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._25_ X
-----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-----
File No. 811-3706:
Amendment No._29_
AMERICAN CENTURY 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: (816)531-5575
Douglas A. Paul
Secretary, Vice President
and 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:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on December 15, 1997 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 22, 1997, the Registrant filed a Rule
24f-2 Notice on Form 24f-2 with respect to its fiscal year ended August 31,
1997.
<PAGE>
AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
1933 Act Post-Effective Amendment No. 25
1940 Act Amendment No. 29
FORM N-1A
CROSS-REFERENCE SHEET
PART A: PROSPECTUS
ITEM PROSPECTUS CAPTION
1 Cover Page; Investment Objectives of the Funds
2 Transaction and Operating Expense Table
3 Financial Highlights, Performance Advertising
4 Management; 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 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 Cover Page, How to Open an Account, Distribution of Fund Shares, 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 Management, Transfer and Administrative Services, About the Trust
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
<PAGE>
PROSPECTUS
[american century logo]
American
Century(reg.sm)
DECEMBER 15, 1997
BENHAM
GROUP(reg.tm)
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
INVESTOR CLASS
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 American Century Twentieth Century
Group Group Group
- -------------------------------------------------------------------------------
MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS
GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
- -------------------------------------------------------------------------------
California Tax-Free
Money Market Fund*
California Municipal
Money Market Fund*
California Limited-Term
Tax-Free Fund*
California Intermediate-Term
Tax-Free Fund*
California Long-Term
Tax-Free Fund*
California High-Yield
Municipal Fund*
California Insured
Tax-Free Fund
PROSPECTUS
DECEMBER 15, 1997
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
INVESTOR CLASS
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.
Through its Investor Class of shares, 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 December 15, 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 * P.O. Box 419200
Kansas City, Missouri 64141-6200 * 1-800-345-2021
International calls: 816-531-5575
Telecommunications Device for the Deaf:
1-800-634-4113 * In Missouri: 816-444-3485
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 THE 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
Investment Objective of the Funds ......................................... 2
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 ............................................................. 23
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 .............................. 24
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 .......................................................... 32
Transfer and Administrative Services .................................... 32
Distribution of Fund Shares ............................................... 32
Further Information About American Century ................................ 32
PROSPECTUS TABLE OF CONTENTS 3
<TABLE>
<CAPTION>
TRANSACTION AND OPERATING EXPENSE TABLE
California
Limited-Term Tax-Free,
California Intermediate-
California Tax-Free Term Tax-Free,
Money Market, California
California Municipal Long-Term Tax-Free, California
Money Market California Insured Tax-Free High-Yield Municipal
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed
<S> <C> <C> <C>
on Purchases .............................. none none none
Maximum Sales Load Imposed on
Reinvested Dividends ...................... none none none
Deferred Sales Load ....................... none none none
Redemption Fee(1) ......................... none none none
Exchange Fee .............................. none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of net assets)
Management Fees(2) ........................ 0.50% 0.51% 0.54%
12b-1 Fees ................................ none none none
Other Expenses(3) ......................... 0.00% 0.00% 0.00%
Total Fund Operating Expenses ............. 0.50% 0.51% 0.54%
EXAMPLE:
You would pay the following expenses 1 year $ 5 $ 5 $ 6
on a $1,000 investment, assuming a 3 years 16 16 17
5% annual return and redemption at 5 years 28 29 30
the end of each time 10 years 63 64 68
- ----------
(1) Redemption proceeds sent by wire are subject to a $10 processing fee.
(2) A portion of the management fee may be paid by American Century Investment
Management, Inc. (the "Manager") to unaffiliated third parties who provide
recordkeeping and administrative services that would otherwise be performed
by an affiliate of the Manager. See "Management - Transfer and
Administrative Services," page 32.
(3) Other Expenses, which includes the fees and expenses (including legal
counsel fees) of those Trustees who are not "interested persons" as defined
in the Investment Company Act of 1940, are expected to be less than 0.01 of
1% of average net assets for the current fiscal year.
</TABLE>
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 class of shares of the American Century
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.
The shares offered by this Prospectus are Investor Class shares and have no
up-front or deferred sales charges, commissions, or 12b-1 fees. The Investor
Class is currently the only class of shares offered by the Funds.
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.
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- --------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Year .......... $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 .... 0.03 0.03 0.03 0.02 0.02 0.03 0.04 0.05 0.06 0.05
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Realized and
Unrealized Losses on
Investment Transactions .. -- -- -- -- -- -- -- -- -- (0.01)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From
Investment Operations .... 0.03 0.03 0.03 0.02 0.02 0.03 0.04 0.05 0.06 0.04
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions
From Net Investment
Income ...................(0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.04)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
End of Year ................ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return(1) ............ 3.17% 3.12% 3.31% 2.09% 2.13% 3.00% 4.23% 5.23% 5.70% 4.24%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average
Net Assets ................. 0.49% 0.49% 0.52% 0.50% 0.51% 0.54% 0.56% 0.56% 0.59% 0.63%
Ratio of Net Investment
Income to Average
Net Assets ................. 3.10% 3.12% 3.28% 2.07% 2.09% 2.98% 4.20% 5.10% 5.59% 4.10%
Net Assets, End
of Year (in thousands) ...$417,784 $425,846 $414,099 $371,074 $338,731 $321,307 $361,007 $463,130 $490,700 $328,532
- ----------
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
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.
1997 1996 1995 1994 1993 1992 1991(1)
- -----------------------------------------------------------------------------------------------------------
PER-SHARE DATA
Net Asset
Value,
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning of Period .......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- ------- ------- -------
Income
From
Investment Operations
Net Investment Income ...... 0.03 0.03 0.03 0.02 0.02 0.03 0.03
------- ------- ------- ------- ------- ------- -------
Distributions
From Net
Investment Income ............(0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.03)
------- ------- ------- ------- ------- ------- -------
Net Asset
Value,
End of Period ................ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= ======= ======= =======
Total Return(2) .............. 3.15% 3.23% 3.35% 2.15% 2.25% 3.63% 3.04%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average
Net Assets ................... 0.52% 0.53% 0.53% 0.51% 0.46% 0.07% --
Ratio of Net Investment
Income to Average
Net Assets ................... 3.10% 3.20% 3.31% 2.13% 2.21% 3.44% 4.39%(3)
Net Assets,
End
of Period (in thousands) ...$170,477 $196,520 $191,722 $243,701 $247,621 $254,823 $136,860
- ----------
(1) December 31, 1990 (inception) through August 31, 1991.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
</TABLE>
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.
1997 1996 1995 1994 1993 1992(1)
- ------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ................ $10.19 $10.23 $10.12 $10.34 $10.12 $10.00
------- ------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income ........... 0.43 0.43 0.41 0.38 0.38 0.10
Net Realized and
Unrealized Gain
(Loss) on Investment
Transactions .................... 0.11 (0.04) 0.11 (0.18) 0.22 0.12
------- ------- ------- ------- ------- -------
Total Income From
Investment Operations ........... 0.54 0.39 0.52 0.20 0.60 0.2
------- ------- ------- ------- ------- -------
Distributions
From Net Investment Income ..... (0.43) (0.43) (0.41) (0.38) (0.38) (0.10)
In Excess of Net Realized Gains .... -- -- -- (0.04) -- --
------- ------- ------- ------- ------- -------
Total Distributions ..... (0.43) (0.43) (0.41) (0.42) (0.38) (0.10)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ..... $10.30 $10.19 $10.23 $10.12 $10.34 $10.12
======= ======= ======= ======= ======= =======
Total Return(2) .................... 5.42% 3.87% 5.33% 1.90% 6.15% 1.47%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses
to Average Net Assets .............. 0.49% 0.49% 0.51% 0.51% 0.36% --
Ratio of Net Investment
Income
to Average Net Assets .............. 4.20% 4.20% 4.10% 3.68% 3.76% 4.08%(3)
Portfolio Turnover Rate ............ 47% 44% 50% 66% 54% 19%
Net Assets, End of Period
(in thousands) .....................$126,631 $103,707 $104,723 $120,627 $114,019 $52,171
- ----------
(1) June 1, 1992 (inception) through August 31, 1992.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
</TABLE>
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.
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- --------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
Net Asset
Value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Year ........ $11.05 $11.06 $10.86 $11.36 $10.85 $10.49 $10.13 $10.14 $10.06 $10.30
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income .. 0.54 0.54 0.54 0.54 0.56 0.59 0.60 0.62 0.63 0.63
Net Realized and
Unrealized Gain
(Loss) on Investment
Transactions ........... 0.25 (0.01) 0.20 (0.41) 0.53 0.36 0.36 (0.01) 0.08 (0.24)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From
Investment Operations .. 0.79 0.53 0.74 0.13 1.09 0.95 0.96 0.61 0.71 0.39
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions
From Net Investment
Income ................. (0.54) (0.54) (0.54) (0.54) (0.56) (0.59) (0.60) (0.62) (0.63) (0.63)
From Net Realized
Gains on Investment
Transactions ........... (0.03) -- -- (0.08) (0.02) -- -- -- -- --
In Excess of Net
Realized Gains ......... -- -- -- (0.01) -- -- -- -- -- --
Total Distributions .... (0.57) (0.54) (0.54) (0.63) (0.58) (0.59) (0.60) (0.62) (0.63) (0.63)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
End of Year .............. $11.27 $11.05 $11.06 $10.86 $11.36 $10.85 $10.49 $10.13 $10.14 $10.06
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return(1) .......... 7.39% 4.79% 7.09% 1.11% 10.42% 9.18% 9.74% 6.16% 7.28% 3.90%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average
Net Assets ............... 0.48% 0.48% 0.48% 0.48% 0.50% 0.52% 0.55% 0.58% 0.60% 0.64%
Ratio of Net Investment
Income to Average
Net Assets ............... 4.81% 4.87% 5.02% 4.82% 5.05% 5.50% 5.84% 6.08% 6.25% 6.19%
Portfolio Turnover Rate .. 42% 36% 25% 44% 27% 49% 29% 20% 40% 47%
Net Assets,
End of Year
(in thousands) ..........$435,440 $430,950 $417,550 $448,293 $444,460 $304,988 $241,496 $191,217 $167,444 $157,300
- ----------
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
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.
1997 1996 1995 1994 1993 1992 1991 1990 1989
1988
- ---------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
Net Asset
Value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Year ........ $11.06 $10.94 $10.88 $12.02 $11.44 $11.00 $10.45 $10.67 $10.36 $10.54
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income From
Investment Operations
Net Investment Income .. 0.61 0.61 0.62 0.63 0.66 0.69 0.70 0.71 0.74 0.74
Net Realized and
Unrealized Gain
(Loss) on Investment
Transactions ........... 0.44 0.12 0.12 (0.71) 0.85 0.44 0.55 (0.22) 0.31 (0.18)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From
Investment Operations .. 1.05 0.73 0.74 (0.08) 1.51 1.13 1.25 0.49 1.05 0.56
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions
From Net
Investment Income ...... (0.61) (0.61) (0.62) (0.63) (0.66) (0.69) (0.70) (0.71) (0.74) (0.74)
From Net Realized
Gains on Investment
Transactions ........... (0.02) -- (0.06) (0.43) (0.27) -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions .... (0.63) (0.61) (0.68) (1.06) (0.93) (0.69) (0.70) (0.71) (0.74) (0.74)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
End of Year .............. $11.48 $11.06 $10.94 $10.88 $12.02 $11.44 $11.00 $10.45 $10.67 $10.36
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return(1) .......... 9.70% 6.77% 7.21% (0.78)% 14.02% 10.58% 12.26% 4.66% 10.39% 5.61%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average
Net Assets ............... 0.48% 0.48% 0.49% 0.48% 0.49% 0.52% 0.55% 0.57% 0.58% 0.63%
Ratio of Net
Investment Income
to Average Net Assets .... 5.40% 5.48% 5.84% 5.51% 5.76% 6.14% 6.48% 6.64% 6.98% 7.19%
Portfolio Turnover Rate .. 50% 42% 60% 62% 55% 72% 38% 74% 78% 35%
Net Assets,
End of Year
(in thousands) ..........$304,671 $288,022 $276,085 $277,477 $338,075 $275,880 $247,244 $197,394 $179,737 $143,191
- ----------
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
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.
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- --------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
Net Asset
Value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Year ......... $9.27 $9.11 $9.06 $9.66 $9.12 $8.84 $8.54 $8.68 $8.45 $8.69
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income From
Investment Operations
Net Investment Income ... 0.55 0.56 0.56 0.56 0.57 0.58 0.59 0.63 0.66 0.65
Net Realized and
Unrealized Gain
(Loss) on Investment
Transactions ............ 0.41 0.16 0.05 (0.48) 0.54 0.28 0.30 (0.14) 0.23 (0.24)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From
Investment Operations ... 0.96 0.72 0.61 0.08 1.11 0.86 0.89 0.49 0.89 0.41
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions
From Net
Investment Income .......(0.55) (0.56) (0.56) (0.56) (0.57) (0.58) (0.59) (0.63) (0.66) (0.65)
From Net Realized
Capital Gains
on Investment
Transactions ............ -- -- -- (0.12) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions .....(0.55) (0.56) (0.56) (0.68) (0.57) (0.58) (0.59) (0.63) (0.66) (0.65)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
End of Year ............... $9.68 $9.27 $9.11 $9.06 $9.66 $9.12 $8.84 $8.54 $8.68 $8.45
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return(1) ...........10.61% 8.02% 7.09% 0.87% 12.61% 10.11% 10.75% 5.77% 10.86% 5.17%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average
Net Assets ................ 0.50% 0.51% 0.51% 0.51% 0.55% 0.56% 0.50% 0.24% -- --
Ratio of Net
Investment Income
to Average Net Assets ..... 5.77% 5.99% 6.30% 6.02% 6.14% 6.54% 6.79% 7.23% 7.67% 7.85%
Portfolio Turnover Rate ... 46% 36% 40% 43% 27% 33% 47% 104% 50% 143%
Net Assets,
End of Year
(in thousands) ..........$192,831 $144,675 $116,166 $116,000 $114,564 $79,949 $65,741 $44,602 $32,631 $13,169
- ----------
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
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.
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- --------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
Net Asset
Value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Year ........ $10.00 $9.89 $9.67 $10.64 $9.97 $9.47 $9.00 $9.23 $8.80 $9.07
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income From
Investment Operations
Net Investment Income .. 0.53 0.53 0.53 0.53 0.55 0.57 0.57 0.59 0.60 0.62
Net Realized and
Unrealized Gain
(Loss) on Investment
Transactions ........... 0.37 0.11 0.22 (0.69) 0.76 0.50 0.47 (0.23) 0.43 (0.27)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From
Investment Operations .. 0.90 0.64 0.75 (0.16) 1.31 1.07 1.04 0.36 1.03 0.35
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions
From Net
Investment Income ...... (0.53) (0.53) (0.53) (0.53) (0.55) (0.57) (0.57) (0.59) (0.60) (0.62)
From Net Realized
Capital Gains
on Investment
Transactions ........... -- -- -- (0.21) (0.09) -- -- -- -- --
In Excess of Net
Realized Gains ......... -- -- -- (0.07) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions .... (0.53) (0.53) (0.53) (0.81) (0.64) (0.57) (0.57) (0.59) (0.60) (0.62)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
End of Year .............. $10.37 $10.00 $9.89 $9.67 $10.64 $9.97 $9.47 $9.00 $9.23 $8.80
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Return(1) .......... 9.25% 6.60% 8.09% (1.68)% 13.74% 11.67% 11.87% 3.96% 12.04% 4.58%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average
Net Assets ............... 0.48% 0.49% 0.50% 0.49% 0.52% 0.55% 0.59% 0.61% 0.66% --
Ratio of Net
Investment Income
to Average Net Assets .... 5.23% 5.30% 5.54% 5.20% 5.37% 5.90% 6.18% 6.43% 6.62% 7.39%
Portfolio Turnover Rate .. 46% 43% 40% 47% 61% 54% 38% 117% 73% 145%
Net Assets,
End of Year
(in thousands) ..........$189,145 $191,811 $178,913 $189,439 $223,440 $145,965 $94,951 $59,870 $42,569 $29,531
- ----------
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
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 "Investment Company Act"), with the exception of the California
Municipal Money Market which is a "non-diversified company." "Diversified" means
that, with respect to 75% of its total assets, each Fund will not invest more
than 5% of its total assets in the securities of a single issuer. 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 qualification as a regulated investment
company, each Fund must limit its investments so that at the close of each
quarter of its taxable year (1) no more than 25% of its total assets are
invested in the securities of a single issuer (other than the U.S government or
a regulated investment company), and (2) with respect to at least 50% of its
total assets, no more than 5% of its total assets are invested in the securities
of a single issuer.
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 money market mutual funds, including 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 90 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 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 15% and 50% of its total assets in below investment grade securities.
Many issuers of medium- and lower-quality bonds choose not to 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
Board of 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) secured by an escrow or trust account holding
U.S. government securities, or (4) 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 income and total return based on their respective
quality and maturity criteria.
14 INFORMATION REGARDING THE FUNDS AMERICAN CENTURY INVESTMENTS
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 Intermediate-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 job growth has
occurred since early 1994 and all the jobs lost since the recession have now
been replaced.
PROSPECTUS INFORMATION REGARDING THE FUNDS 15
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 Board of 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.
MUNICIPAL NOTES typically have maturities of 13 months or less and are used
to provide short-term
16 INFORMATION REGARDING THE FUNDS AMERICAN CENTURY INVESTMENTS
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, 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 that applies to certain taxpayers who have certain
adjustments to income or tax preference items.
PROSPECTUS INFORMATION REGARDING THE FUNDS 17
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 Manager 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 accurately
predicted.
The portfolio turnover of each Fund may be higher than other mutual funds
with similar investment objectives. Higher turnover would generate
correspondingly greater brokerage commissions, which is a cost that the Funds
pay directly. Portfolio 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 objective of the Fund. The price of
when-issued securities is established at the time the 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 appropriate liquid assets
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
appropriate liquid assets 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, they 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 the Manager may still not result in a successful transaction. The
Manager 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 of Trustees 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 15% (10% for the Money Market Funds) of its net
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, including those 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. Because yield accounting methods differ from the
methods used for other accounting purposes, a Fund's yield may not equal the
income paid on its shares 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 IBC'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. Fund performance may also 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.
To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will eliminate duplicate copies of most
financial reports and prospectuses to most households and deliver account
statements to most households in a single envelope, even if they have more than
one account. If additional copies of financial reports and prospectuses or
separate mailing of account statements is desired, please call us at the
above-referenced number.
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:
* RECEIVING BANK AND ROUTING NUMBER:
Commerce Bank, N.A. (101000019)
* BENEFICIARY (BNF):
American Century Services Corporation
4500 Main St., Kansas City, Missouri 64111
* BENEFICIARY ACCOUNT NUMBER (BNF ACCT):
2804918
* 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.
* ORIGINATOR TO BENEFICIARY (OBI):
Name and address of owner of account into which you are investing.
PROSPECTUS HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS 21
* BANK TO BANK INFORMATION
(BBI OR FREE FORM TEXT):
* Taxpayer identification or Social Security number
* If more than one account, account numbers and amount to be invested in
each account.
* Current tax year, previous tax year or rollover designation if an IRA.
Specify whether IRA, SEP-IRA, SARSEP-IRA, SIMPLE Employer or SIMPLE
Employee.
BY EXCHANGE
Call 1-800-345-2021 weekdays, 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 Investor Centers, located at:
4500 Main Street
Kansas City, Missouri 64111
4917 Town Center Drive
Leawood, Kansas 66211
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 investment slip 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 investment
slip 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 Investor
Centers. The locations of our four Investor 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 Investments" 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 Variable-Price 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 issued by
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.
22 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS
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.
BY TELEPHONE
You can make exchanges over the telephone (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 get 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 W-4P 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.
PROSPECTUS HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS 23
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 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:
* redeeming more than $25,000; or
* 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
24 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS
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.
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:
* Individual Retirement Accounts ("IRAs");
* 403(b) plans for employees of public school
systems and non-profit organizations; or
* 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
PROSPECTUS HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS 25
procedures are designed to protect shareholders from unauthorized or
fraudulent instructions. 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 Investor 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 funds issued by 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 values for Target Maturities funds are 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 time as of which
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
as of the close of the Exchange 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 time as of which 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 prior to the time as of which 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 Funds' transfer agent prior to the applicable cut-off
time for receiving orders and to make payment for any purchase transactions in
accordance with the Funds' procedures or any contractual arrangement with the
Funds or the Funds' 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:
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, 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 Investor Class 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 of, 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 Investment Company Act. The Money Market Funds do not
expect to realize any long-term capital gains and, accordingly, do not expect to
make any capital 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 59-1/2 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
distributions 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, you should keep regular account statements to use in determining your
tax liability.
If you 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, formerly known as Benham 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 management agreement entered into with
the Funds, American Century Investment Management, Inc. serves as the investment
manager of the Funds. Its principal place of business is American Century Tower,
4500 Main Street, Kansas City, Missouri 64111.
The Manager has been providing investment advisory services to investment
companies and institutional clients since it was founded in 1958.
The Manager supervises and manages the investment portfolio of each Fund and
directs the purchase
30 ADDITIONAL INFORMATION YOU SHOULD KNOW AMERICAN CENTURY INVESTMENTS
and sale of its investment securities. It utilizes teams of portfolio managers,
assistant portfolio managers 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 adjust portfolio holdings of the Funds or of sectors of the Funds as
necessary between team meetings.
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 and Senior Portfolio Manager, 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 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 is a member of the Association for
Investment Management & Research (AIMR) 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 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 Director of Municipal
Research, is primarily responsible for the management of California High-Yield
Municipal. Mr. Permut is currently the Chairman of the California Society of
Municipal Analysts and a member of the Board of Directors of the National
Federation of Municipal Analysts. He has a bachelor's degree in Business and
Geography from State University of New York and an MBA in Finance from Golden
Gate University in San Francisco.
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 Funds'
Board of Trustees. The Manager pays all the expenses of the Funds except
brokerage, taxes, portfolio insurance, interest, fees and expenses of the
non-interested person Trustees (including counsel fees) and extraordinary
expenses.
For the services provided to the Funds, the Manager receives a monthly fee
based on a percentage of the average net assets of each Fund. The annual rate at
which this fee is assessed is determined monthly in a two-step process: First, a
fee rate schedule is applied to the assets of all of the funds in a Fund's
investment category which are managed by the Manager (the "Investment Category
Fee"). There are three investment categories: Money Market Funds, Bond Funds and
Equity Funds. Second, a separate fee rate schedule is applied to the assets of
all of the funds managed by the Manager (the "Complex Fee"). The Investment
Category Fee and the Complex Fee are then added to determine the unified manage-
PROSPECTUS ADDITIONAL INFORMATION YOU SHOULD KNOW 31
ment fee payable by the Fund to the Manager. Currently, the Investment Category
Fee for each of the Funds is an annual rate of the average net assets of the
Fund as follows: California Tax-Free Money Market and California Municipal Money
Market, 0.20%; California Limited-Term Tax-Free, California Intermediate-Term
Tax-Free, California Long-Term Tax-Free and California Insured Tax-Free, 0.21%;
and California High-Yield, 0.24%. The Complex Fee is currently an annual rate of
0.30% of the average net assets of a Fund. Further information about the
calculation of the annual management fee is contained in the Statement of
Additional Information.
On the first business day of each month, the Funds pay a management fee to
the Manager for the previous month at the specified rate. The fee for the
previous month is calculated by multiplying the applicable fee for a Fund by the
aggregate average daily closing value of a Fund's net assets during the previous
month by a fraction, the numerator of which is the number of days in the
previous month and the denominator of which is 365 (366 in leap years).
CODE OF ETHICS
The Funds 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 investment 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.
It provides facilities, equipment and personnel to the Funds and is paid for
such services by the Manager.
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 accommodate 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.
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.
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
32 ADDITIONAL INFORMATION YOU SHOULD KNOW AMERICAN CENTURY INVESTMENTS
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 Investment Company 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
INVESTOR SERVICES: 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 816-444-3485
FAX: 816-340-7962
INTERNET: www.americancentury.com
[american century logo]
American
Century(reg.sm)
9712 [recycled logo]
SH-BKT-10345 Recycled
<PAGE>
PROSPECTUS
[american century logo]
American
Century(reg.sm)
Brokerage
DECEMBER 15, 1997
BENHAM
GROUP(reg.tm)
California Tax-Free Money Market
INVESTOR CLASS
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 GROUP(reg.tm)
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS
GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
- --------------------------------------------------------------------------------
California Tax-Free
Money Market Fund
PROSPECTUS
DECEMBER 15, 1997
California Tax-Free Money Market
INVESTOR CLASS
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. One of the money
market funds from our Benham Group, which seeks to obtain interest income that
is exempt from federal and California income taxes, is described in this
Prospectus. Its investment objective is listed on page 2 of this Prospectus. The
other funds are described in separate prospectuses.
Through its Investor Class of shares, 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 December 15, 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 * P.O. Box 419200
Kansas City, Missouri 64141-6200 * 1-800-345-2021
International calls: 816-531-5575
Telecommunications Device for the Deaf:
1-800-634-4113 * In Missouri: 816-444-3485
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 OBJECTIVE OF THE FUND
AMERICAN CENTURY - BENHAM CALIFORNIA TAX-FREE
MONEY MARKET FUND
California Tax-Free Money Market is a money market fund which seeks 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 THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE PER SHARE.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT.
THE FUND CONCENTRATES ITS INVESTMENTS GEOGRAPHICALLY BY INVESTING IN SECURITIES
ISSUED BY AGENCIES, INSTRUMENTALITIES AND MUNICIPALITIES OF THE STATE OF
CALIFORNIA. BECAUSE OF THIS CONCENTRATION, THE FUND MAY BE RISKIER THAN SIMILAR
MUTUAL FUNDS WITH NO GEOGRAPHIC CONCENTRATION.
There is no assurance that the Fund will achieve its
respective investment objectives.
NO PERSON IS AUTHORIZED BY THE FUND 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 FUND, AND YOU SHOULD NOT RELY
ON ANY OTHER INFORMATION OR REPRESENTATION.
2 INVESTMENT OBJECTIVE AMERICAN CENTURY INVESTMENTS
TABLE OF CONTENTS
Investment Objective of the Fund ........................................... 2
Transaction and Operating Expense Table .................................... 4
Financial Highlights ....................................................... 5
INFORMATION REGARDING THE FUND
Investment Policies of the Fund ............................................ 6
Portfolio Investment Quality and Maturity
Guidelines .............................................................. 6
Risk Factors and Investment Techniques ..................................... 7
Basic Fixed Income Investment Risks ..................................... 7
Interest Rate Risk .............................................. 7
Credit Risk ..................................................... 7
Liquidity Risk .................................................. 7
Concentration Risk .............................................. 7
Call Risk ....................................................... 7
California Obligations ................................................. 7
Municipal Securities ................................................... 8
Tax-Exempt Securities ...................................................... 8
Other Investment Practices, Their Characteristics
and Risks ............................................................... 9
When-Issued and Forward Commitment
Agreements ......................................................... 9
Rule 144A Securities .................................................... 9
Other Techniques ........................................................ 9
Performance Advertising .................................................... 9
HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS
How to Purchase and Sell American
Century Funds ........................................................... 11
How to Exchange from One American Century
Fund to Another ......................................................... 11
How to Redeem Shares ....................................................... 11
Telephone Services ......................................................... 11
ADDITIONAL INFORMATION YOU SHOULD KNOW
Share Price ................................................................ 12
When Share Price Is Determined .......................................... 12
How Share Price Is Determined ........................................... 12
Where to Find Information About Share Price ............................. 13
Distributions .............................................................. 13
Taxes ...................................................................... 13
Tax-Deferred Accounts ................................................... 13
Taxable Accounts ........................................................ 13
Special Tax Information ................................................. 14
Municipal Securities .................................................... 14
Exempt-Interest Dividends ............................................... 15
Management ................................................................. 15
Investment Management ................................................... 15
Code of Ethics .......................................................... 16
Transfer and Administrative Services .................................... 16
Distribution of Fund Shares ................................................ 17
Further Information About American Century ................................. 17
PROSPECTUS TABLE OF CONTENTS 3
TRANSACTION AND OPERATING EXPENSE TABLE
California Tax-Free
Money Market
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases .............................. none
Maximum Sales Load Imposed on Reinvested Dividends ................... none
Deferred Sales Load .................................................. none
Redemption Fee(1) .................................................... none
Exchange Fee ......................................................... none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of net assets)
Management Fees(2) ................................................... 0.50%
12b-1 Fees ........................................................... none
Other Expenses(3) .................................................... 0.00%
Total Fund Operating Expenses ........................................ 0.50%
EXAMPLE:
You would pay the following expenses 1 year $ 5
on a $1,000 investment, assuming a 3 years 16
5% annual return and redemption at 5 years 28
the end of each time period: 10 years 63
- ----------
(1) REDEMPTION PROCEEDS SENT BY WIRE ARE SUBJECT TO A $10 PROCESSING FEE.
(2) A PORTION OF THE MANAGEMENT FEE MAY BE PAID BY AMERICAN CENTURY INVESTMENT
MANAGEMENT, INC. (THE "MANAGER") TO UNAFFILIATED THIRD PARTIES WHO PROVIDE
RECORDKEEPING AND ADMINISTRATIVE SERVICES THAT WOULD OTHERWISE BE PERFORMED
BY AN AFFILIATE OF THE MANAGER. SEE "MANAGEMENT - TRANSFER AND
ADMINISTRATIVE SERVICES," PAGE 16.
(3) OTHER EXPENSES, WHICH INCLUDES THE FEES AND EXPENSES (INCLUDING LEGAL
COUNSEL FEES) OF THOSE TRUSTEES WHO ARE NOT "INTERESTED PERSONS" AS DEFINED
IN THE INVESTMENT COMPANY ACT OF 1940, ARE EXPECTED TO BE LESS THAN 0.01 OF
1% OF AVERAGE NET ASSETS FOR THE CURRENT FISCAL YEAR.
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 class of shares of the American Century
Fund 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.
The shares offered by this Prospectus are Investor Class shares and have no
up-front or deferred sales charges, commissions, or 12b-1 fees. The Investor
Class is currently the only class of shares offered by the Fund.
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.
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Year ...... $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 ............. 0.03 0.03 0.03 0.02 0.02 0.03 0.04 0.05 0.06 0.05
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Realized and
Unrealized Losses
on Investment
Transactions ......... - - - - - - - - - (0.01)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations ........... 0.03 0.03 0.03 0.02 0.02 0.03 0.04 0.05 0.06 0.04
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Distributions
From Net Investment
Income ...............(0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.04)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value,
End of Year ............ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total Return(1) ........ 3.17% 3.12% 3.31% 2.09% 2.13% 3.00% 4.23% 5.23% 5.70% 4.24%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating Expenses
to Average Net Assets .. 0.49% 0.49% 0.52% 0.50% 0.51% 0.54% 0.56% 0.56% 0.59% 0.63%
Ratio of Net
Investment Income
to Average Net Assets .. 3.10% 3.12% 3.28% 2.07% 2.09% 2.98% 4.20% 5.10% 5.59% 4.10%
Net Assets, End of Year
(in thousands) .........$417,784 $425,846 $414,099 $371,074 $338,731v $321,307 $361,007 $463,130 $490,700 v$328,532
</TABLE>
- ----------
(1) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS, IF ANY.
PROSPECTUS FINANCIAL HIGHLIGHTS 5
INFORMATION REGARDING THE FUND
INVESTMENT POLICIES OF THE FUND
The Fund has adopted certain investment restrictions that are set forth in
the Statement of Additional Information. Those restrictions, as well as the
investment objective of the Fund 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 Fund has implemented additional investment policies
and practices to guide its activities in the pursuit of its investment
objective. These policies and practices, which are described throughout this
Prospectus, are not designated as fundamental policies and may be changed
without shareholder approval.
The Fund seeks 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.
The Fund is a "diversified company" as defined in the Investment Company Act
of 1940 (the "Investment Company Act"). "Diversified" means that, with respect
to 75% of its total assets, the Fund will not invest more than 5% of its total
assets in the securities of a single issuer.
To meet federal tax requirements for qualification as a regulated investment
company, the 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.
THE FUND INTENDS TO REMAIN FULLY INVESTED IN MUNICIPAL OBLIGATIONS. AS A
FUNDAMENTAL POLICY, THE 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 UNITED STATES, SUCH AS
PUERTO RICO, AND (3) U.S. GOVERNMENT OBLIGATIONS. FOR TEMPORARY DEFENSIVE
PURPOSES, THE FUND MAY INVEST MORE THAN 20% OF ITS NET ASSETS IN THESE
OBLIGATIONS.
THE FUND WILL INVEST AT LEAST 80% OF ITS NET ASSETS IN OBLIGATIONS WITH
INTEREST EXEMPT FROM REGULAR FEDERAL INCOME TAX.
For an explanation of the securities ratings referred to in the following
discussion, see "OTHER INFORMATION" in the Statement of Additional Information.
PORTFOLIO INVESTMENT QUALITY AND
MATURITY GUIDELINES
The Fund may be appropriate for investors seeking share price stability who
can accept the lower yields that short-term obligations typically provide.
In selecting investments for the Fund, 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, the 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 90 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
6 INFORMATION REGARDING THE FUND AMERICAN CENTURY INVESTMENTS
(3) An obligation judged by the Manager, pursuant to guidelines established
by the Board of Trustees, to be of quality comparable to the securities
listed above.
RISK FACTORS AND INVESTMENT TECHNIQUES
The Fund is designed for individuals in upper tax brackets seeking income
free from federal and California personal income taxes. By itself, the Fund does
not constitute a balanced investment plan.
BASIC FIXED INCOME INVESTMENT RISKS
The Fund 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 basic risk factors you should consider before making an investment in
the Fund are described in the following paragraphs.
INTEREST RATE RISK
Interest rate changes affect the level of income the Fund generates for
shareholders. 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 the 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 Fund if these securities are
judged to be of a quality consistent with the Fund's investment policies. The
Fund may invest up to 10% of its net assets in unrated securities. Unrated
securities may be less liquid than rated securities.
CONCENTRATION RISK
The Fund 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 Fund invests primarily in California municipal securities, its
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 1930s. California has experienced a
net loss of approximately 750,000 jobs since 1990. However, net 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
1990s 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 Fund. For example, recent
developments at the federal level, particularly federal welfare reform, may have
the effect of offsetting the
PROSPECTUS INFORMATION REGARDING THE FUND 7
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.
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 Fund may buy. The
Fund is not limited by this discussion, and it may buy other types of securities
and enter into other types of transactions that meet its quality, maturity, and
liquidity requirements.
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
which 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
Fund 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, the 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 Fund's
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, THE 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, 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 Fund takes 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.
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
8 INFORMATION REGARDING THE FUND AMERICAN CENTURY INVESTMENTS
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 tax-equivalent yield is based on the current double tax-exempt yield and
your combined federal and state marginal tax rate. Assuming all the Fund's
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 Fund 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 the Fund,
see the Statement of Additional Information.
WHEN-ISSUED AND FORWARD COMMITMENT AGREEMENTS
The Fund 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 objective of the Fund. The price of when-issued
securities is established at the time the 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.
RULE 144A SECURITIES
The Fund may, from time to time, purchase Rule 144A securities when they
present attractive investment opportunities that otherwise meet the Fund's
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 Fund has delegated the day-to-day function of determining the
liquidity of Rule 144A securities to the Manager. The Board of Trustees 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.
THE FUND MAY NOT INVEST MORE THAN 10% OF ITS NET 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).
OTHER TECHNIQUES
The Manager may buy other types of securities or employ other portfolio
management techniques on behalf of the Fund. When SEC guidelines require it to
do so, the Fund will set aside cash or appropriate liquid assets in a segregated
account to cover its obligations. See the Fund's Statement of Additional
Information for a more detailed discussion of these investments and some of the
risks associated with them.
PERFORMANCE ADVERTISING
From time to time, the Fund 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).
PROSPECTUS INFORMATION REGARDING THE FUND 9
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. 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.
Yields are calculated according to accounting methods that are standardized
in accordance with SEC rules. Because yield accounting methods differ from the
methods used for other accounting purposes, a Fund's yield may not equal the
income paid on its shares 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 8, for a description of the
formula used in comparing yields to tax-equivalent yields.
The Fund 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 IBC'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. Fund performance may also 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 Fund 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.
10 INFORMATION REGARDING THE FUND AMERICAN CENTURY INVESTMENTS
HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS
The following section explains how to purchase, exchange and redeem the
Investor Class shares of the Fund offered by this Prospectus through American
Century Brokerage Access Account SM and Standard Account.
HOW TO PURCHASE AND SELL AMERICAN CENTURY
FUNDS
The Fund offered by this Prospectus is available as an investment option in
connection with a program, product or service offered by American Century
Brokerage. Since all records of your share ownership are maintained by American
Century Brokerage, all orders to purchase, exchange and redeem shares must be
made through American Century Brokerage.
You should contact a Brokerage Associate at 1-888-345-2071 for information
about how to select American Century funds.
If you have questions about the Fund, see "INVESTMENT POLICIES OF THE FUND,"
page 6, or call one of our Investor Services Representatives at 1-800-345-2021.
Orders to purchase shares are effective on the day we receive payment. See
"WHEN SHARE PRICE IS DETERMINED," page 12.
We may discontinue offering shares generally in the Fund (including any
class of shares of the Fund) or in any particular state without notice to
shareholders.
To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will eliminate duplicate copies of most
financial reports and prospectuses to most households and deliver account
statements to most households in a single envelope, even if they have more than
one account. If additional copies of financial reports and prospectuses or
separate mailing of account statements is desired, please call American Century
Brokerage at 1-888-345-2071.
HOW TO EXCHANGE FROM ONE AMERICAN CENTURY
FUND TO ANOTHER
Your American Century Brokerage account permits you to exchange your
investment in the shares of the Fund for shares of another fund in our family.
Contact American Century Brokerage at 1-888-345-2071 for details on the rules
governing exchanges.
HOW TO REDEEM SHARES
Subject to any restrictions imposed by American Century Brokerage, you can
sell ("redeem") your shares through American Century Brokerage at their net
asset value. American Century Brokerage will provide us with redemption
instructions. The shares will be redeemed at the net asset value next computed
after receipt of the instructions in good order. See "WHEN SHARE PRICE IS
DETERMINED," page 12. If you have any questions about how to redeem, contact an
American Century Brokerage Associate.
TELEPHONE SERVICES
INVESTORS LINE
To request information about our funds and a current Prospectus, or get
answers to any questions that you may have about the funds and the services we
offer, call one of our Investor Services Representatives at 1-800-345-2021.
PROSPECTUS HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS 11
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 funds issued by 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 values for Target Maturities funds are 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 time as of which
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
as of the close of the Exchange 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 time as of which 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 prior to the time as of which 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:
Portfolio securities of the 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 Fund's Board of Trustees and Rule 2a-7
under the Investment Company Act, portfolio securities of the Fund 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.
12 ADDITIONAL INFORMATION YOU SHOULD KNOW AMERICAN CENTURY INVESTMENTS
WHERE TO FIND YIELD INFORMATION
The yield of the Investor Class of the Fund is published weekly in leading
financial publications and daily in many local newspapers. Yield information may
also be obtained by calling us or by accessing our Web site at
www.americancentury.com.
DISTRIBUTIONS
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 12. 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 Investment Company Act. The Fund does not expect to
realize any long-term capital gains and, accordingly, do not expect to make any
capital 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 59-1/2 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
The 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 Fund 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 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
PROSPECTUS ADDITIONAL INFORMATION YOU SHOULD KNOW 13
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 Fund anticipates that
substantially all of the dividends to be paid by the Fund 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 Fund 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
The 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 Fund 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 Fund 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 Fund may invest in these instruments, it cannot
guarantee the tax-exempt status of the income earned thereon from any other
investment.
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
14 ADDITIONAL INFORMATION YOU SHOULD KNOW AMERICAN CENTURY INVESTMENTS
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 Fund's 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, you should keep regular account statements to use in determining your
tax liability.
If you 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 Fund is an open-end series of the American Century California Tax-Free
and Municipal Funds, formerly known as Benham 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 management agreement entered into with
the Fund, American Century Investment Management, Inc. serves as the investment
manager of the Fund. Its principal place of business is American Century Tower,
4500 Main Street, Kansas City, Missouri 64111.
The Manager has been providing investment advisory services to investment
companies and institutional clients since it was founded in 1958.
The Manager supervises and manages the investment portfolio of the Fund and
directs the purchase and sale of its investment securities. It utilizes teams of
portfolio managers, assistant portfolio managers and analysts acting together to
manage the assets of the Fund. The teams meet regularly to review portfolio
holdings and to discuss purchase and sale activity. The teams adjust holdings in
the Fund's portfolios as they deem appropriate in pursuit of the Fund's
investment objective. Individual portfolio manager members of the team may also
adjust portfolio holdings of the Fund as necessary between team meetings.
The portfolio manager members of the teams managing the Fund described in
this Prospectus and their work experience for the last five years are listed as
follows:
G. DAVID MACEWEN, Vice President and Senior Portfolio Manager, is the
manager of the portfolio management team which manages the Fund and has had
primary responsibility for the day-to-day operations of California Long-Term
Tax-Free and California Insured
PROSPECTUS ADDITIONAL INFORMATION YOU SHOULD KNOW 15
Tax-Free since May 1991. Mr. MacEwen joined American Century in 1991 as a
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 Fund and the California Municipal Money Market 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 is a
member of the Association for Investment Management & Research (AIMR) 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.
The activities of the Manager are subject only to directions of the Fund's
Board of Trustees. The Manager pays all the expenses of the Fund except
brokerage, taxes, portfolio insurance, interest, fees and expenses of the
non-interested person Trustees (including counsel fees) and extraordinary
expenses.
For the services provided to the Fund, the Manager receives a monthly fee
based on a percentage of the average net assets of each Fund. The annual rate at
which this fee is assessed is determined monthly in a two-step process: First, a
fee rate schedule is applied to the assets of all of the funds in a Fund's
investment category which are managed by the Manager (the "Investment Category
Fee"). There are three investment categories: Money Market Funds, Bond Funds and
Equity Funds. Second, a separate fee rate schedule is applied to the assets of
all of the funds managed by the Manager (the "Complex Fee"). The Investment
Category Fee and the Complex Fee are then added to determine the unified
management fee payable by the Fund to the Manager. Currently, the Investment
Category Fee for the Fund is an annual rate of 0.20% of the average net assets
of the Fund. The Complex Fee is currently an annual rate of 0.30% of the average
net assets of the Fund. Further information about the calculation of the annual
management fee is contained in the Statement of Additional Information.
On the first business day of each month, the Fund pays a management fee to
the Manager for the previous month at the specified rate. The fee for the
previous month is calculated by multiplying the applicable fee for a Fund by the
aggregate average daily closing value of a Fund's net assets during the previous
month by a fraction, the numerator of which is the number of days in the
previous month and the denominator of which is 365 (366 in leap years).
CODE OF ETHICS
The Fund 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 Fund's portfolios
obtain preclearance before executing personal trades. With respect to Portfolio
Managers and other investment 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 Fund.
It provides facilities, equipment and personnel to the Fund and is paid for such
services by the Manager.
The Fund charges 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
16 ADDITIONAL INFORMATION YOU SHOULD KNOW AMERICAN CENTURY INVESTMENTS
accommodate 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 Fund 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.
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 Fund's 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 Fund does 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.
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 Fund is an 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 Investment Company 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 17
TO CONTACT AMERICAN CENTURY BROKERAGE, INC.:
P.O. BOX 419146
KANSAS CITY, MISSOURI
64141-6146
BROKERAGE ASSOCIATE:
1-888-345-2071
TELESELECT AUTOMATED INFORMATION AND TRADING LINE:
1-888-345-2091
INTERNET: www.americancentury.com
TO CONTACT THE FUND:
P.O. BOX 419200
KANSAS CITY, MISSOURI
64141-6200
INVESTOR SERVICES:
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 816-444-3485
INTERNET: WWW.AMERICANCENTURY.COM
[american century logo]
American
Century(reg.sm)
Brokerage
9712 [recycled logo]
BK-BKT-10451 Recycled
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
[american century logo]
American
Century(reg.sm)
DECEMBER 15, 1997
BENHAM
GROUP(reg.tm)
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
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 15, 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 December 15, 1997. The Funds' annual reports for the fiscal year
ended August 31, 1997, 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 ........... 8
Investment Restrictions .................................................... 11
Portfolio Transactions ..................................................... 13
Valuation of Portfolio Securities .......................................... 13
Performance ................................................................ 15
Taxes ...................................................................... 16
About the Trust ............................................................ 18
Trustees and Officers ...................................................... 20
Management ................................................................. 21
Transfer and Administrative Services ....................................... 24
Distribution of Fund Shares ................................................ 25
Additional Purchase and Redemption Information ............................. 25
Other Information .......................................................... 26
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. Floating-rate securities have interest rates that change
2 AMERICAN CENTURY INVESTMENTS
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.
American Century Investment Management, Inc. (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 establish and maintain until the settlement date a segregated account
consisting of cash, cash equivalents, or other appropriate liquid securities in
an amount sufficient to meet the purchase price. When the time comes to pay for
the when-issued securities, the Fund will meet its obligations with available
cash, through the sale of securities, or, although it would not normally expect
to do so, by selling the when-issued securities themselves (which may have a
market value greater or less than the Fund's payment obligation). Selling
securities to meet when-issued or forward commitment obligations may generate
taxable capital gains or losses.
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 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
4 AMERICAN CENTURY INVESTMENTS
allocated to floater and inverse floater holders in the following manner:
(i) Floater holders receive interest based on rates set at a six month
interval or at a Dutch Auction, which is typically held every 28 to 35
days. Current and prospective floater holders bid the minimum interest
rate that they are willing to accept on the floaters, and the interest
rate is set just high enough to ensure that all of the floaters are
sold.
(ii) Inverse floater holders receive all of the interest that remains 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
dominated 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.
STATEMENT OF ADDITIONAL INFORMATION 5
SHORT-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
(SEC), 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 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.
6 AMERICAN CENTURY INVESTMENTS
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. 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
STATEMENT OF ADDITIONAL INFORMATION 7
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. 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 total 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 or (b) insured
under a secondary market insurance policy purchased by the Fund or a previous
bond holder. 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,
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,
8 AMERICAN CENTURY INVESTMENTS
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 1996 population of approximately 32.4 million,
representing approximately 12% of the U.S. population, has grown by 36% since
1980. Total personal income, an estimated $810 billion in 1996, accounted for
approximately 12% of personal income nationwide.
From 1990-1993, the State suffered through a severe recession, the worst
since the 1930's, heavily influenced by large cutbacks in defense/aerospace
industries and military base closures and a major drop in real estate
construction. California's economy has been recovering and growing steadily
since the start of 1994, to the point where the State's economic growth is
outpacing the rest of the nation. More than 300,000 non-farm jobs were added in
the state in 1996, while personal income grew by more than $55 billion. Another
380,000 jobs are expected to be created in 1997. The unemployment rate, while
still higher than the national average, fell to the low 6% range in mid-1997,
compared to over 10% at the worst of the recession.
California's economic expansion is being fueled by strong growth in
high-technology industries; including computer software, electronics
manufacturing, and motion picture/television production. Growth is also strong
in business services, export trade, and manufacturing, with even the aerospace
sector showing increasing employment. Non-residential and residential
construction have been moderately growing since the depths of the recession, but
remain much lower (as measured by annual new unit permits) than the late 1980's.
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 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.
PROPOSITION 218 - THE "RIGHT TO VOTE ON TAXES ACT"
On November 5, 1996, the voters of the state approved Proposition 218. This
proposition adds Articles XIIIC and XIIID to the State Constitution, which
affect the ability of local governments, including charter cities, to levy and
collect both existing and future taxes, assessments, fees, and charges.
Proposition 218 became effective on November 6, 1996, although application of
some of its provisions was deferred until July 1, 1997. This proposition could
negatively impact a local government's ability to make its debt service
payments, and thus could result in a lowering of credit ratings.
STATEMENT OF ADDITIONAL INFORMATION 9
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 September 1, 1997, the State had approximately $17.9 billion of
general obligation bonds outstanding, and approximately $4.6 billion remained
authorized but unissued. Of the State's outstanding general obligation debt, 21%
is presently self-liquidating (i.e., program revenues are expected to be
sufficient to reimburse the General Fund for debt service payments). In fiscal
year 1996-97, debt service on general obligation bonds and lease-purchase debt
was approximately 5.00% of general fund revenues down from 5.25% in fiscal year
1994-95.
The State's principal sources of General Fund revenues for fiscal year
1996-97 were the California personal income tax (45% of total revenues), the
sales tax (35%), bank and corporations taxes (13%), and the gross premium tax on
insurance (2%). 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. Pressures on the State's budget in the late 1980's and early 1990's
were caused by a combination of external economic conditions and growth of the
largest General Fund expenditure programs--K-14 education, health, welfare, and
corrections--at rates faster than the revenue base. The largest state
expenditure program is assistance to local public school districts. In 1988, an
initiative (Proposition 98) was enacted which essentially guarantees local
school districts and community college districts a minimum share of the state's
general fund revenues (currently 35%).
Expenditures pressures could continue as the state's overall population and
school age population continue to grow, and as the state's corrections program
responds to a "Three Strikes" law enacted in 1994 (which requires mandatory life
prison terms for certain third-time felony offenders). In addition, the
long-term impact of federal welfare reform on the state's budget is uncertain.
RECENT BUDGETS. State finances have improved over the past two fiscal years,
due primarily to stronger than anticipated revenue and lower than anticipated
social spending. The State finished fiscal year 1996-97 with a $408 million in
the State's budget reserve. The past two fiscal years' budgets contained the
following features:
* Expenditures for K-14 schools grew significantly as the new revenues
were directed to school spending under Proposition 98.
* The budgets restrained health and welfare spending levels.
10 AMERICAN CENTURY INVESTMENTS
* General Fund support for the University of California and California
State Universities grew by an average of 5.2% and 3.3% per year.
* General Fund support for corrections grew as needed to meet increased
prison population.
* There was 5% corporate income tax cut.
CURRENT BUDGET. The Budget Act anticipates General Fund revenues and
transfers of $52.5 billion (6.8% increase from the prior fiscal year) and
expenditures of $52.8 billion (an 8.0% increase). On budgetary basis, the budget
reserve is projected to decrease from $408 million as of June 30, 1997 to $112
million as of June 30, 1998. The following are major features of the 1997-98
Budget Act:
* For the second year in a row, the budget contains a large increase in
funding for K-14 education under Proposition 98, reflecting strong
revenues have exceeded initial budgeted amounts.
* The budget reflects a $1.235 billion pension judgment payment to the
Public Employees Retirement System (PERS).
* General Fund support for the University of California and California
State University is increased by approximately 6%.
* Health and welfare costs are contained, continuing generally the grant
levels from prior years, as part of the initial implementation of
welfare reform.
* Unlike prior years, this budget does not include uncertain federal
budget actions.
* The budget does not have any tax increases or tax cuts.
Due to the improvement in the State's economy and financial condition, the
State of California was upgraded by Standard and Poor's in August, 1996 from A
to A+ and by Fitch Investors Service in September, 1997 from A+ to AA-.
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 municipalities. 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.
INVESTMENT RESTRICTIONS
The Funds' investment restrictions are set forth below. These investment
restrictions are fundamental and may not be changed without approval of "a
majority of the outstanding votes of shareholders" of a Fund, as determined in
accordance with the Investment Company Act of 1940 (the "Investment Company
Act").
AS A FUNDAMENTAL POLICY, EACH FUND SHALL NOT:
1) issue senior securities, except as permitted under the Investment
Company Act.
2) borrow money, except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33-1/3% of the Fund's total assets (including the amount
borrowed) less liabilities (other than borrowings).
3) lend any security or make any other loan if, as a result, more than
33-1/3% of the Fund's total assets would be lent to other parties,
except, (i) through the purchase of debt securities in accordance with
its investment objective, policies and
STATEMENT OF ADDITIONAL INFORMATION 11
limitations, or (ii) by engaging in repurchase agreements with respect
to portfolio securities.
4) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments. This policy shall not prevent the
Fund from investment in securities or other instruments backed by real
estate or securities of companies that deal in real estate or are
engaged in the real estate business.
5) concentrate its investments in securities of issuers in a particular
industry (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities).
6) act as an underwriter of securities issued by others, except to the
extent that the Fund may be considered an underwriter within the
meaning of the Securities Act of 1933 in the disposition of restricted
securities.
7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; provided that this
limitation shall not prohibit the Fund from purchasing or selling
options and futures contracts or from investing in securities or other
instruments backed by physical commodities.
8) invest for purposes of exercising control over management.
In addition, the Funds are subject to the following additional investment
restrictions which are not fundamental and may be changed by the Board of
Trustees.
AS AN OPERATING POLICY, EACH FUND:
a) [California Municipal Money Market Fund only] to meet federal tax
requirements for qualification as a "regulated investment company,"
limits its investment so that at the close of each quarter of its
taxable year: (i) with regard to at least 50% of total assets, no more
than 5% of total assets are invested in the securities of a single
issuer, and (ii) no more than 25% of total assets are invested in the
securities of a single issuer. Limitations (i) and (ii) do not apply to
"Government securities" as defined for federal tax purposes. The Fund
does not, with respect to 75% of its total assets, currently intend to
purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result thereof, the Fund would own more
than 10% or the outstanding voting securities of such issuer.
b) shall not purchase additional investment securities at any time during
which outstanding borrowings exceed 5% of the total assets of the Fund.
c) [Money Market Funds only] shall not purchase or sell futures contracts
or call options. This limitation does not apply to options attached to,
or acquired or traded together with, their underlying securities, and
does not apply to securities that incorporate features similar to
options or futures contracts.
d) shall not purchase any security or enter into a repurchase agreement
if, as a result, more than 15% of its net assets (10% for the Money
Market Funds) would be invested in repurchase agreements not entitling
the holder to payment of principal and interest within seven days and
in securities that are illiquid by virtue of legal or contractual
restrictions on resale or the absence of a readily available market.
e) shall not sell securities short, unless it owns or has the right to
obtain securities equivalent in kind and amount to the securities sold
short, and provided that transactions in futures contracts and options
are not deemed to constitute selling securities short.
f) shall not purchase securities on margin, except that the Fund may
obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection with
futures contracts and options on futures contracts shall not constitute
purchasing securities on margin.
For purposes of the investment restriction (5), relating to concentration, a
Fund shall not purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government, any state, territory or
possession of the United States, the District of Columbia or any of their
12 AMERICAN CENTURY INVESTMENTS
authorities, agencies, instrumentalities or political subdivisions and
repurchase agreements secured by such instruments, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, (c)
utilities will be divided according to their services, for example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry, and (d) personal credit and business credit businesses will
be considered separate industries.
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 efforts to obtain the 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 are listed in the
Financial Highlights table in the Prospectus.
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.
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") usually at 3 p.m.
Central time each day the Exchange is open for business. The Exchange has
designated the following holiday closings for 1997: New Year's Day (observed),
Martin Luther King Jr. Day, 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.
STATEMENT OF ADDITIONAL INFORMATION 13
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 Money Market Funds operate pursuant to Investment Company Act Rule 2a-7,
which permits valuation of portfolio securities on the basis of amortized cost.
As required by the Rule, the Board of Trustees has adopted procedures designed
to stabilize, to the extent reasonably possible, a Money Market Fund's price per
share as computed for the purposes of sales and redemptions at $1.00. While the
day-to-day operation of the Money Market Funds has been delegated to the
Manager, the quality requirements established by the procedures limit
investments to certain instruments that the Board of Trustees has determined
present minimal credit risks and that have been rated in one of the two highest
rating categories as determined by a nationally recognized statistical rating
organization or, in the case of unrated securities, of comparable quality. The
procedures require review of the Money Market Fund's portfolio holdings at such
intervals as are reasonable in light of current market conditions to determine
whether the Money Market Fund's net asset value calculated by using available
market quotations deviates from the per-share value based on amortized cost. The
procedures also prescribe the action to be taken if such deviation should occur.
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 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
14 AMERICAN CENTURY INVESTMENTS
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, 1997, were as follows:
Money Market Fund 7-Day Yield Effective Yield
- --------------------------------------------------------------------------------
California Tax-Free Money Market 2.91% 2.95%
California Municipal Money Market 2.97% 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,
1997, were as follows:
Variable-Price Fund 30-Day Yield
- --------------------------------------------------------------------------------
California Limited-Term Tax-Free 3.67%
California Intermediate-Term Tax-Free 3.97%
California Long-Term Tax-Free 4.64%
California High-Yield Municipal 5.04%
California Insured Tax-Free 4.55%
- --------------------------------------------------------------------------------
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 (if any) 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 during a
stated period and then calculating the annually compounded 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, 1997, are indicated in the
following table.
STATEMENT OF ADDITIONAL INFORMATION 15
Average Annual Total Returns
- ----------------------------------------------------------------------------
Life-of-
Fund One-Year Five-Years Ten-Years Fund
- ----------------------------------------------------------------------------
Tax-Free Money
Market(1) 3.17% 2.76% 3.64% 3.86%
Municipal Money
Market(2) 3.15% 2.82% -- 3.12%
Limited-Term
Tax-Free(3) 5.42% 4.52% -- 4.74%
Intermediate-
Term Tax-Free(1) 7.39% 6.12% 6.67% 6.95%
Long-Term
Tax-Free(1) 9.70% 7.27% 7.97% 8.48%
High-Yield
Municipal Fund(4) 10.61% 7.76% 8.13% 6.70%
Insured Tax-Free(4) 9.25% 7.08% 7.91% 6.87%
- ----------------------------------------------------------------------------
(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 the American
Century funds, are sold with a sales charge or deferred sales charge. Sources of
economic data that may be used for 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 Funds may also utilize reprints from
newspapers and magazines furnished by third parties to illustrate historical
performances.
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 (if any) 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
16 AMERICAN CENTURY INVESTMENTS
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, 1997, the Funds had the following capital loss carryovers
of $298,915 (expiring 1999 through 2004) for California Tax-Free Money Market,
$158,606 (expiring 2003 through 2004) for California Municipal Money Market, and
$833,657 (expiring 2003 and 2004) for California Limited-Term Tax-Free. 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 eliminat-
STATEMENT OF ADDITIONAL INFORMATION 17
ing 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.
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 with his or
her tax advisors or state or local tax authorities to determine whether the
Funds are suitable investments.
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 following
table lists each Fund's current and prior name.
18 AMERICAN CENTURY INVESTMENTS
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
Intermediate-Term Tax-Free Fund Tax-Free Intermediate-Term Fund
American Century--Benham California Benham California
Long-Term Tax-Free Fund Tax-Free Long-Term Fund
American Century--Benham California Benham California Municipal
High-Yield Municipal Fund High-Yield Fund
American Century--Benham California Benham California
Insured Tax-Free Fund Tax-Free Insured Fund
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 Board of Trustees to issue an unlimited
number of full and fractional shares of beneficial interest without par value,
which may be issued in series (or 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 be able to elect a Board of
Trustees. The Trust instituted dollar-based voting, meaning that the number of
votes you are entitled to is based upon the dollar amount of your investment.
The election of Trustees is determined by the votes received from all Trust
shareholders without regard to whether a majority of shares of any one series
voted in favor of a particular nominee or all nominees as a group.
Each shareholder has rights to dividends and distributions declared by their
series and to the net assets of such series upon its liquidation or dissolution
proportionate to his or her share ownership interest in the series. 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 as a result of
shareholder liability is limited to circumstances in which both inadequate
insurance exists and the Trust is unable to meet its obligations.
CUSTODIAN BANKS: Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn,
New York 11245 and Commerce Bank, N. A., 1000 Walnut, Kansas City, Missouri
64106, serve as custodians of the Funds' assets. Services provided by the
custodian banks include (i) settling portfolio purchases and sales, (ii)
reporting failed trades, (iii) identifying and collecting
STATEMENT OF ADDITIONAL INFORMATION 19
portfolio income, and (iv) providing safekeeping of securities. The custodians
take no part in determining the Funds' investment policies or in determining
which securities are sold or purchased by the Funds.
INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 1000 Walnut, Suite 1600, Kansas
City, Missouri 64106, serves as the Trust's independent auditors and provides
services including the audit of the annual financial statements.
For the fiscal year, which started on September 1, 1997, the Trustees of the
Fund have selected Coopers & Lybrand LLP to serve as independent auditors of the
Funds. The address of Coopers & Lybrand LLP is City Center Square, 1100 Main
Street, Suite 900, Kansas City, Missouri 64105-2140.
TRUSTEES AND OFFICERS
The Trust's activities are overseen by a Board of Trustees, including seven
independent Trustees. The individuals listed on the next page whose names are
marked by an asterisk (*) are "interested persons" of the Trust (as defined in
the Investment Company Act) by virtue of, among other considerations, their
affiliation with either the Trust; the Trust's investment advisor, American
Century Investment Management, Inc.; 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. Each Trustee listed below
serves as a Trustee or Director of other funds advised by the Manager. Unless
otherwise noted, dates in parentheses indicate the dates 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 American Century Tower, 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 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. (1994).
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). Mr. Stowers III is Chief Executive
Officer and Director of ACC; President, Chief Executive Officer and Director of
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
20 AMERICAN CENTURY INVESTMENTS
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); President, Chief
Operating Officer and General Counsel of ACC; Executive Vice President, Chief
Operating Officer and General Counsel of ACS and ACIS; Assistant Secretary of
ACC; Secretary of 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 for the Funds' fiscal year ended August 31, 1997, as well as the
compensation received for serving as a Director or Trustee of all other funds
advised by the Manager.
As of November 28, 1997, the Funds' Trustees and officers, as a group, owned
less than 1% of each Fund's total shares outstanding.
MANAGEMENT
Each Fund has an investment management agreement with the Manager dated
August 1, 1997. This agreement was approved by the shareholders of each of the
Funds on July 30, 1997.
For the services provided to the Funds, the Manager receives a monthly fee
based on a percentage of the average net assets of the Fund. The annual rate at
which this fee is assessed is determined monthly in a two-step process: First, a
fee rate schedule is applied to the assets of all of the funds of its investment
category managed by the Manager (the "Investment Category Fee"). For example,
when calculating the fee for a Money Market Fund, all of the assets of the money
market funds managed by the Manager are aggregated. The three investment
categories are Money Market Funds, Bond Funds and Equity Funds. Second, a
separate fee rate schedule is applied to the assets of all of the funds managed
by the Manager (the "Complex Fee"). The Investment Category Fee and the Complex
Fee are then added to determine the unified management fee payable by the Fund
to the Manager.
The schedules by which the Investment Category Fee are determined are as
follows:
MONEY MARKET FUNDS
Category Assets Fee Rate
- -------------------------------------------------------------------------------
First $1 billion 0.2700%
Next $1 billion 0.2270%
Next $3 billion 0.1860%
Next $5 billion 0.1690%
Next $15 billion 0.1580%
Next $25 billion 0.1575%
Thereafter 0.1570%
- -------------------------------------------------------------------------------
CALIFORNIA LIMITED-TERM TAX-FREE, CALIFORNIA INTERMEDIATE-TERM TAX-FREE,
CALIFORNIA LONG-TERM TAX-FREE, CALIFORNIA INSURED TAX-FREE
Category Assets Fee Rate
- -------------------------------------------------------------------------------
First $1 billion 0.2800%
Next $1 billion 0.2280%
Next $3 billion 0.1980%
Next $5 billion 0.1780%
Next $15 billion 0.1650%
Next $25 billion 0.1630%
Thereafter 0.1625%
- -------------------------------------------------------------------------------
CALIFORNIA HIGH YIELD MUNICIPAL
Category Assets Fee Rate
- -------------------------------------------------------------------------------
First $1 billion 0.3100%
Next $1 billion 0.2580%
Next $3 billion 0.2280%
Next $5 billion 0.2080%
Next $15 billion 0.1950%
Next $25 billion 0.1930%
Thereafter 0.1925%
- -------------------------------------------------------------------------------
THE COMPLEX FEE SCHEDULE IS AS FOLLOWS:
Category Assets Fee Rate
- -------------------------------------------------------------------------------
First $2.5 billion 0.3100%
Next $7.5 billion 0.3000%
Next $15.0 billion 0.2985%
Next $25.0 billion 0.2970%
Next $50.0 billion 0.2960%
Next $100.0 billion 0.2950%
Next $100.0 billion 0.2940%
Next $200.0 billion 0.2930%
Next $250.0 billion 0.2920%
Next $500.0 billion 0.2910%
Thereafter 0.2900%
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION 21
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION FOR THE FISCAL YEAR ENDED AUGUST 31, 1997
Aggregate Pension or Estimated Total Compensation
Name of Compensation Retirement Benefits Annual Benefits From The American
Trustee* From The Fund Accrued As Part Upon Retirement Century Family
of Fund Expenses of Funds**
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Albert A. Eisenstat $1,362 (Money Market) Not Applicable Not Applicable $47,750
1,080 (MuniMM)
982 (Limited-Term)
1,363 (Intermediate-Term)
1,200 (Long-Term)
1,041 (High-Yield)
1,078 (Insured)
- ------------------------------------------------------------------------------------------------------------------------
Ronald J. Gilson $1,418 (Money Market) Not Applicable Not Applicable $63,999
1,103 (MuniMM)
997 (Limited-Term)
1,421 (Intermediate-Term)
1,241 (Long-Term)
1,068 (High-Yield)
1,102 (Insured)
- ------------------------------------------------------------------------------------------------------------------------
Myron S. Scholes $1,215 (Money Market) Not Applicable Not Applicable $64,500
1,012 (MuniMM)
947 (Limited-Term)
1,215 (Intermediate-Term)
1,101 (Long-Term)
992 (High-Yield)
1,012 (Insured)
- ------------------------------------------------------------------------------------------------------------------------
Kenneth E. Scott $1,687 (Money Market) Not Applicable Not Applicable $73,023
1,221 (MuniMM)
1,063 (Limited-Term)
1,688 (Intermediate-Term)
1,422 (Long-Term)
1,161 (High-Yield)
1,219 (Insured)
- ------------------------------------------------------------------------------------------------------------------------
Ezra Solomon*** $398 (Money Market) Not Applicable Not Applicable $65,583
334 (MuniMM)
313 (Limited-Term)
397 (Intermediate-Term)
361 (Long-Term)
326 (High-Yield)
334 (Insured)
- ------------------------------------------------------------------------------------------------------------------------
Isaac Stein $1,402 (Money Market) Not Applicable Not Applicable $65,000
1,096 (MuniMM)
993 (Limited-Term)
1,404 (Intermediate-Term)
1,229 (Long-Term)
1,060 (High-Yield)
1,095 (Insured)
- ------------------------------------------------------------------------------------------------------------------------
Jeanne D. Wohlers $1,526 (Money Market) Not Applicable Not Applicable $68,000
1,151 (MuniMM)
1,022 (Limited-Term)
1,526 (Intermediate-Term)
1,311 (Long-Term)
1,100 (High-Yield)
1,149 (Insured)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Interested Trustees receive no compensation for their services as such.
** Includes compensation paid by the 15 investment company members of the
American Century Family of Funds.
*** Retired December, 1996.
22 AMERICAN CENTURY INVESTMENTS
On the first business day of each month, the Funds pay a management fee to
the Manager for the previous month at the specified rate. The fee for the
previous month is calculated by multiplying the applicable fee for the Fund by
the aggregate average daily closing value of a Fund's net assets during the
previous month by a fraction, the numerator of which is the number of days in
the previous month and the denominator of which is 365 (366 in leap years).
The management agreement shall continue in effect until the earlier of the
expiration of two years from the date of its execution or until the first
meeting of shareholders following such execution and for as long thereafter as
its continuance is specifically approved at least annually by (1) the Funds'
Board of Trustees, or by the vote of a majority of outstanding votes (as defined
in the Investment Company Act) and (2) by the vote of a majority of the Trustees
of the Funds who are not parties to the agreement or interested persons of the
Manager, cast in person at a meeting called for the purpose of voting on such
approval.
The management agreement provides that it may be terminated at any time
without payment of any penalty by the Funds' Board of Trustees, or by a vote of
a majority of the Funds' shareholders, on 60 days' written notice to the
Manager, and that it shall be automatically terminated if it is assigned.
The management agreement provides that the Manager shall not be liable to
the Funds or its shareholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties.
The management agreement also provides that the Manager and its officers,
trustees and employees may engage in other business, devote time and attention
to any other business whether of a similar or dissimilar nature, and render
services to others.
Certain investments may be appropriate for the Funds and also for other
clients advised by the Manager. Investment decisions for the Funds and other
clients are made with a view to achieving their respective investment objectives
after consideration of such factors as their current holdings, availability of
cash for investment, and the size of their investment generally. A particular
security may be bought or sold for only one client or series, or in different
amounts and at different times for more than one but less than all clients or
series. In addition, purchases or sales of the same security may be made for two
or more clients or series on the same date. Such transactions will be allocated
among clients in a manner believed by the Manager to be equitable to each. In
some cases this procedure could have an adverse effect on the price or amount of
the securities purchased or sold by a Fund.
The Manager may aggregate purchase and sale orders of the Funds with
purchase and sale orders of its other clients when the Manager believes that
such aggregation provides the best execution for the Funds. The Funds' Board of
Trustees has approved the policy of the Manager with respect to the aggregation
of portfolio transactions. Where portfolio transactions have been aggregated,
the Funds participate at the average share price for all transactions in that
security on a given day and share transaction costs on a pro rata basis. The
Manager will not aggregate portfolio transactions of the Funds unless it
believes such aggregation is consistent with its duty to seek best execution on
behalf of the Funds and the terms of the management agreement. The Manager
receives no additional compensation or remuneration as a result of such
aggregation.
In addition to managing the Funds, the Manager also acts as an investment
advisor to 12 institutional accounts and to the following registered investment
companies: American Century Mutual Funds, Inc., American Century World Mutual
Funds, Inc., American Century Premium Reserves, Inc., American Century Variable
Portfolios, Inc., American Century Capital Portfolios, Inc., American Century
Strategic Asset Allocations, Inc., American Century Municipal Trust, American
Century Government Income Trust, American Century Investment Trust, American
Century Target Maturities Trust, American Century Quantitative Equity Funds and
American Century International Bond Funds.
Prior to August 1, 1997, Benham Management Corporation served as the
investment advisor to the Funds. Benham Management Corporation is, like the
Manager, wholly-owned by ACC.
Investment management fees paid by each Fund for the fiscal periods ended
August 31, 1997, 1996, and 1995, are indicated in the following table. Fee
amounts are net of amounts reimbursed or recouped under the Funds' previous
investment advisory agreement with Benham Management Corporation.
STATEMENT OF ADDITIONAL INFORMATION 23
Investment Management Fees*
- --------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1997 1996 1995
- --------------------------------------------------------------------------------
California Tax-Free
Money Market $1,309,574 $1,240,288 $1,118,609
California Municipal
Money Market 564,212 563,912 638,989
California Limited-
Term Tax-Free 346,562 294,665 320,571
California
Intermediate-
Term Tax-Free 1,340,435 1,249,491 1,219,371
California Long-Term
Tax-Free 920,960 833,863 788,383
California High-Yield
Municipal 527,834 379,805 317,026
California Insured
Tax-Free 584,652 544,813 505,500
- --------------------------------------------------------------------------------
*Net of reimbursements.
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.
It provides physical facilities, including computer hardware and software and
personnel, for the day-to-day administration of the funds and of the Manager.
The Manager pays American Century Services Corporation for such services.
Prior to August 1, 1997, the Funds paid American Century Services
Corporation directly for its services as transfer agent and administrative
services agent.
Administrative service and transfer agent fees paid by each Fund for the
fiscal years ended August 31, 1997, 1996, and 1995, are indicated in the
following tables. Fee amounts are net of expense limitations in effect at the
time.
Administrative Fees
- --------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1997 1996 1995
- --------------------------------------------------------------------------------
California Tax-Free
Money Market $368,680 $409,257 $372,776
California Municipal
Money Market 160,175 186,076 213,037
California Limited-
Term Tax-Free 94,859 97,232 106,880
California
Intermediate-
Term Tax-Free 373,977 412,298 406,453
California Long-Term
Tax-Free 256,250 275,154 262,741
California High-Yield
Municipal 142,879 125,323 105,659
California Insured
Tax-Free 163,254 179,812 168,491
- --------------------------------------------------------------------------------
Transfer Agent Fees
- --------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1997 1996 1995
- --------------------------------------------------------------------------------
California Tax-Free
Money Market $190,056 $229,922 $245,317
California Municipal
Money Market 112,925 145,450 157,812
California Limited-
Term Tax-Free 39,157 47,787 60,682
California
Intermediate-
Term Tax-Free 164,081 188,108 195,808
California Long-Term
Tax-Free 108,533 119,915 125,758
California High-Yield
Municipal 70,935 70,036 66,032
California Insured
Tax-Free 78,485 91,516 95,075
- --------------------------------------------------------------------------------
24 AMERICAN CENTURY INVESTMENTS
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.
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 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 the Manager'
s opinion, such rejection or limitation is in the Trust's or a series' best
interest.
As of November 28, 1997, to the Funds' knowledge, no shareholder was the
record holder or beneficial owner of 5% or more of a Fund's total outstanding
shares except for those listed below.
California Intermediate-Term
Fund Tax-Free
- --------------------------------------------------------------------------------
Shareholder Name and Charles Schwab & Co.
Address 101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------
# of Shares Held 5,739,593
- --------------------------------------------------------------------------------
% of Total Shares
Outstanding 14.9%
- --------------------------------------------------------------------------------
Fund California Long-Term Tax-Free
- --------------------------------------------------------------------------------
Shareholder Name and Charles Schwab & Co.
Address 101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------
# of Shares Held 1,792,649
- --------------------------------------------------------------------------------
% of Total Shares
Outstanding 6.7%
- --------------------------------------------------------------------------------
Fund California High-Yield Municipal
- --------------------------------------------------------------------------------
Shareholder Name and Charles Schwab & Co.
Address 101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------
# of Shares Held 2,995,086
- --------------------------------------------------------------------------------
% of Total Shares
Outstanding 13.7%
- --------------------------------------------------------------------------------
Fund California Insured Tax-Free
- --------------------------------------------------------------------------------
Shareholder Name and Charles Schwab & Co.
Address 101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------
# of Shares Held 1,123,069
- --------------------------------------------------------------------------------
% of Total Shares
Outstanding 6%
- --------------------------------------------------------------------------------
Fund California Limited-Term
Tax-Free
- --------------------------------------------------------------------------------
Shareholder Name and Charles Schwab & Co.
Address 101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------
# of Shares Held 2,169,419
- --------------------------------------------------------------------------------
% of Total Shares
Outstanding 17.2%
- --------------------------------------------------------------------------------
Shareholder Name and Bank of America
Address P.O. Box 513577
Los Angeles, CA 90051
- --------------------------------------------------------------------------------
# of Shares Held 1,328,888
- --------------------------------------------------------------------------------
% of Total Shares
Outstanding 10.5%
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION 25
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
For further information, please refer to the registration statement and
exhibits on file with the SEC 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.
26 AMERICAN CENTURY INVESTMENTS
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.
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
STATEMENT OF ADDITIONAL INFORMATION 27
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.
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 lim-
28 AMERICAN CENTURY INVESTMENTS
ited 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.
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 29
P.O. BOX 419200
KANSAS CITY, MISSOURI
64141-6200
INVESTOR SERVICES:
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 816-444-3485
FAX: 816-340-7962
INTERNET: www.americancentury.com
[american century logo]
American
Century(reg.sm)
9712 [recycled logo]
SH-BKT-10346 Recycled
<PAGE>
AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
1933 Act Post-Effective Amendment No. 25
1940 Act Amendment No. 29
- --------------------------------------------------------------------------------
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, 1997, are filed herein
as included in the Trust's Statement of Additional Information by
reference to the Annual Report dated August 31, 1997, filed on October
29, 1997 (Accession # 717316-99-000009).
(b) EXHIBITS.
(1) (a) 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).
(b) Amendment to the Declaration of Trust is included herein.
(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 Class Management Agreement between American Century
California Tax-Free and Municipal Funds and American Century
Investment Management, Inc., dated August 1, 1997, is
incorporated herein by reference to Exhibit 5 of
Post-Effective Amendment No. 33 to the Registration Statement
of American Century Government Income Trust filed on July 31,
1997 (Accession # 773674-97-000014).
(6) Distribution Agreement between American Century California
Tax-Free and Municipal Funds and American Century Investment
Services, Inc. dated as of August 1, 1997, is incorporated
herein by reference to Exhibit 6 of Post-Effective Amendment
No. 33 to the Registration Statement of the American Century
Government Income Trust filed on July 31, 1997 (Accession #
773674-97-000014).
(7) Not applicable.
(8) Custodian Agreement between American Century California
Tax-Free and Municipal Funds and The Chase Manhattan Bank,
dated August 9, 1996, is incorporated herein by reference to
Exhibit 8 of Post-Effective Amendment No. 31 to the
Registration Statement of American Century Government Income
Trust filed on February 7, 1997 (Accession #
0000773674-97-000002).
(9) Transfer Agency Agreement between American Century California
Tax-Free and Municipal Funds and American Century Services
Corporation, dated August 1, 1997, is incorporated herein by
reference to Exhibit 9 of Post-Effective Amendment No. 33 to
the Registration Statement of American Century Government
Income Trust filed on July 31, 1997 (Accession
#773674-97-000014).
(10) Opinion and consent of counsel as to the legality of the
securities being registered, dated October 22, 1997 is
incorporated herein by reference to Rule 24f-2 Notice filed on
October 22, 1997 (Accession # 717316-97-000008).
(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 February 28, 1997, is included herein.
Item 25. Persons Controlled by or Under Control with Registrant.
Not applicable
Item 26. Number of Holders of Securities.
As of October 31, 1997, each Series of the Registrant had the following number
of record shareholders.
California Municipal Money Market Fund 3367
California Tax-Free Money Market Fund 6275
California Tax-Free Limited-Term Fund 1402
California Tax-Free Intermediate-Term Fund 6203
California Tax-Free Long-Term Fund 4377
California Municipal High-Yield Fund 2841
California Tax-Free Insured Fund 3217
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 to Post-Effective Amendment No. 23.
Item 28. Business and Other Connections of Investment Advisor.
American Century Investment Management, Inc., the investment manager to each of
the Registrant's Funds, is engaged in the business of managing investments for
deferred compensation plans and other institutional investors.
Item 29. Principal Underwriters.
The Registrant's distribution agent, American Century Investment Services, Inc.,
is distribution agent to American Century California Tax-Free and Municipal
Funds, American Century Government Income Trust, American Century Municipal
Trust, American Century Target Maturities Trust, American Century Quantitative
Equity Funds, American Century International Bond Funds, American Century
Investment Trust, American Century Variable Portfolios, Inc., American Century
Capital Portfolios, Inc., American Century Mutual Funds, Inc., American Century
Premium Reserves, Inc., American Century Strategic Asset Allocations, Inc. and
American Century World Mutual Funds, Inc. The information required with respect
to each director, officer or partner of American Century Investment Services,
Inc. is incorporated herein by reference to American Century Investment
Services, Inc. Form B-D filed on November 21, 1985 (SEC File No. 8-35220; Firm
CRD No. 17437).
Item 30. Location of Accounts and Records.
American Century Investment Management, Inc., the Registrant and its agent for
transfer and administrative services, American Century Services Corporation,
maintain their principal office at 4500 Main St., Kansas City, MO 64111.
American Century Services Corporation 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.
<PAGE>
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. 25/Amendment No. 29 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, and State of
California, on the 12th day of December, 1997. I hereby certify that this
Amendment meets the requirements for immediate effectiveness pursuant to Rule
485(b).
AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
By: /s/ Douglas A. Paul
Douglas A. Paul
Secretary, Vice President, and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 25/Amendment No. 29 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 12, 1997
- --------------------------------- President and Chief Executive Officer
James M. Benham
* Trustee December 12, 1997
- ---------------------------------
Albert A. Eisenstat
* Trustee December 12, 1997
- ---------------------------------
Ronald J. Gilson
* Trustee December 12, 1997
- ---------------------------------
Myron S. Scholes
* Trustee December 12, 1997
- ---------------------------------
Kenneth E. Scott
* Trustee December 12, 1997
- ---------------------------------
Isaac Stein
* Trustee December 12, 1997
- ---------------------------------
James E. Stowers III
* Trustee December 12, 1997
- ---------------------------------
Jeanne D. Wohlers
* Chief Financial Officer, Treasurer December 12, 1997
- ---------------------------------
Maryanne Roepke
</TABLE>
/s/ Douglas A. Paul
*by Douglas A. Paul, Attorney in Fact (pursuant to a Power of Attorney dated
February 28, 1997).
EXHIBIT DESCRIPTION
EX-99.B1a 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.B1b Amendment to the Declaration of Trust is included herein.
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 Investor Class Management Agreement between American Century
California Tax-Free and Municipal Funds and American Century
Investment Management, Inc., dated August 1, 1997, is incorporated
herein by reference to Exhibit 5 of Post-Effective Amendment No. 33
to the Registration Statement of American Century Government Income
Trust filed on July 31, 1997 (Accession # 773674-97-000014).
EX-99.B6 Distribution Agreement between American Century California Tax-Free
and Municipal Funds and American Century Investment Services, Inc.
dated as of August 1, 1997, is incorporated herein by reference to
Exhibit 6 of Post-Effective Amendment No. 33 to the Registration
Statement of the American Century Government Income Trust filed on
July 31, 1997 (Accession # 773674-97-000014).
EX-99.B8 Custodian Agreement between American Century California Tax-Free and
Municipal Funds and The Chase Manhattan Bank, dated August 9, 1996,
is incorporated herein by reference to Exhibit 8 of Post-Effective
Amendment No. 31 to the Registration Statement of American Century
Government Income Trust filed on February 7, 1997 (Accession #
0000773674-97-000002).
EX-99.B9 Transfer Agency Agreement between American Century California
Tax-Free and Municipal Funds and American Century Services
Corporation, dated August 1, 1997, is incorporated herein by
reference to Exhibit 9 of Post-Effective Amendment No. 33 to the
Registration Statement of American Century Government Income Trust
filed on July 31, 1997 (Accession #773674-97-000014).
EX-99.B10 Opinion and consent of counsel as to the legality of the securities
being registered, dated October 22, 1997 is incorporated herein by
reference to Rule 24f-2 Notice filed on October 22, 1997 (Accession
# 717316-97-000008).
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 February 28, 1997, is included herein.
EX-27.4.1 FDS - California Tax-Free Money Market Fund
EX-27.4.2 FDS - California Municipal Money Market Fund
EX-27.5.3 FDS - California Intermediate-Term Tax-Free Fund
EX-27.5.4 FDS - California Long-Term Tax-Free Fund
EX-27.5.5 FDS - California High-Yield Municipal Fund
EX-27.5.6 FDS - California Insured Tax-Free Fund
EX-27.5.7 FDS - California Limited-Term Tax-Free Fund
AMENDMENT
TO THE
DECLARATION OF TRUST
OF
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
October 21, 1996
WHEREAS, Section 1 of Article I of the Declaration of Trust provides
that the Trustees may designate a new name for the Trust, or any Series, to be
effective upon execution by a majority of the Trustees of an instrument setting
forth the new names;
WHEREAS, the Trustees have determined that it is appropriate and in the
interests of the Trust to change the name of the Trust and its Series as set
forth below;
RESOLVED, that the Trust shall henceforth be known as the "American
Century California Tax-Free and Municipal Funds";
RESOLVED FURTHER, that the existing Series be renamed as follows (new
language appears in boldface type, deleted language is struck through):
<TABLE>
---------------------------------------------------------- --------------------------------------------------------
<S> <C>
Former Name New Name
---------------------------------------------------------- --------------------------------------------------------
---------------------------------------------------------- --------------------------------------------------------
Benham California Municipal Money Market Fund American Century - Benham California Municipal Money
Market Fund
---------------------------------------------------------- --------------------------------------------------------
---------------------------------------------------------- --------------------------------------------------------
Benham California Municipal High-Yield Fund American Century - Benham California High-Yield
Municipal Fund
---------------------------------------------------------- --------------------------------------------------------
---------------------------------------------------------- --------------------------------------------------------
Benham California Tax-Free Money Market Fund American Century - Benham California Tax-Free Money
Market Fund
---------------------------------------------------------- --------------------------------------------------------
---------------------------------------------------------- --------------------------------------------------------
Benham California Tax-Free Short-Term Fund American Century - Benham California Limited-Term
Tax-Free Fund
---------------------------------------------------------- --------------------------------------------------------
---------------------------------------------------------- --------------------------------------------------------
Benham California Tax-Free Intermediate-Term Fund American Century - Benham California Intermediate-Term
Tax-Free Fund
---------------------------------------------------------- --------------------------------------------------------
---------------------------------------------------------- --------------------------------------------------------
Benham California Tax-Free Long-Term Fund American Century - Benham California Long-Term
Tax-Free Fund
---------------------------------------------------------- --------------------------------------------------------
---------------------------------------------------------- --------------------------------------------------------
Benham California Tax-Free Insured Fund American Century - Benham California Insured Tax-Free
Fund
---------------------------------------------------------- --------------------------------------------------------
Trustees of the Benham California Tax-Free and Municipal Funds
/s/ James M. Benham 10/21/96 /s/ Ezra Solomon 10/21/96
- ---------------------------------------- ------------- ---------------------------------------- --------
James M. Benham* Date Ezra Solomon* Date
/s/ Albert A. Eisenstat 10/21/96 /s/ Isaac Stein 10/21/96
- ---------------------------------------- ------------- ---------------------------------------- --------
Albert A. Eisenstat* Date Isaac Stein* Date
/s/ Ronald J. Gilson 10/21/96 /s/ James E. Stowers III 10/21/96
- ---------------------------------------- ------------- ---------------------------------------- --------
Ronald J. Gilson* Date James E. Stowers III* Date
/s/ Myron S. Scholes 10/21/96 /s/ Jeanne D. Wohlers 10/21/96
- ---------------------------------------- ------------- ---------------------------------------- --------
Myron S. Scholes* Date Jeanne D. Wohlers* Date
/s/ Kenneth E. Scott 10/21/96
- ---------------------------------------- --------
Kenneth E. Scott* Date
</TABLE>
*By: /s/ Douglas A. Paul Date: October 21, 1996
Douglas A. Paul, Esq.
Pursuant to Power of Attorney dated March 4, 1996
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. 25 to the Registration Statement
No. 2-82734 on Form N-1A under the Securities Act of 1933 and Amendment No. 29
to the Registration Statement No. 811-3706 filed on Form N-1A under the
Investment Company Act of 1940 of our reports dated October 3, 1997 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 Statement 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
Statement of Additional Information which is incorporated by reference in the
Prospectus.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Kansas City, Missouri
December 11, 1997
AMERICAN CENTURY-BENHAM CAL TAX-FREE MONEY MARKET FUND
YIELD CALCULATION
8/31/97
Effective Yield: [(Base Period Return)+1)^365/7]-1
Base Period Return = 0.00055865
7 Day Effective Yield = 2.95%
Yield: = I/B X 365/7
Y = Yield
I = total income of hypothetical account over
the seven day period
B = beginning account value
I = 0.00055865
B = $1.00
7 Day Yield = 2.91%
<PAGE>
AMERICAN CENTURY-BENHAM CAL MUNI MONEY MARKET FUND
YIELD CALCULATION
8/31/97
Effective Yield: [(Base Period Return)+1)^365/7]-1
Base Period Return = 0.00056893
7 Day Effective Yield = 3.01%
Yield: = I/B X 365/7
Y = Yield
I = total income of hypothetical account over
the seven day period
B = beginning account value
I = 0.00056893
B = $1.00
7 Day Yield = 2.97%
<PAGE>
AMERICAN CENTURY-BENHAM CAL INTMDT TERM TAX FREE FUND
YIELD CALCULATION
8/31/97
Formula: YIELD = 2[(A-B/C*D+1)^6-1]
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
A = $1,612,820.29
B = $189,604.89
C = 38,493,467.794
D = $11.27
Yield = 3.97%
<PAGE>
AMERICAN CENTURY-BENHAM CAL LONG TERM TAX FREE FUND
YIELD CALCULATION
8/31/97
Formula: YIELD = 2[(A-B/C*D+1)^6-1]
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
A = $1,293,671.18
B = $134,369.45
C = 26,363,833.234
D = $11.48
Yield = 4.64%
<PAGE>
AMERICAN CENTURY-BENHAM CAL HIGH YIELD MUNI FUND
YIELD CALCULATION
8/31/97
Formula: YIELD = 2[(A-B/C*D+1)^6-1]
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
A = $873,393.91
B = $82,608.79
C = 19,647,829.624
D = $9.68
Yield = 5.04%
<PAGE>
AMERICAN CENTURY-BENHAM CAL INSURED TAX FREE FUND
YIELD CALCULATION
8/31/97
Formula: YIELD = 2[(A-B/C*D+1)^6-1]
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
A = $789,137.24
B = $81,177.23
C = 18,178,769.307
D = $10.37
Yield = 4.55%
<PAGE>
AMERICAN CENTURY-BENHAM CAL TAX FREE LIMITED TERM FUND
YIELD CALCULATION
8/31/97
Formula: YIELD = 2[(A-B/C*D+1)^6-1]
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
A = $435,443.42
B = $56,037.14
C = 12,146,358.041
D = $10.30
Yield = 3.67%
<PAGE>
AMERICAN CENTURY-BENHAM CAL TAX FREE MONEY MARKET FUND
AVERAGE ANNUAL TOTAL RETURN
8/31/97
Formula: T=(ERV/P)^1/N -1
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
----------------------------------------------------------------
One Year $1,000.00 $1,031.70 1.000000 3.17%
Five Year $1,000.00 $1,145.80 5.000000 2.76%
Ten Year $1,000.00 $1,429.20 10.000000 3.64%
Inception * $1,000.00 $1,688.00 13.809719 3.86%
TR = Total return for period TR=(ERV/P)-1 68.80%
*Date of Inception: 11/9/83
<PAGE>
AMERICAN CENTURY-BENHAM CAL INTMDT TERM TAX FREE FUND
AVERAGE ANNUAL TOTAL RETURN
8/31/97
Formula: T=(ERV/P)^1/N -1
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
--------------------------------------------------------------
One Year $1,000.00 $1,073.90 1.000000 7.39%
Five Year $1,000.00 $1,345.60 5.000000 6.12%
Ten Year $1,000.00 $1,907.70 10.000000 6.67%
Inception * $1,000.00 $2,529.60 13.809719 6.95%
TR = Total return for period TR=(ERV/P)-1 152.96%
*Date of Inception: 11/9/83
<PAGE>
AMERICAN CENTURY-BENHAM CAL HIGH YIELD MUNI FUND
AVERAGE ANNUAL TOTAL RETURN
8/31/97
Formula: T=(ERV/P)^1/N -1
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
-------------------------------------------------------
One Year $1,000.00 $1,106.10 1.000000 10.61%
Five Year $1,000.00 $1,453.20 5.000000 7.76%
Ten Year $1,000.00 $2,185.60 10.000000 8.13%
Inception * $1,000.00 $1,995.90 10.669405 6.69%
TR = Total return for period TR=(ERV/P)-1 99.59%
*Date of Inception: 12/30/86
<PAGE>
AMERICAN CENTURY-BENHAM CAL INSURED TAX FREE FUND
AVERAGE ANNUAL TOTAL RETURN
8/31/97
Formula: T=(ERV/P)^1/N -1
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
--------------------------------------------------------
One Year $1,000.00 $1,092.50 1.000000 9.25%
Five Year $1,000.00 $1,407.70 5.000000 7.08%
Ten Year $1,000.00 $2,140.30 10.000000 7.91%
Inception * $1,000.00 $2,031.20 10.669405 6.87%
TR = Total return for period TR=(ERV/P)-1 103.12%
*Date of Inception: 12/30/86
<PAGE>
AMERICAN CENTURY-BENHAM CAL MUNI MONEY MARKET FUND
AVERAGE ANNUAL TOTAL RETURN
8/31/97
Formula: T=(ERV/P)^1/N -1
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
--------------------------------------------------------
One Year $1,000.00 $1,031.50 1.000000 3.15%
Five Year $1,000.00 $1,149.40 5.000000 2.82%
Ten Year
Inception * $1,000.00 $1,227.30 6.666667 3.12%
TR = Total return for period TR=(ERV/P)-1 22.73%
*Date of Inception: 12/31/90
<PAGE>
AMERICAN CENTURY-BENHAM CAL TAX FREE LIMITED TERMFUND
AVERAGE ANNUAL TOTAL RETURN
8/31/97
Formula: T=(ERV/P)^1/N -1
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
---------------------------------------------------------
One Year $1,000.00 $1,054.20 1.000000 5.42%
Five Year $1,000.00 $1,247.50 5.000000 4.52%
Ten Year
Inception * $1,000.00 $1,275.20 5.248460 4.74%
TR = Total return for period TR=(ERV/P)-1 27.52%
*Date of Inception: 6/1/92
<PAGE>
AMERICAN CENTURY-BENHAM CAL LONG TERM TAX FREE FUND
AVERAGE ANNUAL TOTAL RETURN
8/31/97
Formula: T=(ERV/P)^1/N -1
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
----------------------------------------------------------
One Year $1,000.00 $1,097.00 1.000000 9.70%
Five Year $1,000.00 $1,420.50 5.000000 7.27%
Ten Year $1,000.00 $2,152.10 10.000000 7.97%
Inception * $1,000.00 $3,075.40 13.809719 8.48%
TR = Total return for period TR=(ERV/P)-1 207.54%
*Date of Inception: 11/9/83
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, AMERICAN CENTURY
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; the Registration Statement on
Form N-14 and any amendments or supplements thereto to be 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 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 28th day of February, 1997.
AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
(A Massachusetts Business Trust)
By:/s/James M. Benham
James M. Benham, President
SIGNATURE AND TITLE
/s/James M. Benham /s/Isaac Stein
James M. Benham Isaac Stein
Chairman Director
/s/Albert A. Eisenstat /s/Jeanne D. Wohlers
Albert A. Eisenstat Jeanne D. Wohlers
Director Director
/s/Ronald J. Gilson /s/James E. Stowers, III
Ronald J. Gilson James E. Stowers, III
Director Director
/s/Myron S. Scholes /s/Maryanne Roepke
Myron S. Scholes Maryanne Roepke
Director Treasurer
/s/Kenneth E. Scott Attest:
Kenneth E. Scott
Director By:
/s/Douglas A. Paul
Douglas A. Paul, Secretary
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<INTEREST-INCOME> 15,326,753
<OTHER-INCOME> 0
<EXPENSES-NET> 2,085,817
<NET-INVESTMENT-INCOME> 13,240,936
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 13,240,936
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13,314,031
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 419,433,691
<NUMBER-OF-SHARES-REDEEMED> 439,992,918
<SHARES-REINVESTED> 12,569,974
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<ACCUMULATED-GAINS-PRIOR> (398,251)
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<GROSS-EXPENSE> 2,085,817
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<PERIOD-END> AUG-31-1997
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<INVESTMENTS-AT-VALUE> 169,591,317
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<SENIOR-EQUITY> 170,519,185
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<NET-CHANGE-FROM-OPS> 5,718,165
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,716,498
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 161,382,680
<NUMBER-OF-SHARES-REDEEMED> 192,858,059
<SHARES-REINVESTED> 5,431,054
<NET-CHANGE-IN-ASSETS> (26,042,658)
<ACCUMULATED-NII-PRIOR> 115,098
<ACCUMULATED-GAINS-PRIOR> (158,606)
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<GROSS-EXPENSE> 957,100
<AVERAGE-NET-ASSETS> 184,716,906
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.52
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<AVG-DEBT-PER-SHARE> 0.00
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22,980,749
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<EXPENSES-NET> 2,076,509
<NET-INVESTMENT-INCOME> 20,904,240
<REALIZED-GAINS-CURRENT> 4,489,257
<APPREC-INCREASE-CURRENT> 5,607,704
<NET-CHANGE-FROM-OPS> 31,001,201
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 20,910,599
<DISTRIBUTIONS-OF-GAINS> 1,183,599
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<NUMBER-OF-SHARES-SOLD> 13,989,592
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