Fund Operating Expenses................... .49% .53% .49% .48% .48% .51% .49%
EXAMPLE:
You would pay the following
expenses on a $1,000 investment, 1 year $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5
assuming a 5% annual return and 3 years 16 17 16 15 15 16 16
redemption at the end of each 5 years 27 30 27 27 27 29 27
time period: 10 years 62 66 62 60 60 64 62
</TABLE>
(1) Redemption proceeds sent by wire are subject to a $10 processing fee.
(2) Benham Management Corporation (the "Manager") has agreed to limit each
Fund's total operating expenses to specified percentages of each Fund's
average daily net assets. The agreement provides that the Manager may
recover amounts absorbed on behalf of the Fund during the preceding 11
months if, and to the extent that, for any given month, Fund expenses were
less than the expense limit in effect at that time. The current expense
limits for California Tax-Free Money Market and California Municipal Money
Market are .53% and .60%, respectively, of average daily net assets. The
current expense limit for the remaining Funds is .59% of average daily net
assets. These expense limitations are subject to annual renewal in June.
Each Fund pays the Manager advisory fees equal to an annualized percentage of
each Fund's average daily net assets. Other expenses include administrative and
transfer agent fees paid to American Century Services Corporation.
The purpose of the above table is to help you understand the various costs and
expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in the shares of the Funds offered by this
Prospectus. The example set forth above assumes reinvestment of all dividends
and distributions and uses a 5% annual rate of return as required by SEC
regulations.
NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED
INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
4 Transaction and Operating Expense Table American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA TAX-FREE MONEY MARKET
The Financial Highlights for each of the periods presented have been audited by
KPMG Peat Marwick LLP, independent auditors, whose report thereon appears in the
Fund's annual report, which is incorporated by reference into the Statement of
Additional Information. The annual report contains additional performance
information and will be made available upon request and without charge. The
information presented is for a share outstanding throughout the years ended
August 31.
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations
Net Investment Income .............. .0308 .0328 .0207 .0209 .0298 .0420 .0510 .0559 .0464 .0383
Net Realized and Unrealized Losses
on Investment Transactions.......... -- (.0003) -- -- -- -- -- -- (.0053) -
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Income from Investment
Operations.......................... .0308 .0325 .0207 .0209 .0298 .0420 .0510 .0559 .0411 .0383
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions
From Net Investment Income.......... (.0308) (.0325) (.0207) (.0209) (.0298) (.0420) (.0510) (.0559) (.0411) (.0383)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions................. (.0308) (.0325) (.0207) (.0209) (.0298) (.0420) (.0510) (.0559) (.0411) (.0383)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
End of Period.......................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1)........................ 3.12% 3.31% 2.09% 2.13% 3.00% 4.23% 5.23% 5.70% 4.24% 3.88%
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses
to Average Daily Net Assets(2)...... .49% .52% .50% .51% .54% .56% .56% .59% .63% .67%
Ratio of Net Investment Income
to Average Daily Net Assets(2)...... 3.12% 3.28% 2.07% 2.09% 2.98% 4.20% 5.10% 5.59% 4.10% 3.83%
Net Assets, End
of Period (in thousands)............ $425,846 $414,099 $371,074 $338,731 $321,307 $361,007 $463,130 $490,700 $328,532 $318,095
</TABLE>
(1) Total return figures assume reinvestment of dividends and capital gain
distributions.
(2) The ratio for the year ended August 31, 1996 includes expenses paid through
expense offset arrangements.
Prospectus Financial Highlights 5
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA MUNICIPAL MONEY MARKET
The Financial Highlights for each of the periods presented have been audited by
KPMG Peat Marwick LLP, independent auditors, whose report thereon appears in the
Fund's annual report, which is incorporated by reference into the Statement of
Additional Information. The annual report contains additional performance
information and will be made available upon request and without charge. The
information presented is for a share outstanding throughout the years ended
August 31.
1996 1995 1994 1993 1992 1991(1)
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period......................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations
Net Investment Income ................... .0318 .0331 .0213 .0221 .0344 .0293
Net Realized and Unrealized
Losses on Investment Transactions........ -- (.0003) -- -- -- --
------- ------- ------- ------- ------- -------
Total Income from
Investment Operations.................... .0318 .0328 .0213 .0221 .0344 .0293
------- ------- ------- ------- ------- -------
Distributions
From Net Investment Income............... (.0318) (.0328) (.0213) (.0221) (.0344) (.0293)
------- ------- ------- ------- ------- -------
Total Distributions...................... (.0318) (.0328) (.0213) (.0221) (.0344) (.0293)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period.............. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= ======= =======
TOTAL RETURN(2)............................. 3.23% 3.35% 2.15% 2.25% 3.63% 3.04%
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses
to Average Daily Net Assets(3)........... .53% .53% .51% .46% .07% 0%
Ratio of Net Investment Income
to Average Daily Net Assets(3)........... 3.20% 3.31% 2.13% 2.21% 3.44% 4.39%(4)
Net Assets, End
of Period (in thousands)................. $196,520 $191,722 $243,701 $247,621 $254,823 $136,860
</TABLE>
(1) From December 31, 1990 (commencement of operations) through August 31,
1991.
(2) Total return figures assume reinvestment of dividends and capital gain
distributions and are not annualized.
(3) The ratio for the year ended August 31, 1996 includes expenses paid through
expense offset arrangements.
(4) Annualized.
6 Financial Highlights American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA LIMITED-TERM TAX-FREE
The Financial Highlights for each of the periods presented have been audited by
KPMG Peat Marwick LLP, independent auditors, whose report thereon appears in the
Fund's annual report, which is incorporated by reference into the Statement of
Additional Information. The annual report contains additional performance
information and will be made available upon request and without charge. The
information presented is for a share outstanding throughout the years ended
August 31.
1996 1995 1994 1993 1992(1)
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $10.23 $10.12 $10.34 $10.12 $10.00
Income from Investment Operations
Net Investment Income ....................... .4309 .4148 .3766 .3840 .1012
Net Realized and Unrealized Gains
(Losses) on Investment Transactions.......... (.0407) .1099 (.1832) .2227 .1200
------- ------- ------- ------- -------
Total Income from
Investment Operations........................ .3902 .5247 .1934 .6067 .2212
------- ------- ------- ------- -------
Distributions
From Net Investment Income................... (.4302) (.4147) (.3761) (.3867) (.1012)
In Excess of Net Realized Capital Gains
on Investment Transactions................... -- -- (.0373) -- --
------- ------- ------- ------- -------
Total Distributions.......................... (.4302) (.4147) (.4134) (.3867) (.1012)
------- ------- ------- ------- -------
Net Asset Value, End of Period.................. $10.19 $10.23 $10.12 $10.34 $10.12
======= ======= ======= ======= =======
TOTAL RETURN(2)................................. 3.87% 5.33% 1.90% 6.15% 1.47%
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses
to Average Daily Net Assets(3)............... .49% .51% .51% .36% 0%
Ratio of Net Investment Income
to Average Daily Net Assets(3)............... 4.20% 4.10% 3.68% 3.76% 4.08%(4)
Portfolio Turnover Rate...................... 43.70% 49.75% 65.66% 54.42% 19.37%
Net Assets, End of Period (in thousands)..... $103,707 $104,723 $120,627 $114,019 $52,171
</TABLE>
(1) From June 1, 1992 (commencement of operations) through August 31, 1992.
(2) Total return figures assume reinvestment of dividends and capital gain
distributions and are not annualized.
(3) The ratio for the year ended August 31, 1996 includes expenses paid through
expense offset arrangements.
(4) Annualized.
Prospectus Financial Highlights 7
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
The Financial Highlights for each of the periods presented have been audited by
KPMG Peat Marwick LLP, independent auditors, whose report thereon appears in the
Fund's annual report, which is incorporated by reference into the Statement of
Additional Information. The annual report contains additional performance
information and will be made available upon request and without charge. The
information presented is for a share outstanding throughout the years ended
August 31.
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................... $11.06 $10.86 $11.36 $10.85 $10.49 $10.13 $10.14 $10.06 $10.30 $10.56
Income from Investment Operations
Net Investment Income .............. .5422 .5414 .5354 .5582 .5853 .6038 .6184 .6305 .6294 .6241
Net Realized and Unrealized Gains
(Losses) on Investment Transactions. (.0102) .2000 (.4104) .5285 .3600 .3600 (.0100) .0800 (.2400) (.2600)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Income from
Investment Operations............... .5320 .7414 .1250 1.0867 .9453 .9638 .6084 .7105 .3894 .3641
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions
From Net Investment Income.......... (.5420) (.5414) (.5351) (.5592) (.5853) (.6038) (.6184) (.6305) (.6294) (.6241)
From Net Realized Gains
on Investment Transactions.......... -- -- (.0752) (.0175) -- -- -- -- -- --
In Excess of Net Realized Gains
on Investment Transactions.......... -- -- (.0147) -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions................. (.5420) (.5414) (.6250) (.5767) (.5853) (.6038) (.6184) (.6305) (.6294) (.6241)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of Period......... $11.05 $11.06 $10.86 $11.36 $10.85 $10.49 $10.13 $10.14 $10.06 $10.30
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1)........................ 4.79% 7.09% 1.11% 10.42% 9.18% 9.74% 6.16% 7.28% 3.90% 3.53%
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses
to Average Daily Net Assets(2)...... .48% .48% .48% .50% .52% .55% .58% .60% .64% .67%
Ratio of Net Investment Income
to Average Daily Net Assets(2)...... 4.87% 5.02% 4.82% 5.05% 5.50% 5.84% 6.08% 6.25% 6.19% 5.92%
Portfolio Turnover Rate............. 35.66% 25.44% 43.80% 26.76% 48.70% 28.58% 20.05% 39.89% 47.01% 51.94%
Net Assets, End
of Period (in thousands)............ $430,950 $417,550 $448,293 $444,460 $304,988 $241,496$191,217 $167,444 $157,300 $166,966
</TABLE>
(1) Total return figures assume reinvestment of dividends and capital gain
distributions.
(2) The ratio for the year ended August 31, 1996 includes expenses paid through
expense offset arrangements.
8 Financial Highlights American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA LONG-TERM TAX-FREE
The Financial Highlights for each of the periods presented have been audited by
KPMG Peat Marwick LLP, independent auditors, whose report thereon appears in the
Fund's annual report, which is incorporated by reference into the Statement of
Additional Information. The annual report contains additional performance
information and will be made available upon request and without charge. The
information presented is for a share outstanding throughout the years ended
August 31.
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................... $10.94 $10.88 $12.02 $11.44 $11.00 $10.45 $10.67 $10.36 $10.54 $11.42
Income from Investment Operations
Net Investment Income .............. .6122 .6229 .6266 .6649 .6878 .6987 .7060 .7388 .7436 .7675
Net Realized and Unrealized Gains
(Losses) on Investment Transactions. .1198 .1183 (.7101) .8460 .4400 .5500 (.2200) .3100 (.1800) (.8011)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Income (Loss) from
Investment Operations............... .7320 .7412 (.0835) 1.5109 1.1278 1.2487 .4860 1.0488 .5636 (.0336)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions
From Net Investment Income.......... (.6120) (.6231) (.6261) (.6658) (.6878) (.6987) (.7060) (.7388) (.7436) (.7675)
From Net Realized Gains
on Investment Transactions.......... -- (.0581) (.4304) (.2651) -- -- -- -- -- (.0789)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions................. (.6120) (.6812)(1.0565) (.9309) (.6878) (.6987) (.7060) (.7388) (.7436) (.8464)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of Period......... $11.06 $10.94 $10.88 $12.02 $11.44 $11.00 $10.45 $10.67 $10.36 $10.54
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1)........................ 6.77% 7.21% (.78)% 14.02% 10.58% 12.26% 4.66% 10.39% 5.61% (.31)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses
to Average Daily Net Assets(2)...... .48% .49% .48% .49% .52% .55% .57% .58% .63% .65%
Ratio of Net Investment Income
to Average Daily Net Assets(2)...... 5.48%(4) 5.84% 5.51% 5.76% 6.14% 6.48% 6.64% 6.98% 7.19% 6.87%
Portfolio Turnover Rate............. 41.66% 59.92% 61.93% 55.11% 71.59% 37.80% 74.11% 78.08% 34.52% 81.54%
Net Assets, End
of Period (in thousands)............ $288,022 $276,085 $277,477 $338,075 $275,880 $247,244 $197,394 $179,737 $143,191 $179,523
</TABLE>
(1) Total return figures assume reinvestment of dividends and capital gain
distributions.
(2) The ratio for the year ended August 31, 1996 includes expenses paid through
expense offset arrangements.
Prospectus Financial Highlights 9
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA HIGH-YIELD MUNICIPAL
The Financial Highlights for each of the periods presented have been audited by
KPMG Peat Marwick LLP, independent auditors, whose report thereon appears in the
Fund's annual report, which is incorporated by reference into the Statement of
Additional Information. The annual report contains additional performance
information and will be made available upon request and without charge. The
information presented is for a share outstanding throughout the years ended
August 31.
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(1)
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................... $9.11 $9.06 $9.66 $9.12 $8.84 $8.54 $8.68 $8.45 $8.69 $10.00
Income from Investment Operations
Net Investment Income .............. .5554 .5612 .5629 .5703 .5809 .5879 .6266 .6611 .6527 .4509
Net Realized and Unrealized Gains
(Losses) on Investment Transactions. .1600 .0497 (.4793) .5401 .2800 .3000 (.1400) .2300 (.2400) (1.3100)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Income (Loss) from
Investment Operations............... .7154 .6109 .0836 1.1104 .8609 .8879 .4866 .8911 .4127 (.8591)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions
From Net Investment Income.......... (.5554) (.5609) (.5627) (.5704) (.5809) (.5879) (.6266) (.6611) (.6527) (.4509)
From Net Realized Gains
on Investment Transactions.......... -- -- (.1208) -- -- -- -- -- -- --
In Excess of Net Realized Capital Gains
on Investment Transactions.......... -- -- (.0001) -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions................. (.5554) (.5609) (.6836) (.5704) (.5809) (.5879) (.6266) (.6611) (.6527) (.4509)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of Period......... $9.27 $9.11 $9.06 $9.66 $9.12 $8.84 $8.54 $8.68 $8.45 $8.69
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(2)........................ 8.02% 7.09% .87% 12.61% 10.11% 10.75% 5.77% 10.86% 5.17% (10.19)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses
to Average Daily Net Assets(3)...... .51% .51% .51% .55% .56% .50% .24% -- -- --
Ratio of Net Investment Income
to Average Daily Net Assets(3)...... 5.99% 6.30% 6.02% 6.14% 6.54% 6.79% 7.23% 7.67% 7.85% 7.50%(4)
Portfolio Turnover Rate............. 35.98% 40.00% 42.55% 27.40% 32.51% 47.41% 103.74% 49.54% 142.86% 57.42%
Net Assets, End
of Period (in thousands)............ $144,675 $116,166 $116,000 $114,564 $79,949 $65,741 $44,602 $32,631 $13,169 $8,434
</TABLE>
(1) From December 30, 1986 (commencement of operations) through August 31,1987.
(2) Total return figures assume reinvestment of dividends and capital gain
distributions and are not annualized.
(3) The ratio for the year ended August 31, 1996 includes expenses paid through
expense offset arrangements.
(4) Annualized.
10 Financial Highlights American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA INSURED TAX-FREE
The Financial Highlights for each of the periods presented have been audited by
KPMG Peat Marwick LLP, independent auditors, whose report thereon appears in the
Fund's annual report, which is incorporated by reference into the Statement of
Additional Information. The annual report contains additional performance
information and will be made available upon request and without charge. The
information presented is for a share outstanding throughout the years ended
August 31.
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(1)
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period...................... $9.89 $9.67 $10.64 $9.97 $9.47 $9.00 $9.23 $8.80 $9.07 $10.00
Income from Investment Operations
Net Investment Income ................ .5342 .5320 .5267 .5470 .5705 .5733 .5889 .6026 .6246 .4370
Net Realized and Unrealized Gains
(Losses) on Investment Transactions... .1100 .2200 (.6922) .7588 .5000 .4700 (.2300) .4300 (.2700) (.9300)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Income (Loss) from
Investment Operations................. .6442 .7520 (.1655) 1.3058 1.0705 1.0433 .3589 1.0326 .3546 (.4930)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions
From Net Investment Income............ (.5342) (.5320) (.5263) (.5477) (.5705) (.5733) (.5889) (.6026) (.6246) (.4370)
From Net Realized Gains
on Investment Transactions............ -- -- (.2082) (.0881) -- -- -- -- -- --
In Excess of Net Realized Gains
on Investment Transactions............ -- -- (.0700) -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions................... (.5342) (.5320) (.8045) (.6358) (.5705) (.5733) (.5889) (.6026) (.6246) (.4370)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of Period........... $10.00 $9.89 $9.67 $10.64 $9.97 $9.47 $9.00 $9.23 $8.80 $9.07
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(2).......................... 6.60% 8.09% (1.68)% 13.74% 11.67% 11.87% 3.96% 12.04% 4.58% (8.51)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses
to Average Daily Net Assets(3)........ .49% .50% .49% .52% .55% .59% .61% .66% -- --
Ratio of Net Investment Income
to Average Daily Net Assets(3)........ 5.30% 5.54% 5.20% 5.37% 5.90% 6.18% 6.43% 6.62% 7.39% 7.11%(4)
Portfolio Turnover Rate............... 42.71% 40.45% 47.12% 60.94% 53.73% 37.59% 117.47% 73.02% 145.29% 21.04%
Net Assets, End
of Period (in thousands).............. $191,811 $178,913 $189,439 $223,440 $145,965 $94,951 $59,870 $42,569 $29,531 $12,748
</TABLE>
(1) From December 30, 1986 (commencement of operations) through August 31,1987.
(2) Total return figures assume reinvestment of dividends and capital gain
distributions and are not annualized.
(3) The ratio for the year ended August 31,1996 includes expenses paid through
expense offset arrangements.
(4) Annualized.
Prospectus Financial Highlights 11
INFORMATION REGARDING THE FUNDS
INVESTMENT POLICIES OF THE FUNDS
The Funds have adopted certain investment restrictions that are set forth in the
Statement of Additional Information. Those restrictions, as well as the
investment objectives of the Funds identified on page 2 of this Prospectus, and
any other investment policies designated as "fundamental" in this Prospectus or
in the Statement of Additional Information, cannot be changed without
shareholder approval. The Funds have implemented additional investment policies
and practices to guide their activities in the pursuit of their respective
investment objectives. These policies and practices, which are described
throughout this Prospectus, are not designated as fundamental policies and may
be changed without shareholder approval.
Each Fund is a "diversified company" as defined in the Investment Company Act of
1940 (the "1940 Act"), with the exception of the California Municipal Money
Market which is a "non-diversified company." This means that, with respect to
75% of its total assets, each Fund will not invest more than 5% of its total
assets in the securities of a single issuer. As a result of new rules applicable
to all money market funds, California Municipal Money Market will also seek to
meet this test.
To meet federal tax requirements for qualifications as a regulated investment
company, each Fund must limit its investments so that at the close of each
quarter of its taxable year (1) no more than 25% of its total assets are
invested in the securities of a single issuer (other than the U.S government or
a regulated investment company), and (2) with respect to at least 50% of its
total assets, no more than 5% of its total assets are invested in the securities
of a single issuer.
Each Fund intends to remain fully invested in municipal obligations. As a
fundamental policy, each Fund will invest at least 80% of its net assets in
California municipal obligations. The remaining 20% of net assets may be
invested in (1) municipal obligations issued in other states, (2) municipal
obligations issued by territories or possessions of the U.S., such as Puerto
Rico, and (3) U.S. government obligations. For temporary defensive purposes,
each Fund may invest more than 20% of its net assets in these obligations. For
liquidity purposes, each Variable Price Fund may invest up to 5% of its total
assets in shares of the Money Market Funds.
The Funds will invest at least 80% of its net assets in obligations with
interest exempt from regular federal income tax. California Municipal Money
Market and California High-Yield Municipal, unlike the other Funds, may invest
substantially all of their assets in securities which are subject to the
alternative minimum tax.
For an explanation of the securities ratings referred to in the following
discussion, see "Other Information" in the Statement of Additional Information.
CALIFORNIA TAX-FREE MONEY MARKET, CALIFORNIA
MUNICIPAL MONEY MARKET, CALIFORNIA LIMITED-
TERM TAX-FREE, CALIFORNIA INTERMEDIATE-TERM
TAX-FREE, AND CALIFORNIA LONG-TERM TAX-FREE
These Funds seek to obtain as high a level of interest income exempt from
federal and California income taxes as is consistent with prudent investment
management and conservation of shareholders' capital.
CALIFORNIA HIGH-YIELD MUNICIPAL
California High-Yield Municipal seeks to provide as high a level of current
income exempt from federal and California income taxes as is consistent with its
investment policies, which permit investment in lower-rated and unrated
municipal securities.
CALIFORNIA INSURED TAX-FREE
California Insured Tax-Free seeks to provide as high a level of current income
exempt from federal and California income taxes as is consistent with safety of
principal through investment in insured California municipal securities.
12 Information Regarding the Funds American Century Investments
PORTFOLIO INVESTMENT QUALITY AND
MATURITY GUIDELINES
The Money Market Funds may be appropriate for investors seeking share price
stability who can accept the lower yields that short-term obligations typically
provide. To offer investors the potential for higher yields, the Variable Price
Funds invest in obligations with longer maturities.
MONEY MARKET FUNDS
In selecting investments for the Money Market Funds, the Manager adheres to
regulatory guidelines concerning the quality and maturity of money market fund
investments as well as to internal guidelines designed to minimize credit risk.
In particular, each Fund:
(1) Buys only U.S. dollar-denominated obligations with remaining maturities of
13 months or less (and variable- and floating-rate obligations with demand
features that effectively shorten their maturities to 13 months or less);
(2) Maintains a dollar-weighted average maturity of 60 days or less; and
(3) Restricts its investments to high-quality obligations determined by the
Manager, pursuant to procedures established by the board of trustees, to
present minimal credit risks.
To be considered high-quality, an obligation must be:
(1) A U.S. government obligation; or
(2) Rated (or issued by an issuer rated with respect to a class of comparable
short-term obligations) in one of the two highest rating categories for
short-term obligations by at least two nationally recognized statistical
rating agencies ("rating agencies") (or one if only one has rated the
obligation); or
(3) An unrated obligation judged by the Manager, pursuant to guidelines
established by the board of trustees, to be of quality comparable to the
securities listed above.
While it adheres to the same quality and maturity criteria as California
Tax-Free Money Market, California Municipal Money Market may purchase private
activity municipal securities. The interest from these securities is treated as
a tax-preference item in calculating federal alternative minimum tax (AMT)
liability. In the past, private activity securities have provided somewhat
higher yields than comparable municipal securities whose interest is not a
tax-preference item. Under normal circumstances, the Manager expects to invest
between 50% and 80% of California Municipal Money Market's total assets in
private activity securities. Therefore, the Fund is designed for investors who
do not expect to pay alternative minimum taxes. See "Taxes," page 28.
VARIABLE PRICE FUNDS
The quality and maturity criteria of the Variable Price Funds is as follows:
CALIFORNIA LIMITED-TERM TAX-FREE
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
CALIFORNIA LONG-TERM TAX-FREE
California Limited-Term Tax-Free, California Intermediate-Term Tax-Free and
California Long-Term Tax-Free have identical policies governing the quality of
securities in which they may invest. The Funds differ in their maturity criteria
as depicted in the table below.
Typical Weighted
Maturity of Average Portfolio
Fund Investments Maturity
- ----------------------------------------------------------------------------
California Limited- one to one to
Term Tax-Free five years five years
- ----------------------------------------------------------------------------
California Intermediate- four or five to ten
Term Tax-Free more years years
- ----------------------------------------------------------------------------
California Long- seven or ten or
Term Tax-Free more years more years
- ----------------------------------------------------------------------------
In terms of credit quality, each of these funds restricts its investments to:
(1) Municipal bonds rated, when acquired, within the four highest categories
designated by a rating agency;
(2) Municipal notes (including variable-rate demand obligations) and tax-exempt
commercial paper rated, when acquired, within the two highest categories
designated by a rating agency; and
(3) Unrated obligations judged by the Manager, under the direction of the board
of trustees, to be of quality comparable to the securities listed above.
Prospectus Information Regarding The Funds 13
CALIFORNIA HIGH-YIELD MUNICIPAL
Like California Long-Term Tax-Free, California High-Yield Municipal invests
primarily in long- and intermediate-term California municipal obligations and
maintains a weighted average portfolio maturity of ten or more years. Although
California High-Yield Municipal typically invests a significant portion of its
assets in investment-grade bonds, the Manager does not adhere to specific rating
criteria in selecting investments for this Fund. The Fund invests in securities
rated or judged by the Manager to be of below investment-grade quality (e.g.,
bonds rated BB/Ba or lower, which are sometimes referred to as "junk bonds") or
unrated bonds. California High Yield Municipal currently expects to invest
between 20% and 40% of its total assets in below investment grade securities.
Many issuers of medium- and lower-quality bonds choose not the have their
obligations rated, and a large portion of California High-Yield Municipal's
portfolio may consist of obligations that, when acquired, were not rated. While
there is no limit on the percentage of assets the Fund may invest in unrated
securities, the Manager will not select investments for the Fund that, at the
time of purchase (1) are not paying interest, (2) are rated C (lowest grade) by
Moody's Investors Service, Inc. (Moody's) or C or D by Standard & Poor's
Corporation (S&P), or (3) are considered by the Manager, under direction of the
Trustees, to be of a quality as low as obligations rated C or D by Moody's or
S&P. See "Other Information" in the Statement of Additional Information for a
summary of bond ratings.
California High-Yield Municipal may invest in investment-grade municipal
obligations if the Manager considers it appropriate to do so. Investments of
this nature may be made due to market considerations (e.g., a limited supply of
medium- and lower-grade municipal obligations) or to increase liquidity of the
Fund. Investing in high-grade obligations may lower the Fund's return.
California High-Yield Municipal may purchase private activity municipal
securities. The interest from these securities is treated as a tax-preference
item in calculating federal AMT liability. Under normal circumstances, the
advisor expects to invest between 10% and 30% of the Fund's total assets in
private activity securities. Therefore, the Fund is better suited for investors
who do not expect alternative minimum tax liability. See "Taxes," page 28.
CALIFORNIA INSURED TAX-FREE
California Insured Tax-Free invests primarily in long-term municipal obligations
covered by insurance that guarantees the timely payment of interest and
repayment of principal. The Fund maintains a weighted average portfolio maturity
of ten or more years.
Under normal conditions, at least 65% of the Fund's total assets are invested in
insured municipal obligations. Securities held by the Fund may be (1) insured
under a new-issue insurance policy obtained by the issuer of the security, (2)
insured under a secondary market insurance policy purchased by the Fund or a
previous bondholder, (3) insured under a "while-in-portfolio" insurance policy
purchased by the Fund, (4) secured by an escrow or trust account holing U.S.
government securities, or (5) rated AAA by a rating agency based upon the
issuer's credit quality.
California Insured Tax-Free may also invest in short-term securities carrying
one of the two highest ratings designated by a rating agency. For more
information about the Fund's insurance feature, see page 16.
RISK FACTORS AND INVESTMENT TECHNIQUES
The Funds are designed for individuals in upper tax brackets seeking income free
from federal and California personal income taxes. By themselves, the Funds do
not constitute balanced investment plans. When choosing between the Funds, you
should consider relative yield potential together with potential changes in
share price, because these two factors determine each Fund's total return to
investors.
BASIC FIXED INCOME INVESTMENT RISKS
The Money Market Funds may be appropriate for investors who would like to (1)
earn income at tax-exempt money market rates while preserving their investment
or (2) use a money market fund as part of a long-term, balanced investment
portfolio consisting of money market instruments, bonds and stocks.
The Variable Price Funds are quite distinct from one another; these Funds offer
a range of potential for
14 Information Regarding The Funds American Century Investments
income and total return based on their respective quality and maturity criteria.
The basic risk factors you should consider before making an investment in one or
more of the Funds are described in the following paragraphs.
INTEREST RATE RISK
One feature the Funds have in common is their susceptibility to changing
interest rates. For both Money Market Funds, interest rate changes affect the
level of income the Funds generate for shareholders. For the Variable Price
Funds, changing interest rates affect not only the level of income the Funds
generate for shareholders, but their share prices as well. In general, when
interest rates rise, the Variable Price Funds' share prices decline; when
interest rates decline, their share prices rise.
This pattern is due to the time value of money. A bond's worth is determined by
the present value of its future cash flows. Consequently, changing interest
rates have a greater effect on the present value of a long-term bond than a
short-term bond.
CREDIT RISK
In selecting investments for each Fund, the Manager carefully considers the
creditworthiness of parties to be relied upon for the timely payment of interest
and repayment of principal.
In many cases, these parties include not only the issuer of the obligation, but
a bank or other financial intermediary who offers a letter of credit or another
form of guarantee on the obligation.
LIQUIDITY RISK
A security's rating reflects the opinions of the rating agencies that issue them
and are not absolute standards of quality. Because of the cost of obtaining
credit ratings, some issuers forego them. Under the direction of the board of
trustees, the Manager may buy unrated bonds for the Funds if these securities
are judged to be of a quality consistent with the Funds' investment policies.
Similarly, on behalf of the Variable Price Funds, the Manager may purchase
securities whose ratings are not consistent with the Funds' rating criteria but
which the Manager judges under the direction of the board of trustees to present
credit risks consistent with the Funds' quality standards. With the exception of
California High-Yield Municipal (which may invest without limitation in unrated
securities), each Fund may invest up to 10% of its net assets in unrated
securities. Unrated securities may be less liquid than rated securities.
California Limited-Term Tax-Free, California Inter-mediate-Term Tax-Free and
California Long-Term Tax-Free may invest up to 25% of their total assets in
securities rated Baa or BBB- (the lowest investment grade category). Such
securities are medium-grade investment obligations that may have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity for such obligations to make principal and
interest payments.
CONCENTRATION RISK
Each of the Funds described in this Prospectus may invest 25% or more of its
total assets in obligations that generate income from similar types of projects
(in particular, projects in health care, electric, water/sewer, education, and
transportation). Political or economic developments affecting a single issuer or
industry or similar types of projects may have a significant effect on Fund
performance.
CALL RISK
Many municipal obligations are issued with a call feature (call features include
a date on which the issuer has reserved the right to redeem the obligation prior
to maturity). An obligation may be called for redemption before the Manager
would otherwise choose to eliminate it from a Fund's holdings. A call may also
reduce an obligation's yield to maturity.
CALIFORNIA OBLIGATIONS
Because the Funds invest primarily in California municipal securities, each
Fund's yield and share price are affected by political and economic developments
within the State of California.
California municipal budgets have been strained in recent years. "Proposition
13" and similar California constitutional, statutory, and legislative
initiatives have restricted the ability of California taxing entities to
increase real property taxes and other tax revenues.
State and local revenues are also adversely affected by the recent recession,
the worst in the state since the 1930's. California has experienced a net loss
of approximately 750,000 jobs since 1990. However, net
Prospectus Information Regarding The Funds 15
job growth has occurred since early 1994 and all the jobs lost since the
recession have now been replaced. The state government's response to these
events in the early 1990's resulted in reductions in the amount of and rate of
growth in the aid to counties, cities and school districts. The impact of these
reductions has been lessened by the state's recent economic recovery.
However, any events which affect the revenue received by the state and local
bodies in California can have an impact on the Funds. For example, recent
developments at the federal level, particularly federal welfare reform, may have
the effect of offsetting the revenue gains achieved in the last two years. The
ability of state and local entities to make scheduled payments of interest and
principal on their outstanding debt obligations could be negatively affected by
such events.
For further information about the risks associated with investing in California
obligations, please see the Statement of Additional Information.
SPECIAL CONSIDERATIONS REGARDING
CALIFORNIA HIGH-YIELD MUNICIPAL
California High-Yield Municipal is designated for long-term investors who can
accept the risks associated with seeking a high level of current income from
long- or intermediate-term, medium- or lower-quality California municipal bonds.
Medium- to lower-rated and unrated municipal bonds frequently are traded in
markets with a limited number of participants. These conditions may limit the
availability of bonds eligible for purchase by the Fund and the availability of
ready buyers for bonds the Manager wants to sell on behalf of the Fund. Adverse
publicity and changing investor perceptions, whether or not they are based on
fundamental analysis, may affect the value and liquidity of lower-quality bonds,
especially in markets with a low volume of trading.
Lower-quality and unrated bonds may be more sensitive to adverse economic
changes in specific localities or among specific types of projects and generally
are regarded as speculative. There is no guarantee that interest payments or
principal repayments will be made when due. A delay in debt service payment or
other deterioration in credit quality could negatively affect the Fund's
performance.
However, under the direction of the Trustees, the Manager attempts to reduce the
risks of investing in medium- and lower- rated and unrated municipal obligations
through active portfolio management, diversification, thorough credit analysis,
and attention to developments and trends in the economy and the financial
markets. More than the other Funds described in this Prospectus, California
High-Yield Municipal relies on the Manager's credit analysis to achieve its
investment objective.
CALIFORNIA INSURED TAX-FREE: INSURANCE FEATURE
Insurance attached to securities held in California Insured Tax-Free's portfolio
provides for the timely payment of interest and repayment of principal on those
securities; however, this insurance does not guarantee the market value of the
securities or the value of the Fund's shares.
A bond issuer may purchase new-issue insurance to enhance the credit quality of
a security. By paying a premium and meeting the insurer's underwriting
standards, the bond issuer obtains a credit rating for its bonds comparable to
the rating assigned to the insurer's claims-paying ability.
A bondholder may purchase a secondary market insurance policy for a particular
bond after it is issued. The Fund expects to limit its purchases of securities
insured under new-issue or secondary market insurance policies to those insured
by companies whose claims-paying ability is rated AAA by a rating agency at the
time of the purchase. New-issue and secondary market insurance policies cannot
be canceled; they continue in force as long as the bonds are outstanding.
MUNICIPAL SECURITIES
Municipal securities are issued to raise money for a variety of public purposes,
including general financing for state and local governments as well as financing
for specific projects and public facilities. Municipal securities may be backed
by the full taxing power of a municipality, the revenues from a specific
project, or the credit of a private organization. The following discussion
provides a brief description of some securities the Funds may buy. The Funds are
not limited by this discussion, and they may buy other types of securities and
enter into other types of transactions that meet their respective quality,
maturity, and liquidity requirements.
16 Information Regarding The Funds American Century Investments
MUNICIPAL NOTES typically have maturities of 13 months or less and are used to
provide short-term capital or to meet cash flow demands.
GENERAL OBLIGATION BONDS are backed by the taxing power of the issuer.
REVENUE BONDS are backed by the revenues derived from a specific project,
system, or facility. Industrial development bonds are a type of revenue bond
backed by the credit of a private issuer.
VARIABLE- AND FLOATING-RATE DEMAND OBLIGATIONS have interest rate adjustment
formulas designed to stabilize their market values. These obligations normally
have maturities in excess of one year but carry demand features permitting the
holders to demand repayment of principal at any time or at specified intervals.
With respect to the Money Market Funds, such intervals may not exceed 13 months.
TENDER OPTION BONDS are created by combining an intermediate- or long-term
fixed-rate tax-exempt bond with a tender agreement that gives the holder the
option to tender the bond at face value. Tender option bonds purchased by the
Funds are structured with rates that are reset weekly or at regular intervals.
A sponsor may terminate a tender option agreement if, for example, the issuer of
the underlying bond defaults on interest payments, or the underlying bond is
downgraded or becomes taxable. Under such circumstances, a Fund might then own a
bond that does not meet its quality or maturity criteria.
The Manager monitors the credit quality of bonds underlying the Funds' tender
option bond holdings and will sell or put back a tender option bond if the
rating on the underlying bond falls below the second-highest rating designated
by a rating agency. In addition, each Fund limits its investments in tender
option bonds to 15% of net assets.
MUNICIPAL LEASE OBLIGATIONS are issued by state and local governments to acquire
land and a wide variety of equipment and facilities. These obligations typically
are not fully backed by the issuing municipality's ability to assess taxes to
meet its debt obligations. If the state or local government does not make
appropriations for the following year's lease payments, the lease may terminate,
with the possibility of default on the lease obligation and loss to investors.
Prior to purchasing a municipal lease obligation (or a participation interest in
such obligations) and on a regular basis thereafter, pursuant to guidelines
adopted by the board of trustees, the Manager evaluates the credit quality and
liquidity of the obligation. In making this evaluation, the Manager considers
various credit factors, such as the necessity of the project; the issuer's
credit quality, future borrowing plans, and sources of revenue pledged for lease
repayment; general economic conditions in the region where the security is
issued; liquidity indictors such as dealer activity; and with regard to unrated
obligations the likelihood such lease will not be canceled.
ZERO-COUPON MUNICIPAL SECURITIES do not make regular interest payments. Instead,
they are sold at a deep discount to their face value. In calculating daily
dividends, the Funds take into account, as income, a portion of the difference
between these securities' purchase prices and face values. Because zero-coupon
securities do not pay current income, their prices can be very volatile when
interest rates change.
The Variable Price Funds may invest in INVERSE FLOATERS to generate higher
tax-exempt yields than are offered by other instruments. Inverse floaters bear
interest rates that move inversely to market interest rates. Generally, the
interest rate on the inverse floater is computed as the difference between an
above-market fixed rate of interest and a floating rate determined by reference
to a market-based or bond-specific interest rate.
Since inverse floaters are long-term bonds, the value of these securities may be
volatile when market interest rates change. In addition, there is no guarantee
that the Manager will find a ready buyer for inverse floaters.
The Money Market Funds may not invest in inverse floaters.
AMT BONDS (CALIFORNIA MUNICIPAL MONEY MARKET AND CALIFORNIA HIGH YIELD MUNICIPAL
ONLY) typically are tax-exempt "private activity" bonds issued after August 7,
1986, whose proceeds are directed at least in part to a private, for-profit
organization. Although the interest income from AMT bonds is exempt from regular
federal income tax, that income is a tax preference item for purposes of the
AMT.
In addition, corporate investors should note that all income from a Fund may be
part of an adjustment to AMT under Section 55 of the Internal Revenue Code and
the environmental tax under Internal Revenue Code Section 59A. The AMT is a
special separate tax
Prospectus Information Regarding The Funds 17
that applies to certain taxpayers who have certain adjustments to income or tax
preference items.
TAX-EXEMPT SECURITIES
Historically, interest paid on securities issued by states, cities, counties,
school districts and other political subdivisions of the United States has been
exempt from federal income taxes. Legislation since 1985, however, affects the
tax treatment of certain types of municipal bonds issued after certain dates
and, in some cases, subjects the income from certain bonds to differing tax
treatment depending on the tax status of its recipient.
The California Municipal Money Market and California High-Yield Municipal should
be expected to invest some portion of their assets in bonds which, in the hands
of some holders, would be subject to the AMT, as long as management determines
it is in the best interest of shareholders generally to invest in such
securities. See "Taxes," page 28.
The tax-equivalent yield is based on the current double tax-exempt yield and
your combined federal and state marginal tax rate. Assuming all the Funds'
dividends are tax-exempt in California (which may not always be the case) and
that your California taxes are fully deductible for federal income tax purposes,
you can calculate your tax equivalent yield for the Funds using the following
equation:
Fund's Double Tax-Free Yield Your Tax-
------------------------------------------------- = Equivalent
(100% - Federal Rate) (100% - California Rate) Yield
OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS
AND RISKS
For additional information regarding the investment practices of any of the
Funds, see the Statement of Additional Information.
PORTFOLIO TURNOVER
The portfolio turnover rates of the Variable Price Funds are shown in the
Financial Highlights tables on pages 5 through 11 of this Prospectus.
Investment decisions to purchase and sell securities are based on the
anticipated contribution of the security in question to the particular Fund's
objectives. The manger believes that the rate of portfolio turnover is
irrelevant when it determines a change is in order to achieve those objectives
and accordingly, the annual portfolio turnover rate cannot be anticipated.
The portfolio turnover of each Fund may be higher than other mutual funds with
similar investment objectives. Higher turnover rate would generate
correspondingly greater brokerage commissions, which is a cost that the funds
pay directly. Portofolio turnover may also affect the character of capital
gains, if any, realized and distributed by a Fund since short-term capital gains
are taxable as ordinary income.
WHEN-ISSUED AND FORWARD
COMMITMENT AGREEMENTS
Each of the Funds may sometimes purchase new issues of securities on a
when-issued or forward commitment basis when, in the opinion of the Manager,
such purchases will further the investment objectives of the Fund. The price of
when-issued securities is established at the time commitment to purchase is
made. Delivery of and payment for these securities typically occurs 15 to 45
days after the commitment to purchase. Market rates of interest on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security. Accordingly, the value of each security may decline prior
to delivery, which could result in a loss to the Fund.
INTEREST RATE FUTURES CONTRACTS
AND OPTIONS THEREON
The Variable Price Funds may buy and sell interest rate futures contracts
relating to debt securities ("debt futures," i.e., futures relating to indexes
on types or groups of bonds) and write and buy put and call options relating to
interest rate futures contracts.
For options sold, a fund will segregate cash or high-quality debt securities
equal to the value of securities underlying the option unless the option is
otherwise covered.
A fund will deposit in a segregated account with its custodian bank high-quality
debt obligations maturing in one year or less, or cash, in an amount equal to
the fluctuating market value of long futures contracts it has purchased, less
any margin deposited on its long position. It may hold cash or acquire such debt
obligations for the purpose of making these deposits.
18 Information Regarding the Funds American Century Investments
The Variable Price Funds may use futures and options transactions to maintain
cash reserves while remaining fully invested, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns when a futures
contract is priced more attractively than its underlying security or index.
Since futures contracts and options thereon can replicate movements in the cash
markets for the securities in which a fund invests without the large cash
investments required for dealing in such markets, the may subject a fund to
greater and more volatile risks than might otherwise be the case. The principal
risks related to the use of such instruments are (1) the offsetting correlation
between movements in the market price of the portfolio investments (held or
intended) being hedged and in the price of the futures contract or option may be
imperfect; (2) possible lack of a liquid secondary market for closing out
futures or option positions; (3) the need of additional portfolio management
skills and techniques; and (4) losses due to unanticipated market price
movements. For a hedge to be completely effective, the price change of the
hedging instrument should equal the price change of the securities being hedged.
Such equal price changes are not always possible because the investment
underlying the hedging instrument may not be the same investment that is being
hedged.
The ordinary spreads between prices in the cash and futures markets, due to the
differences in the natures of those markets, are subject to distortion. Due to
the possibility of distortion, a correct forecast of general interest rate
trends by management may still not result in a successful transaction.
Management may be incorrect in its expectations as to the extent of various
interest rate movements or the time span within which the movements take place.
See the Statement of Additional Information for further information about these
instruments and their risks.
RULE 144A SECURITIES
The Funds may, from time to time, purchase Rule 144A securities when they
present attractive investment opportunities that otherwise meet the Funds'
criteria for selection. Rule 144A securities are securities that are privately
placed with and traded among qualified institutional investors rather than the
general public. Although Rule 144A securities are considered "restricted
securities," they are not necessarily illiquid.
With respect to securities eligible for resale under Rule 144A, the staff of the
SEC has taken the position that the liquidity of such securities in the
portfolio of a fund offering redeemable securities is a question of fact for the
Board of Trustees to determine, such determination to be based upon a
consideration of the readily available trading markets and the review of any
contractual restrictions. Accordingly, the Board of Trustees is responsible for
developing and establishing the guidelines and procedures for determining the
liquidity of Rule 144A securities. As allowed by Rule 144A, the Board of
Trustees of the Funds has delegated the day-to-day function of determining the
liquidity of Rule 144A securities to the Manager. The board retains the
responsibility to monitor the implementation of the guidelines and procedures it
has adopted.
Since the secondary market for such securities is limited to certain qualified
institutional investors, the liquidity of such securities may be limited
accordingly and a Fund may, from time to time, hold a Rule 144A security that is
illiquid. In such an event, the Manager will consider appropriate remedies to
minimize the effect on such Fund's liquidity. No Fund may invest more than 10%
of its total assets in illiquid securities (securities that may not be sold
within seven days at approximately the price used in determining the net asset
value of Fund shares).
CASH MANAGEMENT
Each of the Variable Price Funds may invest up to 5% of its total assets in any
money market fund advised by the Manager, provided that the investment is
consistent with the Fund's investment policies and restrictions.
OTHER TECHNIQUES
The Manager may buy other types of securities or employ other portfolio
management techniques on behalf of the Funds. When SEC guidelines require it to
do so, a Fund will set aside cash or appropriate liquid assets in a segregated
account to cover its obligations. See the Funds' Statement of Additional
Information for a more detailed discussion of these investments and some of the
risks associated with them.
Prospectus Information Regarding the Funds 19
PERFORMANCE ADVERTISING
From time to time, the Funds may advertise performance data. Fund performance
may be shown by presenting one or more performance measurements, including
cumulative total return or average annual total return, yield, effective yield
and tax-equivalent yield (for tax-exempt funds).
Cumulative total return data is computed by considering all elements of return,
including reinvestment of dividends and capital gains distributions, over a
stated period of time. Average annual total return is determined by computing
the annual compound return over a stated period of time that would have produced
the Fund's cumulative total return over the same period if the Fund's
performance had remained constant throughout.
A quotation of yield reflects a Fund's income over a stated period expressed as
a percentage of the fund's share price. In the case of the Money Market Funds,
yield is calculated by measuring the income generated by an investment in the
Fund over a seven-day period (net of expenses). This income is then annualized,
that is, the amount of income generated by the investment over the seven day
period is assumed to be generated over each similar period each week throughout
a full year and is shown as a percentage of the investment. The effective yield
is calculated in a similar manner but, when annualized, the income earned by the
investment is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect on the assumed
reinvestment.
With respect to the Variable Price Funds, yield is calculated by adding over a
30-day (or one-month) period all interest and dividend income (net of fund
expenses) calculated on each day's market values, dividing this sum by the
average number of Fund shares outstanding during the period, and expressing the
result as a percentage of the Fund's share price on the last day of the 30-day
(or one month) period. The percentage is then annualized. Capital gains and
losses are not included in the calculation.
Yields are calculated according to accounting methods that are standardized in
accordance with SEC rules. The SEC yield should be regarded as an estimate of
the fund's rate of investment income, and it may not equal the fund's actual
income distribution rate, the income paid to a shareholder's account, or the
income reported in the Fund's financial statements.
A tax-equivalent yield demonstrates the taxable yield necessary to produce
after-tax yield equivalent to that of a mutual fund which invests in exempt
obligations. See "Tax-Exempt Securities," page 18, for a description of the
formula used in comparing yields to tax-equivalent yields.
The Funds may also include in advertisements data comparing performance with the
performance of non-related investment media, published editorial comments and
performance rankings compiled by independent organizations (such as Lipper
Analytical Services or Donoghue's Money Fund Report) and publications that
monitor the performance of mutual funds. Performance information may be quoted
numerically or may be presented in a table, graph or other illustration. In
addition, fund performance may be compared to well-known indices of market
performance. In addition, a fund's performance may be compared, on a relative
basis, to the other funds in our fund family. This relative comparison, which
may be based upon historical or expected fund performance, volatility or other
fund characteristics, may be presented numerically, graphically or in text. Fund
performance may also be combined or blended with other funds in our fund family,
and that combined or blended performance may be compared to the same indices to
which individual funds may be compared.
All performance information advertised by the Funds is historical in nature and
is not intended to represent or guarantee future results. The value of Fund
shares when redeemed may be more or less than their original cost.
20 Information Regarding The Funds American Century Investments
HOW TO INVEST WITH
AMERICAN CENTURY INVESTMENTS
AMERICAN CENTURY INVESTMENTS
The Funds offered by this Prospectus are a part of the American Century
Investments family of mutual funds. Our family provides a full range of
investment opportunities, from the aggressive equity growth funds in our
Twentieth Century Group, to the fixed income funds in our Benham Group, to the
moderate risk and specialty funds in our American Century Group. Please call
1-800-345-2021 for a brochure or prospectuses for the other funds in the
American Century Investments family.
INVESTING IN AMERICAN CENTURY
The following section explains how to invest in American Century funds,
including purchases, redemptions, exchanges and special services. You will find
more detail about doing business with us by referring to the Investor Services
Guide that you will receive when you open an account.
If you own or are considering purchasing Fund shares through an
employer-sponsored retirement plan or through a bank, broker-dealer or other
financial intermediary, the following sections, as well as the information
contained in our Investor Services Guide, may not apply to you. Please read
"Employer-Sponsored Retirement Plans and Institutional Accounts," page 26.
HOW TO OPEN AN ACCOUNT
To open an account, you must complete and sign an application, furnishing your
taxpayer identification number. (You must also certify whether you are subject
to withholding for failing to report income to the IRS.) Investments received
without a certified taxpayer identification number will be returned.
The minimum investment is $2,500 for the Money Market Funds and $5,000 for the
Variable Price Funds.
The minimum investment requirements may be different for some types of
retirement accounts. Call one of our Investor Services Representatives for
information on our retirement plans, which are available for individual
investors or for those investing through their employers.
Please note: If you register your account as belonging to multiple owners (e.g.,
as joint tenants), you must provide us with specific authorization on your
application in order for us to accept written or telephone instructions from a
single owner. Otherwise, all owners will have to agree to any transactions that
involve the account (whether the transaction request is in writing or over the
telephone).
You may invest in the following ways:
BY MAIL
Send a completed application and check or money order payable in U.S. dollars to
American Century Investments.
BY WIRE
You may make your initial investment by wiring funds. To do so, call us or mail
a completed application and provide your bank with the following information:
o RECEIVING BANK AND ROUTING NUMBER:
Commerce Bank, N.A. (101000019)
o BENEFICIARY (BNF):
American Century Services Corporation
4500 Main St., Kansas City, Missouri 64111
o BENEFICIARY ACCOUNT NUMBER (BNF ACCT):
2804918
o REFERENCE FOR BENEFICIARY (RFB):
American Century account number into which you are investing. If more than
one, leave blank and see Bank to Bank Information below.
o ORIGINATOR TO BENEFICIARY (OBI):
Name and address of owner of account into which you are investing.
o BANK TO BANK INFORMATION
(BBI OR FREE FORM TEXT):
o Taxpayer identification or Social Security number
o If more than one account, account numbers and amount to be invested in each
account.
o Current tax year, previous tax year or rollover designation if an IRA.
Specify whether IRA, SEP-IRA or SARSEP-IRA.
Prospectus How to Invest with American Century Investments 21
BY EXCHANGE
Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get information on
opening an account by exchanging from another American Century account. See this
page for more information on exchanges.
IN PERSON
If you prefer to work with a representative in person, please visit one of our
Investors Centers, located at:
4500 Main Street
Kansas City, Missouri 64111
1665 Charleston Road
Mountain View, California 94043
2000 S. Colorado Blvd.
Denver, Colorado 80222
SUBSEQUENT INVESTMENTS
Subsequent investments may be made by an automatic bank, payroll or government
direct deposit (see "Automatic Investment Plan," this page) or by any of the
methods below. The minimum investment requirement for subsequent investments:
$250 for checks submitted without the remittance portion of a previous statement
or confirmation, $50 for all other types of subsequent investments.
BY MAIL
When making subsequent investments, enclose your check with the remittance
portion of the confirmation of a previous investment. If the investment slip is
not available, indicate your name, address and account number on your check or a
separate piece of paper. (Please be aware that the investment minimum for
subsequent investments is higher without an investment slip.)
BY TELEPHONE
Once your account is open, you may make investments by telephone if you have
authorized us (by choosing "Full Services" on your application) to draw on your
bank account. You may call an Investor Services Representative or use our
Automated Information Line.
BY ONLINE ACCESS
Once your account is open, you may make investments online if you have
authorized us (by choosing "Full Services" on your application) to draw on your
bank account.
BY WIRE
You may make subsequent investments by wire. Follow the wire transfer
instructions on page 21 and indicate your account number.
IN PERSON
You may make subsequent investments in person at one of our Investors Centers.
The locations of our three Investors Centers are listed on this page.
AUTOMATIC INVESTMENT PLAN
You may elect on your application to make investments automatically by
authorizing us to draw on your bank account regularly. Such investments must be
at least the equivalent of $50 per month. You also may choose an automatic
payroll or government direct deposit. If you are establishing a new account,
check the appropriate box under "Automatic Invest-ments" on your application to
receive more information. If you would like to add a direct deposit to an
existing account, please call one of our Investor Services Representatives.
HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER
As long as you meet any minimum investment requirements, you may exchange your
Fund shares to our other funds up to six times per year per account. An exchange
request will be processed the same day it is received if it is received before
the fund's net asset values are calculated, which is one hour prior to the close
of the New York Stock Exchange for the funds in the American Century Target
Maturities Trust, and at the close of the Exchange for all of our other funds.
See "When Share Price is Determined," page 27.
For any single exchange, the shares of each fund being acquired must have a
value of at least $100. How- ever, we will allow investors to set up an
Automatic Exchange Plan between any two funds in the amount of at least $50 per
month. See our Investor Services Guide for further information about exchanges.
BY MAIL
You may direct us in writing to exchange your shares from one American Century
account to another. For additional information, please see our Investor Services
Guide.
22 How to Invest with American Century Investments American Century Investments
BY TELEPHONE
You can make exchanges over the phone (either with an Investor Services
Representative or using our Automated Information Line--see page 24) if you have
authorized us to accept telephone instructions. You can authorize this by
selecting "Full Services" on your application or by calling us at 1-800-345-2021
to receive the appropriate form.
BY ONLINE ACCESS
You can make exchanges online if you have authorized us to accept instructions
over the Internet. You can authorize this by selecting "Full Services" on your
application or by calling us at 1-800-345-2021 to get the appropriate form.
HOW TO REDEEM SHARES
We will redeem or "buy back" your shares at any time. Redemptions will be made
at the next net asset value determined after a complete redemption request is
received.
Please note that a request to redeem shares in an IRA or 403(b) plan must be
accompanied by an executed IRS Form W4-P and a reason for withdrawal as
specified by the IRS.
BY MAIL
Your written instructions to redeem shares may be made either by a redemption
form, which we will send to you upon request, or by a letter to us. Certain
redemptions may require a signature guarantee. Please see "Signature Guarantee,"
page 24.
BY TELEPHONE
If you have authorized us to accept telephone instructions, you may redeem your
shares by calling an Investor Services Representative.
BY CHECK-A-MONTH
If you have at least a $10,000 balance in your Variable Price Fund account, or
if you have a Money Market Fund account, you may redeem shares by Check-A-Month.
A Check-A-Month plan automatically redeems enough shares each month to provide
you with redemption proceeds in an amount you choose (minimum $50). To set up a
Check-A-Month plan, please call to request our Check-A-Month brochure.
OTHER AUTOMATIC REDEMPTIONS
If you have at least a $10,000 balance in your Variable Price Fund account, or
if you have a Money Market Fund account, you may elect to make redemptions
automatically by authorizing us to send funds directly to you or to your account
at a bank or other financial institution. To set up automatic redemptions, call
one of our Investor Services Representatives.
REDEMPTION PROCEEDS
Please note that shortly after a purchase of shares is made by check or
electronic draft (also known as an ACH draft) from your bank, we may wait up to
15 days or longer to send redemption proceeds (to allow your purchase funds to
clear). No interest is paid on the redemption proceeds after the redemption is
processed but before your redemption proceeds are sent.
Redemption proceeds may be sent to you in one of the following ways:
BY CHECK
Ordinarily, all redemption checks will be made payable to the registered owner
of the shares and will be mailed only to the address of record. For more
information, please refer to our Investor Services Guide.
BY WIRE AND ACH
You may authorize us to transmit redemption proceeds by wire or ACH. These
services will be effective 15 days after we receive the authorization.
Your bank will usually receive wired funds within 48 hours of transmission.
Funds transferred by ACH may be received up to seven days after transmission.
Wired funds are subject to a $10 fee to cover bank wire charges, which is
deducted from redemption proceeds. Once the funds are transmitted, the time of
receipt and the funds' availability are not under our control.
REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS
Whenever the shares held in an account have a value of less than the required
minimum, a letter will be sent advising you to bring the value of the shares
held in the account up to the minimum. If action is not taken within 90 days of
the letter's date, the shares held in the account will be redeemed and proceeds
Prospectus How to Invest with American Century Investments 23
from the redemption will be sent by check to your address of record. We reserve
the right to increase the investment minimums.
SIGNATURE GUARANTEE
To protect your accounts from fraud, some transactions will require a signature
guarantee. Which transactions will require a signature guarantee will depend on
which service options you elect when you open your account. For example, if you
choose "In Writing Only," a signature guarantee will be required when:
o redeeming more than $25,000; or
o establishing or increasing a Check-A-Month or automatic transfer on an
existing account.
You may obtain a signature guarantee from a bank or trust company, credit union,
broker- dealer, securities exchange or association, clearing agency or savings
association, as defined by federal law.
For a more in-depth explanation of our signature guarantee policy, or if you
live outside the United States and would like to know how to obtain a signature
guarantee, please consult our Investor Services Guide.
We reserve the right to require a signature guarantee on any transaction, or to
change this policy at any time.
SPECIAL SHAREHOLDER SERVICES
We offer several service options to make your account easier to manage. These
are listed on the account application. Please make note of these options and
elect the ones that are appropriate for you. Be aware that the "Full Services"
option offers you the most flexibility. You will find more information about
each of these service options in our Investor Services Guide.
Our special shareholder services include:
AUTOMATED INFORMATION LINE
We offer an Automated Information Line, 24 hours a day, seven days a week, at
1-800-345-8765. By calling the Automated Information Line, you may listen to
fund prices, yields and total return figures. You may also use the Automated
Information Line to make investments into your accounts (if we have your bank
information on file) and obtain your share balance, value and most recent
transactions. If you have authorized us to accept telephone instructions, you
also may exchange shares from one fund to another via the Automated Information
Line. Redemption instructions cannot be given via the Automated Information
Line.
ONLINE ACCOUNT ACCESS
You may contact us 24 hours a day, seven days a week, at www.americancentury.com
to access your funds' daily share prices, receive updates on major market
indexes and view historical performance of your funds. If you select "Full
Services" on your application, you can use your personal access code and Social
Security number to view your account balances and account activity, make
subsequent investments from your bank account or exchange shares from one fund
to another.
CHECKWRITING
We offer CheckWriting as a service option for your account in either of the
Money Market Funds. CheckWriting allows you to redeem shares in your account by
writing a draft ("check") against your account balance. (Shares held in
certificate form may not be redeemed by check.) There is no limit on the number
of checks you can write, but each one must be for at least $100.
When you write a check, you will continue to receive dividends on all shares
until your check is presented for payment to our clearing bank. If you redeem
all shares in your account by check, any accrued distributions on the redeemed
shares will be paid to you in cash on the next monthly distribution date.
If you want to add CheckWriting to an existing account that offers CheckWriting,
contact us by phone or mail for an appropriate form. For a new account, you may
elect CheckWriting on your purchase application by choosing the "Full Services"
option. CheckWriting is not available for any account held in an IRA or 403(b)
plan.
CheckWriting redemptions may only be made on checks provided by us. Currently,
there is no charge for checks or for the CheckWriting service.
We will return checks drawn on insufficient funds or on funds from investments
made by means other than by wire within the previous 15 days. Neither the
company nor our clearing bank will be liable for any loss or expenses associated
with returned checks.
24 How to Invest with American Century Investments American Century Investments
Your account may be assessed a $15 service charge for checks drawn on
insufficient funds.
A stop payment may be ordered on a check written against your account. We will
use reasonable efforts to stop a payment, but we cannot guarantee that we will
be able to do so. If we are successful in fulfilling a stop-payment order, your
account may be assessed a $15 fee.
OPEN ORDER SERVICE
Through our open order service, you may designate a price at which to buy shares
of a variable price fund by exchange from one of our money market funds, or a
price at which to sell shares of a variable price fund by exchange to one of our
money market funds. The designated purchase price must be equal to or lower, or
the designated sale price equal to or higher, than the variable price fund's net
asset value at the time the order is placed, If the designated price is met
within 90 calendar days, we will execute your exchange order automatically at
that price (or better). Open orders not executed within 90 days will be
canceled.
If the fund you have selected deducts a distribution from its share price, your
order price will be adjusted accordingly so the distribution does not
inadvertently trigger an open order transaction on your behalf. If you close or
re-register the account from which the shares are to be redeemed, your open
order will be canceled.
Because of their time-sensitive nature, open order transactions are accepted
only by telephone or in person. These transactions are subject to exchange
limitations described in each fund's prospectus, except that orders and
cancellations received before 2 p.m. Central time are effective the same day,
and orders or cancellations received after 2 p.m. Central time are effective the
next business day.
TAX-QUALIFIED RETIREMENT PLANS
Each fund is available for your tax-deferred retirement plan. Call or write us
and request the appropriate forms for:
o Individual Retirement Accounts ("IRAs");
o 403(b) plans for employees of public school
systems and non-profit organizations; or
o Profit sharing plans and pension plans for corporations and other employers.
If your IRA and 403(b) accounts do not total $10,000, each account is subject to
an annual $10 fee, up to a total of $30 per year.
You can also transfer your tax-deferred plan to us from another company or
custodian. Call or write us for a Request to Transfer form.
IMPORTANT POLICIES REGARDING YOUR INVESTMENTS
Every account is subject to policies that could affect your investment. Please
refer to the Investor Services Guide for further information about the policies
discussed below, as well as further detail about the services we offer.
(1) We reserve the right for any reason to suspend the offering of shares for a
period of time, or to reject any specific purchase order (including
purchases by exchange). Additionally, purchases may be refused if, in the
opinion of the manager, they are of a size that would disrupt the
management of the Fund.
(2) We reserve the right to make changes to any stated investment requirements,
including those that relate to purchases, transfers and redemptions. In
addition, we may also alter, add to or terminate any investor services and
privileges. Any changes may affect all shareholders or only certain series
or classes of shareholders.
(3) Shares being acquired must be qualified for sale in your state of
residence.
(4) Transactions requesting a specific price and date, other than open orders,
will be refused. Once you have mailed or otherwise transmitted your
transaction instructions to us, they may not be modified or canceled.
(5) If a transaction request is made by a corporation, partnership, trust,
fiduciary, agent or unincorporated association, we will require evidence
satisfactory to us of the authority of the individual making the request.
(6) We have established procedures designed to assure the authenticity of
instructions received by telephone. These procedures include requesting
personal identification from callers, recording telephone calls, and
providing written confirmations of telephone transactions. These procedures
are designed to protect shareholders from unauthorized or fraudulent
instructions.
Prospectus How to Invest with American Century Investments 25
If we do not employ reasonable procedures to confirm the genuineness of
instructions, then we may be liable for losses due to unauthorized or
fraudulent instructions. The company, its transfer agent and investment
advisor will not be responsible for any loss due to instructions they
reasonably believe are genuine.
(7) All signatures should be exactly as the name appears in the registration.
If the owner's name appears in the registration as Mary Elizabeth Jones,
she should sign that way and not as Mary E. Jones.
(8) Unusual stock market conditions have in the past resulted in an increase in
the number of shareholder telephone calls. If you experience difficulty in
reaching us during such periods, you may send your transaction instructions
by mail, express mail or courier service, or you may visit one of our
Investors Centers. You may also use our Automated Information Line if you
have requested and received an access code and are not attempting to redeem
shares.
(9) If you fail to provide us with the correct certified taxpayer
identification number, we may reduce any redemption proceeds by $50 to
cover the penalty the IRS will impose on us for failure to report your
correct taxpayer identification number on information reports.
(10) We will perform special inquiries on shareholder accounts. A research fee
of $15 per hour may be applied.
REPORTS TO SHAREHOLDERS
At the end of each calendar quarter, we will send you a consolidated statement
that summarizes all of your American Century holdings, as well as an individual
statement for each fund you own that reflects all year-to-date activity in your
account. You may request a statement of your account activity at any time.
With the exception of most automatic transactions, each time you invest, redeem,
transfer or exchange shares, we will send you a confirmation of the
transactions. See the Investor Services Guide for more detail.
Carefully review all the information relating to transactions on your statements
and confirmations to ensure that your instructions were acted on properly.
Please notify us immediately in writing if there is an error. If you fail to
provide notification of an error with reasonable promptness, i.e., within 30
days of non-automatic transactions or within 30 days of the date of your
consolidated quarterly statement, in the case of automatic transactions, we will
deem you to have ratified the transaction.
No later than January 31st of each year, we will send you reports that you may
use in completing your U.S. income tax return. See the Investor Services Guide
for more information.
Each year, we will send you an annual and a semiannual report relating to your
fund, each of which is incorporated herein by reference. The annual report
includes audited financial statements and a list of portfolio securities as of
the fiscal year end. The semiannual report includes unaudited financial
statements for the first six months of the fiscal year, as well as a list of
portfolio securities at the end of the period. You also will receive an updated
prospectus at least once each year. Please read these materials carefully, as
they will help you understand your fund.
EMPLOYER-SPONSORED RETIREMENT PLANS AND
INSTITUTIONAL ACCOUNTS
Information contained in our Investor Services Guide pertains to shareholders
who invest directly with American Century rather than through an
employer-sponsored retirement plan or through a financial intermediary.
If you own or are considering purchasing Fund shares through an
employer-sponsored retirement plan, your ability to purchase shares of the
Funds, exchange them for shares of other American Century funds, or redeem them
will depend on the terms of your plan.
If you own or are considering purchasing Fund shares through a bank,
broker-dealer, insurance company or other financial intermediary, your ability
to purchase, exchange and redeem shares will depend on your agreement with, and
the policies of, such financial intermediary.
You may reach one of our Institutional Service Representatives by calling
1-800-345-3533 to request information about our funds and services, to obtain a
current prospectus or to get answers to any questions about our Funds that you
are unable to obtain through your plan administrator or financial intermediary.
26 How to Invest with American Century Investments American Century Investments
ADDITIONAL INFORMATION YOU SHOULD KNOW
SHARE PRICE
WHEN SHARE PRICE IS DETERMINED
The price of your shares is also referred to as their net asset value. Net asset
value is determined by calculating the total value of a fund's assets, deducting
total liabilities and dividing the result by the number of shares outstanding.
For all American Century funds, except the American Century Target Maturities
Trust, net asset value is determined at the close of regular trading on each day
that the New York Stock Exchange is open, usually 3 p.m. Central time. Net asset
value for the Target Maturities is determined one hour prior to the close of the
Exchange.
Investments and requests to redeem or exchange shares will receive the share
price next determined after receipt by us of the investment, redemption or
exchange request. For example, investments and requests to redeem or exchange
shares of a fund received by us or one of our agents before the net asset value
of the fund is determined, are effective on, and will receive the price
determined, that day. Investment, redemption and exchange requests received
thereafter are effective on, and receive the price determined on, the next day
the Exchange is open.
Investments are considered received only when payment is received by us. Wired
funds are considered received on the day they are deposited in our bank account
if they are deposited before the net asset value is determined.
Investments by telephone pursuant to your prior authorization to us to draw on
your bank account are considered received at the time of your telephone call.
Investment and transaction instructions received by us on any business day by
mail before the net asset value is determined will receive that day's price.
Investments and instructions received after that time will receive the price
determined on the next business day.
If you invest in Fund shares through an employer-sponsored retirement plan or
other financial intermediary, it is the responsibility of your plan recordkeeper
or financial intermediary to transmit your purchase, exchange and redemption
requests to the Fund's transfer agent prior to the applicable cut-off time for
receiving orders and to make payment for any purchase transactions in accordance
with the Fund's procedures or any contractual arrangement with the Fund or the
Fund's distributor in order for you to receive that day's price.
HOW SHARE PRICE IS DETERMINED
The valuation of assets for determining net asset value may be summarized as
follows:
The portfolio securities of each Fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or if
local convention or regulation so provides, the mean of the latest bid and asked
prices is used. Depending on local convention or regulation, securities traded
over-the-counter are priced at the mean of the latest bid and asked prices, or
at the last sale price. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in accordance
with procedures adopted by the Board of Trustees.
Debt securities not traded on a principal securities exchange are valued through
valuations obtained from a commercial pricing service or at the most recent mean
of the bid and asked prices provided by investment dealers in accordance with
procedures established by the Board of Trustees.
Pursuant to a determination by the Money Market Funds' Board of Trustees and
Rule 2a-7 under the Investment Company Act of 1940 (the "1940 Act"), portfolio
securities of the Funds are valued at amortized cost. When a security is valued
at amortized cost, it is valued at its cost when purchased, and thereafter by
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument.
Prospectus Additional Information You Should Know 27
WHERE TO FIND INFORMATION ABOUT SHARE PRICE
The net asset values of the Funds are published in leading newspapers daily. The
yields of the Money Market Funds are published weekly in leading financial
publications and daily in many local newspapers. The net asset values, as well
as yield information on the Funds and all the other funds in the American
Century family of funds, may be obtained by calling us or accessing our Web site
at www.americancentury.com.
DISTRIBUTIONS
At the close of each day including Saturdays, Sundays and holidays, net income
of the Variable Price Funds is determined and declared as a distribution. For
the Money Market Funds, net income plus net realized gains on portfolio
securities is determined and declared as a distribution daily, including
Saturdays, Sundays and holidays. These distributions will be paid monthly on the
last Friday of each month, except for year-end distributions which will be made
on the last business day of the year.
You will begin to participate in the distributions the day after your purchase
is effective. See "When Share Price is Determined," page 27. If you redeem
shares, you will receive the distribution declared for the day of the
redemption. If all shares are redeemed (other than by CheckWriting), the
distribution on the redeemed shares will be included with your redemption
proceeds.
Distributions from net realized securities gains of the Variable Price Funds, if
any, generally are declared and paid once a year, but the Funds may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code, in all events in a manner consistent
with the provisions of the 1940 Act. The Money Market Funds do not expect to
realize any long-term capital gains and, accordingly, do not expect to make any
captial gains distributions.
Participants in employer-sponsored retirement or savings plans must reinvest all
distributions. For shareholders investing through taxable accounts,
distributions will be reinvested unless you elect to receive them in cash.
Distributions of less than $10 generally will be reinvested. Distributions made
shortly after a purchase by check or ACH may be held up to 15 days. You may
elect to have distributions on shares held in Individual Retirement Accounts and
403(b) plans paid in cash only if you are at least 591/2 years old or
permanently and totally disabled. Distribution checks normally are mailed within
seven days after the record date. Please consult our Investor Services Guide for
further information regarding your distribution options.
TAXES
Each Fund has elected to be taxed under Sub-chapter M of the Internal Revenue
Code, which means that to the extent its income is distributed to shareholders,
it pays no income taxes.
TAX-DEFERRED ACCOUNTS
If Fund shares are purchased through tax-deferred accounts, such as a qualified
employer-sponsored retirement or savings plan, income and capital gains
distributions paid by the Funds will generally not be subject to current
taxation, but will accumulate in your account under the plan on a tax-deferred
basis.
Employer-sponsored retirement and savings plans are governed by complex tax
rules. If you elect to participate in your employer's plan, consult your plan
administrator, your plan's summary plan description, or a professional tax
advisor regarding the tax consequences of participation in the plan,
contributions to, and withdrawals or distributions from the plan.
TAXABLE ACCOUNTS
If Fund shares are purchased through taxable accounts, distributions of net
investment income and net short-term capital gains are taxable to you as
ordinary income, except as described below. The dividends from net income of the
Variable Price Funds do not qualify for the 70% dividends-received deduction for
corporations since they are derived from interest income. Dividends representing
income derived from tax-exempt bonds generally retain the bonds' tax-exempt
character in a shareholder's hands. Distributions from net long-term capital
gains are taxable as long-term capital gains regardless of the length of time
you have held the shares on which such distributions are paid. However, you
should note that any loss realized upon the sale or redemption of shares held
for six months or less will be treated as a long-term
28 Additional Information You Should Know American Century Investments
capital loss to the extent of any distribution of long-term capital gain to you
with respect to such shares.
Distributions are taxable to you regardless of whether they are taken in cash or
reinvested, even if the value of your shares is below your cost. If you purchase
shares shortly before a distribution, you must pay income taxes on the
distribution, even though the value of your investment (plus cash received, if
any) will not have increased. In addition, the share price at the time you
purchase shares may include unrealized gains in the securities held in the
investment portfolio of the Fund. If these portfolio securities are subsequently
sold and the gains are realized, they will, to the extent not offset by capital
losses, be paid to you as a distribution of capital gains and will be taxable to
you as short-term or long-term capital gains.
In January of the year following the distribution, if you own shares in a
taxable account, you will receive a Form 1099-DIV notifying you of the status of
your distributions for federal income tax purposes. The Funds anticipate that
substantially all of the dividends to be paid by the Funds will be exempt from
federal income taxes to an individual unless, due to that person's own tax
situation, he or she is subject to the AMT. In that case, it is likely that a
portion of the dividends will be taxable to that shareholder while remaining
tax-exempt in the hands of most other shareholders. The Funds will advise
shareholders of the percentage, if any, of the dividends not exempt from federal
income tax, and the percentage, if any, subject to the individual AMT should a
shareholder be subject to it.
If you have not complied with certain provisions of the Internal Revenue Code
and Regulations, we are required by federal law to withhold and remit to the IRS
31% of reportable payments (which may include dividends, capital gains
distributions and redemptions). Those regulations require you to certify that
the Social Security number or tax identification number you provide is correct
and that you are not subject to 31% withholding for previous under-reporting to
the IRS. You will be asked to make the appropriate certification on your
application. Payments reported by us that omit your Social Security number or
tax identification number will subject us to a penalty of $50, which will be
charged against your account if you fail to provide the certification by the
time the report is filed, and is not refundable.
Redemption of shares of a fund (including redemptions made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
shareholders will generally recognize a gain or loss in an amount equal to the
difference between the basis of the shares and the amount received. Assuming
that shareholders hold such shares as a capital asset, the gain or loss will be
a capital gain or loss and will generally be long term if shareholders have held
such shares for a period of more than one year. If a loss is realized on the
redemption of Fund shares, the reinvestment in additional Fund shares within 30
days before or after the redemption may be subject to the "wash sale" rules of
the Internal Revenue Code, resulting in a postponement of the recognition of
such loss for federal income tax purposes.
SPECIAL TAX INFORMATION
Each Fund intends to invest a sufficient portion of its assets in state and
municipal obligations so that it will qualify to pay "exempt-interest dividends"
to shareholders. Such exempt-interest dividends are generally excludable from a
shareholder's gross income for federal tax purposes. If a Fund earned federally
taxable income from any of its investments, the income would be distributed to
shareholders as a taxable dividend as described above.
MUNICIPAL SECURITIES
Opinions relating to the validity of municipal securities and the exemptions of
interest thereon from federal income tax are rendered by bond counsel to the
issuers. The Funds and the Manager rely on the opinion of bond counsel and do
not undertake any independent investigation of proceedings relating to the
issuance of state or municipal securities. The Funds may invest in various
instruments that are not traditional state and local obligations and that are
believed to generate interest excludable from taxable income under Internal
Revenue Code Section 103, including, but not limited to, municipal lease
obligations and inverse floaters. Although the Funds may invest in these
instruments, they cannot guarantee the tax-exempt status of the income earned
thereon from any other investment.
Prospectus Additional Information You Should Know 29
AMT LIABILITY
To the extent that either California Municipal Money Market and High-Yield
Municipal invest in municipal obligations (private activity bonds) whose
interest is treated as a tax preference item in calculating AMT liability,
shareholders who calculate AMT liability will be required to include a portion
of the Fund's dividends as a tax preference item in making this calculation. In
addition, corporate shareholders may be required to include all dividends and
distri-butions by the Fund in an adjustment of alternative minimum taxable
income for purposes of the AMT and the environmental tax imposed under Internal
Revenue Code Sections 55 and 59A, respectively.
EXEMPT-INTEREST DIVIDENDS
Exempt-interest dividends of a Fund, although exempt from regular federal income
tax, are includable in the tax base for determining the extent to which Social
Security or railroad retirement benefits will be subject to federal income tax.
Distributions from net short-term capital gains and all or a portion of gains
realized upon the disposition of market discount bonds are federally taxable as
ordinary income. Long-term capital gains distributions designated as capital
gain dividends are federally taxable as long-term capital gains, regardless of
how long you have held your shares. Distributions generally are subject to the
same tax treatment, whether they are received in cash or in additional shares.
Distributions declared to shareholders of record in October, November or
December and paid in January of the following year are treated as if paid on
December 31st.
If a Fund qualifies to pay exempt-interest dividends, its income dividends will
be exempt from California personal income tax to the extent that the Fund's
dividends are derived from interest on California state tax-free obligations.
Distributions derived from obligations other than California state tax-free
obligations, as well as distributions from short- or long-term capital gains and
any other taxable income or gains, are subject to California personal income
tax. The Funds' dividends are not exempt from California state franchise or
corporate income taxes. Shareholders who are domiciled outside of California may
be subject to income, personal property, intangibles or other taxes in their
respective states.
You may realize a taxable gain or loss when you redeem (sell) or exchange shares
of a Variable Price Fund. For most types of accounts, proceeds from your
redemption transactions will be reported to the IRS annually. However, because
the tax treatment depends on your purchase price and your personal tax
situation, your should keep regular account statements to use in determining
your tax liability.
If your hold Fund shares for six months or less, the deduction of any loss
realized upon redemption is disallowed to the extent that you received
"exempt-interest dividends" on those shares. All shareholders are required to
report the receipt of dividends and distributions, including exempt-interest
dividends, on their federal income tax returns.
Shareholders should be aware that redeeming shares of a Fund after tax-exempt
interest income has been accrued by a Fund but before that income has been
distributed as a dividend may be disadvantageous. Any gain on such redemption
will be taxable, even though the gain may be attributable in part to the accrued
tax-exempt interest that might have qualified as an exempt-interest dividend if
distributed as a dividend rather than as redemption proceeds.
MANAGEMENT
INVESTMENT MANAGEMENT
The Funds are series of the American Century California Tax-Free and Municipal
Funds (the "Trust"). Under the laws of the Commonwealth of Massachusetts, the
Board of Trustees is responsible for managing the business and affairs of the
Trust. Acting pursuant to an investment advisory agreement entered into with the
Trust, Benham Management Corporation (the "Manager") serves as the investment
advisor of the Funds. Its principal place of business is 1665 Charleston Road,
Mountain View, California 94043. The Manager has been providing investment
advisory services to investment companies and other clients since 1971.
The Manager supervises and manages the investment portfolio of each Fund and
directs the purchase and sale of its investment securities. It utilizes teams of
portfolio managers, assistant portfolio managers
30 Additional Information You Should Know American Century Investments
and analysts acting together to manage the assets of the Funds. The teams meet
regularly to review portfolio holdings and to discuss purchase and sale
activity. The teams adjust holdings in the Funds' portfolios and the Funds'
asset mix as they deem appropriate in pursuit of the Funds' investment
objectives. Individual portfolio manager members of the team may also adjusts
portfolio holdings of the Funds or of sectors of the Funds as necessary between
team meetings.
In June 1995, American Century Companies, Inc. ("ACC") acquired Benham
Management International, Inc., the then-parent company of the Manager. In the
acquisition, the Manager became a wholly owned subsidiary of ACC. ACC is also
the parent company of American Century Investment Management, Inc. ("ACIM"),
which provides investment management services to many funds in the American
Century family of funds.
The portfolio manager members of the teams managing the Funds described in this
Prospectus and their work experience for the last five years are listed as
follows:
G. DAVID MACEWEN, Vice President, is the manager of the portfolio management
team which manages the Funds and has had primary responsibility for the
day-to-day operations of California Long-Term Tax-Free and California Insured
Tax-Free since May, 1991. Mr. MacEwen joined American Century in 1991 as a
Senior Municipal Portfolio Manager. Mr. MacEwen is a member of the Association
of Investment Management and Research (AIMR) and the Securities Analysts of San
Francisco. Mr. MacEwen has an MBA in finance from the University of Delaware and
a BA in Economics from Boston University.
TODD PARDULA, Municipal Portfolio Manager, has been directly responsible for the
management of the Money Market Funds since May, 1994. Before he was promoted to
Portfolio Manager, Mr. Pardula, who joined American Century in 1990, was an
Associate Municipal Credit Analyst for two years. Prior to that, he was a
Customer Service Representative in the Investor Services Department. Mr. Pardula
is a Chartered Financial Analyst and a member of the Securities Analysts of San
Francisco and the California Society of Municipal Analysts. He has a BS degree
in Finance from Santa Clara University.
JOEL SILVA, Municipal Portfolio Manager, has been directly responsible for the
management of California Limited-Term Tax-Free and has been co-manager of
California Intermediate-Term Tax-Free since June, 1993. Before being promoted to
Portfolio Manager, Mr. Silva was a municipal bond trader. Mr. Silva is a
Registered Representative and has a BS degree from California Polytechnic
University and an MBA from California State University in Hayward.
STEVEN M. PERMUT, Senior Portfolio Manager and Manager of Municipal Research, is
primarily responsible for the management of California High-Yield Municipal. Mr.
Permut is currently Secretary-Treasurer of the California Society of Municipal
Analysts and a member of the National Federation of Municipal Analysts. He has a
bachelor's degree in Business and Geography from State University of New York,
Oneonta.
COLLEEN M. DENZLER, Senior Municipal Portfolio Manager, has been primarily
responsible for the day-to-day operations of California Intermediate-Term
Tax-Free since January 1996. Prior to joining the Manager in January 1996, Ms.
Denzler was a Portfolio Manager with Calvert Group for 10 years, specializing in
state tax-exempt portfolios. Ms. Denzler is a Chartered Financial Analyst and is
a member of the Association for Investment Management and Research (AIMR) and
the Washington Society of Investment Analysts. Ms. Denzler has a bachelor's
degree in Finance from Radford University.
The activities of the Manager are subject only to directions of the Trust's
Board of Trustees. For the services provided to the Funds, the Manager receives
an annual fee which cannot exceed 0.50% of average daily net assets. The
Manager's fee drops to a marginal rate of 0.19% of average daily net assets as
the Trust's assets increase.
CODE OF ETHICS
The Trust and the Manager have adopted a Code of Ethics, which restricts
personal investing practices by employees of the Manager and its affiliates.
Among other provisions, the Code of Ethics requires that employees with access
to information about the purchase or sale of securities in the Funds' portfolios
obtain preclearance before executing personal trades. With respect to Portfolio
Managers and other invest-
Prospectus Additional Information You Should Know 31
ment personnel, the Code of Ethics prohibits acquisition of securities in an
initial public offering, as well as profits derived from the purchase and sale
of the same security within 60 calendar days. These provisions are designed to
ensure that the interests of the fund shareholders come before the interests of
the people who manage those funds.
TRANSFER AND ADMINISTRATIVE SERVICES
American Century Services Corporation, 4500 Main Street, Kansas City, Missouri
64111, acts as transfer agent and dividend-paying agent for the Funds. The
transfer agent provides facilities, equipment and personnel to the Funds and is
paid for such services by the Funds. For administrative services, each Fund pays
the transfer agent a monthly fee equal to its pro rata share of the dollar
amount derived from applying the average daily net assets of all of the Funds
managed by the Manager. The administrative fee rate ranges from 0.11% to 0.08%
of average daily net assets, dropping as assets managed by the Manager increase.
For transfer agent services, each Fund pays the transfer agent a monthly fee for
each shareholder account maintained and for each shareholder transaction
executed during that month.
The Funds charge no sales commissions, or "loads," of any kind. However,
investors who do not choose to purchase or sell Fund shares directly from the
transfer agent may purchase or sell Fund shares through registered
broker-dealers and other qualified service providers who may charge investors
fees for their services. These broker-dealers and service providers generally
provide shareholder, administrative and/or accounting services which would
otherwise be provided by the transfer agent. To accom- modate these investors,
the Manager and its affiliates have entered into agreements with some
broker-dealers and service providers to provide these services. Fees for such
services are borne normally by the Funds at the rates normally paid to the
transfer agent, which would otherwise provide the services. Any distribution
expenses associated with these arrangements are borne by the Manager.
Although there is no sales charge levied by the Funds, transactions in shares of
the Funds may be executed by brokers or investment advisors who charge a
transaction-based fee or other fee for their services. Such charges may vary
among broker-dealers and financial advisors, but in all cases will be retained
by the broker-dealer or financial advisor and not remitted to the Funds or the
investment manger. You should be aware of the fact that these transactions may
be made directly with American Century without incurring such fees.
From time to time, special services may be offered to shareholders who maintain
higher share balances in our family of funds. These services may include the
waiver of minimum investment requirements, expedited confirmation of shareholder
transactions, newsletters and a team of personal representatives. Any expenses
associated with these special services will be paid by the Manager or its
affiliates.
The Manager and transfer agent are both wholly owned by American Century
Companies, Inc. James E. Stowers Jr., Chairman of the Board of Directors of ACC,
controls ACC by virtue of his ownership of a majority of its common stock.
DISTRIBUTION OF FUND SHARES
The Funds' shares are distributed by American Century Investment Services, Inc.
(the "Distributor"), a registered broker-dealer and an affiliate of the Manager.
The Manager pays all expenses for promoting and distributing the Fund shares
offered by this Prospectus. The Funds do not pay any commissions or other fees
to the Distributor or to any other broker-dealers or financial intermediaries in
connection with the distribution of Fund shares.
EXPENSES
Each Fund pays certain operating expenses directly, including, but not limited
to: custodian, audit, and legal fees; fees of the independent directors or
trustees; costs of printing and mailing prospectuses, statements of additional
information, proxy statements, notices, and reports to shareholders; insurance
expenses; and costs of registering the Fund's shares for sale under federal and
state securities laws. See the Funds' Statement of Additional Information for a
more detailed discussion of independent trustee compensation.
32 Additional Information You Should Know American Century Investments
FURTHER INFORMATION ABOUT AMERICAN CENTURY
The Trust was organized as a Massachusetts business trust on February 18, 1983.
The Trust is a registered open-end management investment company. Its business
and affairs are managed by its officers under the direction of its Board of
Trustees.
The principal office of the Trust is American Century Tower, 4500 Main Street,
P.O. Box 419200, Kansas City, Missouri 64141-6200. All inquiries may be made by
mail to that address, or by telephone to 1-800-345-2021 (international calls:
816-531-5575).
The Funds are individual series of the Trust which issues shares with no par
value. The assets belonging to each series of shares are held separately by the
custodian and in effect each series is a separate fund.
Each share, irrespective of series, is entitled to one vote for each dollar of
net asset value applicable to such share on all questions, except those matters
which must be voted on separately by the series of shares affected.
Matters affecting only one Fund are voted upon only by that Fund.
Shares have non-cumulative voting rights, which means that the holders of more
than 50% of the votes cast in an election of trustees can elect all of the
trustees if they choose to do so, and in such event the holders of the remaining
votes will not be able to elect any person or persons to the Board of Trustees.
Unless required by the 1940 Act, it will not be necessary for the Trust to hold
annual meetings of shareholders. As a result, shareholders may not vote each
year on the election of trustees or the appointment of auditors. However,
pursuant to the Trust's by-laws, the holders of shares representing at least 10%
of the votes entitled to be cast may request that the Trust hold a special
meeting of shareholders. The Trust will assist in the communication with other
shareholders.
WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES
DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION,
WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER
APPROVAL IS EXPRESSLY REQUIRED.
THIS PROSPECTUS CONSTITUTES AN OFFER TO SELL SECURITIES OF A FUND ONLY IN THOSE
STATES WHERE THE FUND'S SHARES HAVE BEEN REGISTERED OR OTHERWISE QUALIFIED FOR
SALE. A FUND WILL NOT ACCEPT APPLICATIONS FROM PERSONS RESIDING IN STATES WHERE
THE FUND'S SHARES ARE NOT REGISTERED.
Prospectus Additional Information You Should Know 33
P.O. Box 419200
Kansas City, Missouri
64141-6200
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
Fax: 816-340-7962
Internet: www.americancentury.com
9701 [recycled logo]
SH-BKT-6160 Recycled
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American
Century(sm)
STATEMENT OF ADDITIONAL INFORMATION
[american century logo]
American Century (sm)
JANUARY 1, 1997
BENHAM
GROUP(R)
California Tax-Free Money Market
California Municipal Money Market
California Limited-Term Tax-Free
California Intermediate-Term Tax-Free
California Long-Term Tax-Free
California High-Yield Municipal
California Insured Tax-Free
[front cover]
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 1997
AMERICAN CENTURY CALIFORNIA
TAX-FREE AND MUNICIPAL FUNDS
This statement is not a Prospectus but should be read in conjunction with the
current Prospectus for the American Century California Tax-Free and Municipal
Funds dated January 1, 1997. The Funds' annual reports for the fiscal year ended
August 31, 1996 are incorporated by reference. Please retain this document for
future reference. To obtain the Prospectus, call American Century Investments
toll-free at 1-800-345-2021 (international calls: 816-531-5575), or write P.O.
Box 419200, Kansas City, Missouri 64141-6200.
TABLE OF CONTENTS
Investment Policies and Techniques........................................2
Special Considerations Regarding California Municipal Securities..........9
Investment Restrictions..................................................14
Portfolio Transactions...................................................17
Valuation of Portfolio Securities........................................18
Performance..............................................................19
Taxes....................................................................21
About the Trust..........................................................23
Trustees and Officers....................................................24
Investment Advisory Services.............................................25
Transfer and Administrative Services.....................................27
Distribution of Fund Shares..............................................28
Direct Fund Expenses.....................................................28
Expense Limitation Agreement.............................................28
Additional Purchase and Redemption Information...........................28
Other Information........................................................29
NOTE: Throughout this document, American Century--Benham California Tax-Free
Money Market and American Century--Benham California Municipal Money Market are
referred to collectively as the Money Market Funds. Likewise, American
Century--Benham California Limited-Term Tax-Free, American Century--Benham
California Intermediate-Term Tax-Free, American Century--Benham California
Long-Term Tax-Free, American Century--Benham California High-Yield Municipal,
and American Century--Benham California Insured Tax-Free Fund are referred to
collectively as the Variable-Price Funds.
Statement of Additional Information 1
INVESTMENT POLICIES AND TECHNIQUES
The following pages provide a more detailed description of the securities and
investment practices identified in the Prospectus. Unless otherwise noted, the
policies described in this Statement of Additional Information are not
fundamental and may be changed by the Board of Trustees.
MUNICIPAL NOTES
Municipal notes are issued by state and local governments or government entities
to provide short-term capital or to meet cash flow needs.
TAX ANTICIPATION NOTES (TANS) are issued in anticipation of seasonal tax
revenues, such as ad valorem property, income, sales, use, and business taxes,
and are payable from these future taxes. Tax anticipation notes usually are
general obligations of the issuer. General obligations are secured by the
issuer's pledge of its full faith and credit (i.e., taxing power) for the
payment of principal and interest.
REVENUE ANTICIPATION NOTES (RANS) are issued with the expectation that receipt
of future revenues, such as federal revenue sharing or state aid payments, will
be used to repay the notes. Typically, these notes also constitute general
obligations of the issuer.
BOND ANTICIPATION NOTES (BANS) are issued to provide interim financing until
long-term financing can be arranged. In most cases, the long-term bonds provide
the money for repayment of the notes.
TAX-EXEMPT COMMERCIAL PAPER is an obligation with a stated maturity of 365 days
or less issued to finance seasonal cash flow needs or to provide short-term
financing in anticipation of longer-term financing.
REVENUE ANTICIPATION WARRANTS, or reimbursement warrants, are issued to meet the
cash flow needs of the State of California at the end of a fiscal year and in
the early weeks of the following fiscal year. These warrants are payable from
unapplied money in the State's General Fund, including the proceeds of revenue
anticipation notes issued following enactment of a State budget or the proceeds
of refunding warrants issued by the State.
MUNICIPAL BONDS
Municipal bonds, which generally have maturities of more than one year when
issued, are designed to meet longer-term capital needs. These securities have
two principal classifications: general obligation bonds and revenue bonds.
GENERAL OBLIGATION (GO) BONDS are issued by states, counties, cities, towns, and
regional districts to fund a variety of public projects, including construction
of and improvements to schools, highways, and water and sewer systems. General
obligation bonds are backed by the issuer's full faith and credit based on its
ability to levy taxes for the timely payment of interest and repayment of
principal, although such levies may be constitutionally or statutorily limited
as to rate or amount.
REVENUE BONDS are not backed by an issuer's taxing authority; rather, interest
and principal are secured by the net revenues from a project or facility.
Revenue bonds are issued to finance a variety of capital projects, including
construction or refurbishment of utility and waste disposal systems, highways,
bridges, tunnels, air and sea port facilities, schools, and hospitals. Many
revenue bond issuers provide additional security in the form of a debt-service
reserve fund that may be used to make payments of interest and repayments of
principal on the issuer's obligations. Some revenue bond financings are further
protected by a state's assurance (without obligation) that it will make up
deficiencies in the debt-service reserve fund.
INDUSTRIAL DEVELOPMENT BONDS (IDBS), a type of revenue bond, are issued by or on
behalf of public authorities to finance privately operated facilities. These
bonds are used to finance business, manufacturing, housing, athletic, and
pollution control projects, as well as public facilities such as mass transit
systems, air and sea port facilities, and parking garages. Payment of interest
and repayment of principal on an IDB depend solely on the ability of the
facility's user to meet financial obligations, and on the pledge, if any, of the
real or personal property financed. The interest earned on IDBs may be subject
to the federal alternative minimum tax.
VARIABLE- AND FLOATING-RATE DEMAND OBLIGATIONS
The Funds may buy variable- and floating-rate demand obligations (VRDOs and
FRDOs). These obligations carry rights that permit holders to demand payment of
the unpaid principal plus accrued interest, from the issuers or from financial
intermediaries.
2 American Century Investments
Floating-rate securities have interest rates that change whenever there is a
change in a designated base rate; variable-rate instruments provide for a
specified, periodic adjustment in the interest rate, which typically is based on
an index. These rate formulas are designed to result in a market value for the
VRDO or FRDO that approximates par value.
OBLIGATIONS WITH TERM PUTS ATTACHED
Each Fund may invest in fixed-rate bonds subject to third party puts and in
participation interests in such bonds held by a bank in trust or otherwise.
These bonds and participation interests have tender options or demand features
that permit the Funds to tender (or put) their bonds to an institution at
periodic intervals and to receive the principal amount thereof.
Benham Management Corporation (the "Manager"), the Funds' investment advisor,
expects that the Funds will pay more for securities with puts attached than for
securities without these liquidity features. The Manager may buy securities with
puts attached to keep a Fund fully invested in municipal securities while
maintaining sufficient portfolio liquidity to meet redemption requests or to
facilitate management of the Funds' investments. To ensure that the interest on
municipal securities subject to puts is tax-exempt to the Funds, the Manager
limits the Funds' use of puts in accordance with applicable interpretations and
rulings of the Internal Revenue Service (IRS).
Because it is difficult to evaluate the likelihood of exercise or the potential
benefit of a put, puts normally will be determined to have a value of zero,
regardless of whether any direct or indirect consideration is paid. Accordingly,
puts as separate securities are not expected to affect the Funds' weighted
average maturities. When a Fund has paid for a put, the cost will be reflected
as unrealized depreciation on the underlying security for the period the put is
held. Any gain on the sale of the underlying security will be reduced by the
cost of the put.
There is a risk that the seller of a put will not be able to repurchase the
underlying obligation when (or if) a Fund attempts to exercise the put. To
minimize such risks, the Funds will purchase obligations with puts attached only
from sellers deemed creditworthy by the Manager under the direction of the Board
of Trustees.
TENDER OPTION BONDS
Tender option bonds (TOBs) were created to increase the supply of high-quality,
short-term tax-exempt obligations, and thus they are of particular interest to
the Money Market Funds. However, any of the Funds may purchase these
instruments.
TOBs are created by municipal bond dealers who purchase long-term tax-exempt
bonds in the secondary market, place the certificates in trusts, and sell
interests in the trusts with puts or other liquidity guarantees attached. The
credit quality of the resulting synthetic short-term instrument is based on the
guarantor's short-term rating and the underlying bond's long-term rating.
There is some risk that a remarketing agent will renege on a tender option
agreement if the underlying bond is downgraded or defaults. Because of this, the
Manager monitors the credit quality of bonds underlying the Funds' TOB holdings
and intends to sell or put back any TOB if the rating on its underlying bond
falls below the second-highest rating category designated by a nationally
recognized statistical rating agency (a "rating agency").
The Manager also takes steps to minimize the risk that the Fund may realize
taxable income as a result of holding TOBs. These steps may include
consideration of (a) legal opinions relating to the tax-exempt status of the
underlying municipal bonds, (b) legal opinions relating to the tax ownership of
the underlying bonds, and (c) other elements of the structure that could result
in taxable income or other adverse tax consequences.
After purchase, the Manager monitors factors related to the tax-exempt status of
the Fund's TOB holdings in order to minimize the risk of generating taxable
income.
WHEN-ISSUED AND FORWARD
COMMITMENT AGREEMENTS
The Funds may engage in municipal securities transactions on a when-issued or
forward commitment basis in which the transaction price and yield are each fixed
at the time the commitment is made, but payment and delivery occur at a future
date (typically 15 to 45 days later).
When purchasing securities on a when-issued or forward commitment basis, the
Fund assumes the
Statement of Additional Information 3
rights and risks of ownership, including the risks of price and yield
fluctuations. While the Fund will make commitments to purchase or sell
securities with the intention of actually receiving or delivering them, it may
sell the securities before the settlement date if doing so is deemed advisable
as a matter of investment strategy.
In purchasing securities on a when-issued or forward commitment basis, the Fund
will maintain until the settlement date a segregated account consisting of cash,
cash equivalents, or high-quality liquid securities in an amount sufficient to
meet the purchase price. When the time comes to pay for when-issued securities,
the Fund will meet its obligations with available cash, through the sale of
securities, or, although it would not normally expect to do so, by selling the
when-issued securities themselves (which may have a market value greater or less
than the Fund's payment obligation). Selling securities to meet when-issued or
forward commitment obligations may generate capital gains or losses.
The Funds may sell a security and at the same time make a commitment to purchase
the same security at a future date and specified price. Conversely, the Funds
may purchase a security and at the same time make a commitment to sell the same
security at a future date and specified price. These types of transactions are
executed simultaneously in what are known as "dollar-roll" or "cash-and-carry"
transactions. For example, a broker-dealer may seek to purchase a particular
security that the Funds own. The Funds will sell that security to the
broker-dealer and simultaneously enter into a forward commitment agreement to
buy it back at a future date. This type of transaction generates income for the
Funds if the dealer is willing to execute the transaction at a favorable price
in order to acquire a specific security. In purchasing "dollar-rolls" or
"cash-and-carry" transactions, the Fund will maintain until the settlement date
a segregated account consisting of cash, cash equivalents, or high-quality
liquid securities in an amount sufficient to meet the purchase price.
As an operating policy, each Fund will not commit more than 50% of its total
assets to when-issued or forward commitment agreements. If fluctuations in the
value of securities held cause more than 50% of a Fund's total assets to be
committed under when-issued or forward commitment agreements, the Manager need
not sell such agreements, but it will be restricted from entering into further
agreements on behalf of the Fund until the percentage of assets committed to
such agreements is below 50% of total assets.
MUNICIPAL LEASE OBLIGATIONS
Each Fund may invest in municipal lease obligations. These obligations, which
may take the form of a lease, an installment purchase, or a conditional sale
contract, are issued by state and local governments and authorities to acquire
land and a wide variety of equipment and facilities. Generally, the Funds will
not hold such obligations directly as a lessor of the property but will purchase
a participation interest in a municipal lease obligation from a bank or other
third party.
Municipal leases frequently carry risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set forth
requirements that states and municipalities must meet to incur debt. These may
include voter referenda, interest rate limits, or public sale requirements.
Leases, installment purchases, or conditional sale contracts (which normally
provide for title to the leased asset to pass to the government issuer) have
evolved as a way for government issuers to acquire property and equipment
without meeting constitutional and statutory requirements for the issuance of
debt.
Many leases and contracts include nonappropriation clauses, which provide that
the governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purposes by the
appropriate legislative body on a yearly or other periodic basis. Municipal
lease obligations also may be subject to abatement risk. For example,
construction delays or destruction of a facility as a result of an uninsurable
disaster that prevents occupancy could result in all or a portion of a lease
payment not being made.
California and its municipalities are the largest issuers of municipal lease
obligations in the United States.
INVERSE FLOATERS (VARIABLE-PRICE FUNDS)
The Variable-Price Funds may hold inverse floaters. An inverse floater is a type
of derivative that bears an interest rate that moves inversely to market
interest rates. As market interest rates rise, the interest rate on
4 American Century Investments
inverse floaters goes down, and vice versa. Generally, this is accomplished by
expressing the interest rate on the inverse floater as an above-market fixed
rate of interest, reduced by an amount determined by reference to a market-based
or bond-specific floating interest rate (as well as by any fees associated with
administering the inverse floater program).
Inverse floaters may be issued in conjunction with an equal amount of Dutch
Auction floating-rate bonds (floaters), or a market-based index may be used to
set the interest rate on these securities. Floaters and inverse floaters may be
brought to market by a broker-dealer who purchases fixed-rate bonds and places
them in a trust or by an issuer seeking to reduce interest expenses by using a
floater/inverse floater structure in lieu of fixed-rate bonds.
In the case of a broker-dealer structured offering (where underlying fixed-rate
bonds have been placed in a trust), distributions from the underlying bonds are
allocated to floater and inverse floater holders in the following manner:
(i) Floater holders receive interest based on rates set at a Dutch Auction,
which is typically held every 28 to 35 days. Current and prospective
floater holders bid the minimum interest rate that they are willing to
accept on the floaters, and the interest rate is set just high enough to
ensure that all of the floaters are sold.
(ii) Inverse floater holders receive all of the interest that remains on the
underlying bonds after floater interest and auction fees are paid.
Procedures for determining the interest payment on floaters and inverse floaters
brought to market directly by the issuer are comparable, although the interest
paid on the inverse floaters is based on a presumed coupon rate that would have
been required to bring fixed-rate bonds to market at the time the floaters and
inverse floaters were issued.
Where inverse floaters are issued in conjunction with floaters, inverse floater
holders may be given the right to acquire the underlying security (or to create
a fixed-rate bond) by calling an equal amount of corresponding floaters. The
underlying security may then be held or sold. However, typically, there are time
constraints and other limitations associated with any right to combine interests
and claim the underlying security.
Floater holders subject to a Dutch Auction procedure generally do not have the
right to "put back" their interests to the issuer or to a third party. If a
Dutch Auction fails, the floater holder may be required to hold its position
until the underlying bond matures, during which time interest on the floater is
capped at a predetermined rate.
The secondary market for floaters and inverse floaters may be limited. The
market value of inverse floaters tends to be significantly more volatile than
fixed-rate bonds. The interest rates on inverse floaters may be significantly
reduced, even to zero, if interest rates rise.
LOWER-QUALITY BONDS
(CALIFORNIA HIGH-YIELD MUNICIPAL)
As indicated in the Prospectus, an investment in California High-Yield Municipal
carries greater risk than an investment in the other Funds because the Fund may
invest without limitation in lower-rated bonds and unrated bonds judged by the
Manager to be of comparable quality (collectively, "lower-quality bonds").
While the market values of higher-quality bonds tend to correspond to market
interest rate changes, the market values of lower-quality bonds tend to reflect
the financial condition of their issuers.
Projects financed through the issuance of lower-quality bonds are often highly
leveraged. The issuer's ability to service its debt obligations may be adversely
affected by an economic downturn, a period of rising interest rates, the
issuer's inability to meet projected revenue forecasts, or a lack of needed
additional financing.
Lower-quality bonds generally are unsecured and often are subordinated to other
obligations of the issuer. These bonds frequently have call or buy-back features
that permit the issuer to call or repurchase the bond from the holder. Premature
disposition of a lower-quality bond due to a call or buy-back feature,
deterioration of the issuer's creditworthiness, or a default may make it
difficult for the Manager to manage the flow of income to the Fund, which may
have negative tax implications for shareholders.
The market for lower-quality bonds tends to be concentrated among a smaller
number of dealers than the market for higher-quality bonds. This market is domi-
Statement of Additional Information 5
nated by dealers and institutions (including mutual funds), rather than by
individuals. To the extent that a secondary trading market for lower-quality
bonds exists, it may not be as liquid as the secondary market for higher-quality
bonds. Limited liquidity in the secondary market may adversely affect market
prices and hinder the Manager's ability to dispose of particular bonds when it
determines that it is in the best interest of the Fund to do so. Reduced
liquidity may also hinder the Manager's ability to obtain market quotations for
purposes of valuing the Fund's portfolio and determining its net asset value.
The Manager continually monitors securities to determine their relative
liquidity.
The Fund may incur expenses in excess of its ordinary operating expenses if it
becomes necessary to seek recovery on a defaulted lower-quality bond.
LIMITED-TERM SECURITIES (VARIABLE-PRICE FUNDS)
Under certain circumstances, California Long-Term Tax-Free, California
High-Yield Municipal, and California Insured Tax-Free may invest in short-term
municipal or U.S. government securities, including money market instruments
(short-term securities). Except as otherwise required for temporary defensive
purposes, the Manager does not expect these Funds' investments in short-term
securities to exceed 35% of total assets. If a Fund invests in U.S. government
securities, a portion of dividends paid to shareholders will be taxable at the
federal level, and may be taxable at the state level, as ordinary income.
However, the Manager intends to minimize such investments and, when suitable
short-term municipal securities are unavailable, may allow the Funds to hold
cash to avoid generating taxable dividends.
Pursuant to an exemptive order from the Securities and Exchange Commission, each
Variable-Price Fund may invest up to 5% of its total assets in shares of the
Money Market Funds to facilitate cash management provided that the investment is
consistent with the Funds' investment policies and restrictions. To avoid
generating dividend income subject to the federal alternative minimum tax (AMT),
the Variable-Price Funds (excluding California High-Yield Municipal) will limit
their Money Market Fund investments to California Tax-Free Money Market.
California High-Yield Municipal, which ordinarily invests in AMT securities, may
invest up to 5% of its total assets in shares of either of the Money Market
Funds.
CONCENTRATION OF ASSETS IN OBLIGATIONS ISSUED TO FINANCE SIMILAR PROJECTS OR
FACILITIES
From time to time, a significant portion of a Fund's assets may be invested in
municipal obligations related to the extent that economic, business, or
political developments affecting one of these obligations could affect the other
obligations in a similar manner. For example, if a Fund invested a significant
portion of its assets in utility bonds and a state or federal government agency
or legislative body promulgated or enacted new environmental protection
requirements for utility providers, projects financed by utility bonds could
suffer as a class. Additional financing might be required to comply with the new
environmental requirements, and outstanding debt might be downgraded in the
interim. Among other factors that could negatively affect bonds issued to
finance similar types of projects are state and federal legislation regarding
financing for municipal projects, pending court decisions relating to the
validity or means of financing municipal projects, material or manpower
shortages, and declining demand for projects or facilities financed by the
municipal bonds.
FUTURES AND OPTIONS (VARIABLE-PRICE FUNDS)
Each Variable-Price Fund may enter into futures contracts, options, or options
on futures contracts. Some futures and options strategies, such as selling
futures, buying puts, and writing calls, hedge a Fund's investments against
price fluctuations. Other strategies, such as buying futures, writing puts, and
buying calls, tend to increase market exposure. The Funds do not use futures and
options transactions for speculative purposes.
Although other techniques may be used to control a Fund's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While a Fund pays brokerage commissions in connection
with opening and closing out futures positions, these costs are lower than the
transaction costs incurred in the purchase and sale of the underlying
securities.
FUTURES CONTRACTS provide for the sale by one party and purchase by another
party of a specific security at a specified future time and price. Futures
contracts are
6 American Century Investments
traded on national futures exchanges. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission (CFTC), a U.S. government agency. The Funds may engage in futures and
options transactions based on securities indexes such as the Bond Buyer Index of
Municipal Bonds that are consistent with the Fund's investment objectives. The
Fund may also engage in futures and options transactions based on specific
securities such as U.S. Treasury bonds or notes.
Bond Buyer Municipal Bond Index futures contracts differ from traditional
futures contracts in that when delivery takes place, no bonds change hands.
Instead, these contracts settle in cash at the spot market value of the Bond
Buyer Municipal Bond Index. Although other types of futures contracts by their
terms call for actual delivery or acceptance of the underlying securities, in
most cases the contracts are closed out before the settlement date. A futures
position may be closed by taking an opposite position in an identical contract
(i.e., buying a contract that has previously been sold or selling a contract
that has previously been bought).
To initiate and maintain open positions in a futures contract, a Fund would be
required to make a good faith margin deposit in cash or government securities
with a futures broker or custodian. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimum initial
margin requirements are established by the futures exchanges and may be revised.
In addition, brokers may establish margin deposit requirements that are higher
than the exchange minimums.
Once a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the
margin on deposit does not satisfy margin requirements, the contract holder is
required to pay additional "variation" margin. Conversely, changes in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to or
from the futures broker for as long as the contract remains open and do not
constitute margin transactions for purposes of the Funds' investment
restrictions.
RISKS RELATED TO FUTURES AND OPTIONS TRANSACTIONS. Futures and options prices
can be volatile, and trading in these markets involves certain risks. If the
Manager applies a hedge at an inappropriate time or judges interest rate trends
incorrectly, futures and options strategies may lower a Fund's return.
A Fund could suffer losses if it were unable to close out its position because
of an illiquid secondary market. Futures contracts may be closed out only on an
exchange that provides a secondary market for these contracts, and there is no
assurance that a liquid secondary market will exist for any particular futures
contract at any particular time. Consequently, it may not be possible to close a
futures position when the Manager considers it appropriate or desirable to do
so. In the event of adverse price movements, a Fund would be required to
continue making daily cash payments to maintain its required margin. If the Fund
had insufficient cash, it might have to sell portfolio securities to meet daily
margin requirements at a time when the Manager would not otherwise elect to do
so. In addition, a Fund may be required to deliver or take delivery of
instruments underlying futures contracts it holds. The Manager will seek to
minimize these risks by limiting the contracts entered into on behalf of the
Funds to those traded on national futures exchanges and for which there appears
to be a liquid secondary market.
A Fund could suffer losses if the prices of its futures and options positions
were poorly correlated with its other investments, or if securities underlying
futures contracts purchased by a Fund had different maturities than those of the
portfolio securities being hedged. Such imperfect correlation may give rise to
circumstances in which a Fund loses money on a futures contract at the same time
that it experiences a decline in the value of its "hedged" portfolio securities.
A Fund could also lose margin payments it has deposited with a margin broker,
if, for example, the broker became bankrupt.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of the trading session.
Statement of Additional Information 7
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond the limit. However, the daily
limit governs only price movement during a particular trading day and,
therefore, does not limit potential losses. In addition, the daily limit may
prevent liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
OPTIONS ON FUTURES. By purchasing an option on a futures contract, a Fund
obtains the right, but not the obligation, to sell the futures contract (a put
option) or to buy the contract (a call option) at a fixed strike price. A Fund
can terminate its position in a put option by allowing it to expire or by
exercising the option. If the option is exercised, the Fund completes the sale
of the underlying security at the strike price. Purchasing an option on a
futures contract does not require a Fund to make margin payments unless the
option is exercised.
Although they do not currently intend to do so, the Funds may write (or sell)
call options that obligate it to sell (or deliver) the option's underlying
instrument upon exercise of the option. While the receipt of option premiums
would mitigate the effects of price declines, the Funds would give up some
ability to participate in a price increase on the underlying security. If a Fund
were to engage in options transactions, it would own the futures contract at the
time a call were written and would keep the contract open until the obligation
to deliver it pursuant to the call expired.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS. Each Variable-Price
Fund may enter into futures contracts, options, or options on futures contracts,
provided that such obligations represent no more than 20% of the Fund's net
assets. Under the Commodity Exchange Act, a Fund may enter into futures and
options transactions (a) for hedging purposes without regard to the percentage
of assets committed to initial margin and option premiums, or (b) for other than
hedging purposes, provided that assets committed to initial margin and option
premiums do not exceed 5% of the Fund's net assets. To the extent required by
law, each Fund will set aside cash and appropriate liquid assets in a segregated
account to cover its obligations related to futures contracts and options.
The Funds intend to comply with tax rules applicable to regulated investment
companies, including a requirement that capital gains from the sale of
securities held less than three months constitute less than 30% of a Fund's
gross income for each fiscal year. Gains on some futures contracts and options
are included in this 30% calculation, which may limit the Funds' investments in
such instruments.
MUNICIPAL BOND INSURERS
(CALIFORNIA INSURED TAX-FREE)
Securities held by California Insured Tax-Free may be (a) insured under a
new-issue insurance policy obtained by the issuer of the security, (b) insured
under a secondary market insurance policy purchased by the Fund or a previous
bond holder, or (c) insured under a "when-in-portfolio" policy held by the Fund.
The following paragraphs provide some background on the bond insurance
organizations most frequently relied upon for municipal bond insurance in the
United States.
AMBAC Indemnity Corporation (AMBAC Indemnity) is a Wisconsin-domiciled stock
insurance corporation with admitted assets of approximately $2.1 billion
(unaudited) and statutory capital of approximately $1.2 billion (unaudited) as
of December 31, 1994. Statutory capital consists of AMBAC Indemnity's
policyholders' surplus and statutory contingency reserve. AMBAC Indemnity is a
wholly owned subsidiary of AMBAC Inc., a publicly-held company. Moody's
Investors Service, Inc. (Moody's) and Standard & Poor's Corporation (S&P) have
rated AMBAC Indemnity's claims-paying ability Aaa and AAA, respectively.
Financial Guaranty Insurance Company (FGIC) is a wholly owned subsidiary of FGIC
Corporation, a Delaware corporation with admitted assets of $2.1 billion and a
statutory capital base of $1.1 billion as of December 31, 1994. Statutory
capital consists of total capital and surplus as well as contingency reserve.
FGIC's claims-paying ability was rated Aaa/AAA/AAA by Moody's, S&P, and Fitch,
respectively.
Municipal Bond Investors Assurance Corporation (MBIA) is a monoline insurance
company organized as a New York corporation. As of December 31, 1994,
8 American Century Investments
MBIA (consolidated) had admitted assets of $3.4 billion (unaudited), total
liabilities of $1.6 billion (unaudited), and total capital and surplus of $1.7
billion (unaudited). All bond issues insured by MBIA are rated "Aaa" by Moody's
and all short-term loans insured by MBIA "MIG-1." All bond issues insured by
MBIA are rated "AAA" by S&P.
SPECIAL CONSIDERATIONS REGARDING CALIFORNIA
MUNICIPAL SECURITIES
As briefly discussed in the Prospectus, the Funds are susceptible to political,
economic, and regulatory events that affect issuers of California municipal
obligations. These include possible adverse affects of California constitutional
amendments, legislative measures, voter initiatives, and other matters described
below.
The following information about risk factors is provided in view of the Funds'
policies of concentrating their assets in California municipal securities. This
information is based on recent official statements relating to securities
offerings of California issuers, although it does not constitute a complete
description of the risk associated with investing in securities of these
issuers. While the Manager has not independently verified the information
contained in the official statements, it has no reason to believe the
information is inaccurate.
ECONOMIC OVERVIEW
California's economy is the largest among the 50 states and one of the largest
in the world. The State's population of over 30 million as of 1990, representing
approximately 12% of the U.S. population, grew by 27% in the 1980s. Total
personal income, an estimated $703 billion in 1994, accounted for approximately
12% of personal income nationwide. In 1994, total employment increased 260,000
from 1993 levels of 13.8 million. Jobs are concentrated in the service, trade,
and manufacturing sectors.
From mid-1990 to late 1993, the State's economy suffered its worst recession
since the 1930s, with recovery starting later than for the nation as a whole.
The State has experienced the worst job losses of any post-war recession.
Prerecession job levels may not be realized until near the end of the decade.
The largest job losses have been in Southern California, led by declines in the
aerospace and construction industries. Weakness statewide occurred in
manufacturing, construction, services, and trade. Additional military base
closures will have further adverse effects on the State's economy later in the
decade.
Since the start of 1994, the California economy has shown signs of steady
recovery and growth. The State Department of Finance reports net job growth,
particularly in construction and related manufacturing, wholesale and retail
trade, transportation, recreation, and services. This growth has offset the
continuing but slowing job losses in the aerospace industry and restructuring of
the finance and utility sectors. Unemployment in the State was down
substantially in 1994 from its 10% peak in January, 1994, but still remains
higher than the national average rate. Retail sales were up strongly in 1994
from year-earlier figures. Delay or slowdown in recovery will adversely affect
State revenues.
CONSTITUTIONAL LIMITATIONS ON TAXES
Many California issuers rely on ad valorem property taxes as a source of
revenue. The taxing powers of California local governments and districts are
limited by Article XIIIA of the California Constitution, enacted by voters in
1978 and commonly known as "Proposition 13." Article XIIIA limits to 1% of full
cash value the rate of ad valorem taxes on real property and restricts the
reassessment of property to 2% per year, except where new construction or
changes of ownership have occurred (subject to a number of exemptions). Taxing
entities may, however, raise ad valorem taxes above the 1% limit to pay debt
service on voter-approved bonded indebtedness. The U.S. Supreme Court has upheld
Proposition 13 against claims that it has unlawfully resulted in widely varying
tax liability on similarly situated properties.
Article XIIIA also requires voters of any governmental unit to give two-thirds
approval to levy any "special tax." Subsequent court decisions, however, have
allowed non-voter approved "general taxes" so long as they are not dedicated to
a specific use. In response to these decisions, voters adopted an initiative in
1986 that imposed new limits on the ability of local government entities to
raise or levy general taxes without voter approval. Based upon a 1991
intermediate appellate court decision, it was believed that significant parts of
this initiative, known as "Proposition 62," were unconstitutional. On September
28, 1995, the
Statement of Additional Information 9
California Supreme Court rendered a decision in the case of Santa Clara County
Local Transportation Authority v. Guardino which rejected the prior decision and
upheld Proposition 62, while striking down a 1/2-cent sales tax for
transportation purposes which was approved by a majority, but less than
two-thirds, vote. Proposition 62 does not apply to charter cities, but other
local governments may be constrained in raising any taxes without voter
approval.
CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS
The State and its local governments are subject to an annual appropriations
limit imposed by Article XIIIB of the California Constitution. This article was
enacted by voters in 1979 and was significantly amended by Propositions 98 and
111 in 1988 and 1990, respectively. Article XIIIB prohibits the State and
subject local governments from spending "appropriations subject to limitation"
in excess of an appropriations limit. The appropriations limit is adjusted
annually to reflect population changes and changes in the cost of living as well
as transfers of responsibility between government units. "Appropriations subject
to limitation" are authorizations to spend "proceeds of taxes" consisting of tax
revenues and certain other charges and fees to the extent that such proceeds
exceed the cost of providing the product or service. However, proceeds of taxes
exclude most State subventions to local governments.
"Excess revenues" under Article XIIIB are measured over a two-year cycle. Local
governments must return any excess revenues to taxpayers through tax rate
reductions. The State must refund 50% of any excess and pay the other 50% to
schools and community colleges. With the application of more liberal annual
adjustment factors since 1988 and depressed revenues since 1990 due to the
recession, few governments are currently operating near their spending limits,
but this condition may change over time. Local governments may, by voter
approval, exceed their spending limits for a limited time.
Because of the complex nature of Articles XIIIA and XIIIB, the ambiguities and
possible inconsistencies in their terms, and the impossibility of predicting
future appropriations, population changes, changes in the cost of living, or the
probability of continuing legal challenges, it is difficult to measure the full
impact of these Articles on the California municipal market or on the ability of
California issuers to pay debt service on their obligations.
OBLIGATIONS OF THE STATE OF CALIFORNIA
As of October 1, 1995, the State had approximately $18.4 billion of general
obligation bonds outstanding, and approximately $3.3 billion remained authorized
but unissued. Of the State's outstanding general obligation debt, 22% is
presently self-liquidating (i.e., program revenues are expected to be sufficient
to reimburse the General Fund for debt service payments). In fiscal 1994-95,
debt service on general obligation bonds and lease-purchase debt was
approximately 5.25% of General Fund revenues.
The State's principal sources of General Fund revenues for fiscal 1993-94 were
the California personal income tax (44% of total revenues), the sales tax (35%),
bank and corporation taxes (12%), and the gross premium tax on insurance (3%).
Historically, the State has paid the principal of and interest on its general
obligation bonds, lease-purchase debt, and short-term obligations when due.
GENERAL. Throughout the 1980s, State spending increased rapidly as the State
population and economy also grew rapidly, including increased spending for many
assistance programs to local governments, which were constrained by Proposition
13 and other laws. The largest State program is assistance to local public
school districts. In 1988, an initiative (Proposition 98) was enacted which
(subject to suspension by a two-thirds vote of the Legislature and the Governor)
guarantees local school districts and community college districts a minimum
share of State General Fund revenues (currently about 33%).
Since the start of 1990-91 Fiscal Year, the State has faced adverse economic,
fiscal, and budget conditions. The economic recession seriously affected State
tax revenues. It also caused increased expenditures for health and welfare
programs. The State is also facing a structural imbalance in its budget with the
largest programs supported by the General Fund (education, health, welfare and
corrections) growing at rates higher than the growth rates for the principal
revenue sources of the General Fund. These structural concerns will be
exacerbated in coming years by the expected need to substantially increase
capital and operating funds for corrections as a result of a "Three Strikes" law
enacted in 1994.
10 American Century Investments
RECENT BUDGETS. As a result of these factors, among others, from the late 1980s
until 1992-93, the State had a period of nearly chronic budget imbalance, with
expenditures exceeding revenues in four out of six years, and the State
accumulated and sustained a budget deficit in the budget reserve, the Special
Fund for Economic Uncertainties ("SFEU") approaching $2.8 billion at its peak at
June 30, 1993. Starting in the 1990-91 Fiscal Year and for each year thereafter,
each budget required multibillion dollar actions to bring projected revenues and
expenditures into balance and to close large "budget gaps" which were
identified. The Legislature and Governor eventually agreed on a number of
different steps to produce Budget Acts in the years 1991-92 to 1994-95,
including:
* significant cuts in health and welfare program expenditures;
* transfers of program responsibilities and funding from the State to local
governments, coupled with some reduction in mandates on local government;
* transfer of about $3.6 billion in annual local property tax revenues from
cities, counties, redevelopment agencies and some other districts to local
school districts, thereby reducing State funding for schools;
* reduction in growth of support for higher education programs, coupled with
increases in student fees;
* revenue increases (particularly in the 1991-92 Fiscal Year budget), most of
which were for a short duration;
* increased reliance on aid from the federal government to offset the costs
of incarcerating, educating and providing health and welfare services to
undocumented aliens (although these efforts have produced much less federal
aid than the State Administration has requested); and
* various one-time adjustments and accounting changes.
Despite these budget actions, the effects of the recession led to large,
unanticipated deficits in the SFEU, as compared to projected positive balances.
By the start of the 1993-94 Fiscal Year, the accumulated deficit was so large
(almost $2.8 billion) that it was impractical to budget to retire it in one
year, so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the end of the
fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95, to carry the final retirement
of the deficit into 1995-96.
The combination of stringent budget actions cutting State expenditures, and the
turnaround of the economy by late 1993, finally led to the restoration of
positive financial results. While General Fund revenues and expenditures were
essentially equal in FY 1992-93 (following two years of excess expenditures over
revenues), the General Fund had positive operating results in FY 1993-94 and
1994-95, which have reduced the accumulated budget deficit to around $600
million as of June 30, 1995.
A consequence of the accumulated budget deficits in the early 1990s, together
with other factors such as disbursement of funds to local school districts
"borrowed" from future fiscal years and hence not shown in the annual budget,
was to significantly reduce the State's cash resources available to pay its
ongoing obligations. When the Legislature and the Governor failed to adopt a
budget for the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the
State to carry out its normal annual cash flow borrowing to replenish its cash
reserves, the State Controller was forced to issue registered warrants ("IOUs")
to pay a variety of obligations representing prior years' or continuing
appropriations, and mandates from court orders. Available funds were used to
make constitutionally-mandated payments, such as debt service on bonds and
warrants. Between July 1, and September 4, 1992, the State Controller issued a
total of approximately $3.8 billion of registered warrants. After that date, all
remaining outstanding registered warrants (about $2.9 billion) were called for
redemption from proceeds of the issuance of 1992 Interim Notes after the budget
was adopted.
The State's cash condition became so serious in late spring of 1992 that the
State Controller was required to issue revenue anticipation warrants maturing in
the following fiscal year in order to pay the State's continuing obligations.
The State was forced to rely increasingly on external debt markets to meet its
cash needs, as a succession of notes and warrants (both forms of short-term cash
flow financing) were issued in the
Statement of Additional Information 11
period from June 1992 to July 1994, often needed to pay previously maturing
notes or warrants. These borrowings were used also in part to spread out the
repayment of the accumulated budget deficit over the end of a fiscal year.
The State issued $7.0 billion of short-term debt in July 1994 to meet its cash
flow needs and to finance the deferral of part of the accumulated budget deficit
to the 1995-96 fiscal year. In order to assure repayment of $4 billion of this
borrowing which matures on April 25, 1996, the State enacted legislation (the
"Trigger Law") which can lead to automatic, across-the-board cuts in General
Fund expenditures in either the 1994-95 or 1995-96 fiscal years if cash flow
projections made at certain times during those years show deterioration from the
projections made in July 1994 when the borrowings were made. On November 15,
1994, the State Controller as part of the Trigger Law reported that the cash
position of the General Fund on June 30, 1995, would be about $580 million
better than earlier projected, so no automatic budget adjustments were required
in 1994-95. The Controller's report showed that loss of federal funds was offset
by higher revenues, lower expenditures, and certain other increases in cash
resources.
CURRENT BUDGET. For the first time in four years, the State entered the 1995-96
fiscal year with strengthening revenues based on an improving economy. The major
feature of the Governor's proposed Budget, a 15% phased tax cut, was rejected by
the Legislature.
The 1995-96 Budget Act was signed by the Governor on August 3, 1995, 34 days
after the start of the fiscal year. The Budget Act projects General Fund
revenues and transfers of $44.1 billion, a 3.5 percent increase from the prior
year. Expenditures are budgeted at $43.4 billion, a 4 percent increase. The
Department of Finance projects that, after repaying the last of the carryover
budget deficit, there will be a positive balance of less than $30 million in the
budget reserve, the Special Fund for Economic Uncertainties, at June 30, 1996,
providing no margin for adverse results during the year.
The Department of Finance projects cash flow borrowings in the 1995-96 Fiscal
Year will be the smallest in many years, comprising about $2 billion of notes to
be issued in April, 1996, and maturing by June 30, 1996. With full payment of $4
billion of revenue anticipation warrants on April 25, 1996, the Department sees
no further need for borrowing over the end of the fiscal year. The Department
projects that available internal cash resources to pay State obligations will be
almost $2 billion at June 30, 1996. This "cushion" will be re-examined by the
State Controller on October 15, 1995, in the last step under the "Trigger Law"
process. If the Controller believes the available internal cash resources on
June 30, 1996, will, in fact, be zero or less, her report would start a process
which could lead to automatic budget cuts starting in December 1995.
The principal features of the 1995-96 Budget Act, in addition to those noted
above, are additional cuts in health and welfare expenditures (some of which are
subject to approvals or waivers by the federal government); assumed receipt of
an additional $473 million of federal aid for illegal immigrant costs; and an
increase in per-pupil funding for public schools and community colleges, the
first such significant increase in four years.
In July 1994, all three of the rating agencies that rate the State's long-term
debt lowered their ratings of the State's general obligation bonds. Moody's
Investors Service, Inc. lowered its rating from "Aa" to "A1," Standard & Poor's
Ratings Group lowered its rating from "A+" to "A" and termed the bond outlook as
"stable," and Fitch Investors Service, Inc. lowered its rating from "AA" to "A."
The credit quality of obligations issued by local California issuers is not
directly related to the quality of obligations issued by the State, and the
State has no obligation to make payments on local debt obligations in the event
of default. As described below, the State's fiscal problems have placed
considerable pressure on local governments.
Finally, the State is involved in certain legal proceedings that, if decided
against the State, may require the State to make significant future expenditures
or substantially impair revenues.
OBLIGATIONS OF OTHER ISSUERS
Property tax revenues received by local governments declined more than 50%
following passage of Proposition 13 in 1978. Subsequently, the California
legislature enacted measures to provide for the redistribution of the State's
General Fund surplus to local agencies, the reallocation of certain State
revenues to local agencies, and the assumption of certain government functions
by the State to assist the State's munici-
12 American Century Investments
palities. However, in response to the fiscal crisis at the State level, the
Legislature in 1992-93 and 1993-94 effectively reversed the post-Proposition 13
"bailout" aid and directed over $3 billion of city, county, and special district
property taxes to school districts, which enabled the State to reduce its aid to
schools by the same amount. Part of this shortfall is to be covered by a 0.5%
sales tax allocated to local government public safety purposes. The 0.5% sales
tax increase was imposed by Proposition 172, which was approved by a majority of
voters at the statewide election on November 2, 1993.
Even with these cuts and property tax shifts, over 70% of the State General Fund
expenditures are for local government assistance. To the extent that the State
is constrained by its Article XIIIB appropriations limit, its obligation to
conform to Proposition 98, or other fiscal considerations, the absolute level or
rate of growth of State assistance to local governments may be reduced. Any such
reductions in State aid could compound the serious fiscal constraints already
experienced by many local governments, particularly counties.
ORANGE COUNTY BANKRUPTCY
On December 6, 1994, Orange County, California (the "County") together with the
pooled investment funds (the "Pools") filed for protection under Chapter 9 of
the federal Bankruptcy Code, after reports that the Pools had suffered
significant market losses in its investments caused a liquidity crisis for the
Pools and the County. More than 180 other public entities, most but not all
located in the County, were also depositors in the Pools. The County estimated
the Pools' loss at about $1.69 billion, or 23% of its initial deposits of around
$7.5 billion. Many of the entities which kept moneys in the Pools, including the
County, faced cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. Moody's and Standard and Poor's
have suspended, reduced to below investment grade levels, or placed on "Credit
Watch" various securities of the County and the entities participating in the
Pools.
On May 2, 1995, the Bankruptcy Court approved a settlement agreement covering
claims of the other participating entities against the County and the Pools.
Most participants have received in cash 80% (90% for school districts) of their
Pools' investment; the balance is to be paid in the future. The County succeeded
in deferring, by consent, until June 30, 1996, the repayment of $800 million of
short-term obligations due in July and August, 1995; these notes are, however,
considered to be in default by Moody's and S&P. On June 27, 1995, County voters
turned down a proposal for temporary 0.5% increase in local sales tax, making
the County's fiscal recovery much harder.
A new financial plan has been implemented based largely on transfer of moneys to
the County from other local government entities, and further expenditure cuts.
The State of California has no obligation with respect to any obligations or
securities of the County or any of the other participating entities.
CALIFORNIA ASSESSMENT AND SPECIAL TAX BONDS may be adversely affected by a
general decline in real estate values or a further slowdown in real estate sales
activity. In many cases, such bonds are secured by land that is undeveloped at
the time of issuance but is expected to be developed within a few years. In the
event of continued reductions or slowdowns, development may not occur or may be
delayed, thereby increasing the risk of default on the bonds. Because the
special assessments or taxes securing these bonds are not the personal liability
of the owners of the property assessed, the lien on the property is the only
security for the bonds. Moreover, in most cases, the issuer of these bonds is
not required to make payments on the bonds in the event of delinquency in the
payment of assessments or taxes, except from amounts, if any, in a reserve fund
established for the bonds.
Certain CALIFORNIA LONG-TERM LEASE OBLIGATIONS, though typically payable from a
municipality's general fund, are subject to "abatement" in the event the
facility being leased is unavailable for beneficial use and occupancy by the
municipality during the term of the lease. Abatement is not a default, and there
may be no remedies available to the holders of the certificates in the event
abatement occurs and available reserves and insurance are inadequate. For
example, several years ago the Richmond Unified School District entered into a
lease transaction in which certain existing properties of the District were sold
and leased back in order to obtain funds to cover operating deficits. Following
a fiscal crisis in which the District's finances were taken over by a State
receiver, the
Statement of Additional Information 13
District failed to make rental payments on this lease, resulting in a lawsuit by
the trustee for the certificate of participation holders in which the State was
named a defendant (on the grounds that it controlled the District's finances).
One of the defenses raised in answer to this lawsuit was the invalidity of the
original lease transaction. The trial court ruled in favor of the trustee.
Although a settlement of this case is now expected, any ultimate judgment
against the trustee may have adverse implications for lease transactions of a
similar nature issued by other California municipalities.
The repayment of industrial development bonds secured by real property may be
affected by California laws limiting foreclosure rights of creditors. Securities
backed by health care and hospital revenues may be affected by changes in State
regulations governing cost reimbursements to health care providers under
Medi-Cal (the State's Medicaid program), including the policy of awarding
exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project area decline (e.g., because of a natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB and have only resumed such ratings on a selective
basis.
In addition, Proposition 87, approved by California voters in 1988, requires
that any increase in project area property tax revenues produced by an increase
in the property tax rate go directly to the taxing entity on whose behalf the
taxes are levied to repay that entity's general obligation indebtedness. As a
result, although redevelopment agencies (typical issuers of tax allocation
bonds) continue to receive additional taxes collected on increases in the
assessed value of the taxable property in the project area, they no longer
receive that portion of any increase attributable to an increase in the property
tax rate.
The effect of these various constitutional and statutory changes upon the
ability of California municipal issuers to pay interest and principal on their
obligations remains unclear. Other measures affecting the taxing or spending
authority of California or its political subdivisions may be approved or enacted
in the future. Legislation may be introduced that would modify existing taxes or
other revenue-generating measures, or that would further limit or,
alternatively, increase the ability of state and local governments to impose new
taxes or increase existing taxes. It is not possible to determine the effect of
such legislation on the ability of state or local government entities to pay the
interest on, or repay the principal of, California municipal obligations.
Most of California is within an active geologic region subject to major seismic
activity. California municipal obligations held by the Funds could be affected
by interruptions of revenues due to damaged facilities, income tax deductions
for casualty losses, or property tax assessment reductions. Compensatory
financial assistance could be constrained by the inability of (i) an issuer to
have obtained earthquake insurance coverage at reasonable rates, (ii) an insurer
to perform on its contracts of insurance in the event of widespread losses, or
(iii) the federal or state governments to appropriate sufficient funds within
their respective budget limitations.
INVESTMENT RESTRICTIONS
The Funds' investment restrictions set forth below. Except for those designated
as operating policies, the restrictions are fundamental and may not be changed
without approval of "a majority of the outstanding votes of shareholders" of the
Fund, as determined in accordance with the Investment Company Act of 1940.
EACH MONEY MARKET FUND MAY NOT:
(1) Borrow money in excess of 33-1/3% of the market value of its total assets,
and then only from a bank and as a temporary measure to satisfy redemption
requests for extraordinary or emergency purposes, and provided that
immediately after any such borrowing there is an asset coverage of at least
300 per centum for all such borrowings. To secure any such borrowing, each
Money Market Fund may not mortgage, pledge, or hypothecate in excess of
33-1/3% of the value of its total assets. Each Money Market Fund will
14 American Century Investments
not purchase any security while borrowings representing more than 5% of its
total assets are outstanding.
(2) Act as an underwriter of securities issued by others, except to the extent
that the purchase of municipal securities or other permitted investments
directly from the issuer thereof or from an underwriter for an issuer, and
the later disposition of such securities in accordance with the Fund's
investment policies and techniques, may be deemed to be an underwriting.
(3) Purchase, sell, or invest in real estate, commodities, commodity contracts,
foreign exchange, or interests in oil, gas, or other mineral exploration or
development programs, provided that this limitation will not prohibit the
purchase of municipal securities and other debt securities secured by real
estate or interests therein.
(4) Engage in any short-selling operations.
(5) Make loans to others, except in accordance with the Fund's investment
objective and policies.
(6) Purchase any equity securities in any companies, including warrants or
bonds with warrants attached, or any preferred stocks, convertible bonds,
or convertible debentures.
(7) Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads, except that it may purchase and hold securities with
rights to put securities to the seller (standby commitments) in accordance
with its investment techniques.
(8) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
(9) Issue or sell any class of senior security as defined in the Investment
Company Act of 1940 except to the extent that notes evidencing temporary
borrowings or the purchase of securities on a when-issued or
delayed-delivery basis might be deemed such.
(10) Acquire or retain the securities of any other investment company except in
connection with a merger, consolidation, acquisition, or reorganization.
(11) Purchase or retain securities of any issuer if, to the knowledge of the
Trust's management, those officers and Trustees of the Trust and of its
investment advisor, who each own beneficially more than 0.5% of the
outstanding securities of such issuer, together own beneficially more than
5% of such securities. However, such restrictions will not apply to
holdings of issuers of industrial development bonds.
(12) Acquire securities for the purpose of exercising control over management of
the issuer.
(13) As an operating policy, purchase any security if, as a result, more than 5%
of the value of the Fund's total assets would be invested in the securities
of issuers that at the time of purchase had been in operation for less than
three years, except obligations issued or guaranteed by the U.S. government
or its agencies and municipal securities (for this purpose, the period of
operation of any issuer will include the period of operation of any
predecessor or unconditional guarantor of such issuer), provided, however,
that for the purpose of this limitation, industrial development bonds
issued by non-governmental users will not be deemed municipal securities.
(14) Purchase any security if, as a result, 25% or more of the value of the
Fund's total assets would be invested in the securities of issuers having
their principal business activities in the same industry. However, this
limitation does not apply to securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities or to municipal
securities of any type.
EACH VARIABLE-PRICE FUND MAY NOT:
(1) Borrow money in excess of 33-1/3% of the market value of its total assets,
and then only from a bank and as a temporary measure to satisfy redemption
requests for extraordinary or emergency purposes, and provided that
immediately after any such borrowing there is an asset coverage of at least
300% for all such borrowings. To secure any such borrowing, each
Variable-Price Fund may not mortgage, pledge, or hypothecate in excess of
33-1/3% of the value of its total assets. (The deposit of assets in escrow
in connection with the writing of covered put and call options and
collateral arrangements with respect to ini-
Statement of Additional Information 15
tial or variation margin deposits for futures contracts will not be deemed
to be a pledge of the Fund's assets.) Each Variable-Price Fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding.
(2) Act as an underwriter of securities issued by others, except to the extent
that the purchase of municipal securities, or other permitted investments,
directly from the issuer thereof or from an underwriter for an issuer, and
the later disposition of such securities in accordance with the Fund's
investment policies and techniques, may be deemed to be an underwriting.
(3) Purchase, sell, or invest in real estate, commodities, commodity contracts,
foreign exchange, or interests in oil, gas, or other mineral exploration or
development programs, provided that this limitation will not prohibit the
purchase of municipal securities and other debt securities secured by real
estate or interests therein and will not prohibit the Fund from purchasing,
selling, or entering into options on securities or indexes of securities,
futures contracts, options on futures contracts, or any other interest rate
hedging instrument, subject to the Fund's compliance with applicable
provisions of the federal securities or commodities laws.
(4) Engage in any short-selling operations, except that the Fund may purchase,
sell, or enter into short positions in options on securities or indexes of
securities, futures contracts, options on futures contracts, and any other
interest rate hedging instrument as may be permitted under the federal
securities or commodities laws.
(5) Make loans to others, except in accordance with the Fund's investment
objective and policies.
(6) Purchase any equity securities in any company, including warrants or bonds
with warrants attached, or any preferred stocks, convertible bonds, or
convertible debentures.
(7) Engage in margin transactions, except that it may purchase, sell, or enter
into positions in options on securities or indexes of securities, futures
contracts, options on futures contracts, and other interest rate hedging
instruments, and may make margin deposits in connection therewith, and may
purchase and hold securities with rights to put securities to the seller
(standby commitments) in accordance with its investment policies.
(8) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
(9) Issue or sell any class of senior security as defined in the Investment
Company Act of 1940 except to the extent that transactions in options,
futures, options on futures, and other interest rate hedging instruments,
notes evidencing temporary borrowings, or the purchase of securities on a
when-issued or delayed-delivery basis might be deemed such.
(10) Acquire or retain the securities of any other investment company except
that the Fund may, for temporary purposes, purchase shares of a money
market mutual fund, subject to such restrictions as may be imposed by (i)
the Investment Company Act of 1940 and rules thereunder, or (ii) any State
in which shares of the Fund are registered, and may acquire shares of any
investment company in connection with a merger, consolidation, acquisition,
or reorganization.
(11) Purchase or retain securities of any issuer if, to the knowledge of the
Trust's management, those officers and Trustees of the Trust and of its
investment advisor, who each beneficially own more than 0.5% of the
outstanding securities of such issuer, together beneficially own more than
5% of such securities. However, such restrictions will not apply to
holdings of the issuers of industrial development bonds.
(12) Acquire securities for the purpose of exercising control over management of
the issuer.
(13) As an operating policy, purchase any security if, as a result, more than 5%
of the value of the Fund's total assets would be invested in the securities
of issuers that at the time of purchase had been in operation for less than
three years, except obligations issued or guaranteed by the U.S. government
or its agencies and municipal securities (for this purpose, the period of
operation of any issuer will include the period of opera-
16 American Century Investments
tion of any predecessor or unconditional guarantor of such issuer),
provided, however, that for the purpose of this limitation, industrial
development bonds issued by non-governmental users will not be deemed
municipal securities.
(14) Purchase any security if, as a result, 25% or more of the value of the
Fund's total assets would be invested in the securities of issuers having
their principal business activities in the same industry. However, this
limitation does not apply to securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities or to municipal
securities of any type.
Unless otherwise indicated, with the exception of the percentage limitations on
borrowing, the restrictions apply at the time transactions are entered into.
Accordingly, any later increase or decrease beyond the specified limitation
resulting from a change in the Fund`s net assets will not be considered in
determining whether it has complied with its investment restrictions.
For purposes of the Funds' investment restrictions, the party identified as the
"issuer" of a municipal security depends on the form and conditions of the
security. When the assets and revenues of a political subdivision are separate
from those of the government that created the subdivision and the security is
backed only by the assets and revenues of the subdivision, the subdivision is
deemed the sole issuer. Similarly, in the case of an IDB, if the bond were
backed only by the assets and revenues of a non-governmental user, the
non-governmental user would be deemed the sole issuer. If, in either case, the
creating government or some other entity were to guarantee the security, the
guarantee would be considered a separate security and treated as an issue of the
guaranteeing entity.
PORTFOLIO TRANSACTIONS
Each Fund's assets are invested by the Manager in a manner consistent with the
Fund's investment objectives, policies and restrictions and with any
instructions the Board of Trustees may issue from time to time. Within this
framework, the Manager is responsible for making all determinations as to the
purchase and sale of portfolio securities and for taking all steps necessary to
implement securities transactions on behalf of the Funds. In placing orders for
the purchase and sale of portfolio securities, the Manager will use its best
possible price and execution and will otherwise place orders with broker-dealers
subject to and in accordance with any instructions the Board of Trustees may
issue from time to time. The Manager will select broker-dealers to execute
portfolio transactions on behalf of the Funds solely on the basis of best price
and execution.
Under normal conditions, the Variable-Price Funds' annual portfolio turnover
rates are not expected to exceed 100%. Because a higher turnover rate increases
transaction costs and may increase taxable capital gains, the Manager carefully
weighs the potential benefits of short-term investing against these
considerations.
The Variable-Price Funds' portfolio turnover rates for the fiscal years ended
August 31, 1996, and 1995 are indicated in the table below.
PORTFOLIO TURNOVER RATES
- ------------------------------------------------------------------------
Fiscal Year Fiscal Year
Fund 1996 1995
- ------------------------------------------------------------------------
California Limited-Term Tax-Free 43.70% 49.75%
California Intermediate-Term Tax-Free 35.66% 25.44%
California Long-Term Tax-Free 41.66% 59.92%
California High-Yield Municipal 35.98% 40.00%
California Insured Tax-Free 42.71% 40.45%
- ------------------------------------------------------------------------
Investment decisions are made for each Fund independently from those made for
other funds advised by the Manager. From time to time, however, two or more
funds advised by the Manager may hold the same security. When two or more funds
are simultaneously engaged in purchasing or selling a security, the prices and
amounts are allocated in a manner believed by the Manager to be equitable to
each of the funds involved. In some instances, simultaneous transactions could
have a detrimental effect on the price or value of a security as far as the
participating funds are concerned. In other instances, however, the ability to
participate in volume transactions will produce better prices and executions for
the funds.
Statement of Additional Information 17
VALUATION OF PORTFOLIO SECURITIES
Each Fund's net asset value per share ("NAV") is calculated as of the close of
business of the New York Stock Exchange (the "Exchange") each day the Exchange
is open for business, usually at 3:00 p.m. Central time. The Exchange has
designated the following holiday closings for 1997: New Year's Day (observed),
Presidents` Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day (observed). Although the Funds expect the
same holiday schedule to be observed in the future, the Exchange may modify its
holiday schedule at any time.
The Manager typically completes its trading on behalf of each Fund in various
markets before the Exchange closes for the day. Each Fund's share price is
calculated by adding the value of all portfolio securities and other assets,
deducting liabilities, and dividing the result by the number of shares
outstanding. Expenses and interest earned on portfolio securities are accrued
daily.
MONEY MARKET FUNDS. Securities held by the Money Market Funds are valued at
amortized cost. This method involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium paid at the time of purchase. Although this method provides certainty in
valuation, it generally disregards the effect of fluctuating interest rates on
an instrument's market value. Consequently, the instrument's amortized cost
value may be higher or lower than its market value, and this discrepancy may be
reflected in the Funds' yields. During periods of declining interest rates, for
example, the daily yield on Fund shares computed as described above may be
higher than that of a fund with identical investments priced at market value.
The converse would apply in a period of rising interest rates.
The amortized cost valuation method is permitted in accordance with Rule 2a-7
under the Investment Company Act of 1940. Under the Rule, a fund holding itself
out as a money market fund must adhere to certain quality and maturity criteria.
In particular, such a fund must limit is investments to U.S. dollar-denominated
instruments determined by its directors or trustees to present minimal credit
risks and that are (a) high-grade obligations rated in accordance with
applicable rules in one of the two highest rating categories for short-term
obligations by at least two rating agencies (or by one if only one has rated the
obligation) or (b) unrated obligations judged by the advisor, under the
direction of the fund's directors or trustees, to be of comparable quality.
Further, pursuant to Rule 2a-7, a money market fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less and purchase
instruments with remaining maturities of 397 days or less.
The Trustees have established procedures designed to stabilize the Money Market
Funds' NAV at $1.00 per share, to the extent reasonably possible. These
procedures require the Trust's chief financial officer to notify the Trustees
immediately if, at any time, the Funds' weighted average maturity exceeds 90
days, or its NAV, as determined by using available market quotations, deviates
from its amortized cost per share by .25% or more. If such deviation exceeds
.40%, a meeting of the Board of Trustees' audit committee will be called to
consider what actions, if any, should be taken. If such deviation exceeds .50%,
the Trust's chief financial officer is instructed to adjust daily dividend
distributions immediately to the extent necessary to reduce the deviation to
.50% or lower and to call a meeting of the Board of Trustees to consider further
action.
The Board of Trustees monitors the levels of illiquid securities, however if the
levels are exceeded, they will take action to rectify these levels.
Actions the Board of Trustees may consider under these circumstances include (i)
selling portfolio securities prior to maturity, (ii) withholding dividends or
distributions from capital, (iii) authorizing a one-time dividend adjustment,
(iv) discounting share purchases and initiating redemptions in kind, or (v)
valuing portfolio securities at market price for purposes of calculating NAV.
VARIABLE-PRICE FUNDS. Securities held by the Variable-Price Funds normally are
priced by an independent pricing service, provided that such prices are believed
by the Manager to reflect the fair market value of portfolio securities.
Because there are hundreds of thousands of municipal issues outstanding, and the
majority of them do not trade daily, the prices provided by pricing services are
generally determined without regard to bid or last sale prices. In valuing
securities, the pricing services
18 American Century Investments
generally take into account institutional trading activity, trading in similar
groups of securities, and any developments related to specific securities. The
methods used by the pricing service and the valuations so established are
reviewed by the Manager under the general supervision of the Board of Trustees.
There are a number of pricing services available, and the Manager, on the basis
of ongoing evaluation of these services, may use other pricing services or
discontinue the use of any pricing service in whole or in part.
Securities not priced by a pricing service are valued at the mean between the
most recently quoted bid and ask prices provided by broker-dealers. The
municipal bond market is typically a "dealer market"; that is, dealers buy and
sell bonds for their own accounts rather than for customers. As a result, the
spread, or difference between bid and asked prices, for certain municipal bonds
may differ substantially among dealers.
Securities maturing within 60 days of the valuation date may be valued at cost,
plus or minus any amortized discount or premium, unless the Trustees determine
that this would not result in fair valuation of a given security. Other assets
and securities for which quotations are not readily available are valued in good
faith at their fair value using methods approved by the Board of Trustees.
PERFORMANCE
The Funds may quote performance in various ways. Historical performance
information will be used in advertising and sales literature.
For the MONEY MARKET FUNDS, yield quotations are based on the change in the
value of a hypothetical investment (excluding realized gains and losses from the
sale of securities and unrealized appreciation and depreciation of securities)
over a seven-day period (base period) and stated as a percentage of the
investment at the start of the base period (base-period return). The base-period
return is then annualized by multiplying by 365/7 with the resulting yield
figure carried to at least the nearest hundredth of one percent.
Calculations of effective yield begin with the same base-period return used to
calculate yield, but the return is then annualized to reflect weekly compounding
according to the following formula:
Effective Yield = [(Base-Period Return + 1)365/7] - 1
The Money Market Funds' yields and effective yields for the seven-day period
ended August 31, 1996, were as follows:
Money Market Fund 7-Day Yield Effective Yield
- ------------------------------------------------------------------------
California Tax-Free Money Market 2.85% 2.89%
California Municipal Money Market 2.96% 3.01%
- ------------------------------------------------------------------------
For the Variable-Price Funds, yield quotations are based on the investment
income per share earned during a particular 30-day period, less expenses accrued
during the period (net investment income), and are computed by dividing the
Fund's net investment income by its share price on the last day of the period
according to the following formula:
YIELD = 2 [(a - b + 1)6 - 1]
-----
cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of shares
outstanding during the period that were entitled to receive dividends, and d =
the maximum offering price per share on the last day of the period.
The Variable-Price Funds' yields for the 30-day period ended August 31, 1996,
were as follows:
Variable-Price Fund 30-Day Yield
- ------------------------------------------------------------------------
California Limited-Term Tax-Free 3.72%
California Intermediate-Term Tax-Free 4.43%
California Long-Term Tax-Free 5.03%
California High-Yield Municipal 5.63%
California Insured Tax-Free 4.88%
- ------------------------------------------------------------------------
Total returns quoted in advertising and sales literature reflect all aspects of
a Fund's return, including the effect of reinvesting dividends and capital gain
distributions and any change in the Fund's NAV during the period.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in a Fund over a stated period
and then calculating the annually compounded
Statement of Additional Information 19
percentage rate that would have produced the same result if the rate of growth
or decline in value had been constant throughout the period. For example, a
cumulative total return of 100% over 10 years would produce an average annual
return of 7.18%, which is the steady annual rate that would equal 100% growth on
a compounded basis in 10 years. While average annual total returns are a
convenient means of comparing investment alternatives, investors should realize
that the Funds' performance is not constant over time but changes from
year-to-year and that average annual total returns represent averaged figures as
opposed to actual year-to-year performance.
The Funds' average annual total returns for the one-year, five-year, and
ten-year or life-of-fund periods ended August 31, 1996 are indicated in the
table below.
Average Annual Total Returns
- ------------------------------------------------------------------------
Life-of-
Fund One-Year Five-Year Ten-Year Fund
- ------------------------------------------------------------------------
Tax-Free Money
Market Fund(1) 3.12% 2.73% 3.71% 3.92%
Municipal Money
Market Fund(2) 3.23% 2.92% -- 3.12%
Limited-Term
Tax-Free Fund(3) 3.87% -- -- 4.58%
Intermediate-
Term Tax-Free
Fund(1) 4.79% 6.48% 6.28% 6.92%
Long-Term
Tax-Free Fund(1) 6.77% 7.44% 6.93% 8.38%
High-Yield
Municipal Fund(4) 8.02% 7.66% -- 6.30%
Insured Tax-Free
Fund(4) 6.60% 7.55% -- 6.63%
- ------------------------------------------------------------------------
(1) Commenced operations on November 9, 1983.
(2) Commenced operations on December 31, 1990.
(3) Commenced operations on June 1, 1992.
(4) Commenced operations on December 30, 1986.
In addition to average annual total returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as percentages or as dollar amounts and may be calculated for a single
investment, a series of investments, or a series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) to illustrate the
relationship of these factors and their contributions to total return.
The Funds' performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indexes of market
performance. This may include comparisons with funds that, unlike American
Century funds, are sold with a sales charge or deferred sales charge. Sources of
economic data that may be considered in making such comparisons may include, but
are not limited to, U.S. Treasury bill, note, and bond yields, money market fund
yields, U.S. government debt and percentage held by foreigners, the U.S. money
supply, net free reserves, and yields on current-coupon GNMAs (source: Board of
Governors of the Federal Reserve System); the federal funds and discount rates
(source: Federal Reserve Bank of New York); yield curves for U.S. Treasury
securities and AA/AAA-rated corporate securities (source: Bloomberg Financial
Markets); yield curves for AAA-rated tax-free municipal securities (source:
Telerate); yield curves for foreign government securities (sources: Bloomberg
Financial Markets and Data Resources, Inc.); total returns on foreign bonds
(source: J.P. Morgan Securities Inc.); various U.S. and foreign government
reports; the junk bond market (source: Data Resources, Inc.); the CRB Futures
Index (source: Commodity Index Report); the price of gold (sources: London
a.m./p.m. fixing and New York Comex Spot Price); rankings of any mutual fund or
mutual fund category tracked by Lipper Analytical Services, Inc. or Morningstar,
Inc.; mutual fund rankings published in major, nationally distributed
periodicals; data provided by the Investment Company Institute; Ibbotson
Associates, Stocks, Bonds, Bills, and Inflation; major indexes of stock market
performance; and indexes and historical data supplied by major securities
brokerage or investment advisory firms. The Fund may also utilize reprints from
newspapers and magazines furnished by third parties to illustrate historical
performance.
20 American Century Investments
TAXES
FEDERAL INCOME TAX
Each Fund intends to qualify annually as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). By
so qualifying, a Fund will be exempt from federal and California income taxes to
the extent that it distributes substantially all of its net investment income
and net realized capital gains to shareholders.
Certain of the bonds purchased by the Funds may be treated as bonds that were
originally issued at a discount. Original issue discount represents interest for
federal income tax purposes and can generally be defined as the difference
between the price at which a security was issued and its stated redemption price
at maturity. Original issue discount, although no cash is actually received by a
Fund until the maturity of the bond, is treated for federal income tax purposes
as income earned by a Fund over the term of the bond, and therefore is subject
to the distribution requirements of the Code. The annual amount of income earned
on such a bond by a Fund generally is determined on the basis of a constant
yield to maturity that takes into account the semiannual compounding of accrued
interest. Original issue discount on an obligation with interest exempt from
federal income tax will constitute tax-exempt interest income to the Fund.
In addition, some of the bonds may be purchased by a Fund at a discount that
exceeds the original issue discount on such bonds, if any. This additional
discount represents market discount for federal income tax purposes. The gain
realized on the disposition of any bond having market discount generally will be
treated as taxable ordinary income to the extent it does not exceed the accrued
market discount on such bond (unless a Fund elects to include market discount in
income in tax years to which it is attributable). Generally, market discount
accrues on a daily basis for each day the bond is held by a Fund on a straight
line basis over the time remaining to the bond's maturity. In the case of any
debt security having a fixed maturity date of not more than one year from date
of issue, the gain realized on disposition generally will be treated as
short-term capital gain. In general, gain realized on disposition of a security
held less than one year is treated as short-term capital gain.
It is intended that each Fund's assets will be sufficiently invested in
municipal securities so that each Fund will be eligible to pay "exempt-interest
dividends" (as defined in the Code) to shareholders. A Fund's dividends payable
from net tax-exempt interest earned from municipal securities will qualify to be
designated as exempt-interest dividends if, at the close of each quarter of the
Fund's taxable year, at least 50% of the value of the Fund's total assets
consists of municipal securities. Exempt-interest dividends distributed to
shareholders are not included in shareholders' gross income for regular federal
income tax purposes. The percentage of income that is tax-exempt is applied
uniformly to all distributions made during each calendar year. This percentage
may differ from the actual percentage of tax-exempt income received during any
particular month.
Distributions of net investment income received by a Fund from investment in
debt securities other than municipal securities, of ordinary income realized
upon the disposition of tax-exempt market discount bonds, and any net realized
short-term capital gains distributed by the Fund will be taxable to shareholders
as ordinary income. Because the Funds' investment income is derived from
interest rather than dividends, no portion of such distributions is eligible for
the dividends-received deduction available to corporations.
Under the Code, any distribution of a Fund's net realized long-term capital
gains designated by the Fund as a capital gain dividend is taxable to
shareholders as long-term capital gains, regardless of the length of time shares
are held. If a capital gain dividend is paid with respect to any shares of a
Fund sold at a loss after being held for six months or less, the loss will be
treated as a long-term capital loss for tax purposes. The Code also provides
that if a shareholder holds shares of a Fund for six months or less, the
deduction of any loss on the sale or exchange of those shares is disallowed to
the extent that the shareholder received exempt-interest dividends with respect
to those shares.
As of August 31, 1996, the Funds had the following capital loss carryovers of
$298,508 for California Tax-Free Money Market, $158,606 for California Municipal
Money Market, $359,444 for California High-Yield Municipal, and $654,341 for
California Insured Tax-Free (expiring 1998 through 2004). As of August 31, 1996,
California Limited-Term Tax-Free had a capital
Statement of Additional Information 21
loss carryover of $1,151,341 (expiring 2003 and 2004). When a Fund has a capital
loss carryover, it does not make capital gain distributions until the loss has
been offset or expired.
Interest on certain types of industrial development bonds (small issues and
obligations issued to finance certain exempt facilities that may be leased to or
used by persons other than the issuer) is not exempt from federal income tax
when received by "substantial users" or persons related to substantial users as
defined in the Code. The term "substantial user" includes any "non-exempt
person" who regularly uses in trade or business part of a facility financed from
the proceeds of industrial development bonds. The Funds may invest periodically
in industrial development bonds and, therefore, may not be appropriate
investments for entities that are substantial users of facilities financed by
industrial development bonds or "related persons" of substantial users.
Generally, an individual will not be a related person of a substantial user
under the Code unless he or his immediate family (spouse, brothers, sisters,
ancestors and lineal descendants) owns directly or indirectly in aggregate more
than 50% in the equity value of the substantial user.
From time to time, proposals have been introduced in Congress for the purpose of
restricting or eliminating the federal income tax exemption for interest on
municipal securities, and similar proposals may be introduced in the future. If
such a proposal were enacted, the availability of municipal securities for
investment by the Funds and the Funds' NAVs would be adversely affected. Under
these circumstances, the Trustees would re-evaluate the Funds' investment
objectives and policies and would consider either changes in the structure of
the Trust or its dissolution.
ALTERNATIVE MINIMUM TAX
While the interest on bonds issued to finance essential state and local
government operations is generally exempt from regular federal income tax,
interest on certain "private activity" bonds issued after August 7, 1986, while
exempt from regular federal income tax, constitutes a tax-preference item for
taxpayers in determining alternative minimum tax liability under the Code and
income tax provisions of several states.
California Municipal Money Market and California High-Yield Municipal may each
invest in private activity bonds. The interest on private activity bonds could
subject a shareholder to, or increase liability under, the federal alternative
minimum tax, depending on the shareholder's tax situation. The interest on
California private activity securities is not subject to the California
alternative minimum tax when it is earned (either directly or through investment
in a mutual fund) by a California taxpayer. However, if either Fund were to
invest in private activity securities of non-California issuers (due to a
limited supply of appropriate California municipal obligations, for example),
the interest on those securities would be included in California alternative
minimum taxable income.
All distributions derived from interest exempt from regular federal income tax
may subject corporate shareholders to, or increase their liability under, the
alternative minimum tax because these distributions are included in the
corporation's "adjusted current earnings."
In addition, a deductible "environmental tax" of 0.12% is imposed on a
corporation's modified alternative minimum taxable income in excess of $2
million. The environmental tax will be imposed even if the corporation is not
required to pay an alternative minimum tax. To the extent that exempt-interest
dividends paid by a Fund are included in alternative minimum taxable income,
corporate shareholders may be subject to the environmental tax.
The Trust will inform California Municipal Money Market and California
High-Yield Municipal shareholders annually of the amount of distributions
derived from interest payments on private activity bonds.
STATE AND LOCAL TAXES
California law concerning the payment of exempt-interest dividends is similar to
federal law. Assuming each Fund qualifies to pay exempt-interest dividends under
federal and California law, and to the extent that dividends are derived from
interest on tax-exempt bonds of California state or local governments, such
dividends will also be exempt from California personal income tax. The Trust
will inform shareholders annually as to the amount of distributions from each
Fund that constitute exempt-interest dividends and dividends exempt from
California personal income tax. The Funds' dividends are not exempt from
California state franchise or corporate income taxes.
22 American Century Investments
The Funds' dividends may not qualify for exemption under income or other tax
laws of state or local taxing authorities outside California. Shareholders
should consult their tax advisors or state or local tax authorities about the
status of distributions from the Funds in this regard.
The information above is only a summary of some of the tax considerations
affecting the Funds and their shareholders; no attempt has been made to discuss
individual tax consequences. A prospective investor should consult his or her
tax advisor or state or local tax authorities to determine whether the Funds are
suitable investments based on his or her tax situation.
ABOUT THE TRUST
American Century California Tax-Free and Municipal Funds (the "Trust") is a
registered open-end management investment company that was organized as a
Massachusetts business trust on February 18, 1983. American Century California
Tax-Free and Municipal Funds was known as "Benham California Tax-Free and
Municipal Funds" until January 1997.
Currently, there are seven series (or Funds) of the Trust. The table on the
following page lists each Fund's current and prior name.
Prior to September 1996, California Limited-Term Tax-Free was known as "Benham
California Tax-Free Short-Term Fund." The Board of Trustees may create
additional series from time to time.
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest without par value, which may
be issued in series (funds). Shares issued are fully paid and nonassessable and
have no preemptive, conversion, or similar rights.
Each series votes separately on matters affecting that series exclusively.
Voting rights are not cumulative, so that investors holding more than 50% of the
Trust's (i.e., all series') outstanding shares may elect a Board of Trustees.
The Trust has instituted dollar-based voting, meaning that the number of votes
you are entitled to is based upon the dollar value of your investment. The
election of Trustees is determined by the votes received from all Trust
shareholders, without regard to whether a majority of shareholders of any one
series voted in favor of a particular nominee or all nominees as a group.
Shareholders have equal rights as to dividends and distributions declared by
their series and in the net assets of such series upon its liquidation or
dissolution. Shares of each series have equal voting rights, although each
series votes separately on matters affecting that series exclusively.
Shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable for its obligations. However, the
Declaration of Trust contains an express disclaimer of shareholder liability for
acts or obligations of the Trust. The Declaration of Trust also provides for
indemnification and reimbursement of expenses of any shareholder held personally
liable for obligations of the Trust. The Declaration of Trust provides that the
Trust will, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. The Declaration of Trust further provides that the Trust may maintain
appropriate insurance (for example, fidelity, bonding, and errors and omissions
insurance) for the protection of the Trust, its shareholders, Trustees,
officers, employees, and agents to cover possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance exists and the Trust itself is unable to meet its obligations.
CUSTODIAN BANK: Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn, NY
11245 and Commerce Bank, N. A., 1000 Walnut, Kansas City, Missouri, 64106, are
custodians of the Trust's assets. Services provided by the custodian bank
include (i) settling portfolio purchases and sales, (ii) reporting failed
trades, (iii) identifying and collecting portfolio income, and (iv) providing
safekeeping of securities. The custodian takes no part in determining the Fund's
investment policies or in determining which securities are sold or purchased by
the Fund.
INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 1000 Walnut, Suite 1600, Kansas
City, Missouri 64106, serves as the Trust's independent auditors. KPMG audits
the annual report and provides tax and other services.
Statement of Additional Information 23
FUND NAME AS OF JANUARY, 1997 FORMER FUND NAME
- ------------------------------------------------------------------------
American Century--Benham California Benham California Tax-Free
Tax-Free Money Market Fund Money Market Fund
American Century--Benham California Benham California Municipal
Municipal Money Market Fund Money Market Fund
American Century--Benham California Benham California Tax-Free
Limited-Term Tax-Free Fund Limited-Term Fund
American Century--Benham California Benham California Tax-Free
Intermediate-Term Tax-Free Fund Intermediate-Term Fund
American Century--Benham California Benham California Tax-Free
Long-Term Tax-Free Fund Long-Term Fund
American Century--Benham California Benham California Municipal
High-Yield Municipal Fund High-Yield Fund
American Century--Benham California Benham California Tax-Free
Insured Tax-Free Fund Insured Fund
- ------------------------------------------------------------------------
TRUSTEES AND OFFICERS
The Trust's activities are overseen by a Board of Trustees, including seven
independent Trustees. The individuals listed below whose names are marked by an
asterisk (*) are "interested persons" of the Trust (as defined in the Investment
Company Act of 1940) by virtue of, among other considerations, their affiliation
with either the Trust; the Trust's investment advisor, Benham Management
Corporation (the "Manager"); the Trust's agent for transfer and administrative
services, American Century Services Corporation (ACS); the Trust's distribution
agent, American Century Investment Services, Inc. (ACIS); the parent
corporation, American Century Companies, Inc. (ACC) or ACC's subsidiaries; or
other funds advised by the Manager. The Trustees listed below serve as Trustees
or Directors of other funds advised by the Manager. Unless otherwise noted, a
date in parentheses indicates the date the Trustee or officer began his or her
service in a particular capacity. The Trustees' and officers' address with the
exception of Mr. Stowers III and Ms. Roepke is 1665 Charleston Road, Mountain
View, California 94043. The address of Mr. Stowers III and Ms. Roepke is 4500
Main Street, Kansas City, Missouri 64111.
TRUSTEES
*JAMES M. BENHAM, Chairman of the Board of Trustees (1983), President and
Chief Executive Officer (1996). Mr. Benham is also President and Chairman of
the Board of Benham Management Corporation (BMC) (1971); and a member of the
Board of Governors of the Investment Company Institute (1988). Mr. Benham has
been in the securities business since 1963, and he frequently comments through
the media on economic conditions, investment strategies, and the securities
markets.
ALBERT A. EISENSTAT, independent Trustee (1995). Mr. Eisenstat is an
independent Director of each of Commercial Metals Co. (1982), Sungard Data
Systems (1991) and Business Objects S/A (1994). Previously, he served as Vice
President of Corporate Development and Corporate Secretary of Apple Computer
and served on its Board of Directors (1985 to 1993).
RONALD J. GILSON, independent Trustee (1995); Charles J. Meyers Professor of Law
and Business at Stanford Law School (1979) and the Mark and Eva Stern Professor
of Law and Business at Columbia University School of Law (1992); Counsel to
Marron, Reid & Sheehy (a San Francisco law firm, 1984).
MYRON S. SCHOLES, independent Trustee (1983). Mr. Scholes is a principal of
Long-Term Capital Management (1993). He is also Frank E. Buck Professor of
Finance at
24 American Century Investments
the Stanford Graduate School of Business (1983) and a Director of Dimensional
Fund Advisors (1982) and the Smith Breeden Family of Funds (1992). From August
1991 to June 1993, Mr. Scholes was a Managing Director of Salomon Brothers
Inc. (securities brokerage).
KENNETH E. SCOTT, independent Trustee (1983). Mr. Scott is Ralph M. Parsons
Professor of Law and Business at Stanford Law School (1972) and a Director of
RCM Capital Funds, Inc. (June 1994).
EZRA SOLOMON, independent Trustee (1983). Mr. Solomon is Dean Witter Professor
of Finance Emeritus at the Stanford Graduate School of Business, where he served
as Dean Witter Professor of Finance from 1965 to 1990, and a Director of
Encyclopedia Britannica.
ISAAC STEIN, independent Trustee (1992). Mr. Stein is former Chairman of the
Board (1990 to 1992) and Chief Executive Officer (1991 to 1992) of Esprit de
Corp. (clothing manufacturer). He is a member of the Board of Raychem
Corporation (electrical equipment, 1993), President of Waverley Associates, Inc.
(private investment firm, 1983), and a Director of ALZA Corporation
(pharmaceuticals, 1987). He is also a Trustee of Stanford University (1994) and
Chairman of Stanford Health Services (hospital, 1994).
*JAMES E. STOWERS III, Trustee (1995), President and Chief Executive Officer
and Director of ACC, American Century Investment Management, Inc., (ACIM), ACS
and ACIS.
JEANNE D. WOHLERS, independent Trustee (1984). Ms. Wohlers is a private investor
and an independent Director and partner of Windy Hill Productions, LP.
Previously, she served as Vice President and Chief Financial Officer of Sybase,
Inc. (software company, 1988 to 1992).
OFFICERS
*JAMES M. BENHAM, President and Chief Executive Officer (1996).
*WILLIAM M. LYONS, Executive Vice President (1996); Executive Vice President,
Chief Operating Officer, General Counsel and Secretary of the
Manager, ACS, and ACIS.
*DOUGLAS A. PAUL, Secretary (1988), Vice President (1990), and General Counsel
(1990); Secretary and Vice President of the funds advised by the Manager.
*C. JEAN WADE, Controller (1996).
*MARYANNE ROEPKE, CPA, Chief Financial Officer and Treasurer (1995); Vice
President and Assistant Treasurer of ACS.
The table on the next page summarizes the compensation that the Trustees
received from the Funds for the Funds' fiscal year ended August 31, 1996, as
well as the compensation received for serving as a Director or Trustee of all
other funds advised by the Manager.
As of November 30, 1996, the Trust's officers and trustees, as a group, owned
less than 1% of the each Fund's outstanding shares, except for the California
Tax-Free Money Market of which they owned as a group 0.95% of the Fund's
outstanding shares.
INVESTMENT ADVISORY SERVICES
Each Fund has an investment advisory agreement with the Manager dated June 1,
1995, that was approved by shareholders on May 31, 1995.
The Manager is a California corporation and a wholly owned subsidiary of ACC.
The Manager became a wholly owned subsidiary of ACC on June 1, 1995, upon the
merger of Benham Management International (BMI) into ACC. The Manager has served
as investment advisor to the Funds since each Fund's inception. ACC is a holding
company that owns all of the stock of the operating companies that provide the
investment management, transfer agency, shareholder service, and other services
for the American Century funds. James E. Stowers, Jr., controls ACC by virtue of
his ownership of a majority of its common stock. The Manager has been a
registered investment advisor since 1971 and is investment advisor to other
funds advised by the Manager.
Each Fund's agreement with the Manager continues for an initial period of two
years and thereafter from year to year provided that, after the initial two-year
period, it is approved at least annually by vote of either a majority of the
Fund's outstanding shares or by vote of a majority of the Fund's Trustees,
including a majority of those Trustees who are neither parties to the agreement
nor interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval.
Each Fund's agreement is terminable on 60 days' written notice, either by the
Fund or by the Manager, to the other party, and terminates automatically in the
event of its assignment.
Pursuant to the investment advisory agreement, the Manager provides the Fund
with investment advice
Statement of Additional Information 25
<TABLE>
TRUSTEE COMPENSATION FOR THE FISCAL YEAR ENDED AUGUST 31, 1996
Aggregate Pension or Retirement Estimated Total Compensation
Name of Compensation Benefits Accrued As Part Annual Benefits From Fund and Fund
Trustee* From The Fund of Fund Expenses Upon Retirement Complex** Paid to Trustees
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Albert A. Eisenstat $377 (Money Market) Not Applicable Not Applicable $47,750
169 (MuniMM)
88 (Limited-Term)
375 (Intermediate-Term)
253 (Long-Term)
112 (High-Yield)
164 (Insured)
- --------------------------------------------------------------------------------------------------------------------
Ronald J. Gilson $1,386 (Money Market) Not Applicable Not Applicable $63,999
1,097 (MuniMM)
983 (Limited-Term)
1,386 (Intermediate-Term)
1,212 (Long-Term)
1,013 (High-Yield)
1,087 (Insured)
- --------------------------------------------------------------------------------------------------------------------
Myron S. Scholes $1,404 (Money Market) Not Applicable Not Applicable $64,500
1,106 (MuniMM)
989 (Limited-Term)
1,406 (Intermediate-Term)
1,225 (Long-Term)
1,018 (High-Yield)
1,096 (Insured)
- --------------------------------------------------------------------------------------------------------------------
Kenneth E. Scott $1,701 (Money Market) Not Applicable Not Applicable $73,023
1,241 (MuniMM)
1,059 (Limited-Term)
1,705 (Intermediate-Term)
1,430 (Long-Term)
1,109 (High-Yield)
1,228 (Insured)
- --------------------------------------------------------------------------------------------------------------------
Ezra Solomon $1,537 (Money Market) Not Applicable Not Applicable $65,583
1,166 (MuniMM)
1,019 (Limited-Term)
1,537 (Intermediate-Term)
1,314 (Long-Term)
1,057 (High-Yield)
1,153 (Insured)
- --------------------------------------------------------------------------------------------------------------------
Isaac Stein $1,419 (Money Market) Not Applicable Not Applicable $65,000
1,112 (MuniMM)
990 (Limited-Term)
1,420 (Intermediate-Term)
1,237 (Long-Term)
1,024 (High-Yield)
1,103 (Insured)
- --------------------------------------------------------------------------------------------------------------------
Jeanne D. Wohlers $1,526 (Money Market) Not Applicable Not Applicable $68,000
1,161 (MuniMM)
1,018 (Limited-Term)
1,528 (Intermediate-Term)
1,309 (Long-Term)
1,055 (High-Yield)
1,149 (Insured)
- --------------------------------------------------------------------------------------------------------------------
* Interested Trustees receive no compensation for their services as such.
** American Century family of funds includes nearly 70 no-load mutual funds.
</TABLE>
26 American Century Investments
and portfolio management services in accordance with the Fund's investment
objectives, policies, and restrictions. The Manager determines what securities
will be purchased and sold by the Fund and assists the Fund's officers in
carrying out decisions made by the Board of Trustees.
For these services, each Fund pays the Manager a monthly investment advisory fee
based on its pro rata share of the dollar amount derived from applying the
Fund's average daily net assets to the following investment advisory fee rate
schedule:
.50% of the first $100 million;
.45% of the next $100 million;
.40% of the next $100 million;
.35% of the next $100 million;
.30% of the next $100 million;
.25% of the next $1 billion;
.24% of the next $1 billion;
.23% of the next $1 billion;
.22% of the next $1 billion;
.21% of the next $1 billion;
.20% of the next $1 billion; and
.19% of net assets over $6.5 billion.
Investment advisory fees paid by each Fund for the fiscal periods ended August
31, 1996, 1995 and 1994, are indicated in the following table. Fee amounts are
net of amounts reimbursed or recouped as described under the section titled "Net
Reimbursements (Recoupments)."
INVESTMENT ADVISORY FEES*
- ------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
- ------------------------------------------------------------------------
California Tax-Free
Money Market $1,240,288 $1,118,609 $1,077,091
California Municipal
Money Market 563,912 638,989 717,967
California Limited-
Term Tax-Free 294,665 320,571 351,908
California
Intermediate-
Term Tax-Free 1,249,491 1,219,371 1,329,806
California Long-Term
Tax-Free 833,863 788,383 883,146
California High-Yield
Municipal 379,805 317,026 325,337
California Insured
Tax-Free 544,813 505,500 601,906
- ------------------------------------------------------------------------
*Net of reimbursements.
TRANSFER AND ADMINISTRATIVE SERVICES
American Century Services Corporation, 4500 Main Street, Kansas City, Missouri,
64111, (ACS) acts as transfer agent and dividend-paying agent for the Funds. ACS
provides facilities, equipment and personnel to the Funds and is paid for such
services by the Fund. For administrative services, each Fund pays ACS a monthly
fee equal to its pro rata share of the dollar amount derived from applying the
average daily net assets of all of the Fund managed by the Manager to the
following administrative fee rate schedule:
Group Assets Administrative Fee Rate
- ------------------------------------------------------------------------
up to $4.5 billion .11%
up to $6.0 billion .10%
up to $9.0 billion .09%
over $9.0 billion .08%
- ------------------------------------------------------------------------
For transfer agent services, each Fund pays ACS monthly fees of $1.1875 for each
shareholder account maintained and $1.35 for each shareholder transaction
executed during the month.
Administrative service and transfer agent fees paid by each Fund for the fiscal
years ended August 31, 1996, 1995, and 1994, are indicated in the following
tables. Fee amounts are net of expense limitations as described under "Expense
Limitation Agreement."
ADMINISTRATIVE FEES
- ------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
- ------------------------------------------------------------------------
California Tax-Free
Money Market $409,257 $372,776 $367,012
California Municipal
Money Market 186,076 213,037 244,617
California Limited-
Term Tax-Free 97,232 106,880 119,911
California
Intermediate-
Term Tax-Free 412,298 406,453 453,129
California Long-Term
Tax-Free 275,154 262,741 300,842
California High-Yield
Municipal 125,323 105,659 110,808
California Insured
Tax-Free 179,812 168,491 205,042
- ------------------------------------------------------------------------
Statement of Additional Information 27
TRANSFER AGENT FEES
- ------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
- ------------------------------------------------------------------------
California Tax-Free
Money Market $229,922 $245,317 $254,089
California Municipal
Money Market 145,450 157,812 183,077
California Limited-
Term Tax-Free 47,787 60,682 64,485
California
Intermediate-
Term Tax-Free 188,108 195,808 198,370
California Long-Term
Tax-Free 119,915 125,758 127,791
California High-Yield
Municipal 70,036 66,032 64,349
California Insured
Tax-Free 91,516 95,075 105,575
- ------------------------------------------------------------------------
DISTRIBUTION OF FUND SHARES
The Funds' shares are distributed by American Century Investment Services, Inc.,
a registered broker-dealer and an affiliate of the Manager. The Manager pays all
expenses for promoting and distributing the Fund shares offered by this
Prospectus. The Funds do not pay any commissions or other fees to the
distributor or to any other broker-dealers or financial intermediaries in
connection with the distribution of Fund shares.
DIRECT FUND EXPENSES
Each Fund pays certain operating expenses that are not assumed by the Manager or
ACS. These include fees and expenses of the independent Trustees; custodian,
audit, and pricing fees; fees of outside counsel and counsel employed directly
by the Trust; costs of printing and mailing prospectuses, statements of
additional information, proxy statements, notices, confirmations, and reports to
shareholders; fees for registering the Fund's shares under federal and state
securities laws; brokerage fees and commissions; trade association dues; costs
of fidelity and liability insurance policies covering the Fund; costs for
incoming WATS lines maintained to receive and handle shareholder inquiries; and
organizational costs.
EXPENSE LIMITATION AGREEMENT
The Manager may recover amounts absorbed on behalf of a Fund during the
preceding 11 months if, and to the extent that, for any given month, the Fund's
expenses were less than the expense limitation in effect at that time.
Each Fund's contractual expense limitation is subject to annual renewal. The
expense limits in effect until May 31, 1997 are as follows: California Tax-Free
Money Market .53%, California Municipal Money Market .60%, California
Limited-Term Tax-Free .59%, California Intermediate-Term Tax-Free .59%,
California Long-Term Tax-Free .59%, California High-Yield Municipal .59%, and
California Insured Tax-Free .59% of average daily net assets.
Net reimbursements for the fiscal years ended August 31, 1996, 1995, and 1994,
are indicated in the table below.
NET REIMBURSEMENTS (RECOUPMENTS)
- ------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
- ------------------------------------------------------------------------
California Tax-Free
Money Market 0 0 0
California Municipal
Money Market 0 0 0
California Limited-
Term Tax-Free 0 0 $(11,338)
California
Intermediate-
Term Tax-Free 0 0 0
California Long-Term
Tax-Free 0 0 0
California High-Yield
Municipal 0 0 0
California Insured
Tax-Free 0 0 0
- ------------------------------------------------------------------------
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
While the Funds are designed for California investors, they are also offered for
sale to investors in certain other western states.
The Funds' shares are continuously offered at net asset value. Share
certificates are issued (without
28 American Century Investments
charge) only when requested in writing. Certificates are not issued for
fractional shares. Dividend and voting rights are not affected by the issuance
of certificates.
American Century may reject or limit the amount of an investment to prevent any
one shareholder or affiliated group from controlling the Trust or one of its
series; to avoid jeopardizing a series' tax status; or whenever, in management's
opinion, such rejection is in the Trust's or a series' best interest.
As of November 30, 1996, to the knowledge of the Funds, no shareholder was the
record holder of beneficial owner of 5% or more of the Funds' total shares
outstanding except for those listed below.
California Tax-Free
Fund Money Market
- ------------------------------------------------------------------------
Shareholder Name and M. Franklin Rudy and Margaret
Address C. Rudy, Trustees of the Rudy
Family Trust
23484 Park Columbo
Callabus Park, CA 91302
- ------------------------------------------------------------------------
# of Shares Held 22,393,788.50
- ------------------------------------------------------------------------
% of Total Shares
Outstanding 5.09%
- ------------------------------------------------------------------------
California Intermediate-Term
Fund Tax-Free
- ------------------------------------------------------------------------
Shareholder Name and Charles Schwab & Co.
Address 101 Montgomery Street
San Francisco, CA 94101
- ------------------------------------------------------------------------
# of Shares Held 7,037,159.408
- ------------------------------------------------------------------------
% of Total Shares
Outstanding 18.12%
- ------------------------------------------------------------------------
Fund California Long-Term Tax-Free
Shareholder Name and Charles Schwab & Co.
- ------------------------------------------------------------------------
Address 101 Montgomery Street
San Francisco, CA 94101
- ------------------------------------------------------------------------
# of Shares Held 1,522,134.131
- ------------------------------------------------------------------------
% of Total Shares
Outstanding 5.8%
- ------------------------------------------------------------------------
Fund California High-Yield Municipal
Shareholder Name and Charles Schwab & Co.
- ------------------------------------------------------------------------
Address 101 Montgomery Street
San Francisco, CA 94101
- ------------------------------------------------------------------------
# of Shares Held 2,781,145.097
- ------------------------------------------------------------------------
% of Total Shares
Outstanding 16.84%
- ------------------------------------------------------------------------
Fund California Insured Tax-Free
Shareholder Name and Charles Schwab & Co.
- ------------------------------------------------------------------------
Address 101 Montgomery Street
San Francisco, CA 94101
- ------------------------------------------------------------------------
# of Shares Held 1,318,110.278
- ------------------------------------------------------------------------
% of Total Shares
Outstanding 7%
- ------------------------------------------------------------------------
Fund California Limited-Term Tax-Free
Shareholder Name and Charles Schwab & Co.
- ------------------------------------------------------------------------
Address 101 Montgomery Street
San Francisco, CA 94101
- ------------------------------------------------------------------------
# of Shares Held 1,626,843.481
- ------------------------------------------------------------------------
% of Total Shares
Outstanding 16.53%
- ------------------------------------------------------------------------
ACS charges neither fees nor commissions on the purchase and sale of fund
shares. However, ACS may charge fees for special services requested by a
shareholder or necessitated by acts or omissions of a shareholder. For example,
ACS may charge a fee for processing dishonored investment checks or stop-payment
requests. See the Investor Services Guide for more information.
Share purchases and redemptions are governed by California law.
OTHER INFORMATION
The Manager has been continuously registered with the Securities and Exchange
Commission under the Investment Advisers Act of 1940 since December 14, 1971.
The Trust has filed a registration statement under the Securities Act of 1933
and the Investment Company Act of 1940 with respect to the shares offered. Such
registrations do not imply approval or supervision of the Trust or the advisor
by the Securities and Exchange Commission.
Statement of Additional Information 29
For further information, refer to the registration statement and exhibits on
file with the Securities and Exchange Commission in Washington, DC. These
documents are available upon payment of a reproduction fee. Statements in the
Prospectus and in this Statement of Additional Information concerning the
contents of contracts or other documents, copies of which are filed as exhibits
to the registration statement, are qualified by reference to such contracts or
documents.
MUNICIPAL SECURITIES RATINGS
Securities rating descriptions provided under this heading are excerpted from
publications of Moody's Investors Service, Inc. and Standard & Poor's
Corporation.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
MUNICIPAL BOND RATINGS:
Aaa: Bonds that are rated "Aaa" are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds that are rated "Aa" are judged to be of high quality by all standards.
Together with the Aaa group, they constitute what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present that make long-term risks appear somewhat larger than in Aaa securities.
A: Bonds that are rated "A" possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds that are rated "Baa" are considered medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba: Bonds that are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds that are rated "B" generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be limited.
Caa: Bonds that are rated "Caa" are of poor standing. Such issues may be in
default, or there may be elements of danger present with respect to principal
or interest.
Ca: Bonds that are rated "Ca" represent obligations that are speculative to a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds that are rated "C" are the lowest-rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's may apply the numerical modifier "1" for municipally backed bonds
and modifiers "1," "2," and "3" for corporate-backed municipal bonds. The
modifier "1" indicates that the security ranks in the higher end of its generic
rating category; the modifier "2" indicates a mid-range ranking, and the
modifier "3" indicates that the issue ranks in the lower end of its generic
rating category.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S RATINGS OF NOTES AND VARIABLE-
RATE DEMAND OBLIGATIONS:
Moody's ratings for state and municipal short-term obligations are designated
Moody's Investment Grade or MIG. Such ratings recognize the differences between
short-term credit and long-term risk. Short-term ratings on issues with demand
features (variable-rate demand obligations) are differentiated by the use of the
VMIG symbol to reflect such characteristics as payment upon periodic demand
rather than on fixed maturity dates and payments relying on external liquidity.
30 American Century Investments
MIG 1/VMIG 1: This designation denotes best quality. There is strong protection
present through established cash flows, superior liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This denotes high quality. Margins of protection are ample,
although not as large as in the preceding group.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
TAX-EXEMPT COMMERCIAL PAPER RATINGS:
Moody's commercial paper ratings are opinions of the ability of issuers to
punctually repay those promissory obligations that have an original maturity not
exceeding nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act of 1933, nor does it represent
that any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. The following designations, all judged to be
investment grade, indicate the relative repayment ability of rated issuers of
securities in which the Funds may invest.
Prime 1: Issuers rated "Prime 1" (or supporting institutions) have a superior
ability for repayment of senior short-term promissory obligations.
Prime 2: Issuers rated "Prime 2" (or supporting institutions) have a strong
ability for repayment of senior short-term promissory obligations.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S RATINGS FOR MUNICIPAL BONDS:
INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in a small degree.
A: Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
SPECULATIVE
BB, B, CCC, CC: Debt rated in these categories is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions that could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B: Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC: Debt rated "CCC" has a currently identifiable vulnerability to default and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC: The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" debt rating.
C: The "C" rating is typically applied to debt subordinated to senior debt that
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
Statement of Additional Information 31
CI: The "CI" rating is reserved for income bonds on which no interest is being
paid.
D: Debt rated "D" is in default, and payment of interest and/or repayment of
principal is in arrears.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S RATINGS FOR INVESTMENT GRADE
MUNICIPAL NOTES AND SHORT-TERM DEMAND OBLIGATIONS:
SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Those issues determined to possess overwhelming
safety characteristics will be given a plus (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S RATINGS FOR DEMAND OBLIGATIONS
AND TAX-EXEMPT COMMERCIAL PAPER:
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The two rating categories for securities in which the Funds may invest
are as follows:
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S RATINGS
FOR MUNICIPAL BONDS:
INVESTMENT GRADE
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal that is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
SPECULATIVE
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin or
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics that, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
32 American Century Investments
DDD/DD/D: Bonds are in default on interest and/or principal payments. Such bonds
are extremely speculative and should be valued on the basis of their ultimate
recovery value in liquidation or reorganization of the obligor. "DDD" represents
the highest potential for recovery on these bonds, and "D" represents the lowest
potential for recovery.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "DDD," "DD," or "D" categories.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S RATINGS FOR INVESTMENT-GRADE
MUNICIPAL NOTES AND SHORT-TERM DEMAND OBLIGATIONS:
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
QUALITY OF PORTFOLIO SECURITIES HELD BY THE VARIABLE PRICE FUNDS
The table below provides a summary of ratings assigned to obligations held by
each of the Variable Price Funds. These figures are dollar-weighted averages of
month-end holdings during fiscal 1996, presented as a percentage of total
investments. For obligations with different ratings assigned by different rating
agencies, the highest rating assigned is the one relied upon to create this
table. The percentages are historical and are not necessarily indicative of
current or future portfolio holdings, which may vary in quality.
Aaa/ Aa/ Baa/
AAA AA A BBB NR
- ------------------------------------------------------------------------
California Limited-
Term Tax-Free 65% 14% 21% - -
- ------------------------------------------------------------------------
California Intermediate-
Term Tax-Free 69% 14% 17% - -
- ------------------------------------------------------------------------
California Long-
Term Tax-Free 47% 15% 38% - -
- ------------------------------------------------------------------------
California High-Yield
Municipal 23% 2% 27% 16% 32%
- ------------------------------------------------------------------------
Statement of Additional Information 33
P.O. Box 419200
Kansas City, Missouri
64141-6200
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
Fax: 816-340-7962
Internet: www.americancentury.com
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BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
1933 Act Post-Effective Amendment No. 24
1940 Act Amendment No. 28
- --------------------------------------------------------------------------------
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS. Audited financial statements for each series of
the Trust for the fiscal year ended August 31, 1996, are filed herein
as included in the Trust's Statement of Additional Information by
reference to the Annual Report dated August 31, 1996, filed on
October 30, 1996 (Accession # 717316-96-000015).
(b) EXHIBITS.
(1) Amended Declaration of Trust dated May 31, 1995, is
incorporated herein by reference to Exhibit 1(d) of
Post-Effective Amendment No. 22 filed on October 27, 1995
(Accession # 717316-95-000007).
(2) Amended and Restated Bylaws dated May 17, 1995 are
incorporated herein by reference to Exhibit 2(d) of
Post-Effective Amendment No. 22 filed on October 27, 1995
(Accession # 717316-95-000007).
(3) Not applicable.
(4) Specimen copy of Limited-Term Tax-Free Fund's share
certificate is incorporated herein by reference to Exhibit 4
to Post-Effective Amendment No. 16.
(5) Investment Advisory Agreement between Benham California
Tax-Free and Municipal Funds: Limited-Term Tax-Free Fund,
Benham California Tax-Free and Municipal Funds: Tax-Free Money
Market Fund, Benham California Tax-Free and Municipal Funds:
Municipal Money Market Fund, Benham California Tax-Free and
Municipal Funds: Tax-Free Intermediate-Term Fund, Benham
California Tax-Free and Municipal Funds: Tax-Free Long-Term
Fund, Benham California Tax-Free and Municipal Funds:
Municipal High-Yield Fund, Benham California Tax-Free and
Municipal Funds: Tax-Free Insured Fund and BMC, dated June 1,
1995, is incorporated herein by reference to Exhibit 5(a) of
Post-Effective Amendment No. 22 filed on October 27, 1995
(Accession # 717316-95-000007).
(6) Distribution Agreement between Benham California Tax-Free and
Municipal Funds and Twentieth Century Securities, Inc. dated
as of September 3, 1996, is incorporated herein by reference
to Exhibit 6 of Post-Effective Amendment No. 29 to the
Registration Statement of the Benham Government Income Trust
filed on August 30, 1996 (Accession # 773674-96-000007).
(7) Not applicable.
(8) 1993 Omnibus Custodian Agreement between the Benham Group of
Funds (including Benham California Tax-Free and Municipal
Funds) and State Street Bank and Trust Company, dated August
10, 1993, is incorporated herein by reference to Exhibit 8 to
Post-Effective Amendment No. 20 filed on October 27, 1995.
(9) Administrative Services and Transfer Agency Agreement between
Benham California Tax-Free and Municipal Funds and Twentieth
Century Services, Inc. dated as of September 3, 1996, is
incorporated herein by reference to Exhibit 9 of
Post-Effective Amendment No. 29 to the Registration Statement
of the Benham Government Income Trust filed on August 30, 1996
(Accession # 773674-96-000007).
(10) Opinion and consent of counsel as to the legality of the
securities being registered, dated October 16, 1996 is
incorporated herein by reference to Rule 24f-2 Notice filed on
October 16, 1996 (Accession # 717316-96-000012).
(11) Consent of KPMG Peat Marwick, LLP, independent auditors, is
included herein.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Not applicable.
(16) Schedule for computation of each performance quotation
provided in response to Item 22 is included herein.
(17) Power of Attorney dated March 4, 1996, is included herein
Item 25. Persons Controlled by or Under Control with Registrant.
Not applicable
Item 26. Number of Holders of Securities.
As of November 1, 1996, each Series of the Registrant had the following number
of record shareholders.
Municipal Money Market Fund 3961
Tax-Free Money Market Fund 6997
Tax-Free Limited-Term Fund 1666
Tax-Free Intermediate-Term Fund 7081
Tax-Free Long-Term Fund 4867
Municipal High-Yield Fund 2638
Tax-Free Insured Fund 3588
Item 27. Indemnification.
As stated in Article VII, Section 3 of the Declaration of Trust, incorporated
herein by reference to Exhibit 1 to the Registration Statement, "The Trustees
shall be entitled and empowered to the fullest extent permitted by law to
purchase insurance for and to provide by resolution or in the Bylaws for
indemnification out of Trust assets for liability and for all expenses
reasonably incurred or paid or expected to be paid by a Trustee or officer in
connection with any claim, action, suit, or proceeding in which he or she
becomes involved by virtue of his or her capacity or former capacity with the
Trust. The provisions, including any exceptions and limitations concerning
indemnification, may be set forth in detail in the Bylaws or in a resolution
adopted by the Board of Trustees."
Registrant hereby incorporates by reference, as though set forth fully herein,
Article VI of the Registrant's Bylaws, amended on May 17, 1995, appearing as
Exhibit 2 of this Post-Effective Amendment No. 23.
Item 28. Business and Other Connections of Investment Advisor.
The Registrant's investment advisor, Benham Management Corporation, provides
investment advisory services for various collective investment vehicles and
institutional clients and serves as investment advisor to a number of open-end
investment companies.
Item 29. Principal Underwriters.
The Registrant's distribution agent, Twentieth Century Securities, Inc., is
distribution agent to Capital Preservation Fund, Inc., Capital Preservation Fund
II, Inc., Benham California Tax-Free and Municipal Funds, Benham Government
Income Trust, Benham Municipal Trust, Benham Target Maturities Trust, Benham
Equity Funds, Benham International Funds, Benham Investment Trust, Benham
Manager Funds, TCI Portfolios, Inc., Twentieth Century Capital Portfolios, Inc.,
Twentieth Century Investors, Inc., Twentieth Century Premium Reserves, Inc.,
Twentieth Century Strategic Allocations, Inc. and Twentieth Century World
Investors, Inc. The information required with respect to each director, officer
or partner of Twentieth Century Securities is incorporated herein by reference
to Twentieth Century Securities' Form B-D filed on November 21, 1985 (SEC File
No. 8-35220; Firm CRD No. 17437).
Item 30. Location of Accounts and Records.
Benham Management Corporation, the Registrant's investment advisor, maintains
its principal office at 1665 Charleston Road, Mountain View, CA 94043. The
Registrant and its agent for transfer and administrative services, Twentieth
Century Services, maintain their principal office at 4500 Main St., Kansas City,
MO 64111. Twentieth Century Services maintains physical possession of each
account, book, or other document, and shareholder records as required by
ss.31(a) of the 1940 Act and rules thereunder. The computer and data base for
shareholder records are located at Central Computer Facility, 401 North Broad
Street, Sixth Floor, Philadelphia, PA 19108.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
Registrant undertakes to furnish each person to whom a Prospectus is delivered
with a copy of the Registrant's latest report to shareholders, upon request and
without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 24/Amendment No. 28 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, and State of
California, on the 24th day of December, 1996. I hereby certify that this
Amendment meets the requirements for immediate effectiveness pursuant to Rule
485(b).
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
By: /s/ Douglas A. Paul
Douglas A. Paul
Vice President, Secretary, and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 24/Amendment No. 28 has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Date
<S> <C> <C>
* Chairman of the Board of Trustees, December 24, 1996
- --------------------------------- President and Chief Executive Officer
James M. Benham
* Trustee December 24, 1996
- ---------------------------------
Albert A. Eisenstat
* Trustee December 24, 1996
- ---------------------------------
Ronald J. Gilson
* Trustee December 24, 1996
- ---------------------------------
Myron S. Scholes
* Trustee December 24, 1996
- ---------------------------------
Kenneth E. Scott
* Trustee December 24, 1996
- ---------------------------------
Ezra Solomon
* Trustee December 24, 1996
- ---------------------------------
Isaac Stein
* Trustee December 24, 1996
- ---------------------------------
James E. Stowers III
* Trustee December 24, 1996
- ---------------------------------
Jeanne D. Wohlers
* Chief Financial Officer, Treasurer December 24, 1996
- ---------------------------------
Maryanne Roepke
</TABLE>
/s/ Douglas A. Paul
*by Douglas A. Paul, Attorney in Fact (pursuant to a Power of Attorney dated
March 4, 1996).
EXHIBIT DESCRIPTION
EX-99.B1 Amended Declaration of Trust dated May 31, 1995, is incorporated
herein by reference to Exhibit 1(d) of Post-Effective Amendment No.
22 filed on October 27, 1995 (Accession # 717316-95-000007).
EX-99.B2 Amended and Restated Bylaws dated May 17, 1995 are incorporated
herein by reference to Exhibit 2(d) of Post-Effective Amendment No.
22 filed on October 27, 1995 (Accession # 717316-95-000007).
EX-99.B4 Specimen copy of Limited-Term Tax-Free Fund's share certificate
is incorporated herein by reference to Exhibit 4 to Post-Effective
Amendment No. 16.
EX-99.B5 Investment Advisory Agreement between Benham California Tax-Free and
Municipal Funds: Limited-Term Tax-Free Fund, Benham California
Tax-Free and Municipal Funds: Tax-Free Money Market Fund, Benham
California Tax-Free and Municipal Funds: Municipal Money Market
Fund, Benham California Tax-Free and Municipal Funds: Tax-Free
Intermediate-Term Fund, Benham California Tax-Free and Municipal
Funds: Tax-Free Long-Term Fund, Benham California Tax-Free and
Municipal Funds: Municipal High-Yield Fund, Benham California
Tax-Free and Municipal Funds: Tax-Free Insured Fund and BMC, dated
June 1, 1995, is incorporated herein by reference to Exhibit 5(a) of
Post-Effective Amendment No. 22 filed on October 27, 1995 (Accession
# 717316-95-000007).
EX-99.B6 Distribution Agreement between Benham California Tax-Free and
Municipal Funds and Twentieth Century Securities, Inc. dated as of
September 3, 1996, is incorporated herein by reference to Exhibit 6
of Post-Effective Amendment No. 29 to the Registration Statement of
the Benham Government Income Trust filed on August 30, 1996
(Accession # 773674-96-000007).
EX-99.B8 1993 Omnibus Custodian Agreement between the Benham Group of
Funds (including Benham California Tax-Free and Municipal Funds) and
State Street Bank and Trust Company, dated August 10, 1993, is
incorporated herein by reference to Exhibit 8 to Post-Effective
Amendment No. 20, filed on October 27, 1995.
EX-99.B9 Administrative Services and Transfer Agency Agreement between Benham
California Tax-Free and Municipal Funds and Twentieth Century
Services, Inc. dated as of September 3, 1996,. is incorporated
herein by reference to Exhibit 9 of Post-Effective Amendment No. 29
to the Registration Statement of the Benham Government Income Trust
filed on August 30, 1996 (Accession # 773674-96-000007).
EX-99.B10 Opinion and consent of counsel as to the legality of the securities
being registered, dated October 16, 1996 is incorporated herein by
reference to Rule 24f-2 Notice filed on October 16, 1996 (Accession
# 717316-96-000012).
EX-99.B11 Consent of KPMG Peat Marwick, LLP, independent auditors, is included
herein.
EX-99.B16 Schedule for computation of each performance quotation provided in
response to Item 22 is included herein.
EX-99.B17 Power of Attorney dated March 4, 1996, is included herein.
EX-27.4.1 FDS - California Tax-Free Money Market Fund
EX-27.4.2 FDS - Municipal Money Market Fund
EX-27.5.3 FDS - California Tax-Free Intermediate-Term Fund
EX-27.5.4 FDS - California Tax-Free Long-Term Fund
EX-27.5.5 FDS - California Municipal High-Yield Fund
EX-27.5.6 FDS - California Tax-Free Insured Fund
EX-27.5.7 FDS - California Tax-Free Limited-Term Fund
Consent of Independent Auditors
The Board of Trustees and Shareholders
American Century California Tax-Free and Municipal Funds:
We consent to the inclusion in American Century California Tax-Free and
Municipal Funds' Post-Effective Amendment No. 24 to the Registration Statement
No. 2-82734 on Form N-1A under the Securities Act of 1933 and Amendment No. 28
to the Registration Statement No. 811-3706 filed on Form N-1A under the
Investment Company Act of 1940 of our reports dated October 4, 1996 on the
financial statements and financial highlights of the American Century-Benham
California Tax-Free Money Market Fund, American Century-Benham California
Municipal Money Market Fund, American Century-Benham California Limited-Term
Tax-Free Fund, American Century-Benham California Intermediate-Term Tax-Free
Fund, American Century-Benham California Long-Term Tax-Free Fund, American
Century-Benham California High-Yield Municipal Fund and American Century-Benham
California Insured Tax-Free Fund (the seven funds comprising the American
Century California Tax-Free and Municipal Funds) for the periods indicated
therein, which reports have been incorporated by reference into the Statements
of Additional Information of American Century California Tax-Free and Municipal
Funds. We also consent to the reference to our firm under the heading "Financial
Highlights" in the Prospectus and under the heading "About the Trust" in the
Statements of Additional Information which is incorporated by reference in the
Prospectus.
/s/KPMG Peat Marwick LLP
Kansas City, Missouri
December 27, 1996
AMERICAN CENTURY-BENHAM CALIFORNIA TAX-FREE MONEY MARKET FUND
YIELD CALCULATION
August 31, 1996
365/7
Effective Yield: [ (Base Period Return) + 1) ] - 1
7 Day Yield = 2.85%
7 Day Effective Yield = 2.89%
<PAGE>
AMERICAN CENTURY-BENHAM CALIFORNIA MUNICIPAL MONEY MARKET FUND
YIELD CALCULATION
August 31, 1996
365/7
Effective Yield: [ (Base Period Return) + 1) ] - 1
7 Day Yield = 2.96%
7 Day Effective Yield = 3.01%
<PAGE>
AMERICAN CENTURY-BENHAM CALIFORNIA INTERMEDIATE-TERM TAX-FREE FUND
YIELD CALCULATION
August 31, 1996
[ ( A-B ) 6 ]
Formula: Yield = 2[ (------- + 1) - 1 ]
[ ( C*D ) ]
A = Investment income earned during the period.
B = Expenses accrued for the period (net of reimbursements).
C = The average daily number of shares outstanding during the period that were
entitled to receive dividends.
D = The per share price on the last day of the period.
Calculation:
A = $1,738,953.37
B = $164,165.15
C = 38,995,760.031
D = $11.04
Yield = 4.43%
<PAGE>
AMERICAN CENTURY-BENHAM CALIFORNIA LONG-TERM TAX-FREE FUND
YIELD CALCULATION
August 31, 1996
[ ( A-B ) 6 ]
Formula: Yield = 2[ (------- + 1) - 1 ]
[ ( C*D ) ]
A = Investment income earned during the period.
B = Expenses accrued for the period (net of reimbursements).
C = The average daily number of shares outstanding during the period that were
entitled to receive dividends.
D = The per share price on the last day of the period.
Calculation:
A = $1,306,410.52
B = $112,927.55
C = 26,029,151.754
D = $11.06
Yield = 5.03%
<PAGE>
AMERICAN CENTURY-BENHAM CALIFORNIA HIGH-YIELD MUNICIPAL FUND
YIELD CALCULATION
August 31, 1996
[ ( A-B ) 6 ]
Formula: Yield = 2[ (------- + 1) - 1 ]
[ ( C*D ) ]
A = Investment income earned during the period.
B = Expenses accrued for the period (net of reimbursements).
C = The average daily number of shares outstanding during the period that were
entitled to receive dividends.
D = The per share price on the last day of the period.
Calculation:
A = $726,452.91
B = $63,733.04
C = 15,419,515.023
D = $9.27
Yield = 5.63%
<PAGE>
AMERICAN CENTURY-BENHAM CALIFORNIA INSURED TAX-FREE FUND
YIELD CALCULATION
August 31, 1996
[ ( A-B ) 6 ]
Formula: Yield = 2[ (------- + 1) - 1 ]
[ ( C*D ) ]
A = Investment income earned during the period.
B = Expenses accrued for the period (net of reimbursements).
C = The average daily number of shares outstanding during the period that were
entitled to receive dividends.
D = The per share price on the last day of the period.
Calculation:
A = $842,524.18
B = $76,369.83
C = 19,032,860.238
D = $10.00
Yield = 4.88%
<PAGE>
AMERICAN CENTURY-BENHAM CALIFORNIA LIMITED-TERM TAX-FREE FUND
YIELD CALCULATION
August 31, 1996
[ ( A-B ) 6 ]
Formula: Yield = 2[ (------- + 1) - 1 ]
[ ( C*D ) ]
A = Investment income earned during the period.
B = Expenses accrued for the period (net of reimbursements).
C = The average daily number of shares outstanding during the period that were
entitled to receive dividends.
D = The per share price on the last day of the period.
Calculation:
A = $357,599.97
B = $42,032.87
C = 10,071,980.397
D = $10.19
Yield = 3.72%
<PAGE>
AMERICAN CENTURY-BENHAM CALIFORNIA TAX-FREE MONEY MARKET FUND
AVERAGE ANNUAL TOTAL RETURN
August 31, 1996
( ERV ) 1/N
Formula: T = (-----) - 1
( P )
P = A hypothetical initial payment of $1,000.
ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.
N = Number of years.
T = Average annual total return.
P ERV N T
Calculation: --------- --------- -------- -------
One Year $1,000.00 $1,031.20 1.000000 3.12%
Five Years $1,000.00 $1,144.00 5.000000 2.73%
Ten Years $1,000.00 $1,439.40 10.000000 3.71%
Date Of Inception* $1,000.00 $1,636.20 12.810404 3.92%
TR=Total return for period. TR=(ERV/P) - 1 63.62%
*Date Of Inception: November 9, 1983
<PAGE>
AMERICAN CENTURY-BENHAM CALIFORNIA INTERMEDIATE-TERM TAX-FREE FUND
AVERAGE ANNUAL TOTAL RETURN
August 31, 1996
( ERV ) 1/N
Formula: T = (-----) - 1
( P )
P = A hypothetical initial payment of $1,000.
ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.
N = Number of years.
T = Average annual total return.
P ERV N T
Calculation: --------- --------- -------- -------
One Year $1,000.00 $1,047.90 1.000000 4.79%
Five Years $1,000.00 $1,367.90 5.000000 6.48%
Ten Years $1,000.00 $1,839.00 10.000000 6.28%
Date Of Inception* $1,000.00 $2,355.40 12.810404 6.92%
TR=Total return for period. TR=(ERV/P) - 1 135.54%
*Date Of Inception: November 9, 1983
<PAGE>
AMERICAN CENTURY-BENHAM CALIFORNIA HIGH-YIELD MUNICIPAL FUND
AVERAGE ANNUAL TOTAL RETURN
August 31, 1996
( ERV ) 1/N
Formula: T = (-----) - 1
( P )
P = A hypothetical initial payment of $1,000.
ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.
N = Number of years.
T = Average annual total return.
P ERV N T
Calculation: --------- --------- -------- -------
One Year $1,000.00 $1,080.20 1.000000 8.02%
Five Years $1,000.00 $1,446.70 5.000000 7.66%
Ten Years
Date Of Inception* $1,000.00 $1,804.60 9.670089 6.30%
TR=Total return for period. TR=(ERV/P) - 1 80.46%
*Date Of Inception: December 30, 1986
<PAGE>
AMERICAN CENTURY-BENHAM CALIFORNIA INSURED TAX-FREE FUND
AVERAGE ANNUAL TOTAL RETURN
August 31, 1996
( ERV ) 1/N
Formula: T = (-----) - 1
( P )
P = A hypothetical initial payment of $1,000.
ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.
N = Number of years.
T = Average annual total return.
P ERV N T
Calculation: --------- --------- -------- -------
One Year $1,000.00 $1,066.00 1.000000 6.60%
Five Years $1,000.00 $1,439.00 5.000000 7.55%
Ten Years
Date Of Inception* $1,000.00 $1,859.30 9.670089 6.63%
TR=Total return for period. TR=(ERV/P) - 1 85.93%
*Date Of Inception: December 30, 1986
<PAGE>
AMERICAN CENTURY-BENHAM CALIFORNIA MUNICIPAL MONEY MARKET FUND
AVERAGE ANNUAL TOTAL RETURN
August 31, 1996
( ERV ) 1/N
Formula: T = (-----) - 1
( P )
P = A hypothetical initial payment of $1,000.
ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.
N = Number of years.
T = Average annual total return.
P ERV N T
Calculation: --------- --------- -------- -------
One Year $1,000.00 $1,032.30 1.000000 3.23%
Five Years $1,000.00 $1,154.80 5.000000 2.92%
Ten Years
Date Of Inception* $1,000.00 $1,189.90 5.667351 3.12%
TR=Total return for period. TR=(ERV/P) - 1 18.99
*Date Of Inception: December 31, 1990
<PAGE>
AMERICAN CENTURY-BENHAM CALIFORNIA TAX-FREE LIMITED-TERM FUND
AVERAGE ANNUAL TOTAL RETURN
August 31, 1996
( ERV ) 1/N
Formula: T = (-----) - 1
( P )
P = A hypothetical initial payment of $1,000.
ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.
N = Number of years.
T = Average annual total return.
P ERV N T
Calculation: --------- --------- -------- -------
One Year $1,000.00 $1,038.70 1.000000 3.87%
Five Years
Ten Years
Date Of Inception* $1,000.00 $1,209.70 4.249144 4.58%
TR=Total return for period. TR=(ERV/P) - 1 20.97%
*Date Of Inception: June 1, 1992
<PAGE>
AMERICAN CENTURY-BENHAM CALIFORNIA LONG-TERM TAX-FREE FUND
AVERAGE ANNUAL TOTAL RETURN
August 31, 1996
( ERV ) 1/N
Formula: T = (-----) - 1
( P )
P = A hypothetical initial payment of $1,000.
ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.
N = Number of years.
T = Average annual total return.
P ERV N T
Calculation: --------- --------- -------- -------
One Year $1,000.00 $1,067.70 1.000000 6.77%
Five Years $1,000.00 $1,432.10 5.000000 7.44%
Ten Years $1,000.00 $1,955.60 10.000000 6.93%
Date Of Inception* $1,000.00 $2,803.60 12.810404 8.38%
TR=Total return for period. TR=(ERV/P) - 1 180.36%
*Date Of Inception: November 9, 1983
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, BENHAM CALIFORNIA
TAX-FREE AND MUNICIPAL FUNDS, hereinafter called the "Trust" and certain
trustees and officers of the Trust, do hereby constitute and appoint James M.
Benham, James E. Stowers, III, William M. Lyons, Douglas A. Paul, and Patrick A.
Looby, and each of them individually, their true and lawful attorneys and agents
to take any and all action and execute any and all instruments which said
attorneys and agents may deem necessary or advisable to enable the Trust to
comply with the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and any rules regulations, orders, or other requirements of
the United States Securities and Exchange Commission thereunder, in connection
with the registration under the Securities Act of 1933 and/or the Investment
Company Act of 1940, as amended, including specifically, but without limitation
of the foregoing, power and authority to sign the name of the Trust in its
behalf and to affix its seal, and to sign the names of each of such trustees and
officers in their capacities as indicated, to any amendment or supplement to the
Registration Statement filed with the Securities and Exchange Commission under
the Securities Act of 1933 and/or the Investment Company Act of 1940, as
amended, and to any instruments or documents filed or to be filed as a part of
or in connection with such Registration Statement; and each of the undersigned
hereby ratifies and confirms all that said attorneys and agents shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the Trust has caused this Power to be executed by its
duly authorized officers on this the 4th day of March, 1996
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
(A Massachusetts Business Trust)
By: /s/James M. Benham, President
James M. Benham, President
SIGNATURE AND TITLE
/s/James M. Benham /s/Ezra Solomon
James M. Benham Ezra Solomon
Chairman Trustee
/s/Albert A. Eisenstat /s/Isaac Stein
Albert A. Eisenstat Isaac Stein
Trustee Trustee
/s/Ronald J. Gilson /s/Jeanne D. Wohlers
Ronald J. Gilson Jeanne D. Wohlers
Trustee Trustee
/s/Myron S. Scholes /s/James E. Stowers, III
Myron S. Scholes James E. Stowers, III
Trustee Trustee
/s/Kenneth E. Scott /s/Maryanne Roepke
Kenneth E. Scott Maryanne Roepke
Trustee Treasurer
Attest:
By: /s/Douglas A. Paul
Douglas A. Paul, Secretary
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000717316
<NAME> BENHAM CALIFORNIA TAX FREE & MUNICIPAL FUNDS
<SERIES>
<NUMBER> 1
<NAME> BENHAM CALIFORNIA TAX-FREE MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 422,621,155
<INVESTMENTS-AT-VALUE> 422,621,155
<RECEIVABLES> 2,538,163
<ASSETS-OTHER> 1,121,982
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 426,281,300
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 434,894
<TOTAL-LIABILITIES> 434,894
<SENIOR-EQUITY> 425,773,728
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 425,773,728
<SHARES-COMMON-PRIOR> 414,243,637
<ACCUMULATED-NII-CURRENT> 470,929
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (398,251)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 425,846,406
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15,393,401
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