SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-----
File No. 2-91229:
Pre-Effective Amendment No.____
Post-Effective Amendment No._20_ X
-----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-----
File No. 811-4025:
Amendment No._21_
AMERICAN CENTURY MUNICIPAL TRUST
(Exact Name of Registrant as Specified in Charter)
4500 Main Street, P.O. Box 419200, 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 September 2, 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 July 28, 1997, the Registrant filed a Rule
24f-2 Notice on Form 24f-2 with respect to its fiscal year ended May 31, 1997.
<PAGE>
AMERICAN CENTURY MUNICIPAL TRUST
1933 Act Post-Effective Amendment No. 20
1940 Act Amendment No. 21
FORM N-1A
CROSS-REFERENCE SHEET
PART A: PROSPECTUS
ITEM PROSPECTUS CAPTION
1 Cover Page
2 Transaction and Operating Expense Table
3 Financial Highlights, Performance Information of Other Class,
Performance Advertising
4 Management, Further Information About American Century, Investment
Objectives of the Funds, Investment Policies of the Funds, Risk
Factors and Investment Techniques, Other Investment Practices, Their
Characteristics and Risks
5 Management
5A Not Applicable
6 Further Information About American Century, How to Redeem Shares,
Cover Page, Distributions, Taxes
7 Cover Page, Distribution of Fund Shares, How to Open an Account, Share
Price, Transfer and Administrative Services
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(sm)
SEPTEMBER 2, 1997
BENHAM
GROUP(reg.tm)
Arizona Intermediate-Term Municipal
Florida Municipal Money Market
Florida Intermediate-Term Municipal
Tax-Free Money Market
Limited-Term Tax-Free
Intermediate-Term Tax-Free
Long-Term Tax-Free
INVESTOR CLASS
[front cover]
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(reg. tm)
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
Arizona Intermediate-Term Municipal *
Florida Municipal Money Market *
Florida Intermediate-Term Municipal *
Tax-Free Money Market *
Limited-Term Tax-Free *
Intermediate-Term Tax-Free *
Long-Term Tax-Free
PROSPECTUS
SEPTEMBER 2, 1997
Arizona Intermediate-Term Municipal * Florida Municipal
Money Market * Florida Intermediate-Term Municipal *
Tax-Free Money Market * Limited-Term Tax-Free
Intermediate-Term Tax-Free * Long-Term Tax-Free
INVESTOR CLASS
AMERICAN CENTURY MUNICIPAL TRUST
American Century Municipal Trust is 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
that invest in various types of municipal securities (the "Funds"), 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 September 2, 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 ARIZONA INTERMEDIATE-TERM MUNICIPAL FUND
Arizona Intermediate-Term Fund seeks to obtain as high a level of current income
exempt from Arizona and regular federal income tax as is consistent with prudent
investment management and conservation of shareholders' capital.
AMERICAN CENTURY - BENHAM FLORIDA MUNICIPAL MONEY-MARKET FUND
Florida Municipal Money Market is a money market fund which seeks to obtain as
high a level of current income exempt from regular federal income tax as is
consistent with prudent investment management and conservation of shareholders'
capital. The Fund intends to invest so as to qualify its shares for an exemption
from the Florida intangible personal property tax (the "Florida Intangibles
Tax"). THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE PER SHARE.
AMERICAN CENTURY - BENHAM FLORIDA INTERMEDIATE-TERM MUNICIPAL FUND
Florida Intermediate-Term seeks to obtain as high a level of current income
exempt from regular federal income tax as is consistent with prudent investment
management and conservation of shareholders' capital. The Fund intends to invest
so as to qualify its shares for an exemption from the Florida Intangibles Tax.
AMERICAN CENTURY - BENHAM TAX-FREE MONEY-MARKET FUND
Tax-Free Money Market is a money market fund which seeks as high a level of
interest income exempt from regular federal income tax as is consistent with
prudent investment management, while seeking to conserve shareholders' capital.
THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE PER SHARE.
AMERICAN CENTURY - BENHAM LIMITED-TERM TAX-FREE FUND
AMERICAN CENTURY - BENHAM INTERMEDIATE-TERM TAX-FREE FUND
AMERICAN CENTURY - BENHAM LONG-TERM TAX-FREE FUND
Limited-Term Tax-Free, Intermediate-Term Tax-Free and Long-Term Tax-Free seek as
high a level of interest income exempt from regular federal income taxes as is
consistent with prudent investment management, while seeking to conserve
shareholders' capital.
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. Tax-Free Money Market,
Limited-Term Tax-Free, Intermediate-Term Tax-Free and Long-Term Tax-Free are
referred to as the "Tax-Free Funds." Florida Municipal Money Market and Florida
Intermediate-Term are referred to as the "Florida Funds." Finally, Tax-Free
Money Market and the Florida Municipal Money Market are called the "Money Market
Funds." The remaining non-money market Funds are referred to as the "Variable
Price Funds."
ARIZONA INTERMEDIATE-TERM MUNICIPAL AND THE FLORIDA FUNDS CONCENTRATE THEIR
INVESTMENTS GEOGRAPHICALLY BY INVESTING IN SECURITIES ISSUED BY AGENCIES,
INSTRUMENTALITIES AND MUNICIPALITIES OF THE STATES OF ARIZONA AND FLORIDA,
RESPECTIVELY. BECAUSE OF THIS CONCENTRATION, THEY 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 Objectives of the Funds ........................................ 2
Transaction and Operating Expense Table ................................... 4
Financial Highlights ...................................................... 5
INFORMATION REGARDING THE FUNDS
Investment Policies of the Funds ..........................................12
Arizona Intermediate-Term Municipal ....................................12
Florida Municipal Money Market,
Florida Intermediate-Term Municipal .................................13
Tax-Free Money Market, Intermediate-Term
Tax-Free, Long-Term Tax-Free ........................................14
Portfolio Investment Quality and Maturity
Guidelines .............................................................14
Money Market Funds .....................................................14
Variable Price Funds ...................................................15
Risk Factors and Investment Techniques ....................................15
Basic Fixed Income Investment Risks ....................................15
Interest Rate Risk .............................................15
Credit Risk ....................................................15
Concentration Risk .............................................16
Call Risk ......................................................16
Municipal Securities ................................................16
Tax-Exempt Securities ...............................................17
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 .................................................27
ADDITIONAL INFORMATION YOU SHOULD KNOW
Share Price ...............................................................28
When Share Price Is Determined .........................................28
How Share Price Is Determined ..........................................28
Where to Find Information About Share Price ............................29
Distributions .............................................................29
Taxes .....................................................................29
Tax-Deferred Accounts ..................................................29
Taxable Accounts .......................................................30
Special Tax Information ................................................30
Municipal Securities ...................................................31
AMT Liability ..........................................................31
Arizona Intermediate-Term Municipal ....................................31
Florida Funds ..........................................................31
Management ................................................................32
Investment Management ..................................................32
Code of Ethics .........................................................33
Transfer and Administrative Services ...................................33
Distribution of Fund Shares ...............................................33
Further Information About American Century ................................33
PROSPECTUS TABLE OF CONTENTS 3
<TABLE>
<CAPTION>
TRANSACTION AND OPERATING EXPENSE TABLE
Arizona
Intermediate-Term
Municipal,
Florida
Intermediate-Term
Municipal,
Limited-Term
Tax-Free,
Intermediate-Term
Florida Tax-Free,
Tax-Free Municipal Long-Term
Money Market Money Market Tax-Free
SHAREHOLDER TRANSACTION EXPENSES:
<S> <C> <C> <C>
Maximum Sales Load Imposed 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(2) (as a percentage of net assets):
Management Fees(3) ........................................... 0.00% 0.50% 0.52%
12b-1 Fees ................................................... none none none
Other Expenses(4) ............................................ 0.00% 0.00% 0.00%
Total Fund Operating Expenses ................................ 0.00% 0.50% 0.52%
EXAMPLE:
You would pay the following expenses on 1 year $0 $5 $5
a $1,000 investment, assuming a 5% annual 3 years 11 16 17
return and redemption at the end of each time period: 5 years 22 28 29
10 years 57 63 65
(1) Redemption proceeds sent by wire are subject to a $10 processing fee.
(2) American Century Investment Management, Inc. has agreed to waive the
expenses of Tax-Free Money Market, until July 31, 1998, to 0.00% of its net
assets. If this waiver was not in effect, the Management Fees and Total
Fund Operating Expenses would be 0.50% and 0.50%, respectively.
(3) A portion of the management fee may be paid by American Century Investment
Management, Inc. 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 33.
(4) 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 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
Securities and Exchange Commission 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
ARIZONA INTERMEDIATE-TERM 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 May
31, except as noted.
1997 1996 1995 1994(1)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .......................... $10.31 $10.35 $10.13 $10.00
---------- ----------- ---------- ----------
Income From Investment Operations
Net Investment Income ...................................... 0.45 0.51 0.51 0.07
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ................................. 0.13 (0.03) 0.22 0.13
---------- ----------- ---------- ----------
Total From Investment Operations ........................... 0.58 0.48 0.73 0.20
---------- ----------- ---------- ----------
Distributions
From Net Investment Income ................................. (0.45) (0.51) (0.51) (0.07)
From Net Realized Gains on Investment Transactions ......... -- (0.01) -- --
---------- ----------- ---------- ----------
Total Distributions ........................................ (0.45) (0.52) (0.51) (0.07)
---------- ----------- ---------- ----------
Net Asset Value, End of Period ................................ $10.44 $10.31 $10.35 $10.13
========= =========== ========== ==========
Total Return(2) ............................................... 5.77% 4.65% 7.52% 1.99%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ............. 0.66% 0.14% -- --
Ratio of Operating Expenses to Average Net Assets
(Before Expense Waiver) ..................................... 0.79% 0.82% 1.01% 2.33%(3)
Ratio of Net Investment Income to Average Net Assets .......... 4.35% 4.85% 5.16% 5.08%(3)
Ratio of Net Investment Income to Average Net Assets
(Before Expense Waiver) ..................................... 4.22% 4.17% 4.15% 2.75%(3)
Portfolio Turnover Rate ....................................... 81% 36% 33% 18%
Net Assets, End of Period (in thousands) ...................... $30,555 $25,789 $19,778 $7,187
(1) From April 11, 1994 (inception) through May 31, 1994.
(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 5
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FLORIDA 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 May
31, except as noted.
1997 1996 1995 1994(1)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................... $1.00 $1.00 $1.00 $1.00
---------- ----------- ---------- ----------
Income From Investment Operations
Net Investment Income ....................................... 0.03 0.04 0.04 --
---------- ----------- ---------- ----------
Distributions
From Net Investment Income .................................. (0.03) (0.04) (0.04) --
---------- ----------- ---------- ----------
Net Asset Value, End of Period ................................. $1.00 $1.00 $1.00 $1.00
========== =========== ========== ==========
Total Return(2) ................................................ 3.55% 3.86% 3.71% 0.40%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets(3) ........... 0.12% 0.01% -- --
Ratio of Operating Expenses to Average Net Assets
(Before Expense Waiver)(3) ................................... 0.66% 0.71% 0.88% 1.58%(4)
Ratio of Net Investment Income to Average Net Assets ........... 3.48% 3.75% 3.93% 2.99%(4)
Ratio of Net Investment Income to Average Net Assets
(Before Expense Waiver) ...................................... 2.94% 3.05% 3.05% 1.41%(4)
Net Assets, End of Period (in thousands) ....................... $112,129 $99,993 $45,147 $5,565
(1) From April 11, 1994 (inception) through May 31, 1994.
(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) The ratios for the periods subsequent to May 31, 1995, include expenses
paid through expense offset arrangements.
(4) Annualized.
</TABLE>
6 FINANCIAL HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FLORIDA INTERMEDIATE-TERM 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 May
31, except as noted.
1997 1996 1995 1994(1)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $10.18 $10.30 $10.11 $10.00
---------- ---------- --------- ---------
Income From Investment Operations
Net Investment Income .................................... 0.46 0.52 0.52 0.07
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ............................... 0.20 (0.08) 0.19 0.11
---------- ---------- --------- ---------
Total From Investment Operations ......................... 0.66 0.44 0.71 0.18
---------- ---------- --------- ---------
Distributions
From Net Investment Income ............................... (0.46) (0.52) (0.52) (0.07)
From Net Realized Capital Gains .......................... (0.04) (0.04) -- --
---------- ---------- --------- ---------
Total Distributions ...................................... (0.50) (0.56) (0.52) (0.07)
---------- ---------- --------- ---------
Net Asset Value, End of Period .............................. $10.34 $10.18 $10.30 $10.11
========== ========== ========= =========
Total Return(2) ............................................. 6.63% 4.34% 7.31% 1.79%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ........... 0.65% 0.13% -- --
Ratio of Operating Expenses to Average Net Assets
(Before Expense Waiver) ................................... 0.86% 0.88% 1.09% 1.92%(3)
Ratio of Net Investment Income to Average Net Assets ........ 4.42% 5.05% 5.23% 5.02%(3)
Ratio of Net Investment Income to Average Net Assets
(Before Expense Waiver) ................................... 4.21% 4.30% 4.14% 3.10%(3)
Portfolio Turnover Rate ..................................... 82% 66% 37% 6%
Net Assets, End of Period (in thousands) .................... $16,513 $10,319 $9,532 $5,892
(1) From April 11, 1994 (inception) through May 31, 1994.
(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
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 May
31, except as noted.
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 Period ........ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------- ------ ------- -------- -------- ------- --------- ------- ------- -------
Income From Investment
Operations
Net Investment Income .... 0.03 0.03 0.03 0.02 0.02 0.03 0.05 0.06 0.06 0.05
Net Realized and
Unrealized
Losses on Investment
Transactions ............. -- -- -- -- -- -- -- -- -- (0.01)
-------- ------ ------- -------- -------- ------- --------- ------- ------- -------
Total Income From
Investment
Operations ............... 0.03 0.03 0.03 0.02 0.02 0.03 0.05 0.06 0.06 0.04
-------- ------ ------- -------- -------- ------- --------- ------- ------- -------
Distributions
From Net Investment
Income ................... (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.05) (0.06) (0.06) (0.04)
-------- ------ ------- -------- -------- ------- --------- ------- ------- -------
Total Distributions ...... (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.05) (0.06) (0.06) (0.04)
-------- ------ ------- -------- -------- ------- --------- ------- ------- -------
Net Asset Value,
End of Period .............. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======== ====== ======= ======== ======== ======= ========= ======= ======= =======
Total Return(1) ............ 2.98% 3.19% 2.95% 1.92% 2.12% 3.48% 5.13% 5.68% 5.80% 4.19%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average Net
Assets ..................... 0.67% 0.65% 0.66% 0.67% 0.68% 0.57% 0.50% 0.50% 0.50% 0.31%
Ratio of Net Investment
Income to Average
Net Assets ................. 2.93% 3.12% 2.88% 1.89% 2.10% 3.40% 4.99% 5.56% 5.68% 4.10%
Net Assets, End
of Period (in thousands) ...$85,730 $91,118 $92,034 $109,818 $109,875 $111,112 $111,224 $92,975 $93,897 $70,976
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
8 FINANCIAL HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
LIMITED-TERM TAX-FREE
The Financial Highlights for each of the periods presented have been audited
by Baird, Kurtz & Dobson, independent certified public accountants, 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 reflects the reorganization of the
Fund through acquisition of the assets and liabilities of American
Century-Benham Limited-Term Tax-Exempt Fund, a series of American Century Mutual
Funds, Inc., and is for a share outstanding throughout the years ended October
31, except as noted.
1997(1) 1996 1995 1994 1993(2)
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $10.08 $10.09 $9.95 $10.04 $10.00
---------- ---------- ---------- --------- ---------
Income From Investment Operations
Net Investment Income ............... 0.20 0.43 0.44 0.36 0.21
Net Realized and Unrealized Gain
Loss on Investment Transactions ..... (0.06) (0.01) 0.14 (0.09) 0.04
---------- ---------- ---------- --------- ---------
Total From Investment Operations .... 0.14 0.42 0.58 0.27 0.25
---------- ---------- ---------- --------- ---------
Distributions
From Net Investment Income .......... (0.20) (0.43) (0.44) (0.36) (0.21)
---------- ---------- ---------- --------- ---------
Net Asset Value, End of Period ........ $10.02 $10.08 $10.09 $9.95 $10.04
========== ========== ========== ========= =========
Total Return(3) ..................... 1.45% 4.26% 5.95% 2.75% 2.55%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets .................... 0.60%(4) 0.38%(5) --(5) --(5) --(5)
Ratio of Net Investment Income
to Average Net Assets ................. 4.05(4) 4.28% 4.38% 3.62% 3.09%(4)
Portfolio Turnover Rate ............... 42% 68% 78% 42% 3%
Net Assets, End of Period
(in thousands) ........................ $45,595 $49,866 $58,837 $60,857 $52,265
(1) Six months ended April 30, 1997 (unaudited).
(2) March 1, 1993 (inception) through October 31, 1993.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
(5) The Manager voluntarily waived its management fee through February 29,
1996. In the absence of the waiver, the ratio of operating expenses to
average net assets would have been 0.60%.
</TABLE>
PROSPECTUS FINANCIAL HIGHLIGHTS 9
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
INTERMEDIATE-TERM TAX-FREE
The Financial Highlights for each of the periods presented have been audited by
Baird, Kurtz & Dobson, independent certified public accountants, 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 reflects the reorganization of the
Fund through acquisition of the assets and liabilities of American
Century-Benham Intermediate-Term Tax-Exempt Fund, a series of American Century
Mutual Funds, Inc., and is for a share outstanding throughout the years ended
October 31, except as noted.
1997(1) 1996 1995 1994 1993(2) 1992(2) 1991(2) 1990(2) 1989(2) 1988(2) 1987(2)(3)
PER-SHARE DATA
Net Asset Value,
Beginning of
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Period ............ $10.35 $10.45 $10.01 $10.75 $10.27 $10.06 $9.66 $9.67 $9.73 $9.42 $10.00
-------- ------- ------ ------- ------- ------- ------ ------ ------ ------- -------
Income From
Investment
Operations
Net Investment
Income .......... 0.24 0.48 0.49 0.48 0.48 0.48 0.54 0.56 0.56 0.54 0.30
Net Realized
and Unrealized
Gain (Loss) on
Investment
Transactions .... (0.09) (0.03) 0.52 (0.61) 0.55 0.21 0.40 (0.01) (0.06) 0.31 (0.58)
-------- ------- ------ ------- ------- ------- ------ ------ ------ ------- -------
Total From
Investment
Operations ...... 0.15 0.45 1.01 (0.13) 1.03 0.69 0.94 0.55 0.50 0.85 (0.28)
-------- ------- ------ ------- ------- ------- ------ ------ ------ ------- -------
Distributions
From Net
Investment
Income .......... (0.24) (0.48) (0.49) (0.48) (0.48) (0.48) (0.54) (0.56) (0.56) (0.54) (0.30)
From Net
Realized
Gains on
Investment
Transactions .... (0.02) (0.07) (0.08) (0.13) (0.07) -- -- -- -- -- --
-------- ------- ------ ------- ------- ------- ------ ------ ------ ------- -------
Total
Distributions ... (0.26) (0.55) (0.57) (0.61) (0.55) (0.48) (0.54) (0.56) (0.56) (0.54) (0.30)
-------- ------- ------ ------- ------- ------- ------ ------ ------ ------- -------
Net Asset Value,
End of Period ..... $10.24 $10.35 $10.45 $10.01 $10.75 $10.27 $10.06 $9.66 $9.67 $9.73 $9.42
======== ======= ====== ======= ======= ======= ====== ====== ====== ======= =======
Total Return(4) . 1.50% 4.47% 10.41% (1.25)% 10.25% 7.00% 9.91% 5.89% 5.30% 9.18% (4.34)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to
Average Net
Assets ............0.60(5) 0.60% 0.60% 0.60% 0.72% 0.98%(6) 0.96%(6) 1.00% 1.00% 1.00% 1.00%(5)
Ratio of Net
Investment
Income
to Average
Net Assets ........4.70(5) 4.66% 4.77% 4.59% 4.51% 4.68% 5.40% 5.80% 5.79% 5.57% 4.80%(5)
Portfolio
Turnover Rate ..... 10% 39% 32% 74% 38% 36% 62% 102% 74% 86% 92%(5)
Net Assets,
End of Period
(in thousands) ....$72,162 $80,568 $80,248 $81,400 $98,740 $76,745 $45,359 $25,587 $20,616 $14,286 $8,262
(1) Six months ended April 30, 1997 (unaudited).
(2) The data presented has been restated to give effect to a 10 for 1 stock
split in the form of a stock dividend that occurred on November 13, 1993.
(3) March 2, 1987 (inception) through October 31, 1987.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
(6) Expenses are shown net of management fees waived by the manager for
low-balance account fees collected during the period.
</TABLE>
10 FINANCIAL HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
LONG-TERM TAX-FREE
The Financial Highlights for each of the periods presented have been audited by
Baird, Kurtz & Dobson, independent certified public accountants, 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 reflects the reorganization of the
Fund through acquisition of the assets and liabilities of American
Century-Benham Long-Term Tax-Exempt Fund, a series of American Century Mutual
Funds, Inc., and is for a share outstanding throughout the years ended October
31, except as noted.
1997(1) 1996 1995 1994 1993(2) 1992(2) 1991(2) 1990(2) 1989(2) 1988(2) 1987(2)(3)
PER-SHARE DATA
Net Asset
Value, Beginning
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
of Period ........ $10.58 $10.54 $9.75 $11.10 $10.36 $10.23 $9.62 $9.84 $9.73 $9.09 $10.00
------- ------- ------ ------- ------- ------- ------ ------ ------ ------- -------
Income From
Investment
Operations
Net Investment
Income ......... 0.27 0.53 0.53 0.52 0.53 0.53 0.57 0.60 0.62 0.61 0.37
Net Realized
and Unrealized
Gain (Loss) on
Investment
Transactions ... (0.10) (0.04) 0.83 (1.01) 0.90 0.22 0.61 (0.12) 0.11 0.64 (0.91)
------- ------- ------ ------- ------- ------- ------ ------ ------ ------- -------
Total From
Investment
Operations ..... 0.17 0.57 1.36 (0.49) 1.43 0.75 1.18 0.48 0.73 1.25 (0.54)
------- ------- ------ ------- ------- ------- ------ ------ ------ ------- -------
Distributions
From Net
Investment
Income ......... (0.27) (0.53) (0.53) (0.52) (0.53) (0.53) (0.57) (0.61) (0.62) (0.61) (0.37)
From Net
Realized Gains
on Investment
Transactions ... -- -- (0.04) (0.34) (0.16) (0.09) -- (0.09) -- -- --
------- ------- ------ ------- ------- ------- ------ ------ ------ ------- -------
Total
Distributions .. (0.27) (0.53) (0.57) (0.86) (0.69) (0.62) (0.57) (0.70) (0.62) (0.61) (0.37)
------- ------- ------ ------- ------- ------- ------ ------ ------ ------- -------
Net Asset Value,
End of Period .... $10.48 $10.58 $10.54 $9.75 $11.10 $10.36 $10.23 $9.62 $9.84 $9.73 $9.09
======= ======= ====== ======= ======= ======= ====== ====== ====== ======= =======
Total Return(4) 1.63% 5.60% 14.45% (4.70)% 14.32% 7.43% 12.54% 5.04% 7.75% 14.15% (8.21)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to
Average Net
Assets ..........0.60%(5) 0.59% 0.59% 0.60% 0.73% 0.98%(6) 0.96%(6) 1.00% 1.00% 1.00% 1.00%(5)
Ratio of Net
Investment
Income to Average
Net Assets ......5.17%(5) 5.06% 5.24% 5.00% 4.90% 5.07% 5.73% 6.22% 6.36% 6.43% 6.20%(5)
Portfolio
Turnover Rate ... 16% 60% 61% 66% 81% 88% 110% 144% 120% 215% 94%(5)
Net Assets,
End of Period
(in thousands) .. $56,266 $60,772 $57,997 $50,964 $70,757 $61,825 $39,229 $27,862 $20,217 $12,407 $6,426
(1) Six months ended April 30, 1997 (unaudited).
(2) The data presented has been restated to give effect to a 10 for 1 stock
split in the form of a stock dividend that occurred on November 13, 1993.
(3) March 2, 1987 (inception) through October 31, 1987.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
(6) Expenses are shown net of management fees waived by the manager for
low-balance account fees collected during the period.
</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 which are 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.
For an explanation of the securities ratings referred to in the following
discussion, see "Other Information" in the Statement of Additional Information.
ARIZONA INTERMEDIATE-TERM MUNICIPAL
Arizona Intermediate-Term Municipal seeks to obtain as high a level of
current income exempt from Arizona and regular federal income tax as is
consistent with prudent investment management and conservation of shareholders'
capital.
Arizona Intermediate-Term Municipal is designed for individuals in upper tax
brackets seeking income free from Arizona state and regular federal income
taxes, although Arizona Intermediate-Term Municipal may generate some taxable
income. Because of this emphasis on tax-exempt income, Arizona Intermediate-Term
Municipal does not constitute a balanced investment.
Arizona Intermediate-Term Municipal is a "non-diversified company" as
defined in the Investment Company Act of 1940 (the "Investment Company Act").
However, the Arizona Intermediate-Term Municipal intends to meet federal tax
requirements for qualification as a regulated investment company, as described
in the Fund's Statement of Additional Information.
Arizona Intermediate-Term Municipal intends to remain fully invested in
municipal obligations (obligations issued by or on behalf of a state, its
political subdivisions, agencies, and instrumentalities). As a fundamental
policy, Arizona Intermediate-Term Municipal will invest at least 80% of its net
assets in obligations with interest exempt from the regular federal income tax,
excluding the federal alternative minimum tax (the "AMT").
In addition, Arizona Intermediate-Term Municipal will invest at least 65% of
its net assets in Arizona municipal obligations (obligations issued by or on
behalf of the state of Arizona, its political subdivisions, agencies, and
instrumentalities).
The remaining 35% of net assets may be invested in (1) obligations issued by
other states and their political subdivisions, (2) obligations issued by U.S.
territories or possessions such as Puerto Rico, and (3) U.S. government
securities. Under exceptional market or economic conditions, the Fund may invest
more than 35% of its net assets in these securities.
Arizona Intermediate-Term Municipal is authorized, under normal conditions
to invest as much as 100% of its net assets in municipal obligations for which
the interest is a tax preference item for purposes of the AMT. If you are or
become subject to the AMT, a portion of your income distributions that are
exempt from the regular federal income tax may not be exempt from the AMT.
Interest from AMT bonds is considered to be exempt from federal income tax for
purposes of the 80% policy noted above.
Because Arizona Intermediate-Term Municipal invests primarily in Arizona
municipal securities, its yield and share price are affected by political and
economic conditions and developments within Arizona. The following summary is
derived from official statements of the state of Arizona as well as from other
publicly-available documents. This summary has not been independently verified
by Arizona Intermediate-Term Municipal and does not purport to be a complete
description of the conditions and developments in Arizona that may affect
Arizona Intermediate-Term Municipal. For further information about the risks
12 INFORMATION REGARDING THE FUNDS AMERICAN CENTURY INVESTMENTS
associated with investing in Arizona obligations, please see Arizona
Intermediate-Term Municipal's Statement of Additional Information.
Arizona has been, and is projected to continue to be, one of the
faster-growing areas in the United States. During the last several decades, the
state has outpaced most other regions of the country in population and personal
income growth, gross state product, and job creation, although growth has slowed
somewhat in recent years. During the last 25 years, the state's emphasis on the
mining and agricultural employment sectors has diminished, and significant job
growth has occurred in the areas of aerospace, information technology,
construction, finance, insurance, and real estate.
Under its constitution, the state of Arizona is not permitted to issue
general obligation bonds secured by the full faith and credit of the state.
However, certain agencies and instrumentalities of the state are authorized to
issue bonds secured by revenues from specific projects and activities, and state
and local government units may enter into lease transactions. The particular
source of payments and security for an Arizona municipal obligation is detailed
in the instruments themselves and in related offering materials.
Limitations imposed under Arizona law on taxation and bond indebtedness may
affect the ability of the issuers to generate revenues to satisfy their debt
obligations. Arizona is required by law to maintain a balanced budget. In the
past, the state has issued a combination of spending reductions and tax
increases to avoid potential budgetary shortfalls and may require to do so
again.
For further information about the risks associated with investing in Arizona
obligations, please see the Statement of Additional Information.
FLORIDA MUNICIPAL MONEY MARKET
FLORIDA INTERMEDIATE-TERM MUNICIPAL
The Florida Funds seek to obtain as high a level of current income exempt
from regular federal income tax as is consistent with prudent investment
management and conservation of shareholders' capital. In addition, Fund shares
are intended to be exempt from the Florida Intangibles Tax.
The Florida Funds are designed for individuals in upper tax brackets seeking
income free from regular federal income tax, although the Florida Funds may
generate some taxable income. The Florida Funds also provide an investment that
is intended to be exempt from the Florida Intangibles Tax. Because of this
emphasis on tax-exempt income, the Florida Funds by themselves do not constitute
a balanced investment plan.
Each Florida Fund is a "non-diversified company" as defined in the
Investment Company Act. However, each Fund intends to meet federal tax
requirements for qualification as a regulated investment company.
Each Florida Fund intends to remain fully invested in municipal obligations
(obligations issued by or on behalf of a state, its political subdivisions,
agencies, and instrumentalities). As a fundamental policy, each Florida Fund
will invest at least 80% of its total assets in obligations with interest exempt
from regular federal income tax, not including the AMT.
In addition, each Florida Fund will invest at least 65% of its net assets in
Florida municipal obligations (obligations issued by or on behalf of Florida,
its political subdivisions, agencies, and instrumentalities, or U.S. possessions
or territories such as Puerto Rico). The remaining 35% of net assets may be
invested in (1) obligations issued by other states and their political
subdivisions and (2) U.S. government securities. Under exceptional market or
economic conditions, each Florida Fund may invest more than 35% of its net
assets in these securities.
Each Florida Fund is authorized under normal conditions to invest as much as
100% of its net assets in municipal obligations for which the interest is a tax
preference item for purposes of the AMT. If you are or become subject to the
AMT, a portion of your income distributions that are exempt from the regular
federal income tax may not be exempt from the AMT. Interest from AMT bonds is
considered to be exempt from federal income tax purposes of the 80% policy noted
above.
As discussed more fully on page 30 under "Special Tax Information," the
Florida Funds may need to sell certain investments near the end of each calendar
year so that on January 1 of each year, its portfolio consists only of
investments that are exempt from the Florida Intangibles Tax. As a result, a
Fund could incur additional costs or taxable income or gains.
Because the Florida Funds invest primarily in Florida municipal securities,
Fund yields and share
PROSPECTUS INFORMATION REGARDING THE FUNDS 13
prices are affected by political and economic conditions and developments within
the state of Florida. The following summary is derived from independent
municipal credit reports but has not been independently verified by the Florida
Funds and does not purport to be a complete description of the conditions and
developments in Florida that may affect the Florida Funds.
Historically, the Florida economy has been dependent upon agriculture and
seasonal tourism. These industries are vulnerable to widespread crop failures,
severe weather conditions and other agriculture-related problems, and trends and
difficulties in the tourism industry. In recent years, the economy has broadened
into a service and trade economy with substantial insurance, banking, and export
participation as well as a tourism industry that operates less seasonally.
Population growth was significant in the 1980s and is expected to continue
but at reduced rates. The retiree component of the population is expected to
continue to be a major factor. The population growth and expanding economy have
brought pressures for more infrastructure, educational facilities, and other
needs. Therefore, construction is very important to the Florida economy but is
vulnerable to declines in economic and population growth and has been weak in
recent years.
In August 1992, Hurricane Andrew struck southern Florida, with consequent
hurricane damage estimated to be $20-30 billion, about $10.2 billion of which
was insured. Although the state and federal governments have pledged funds to
help rebuild the area, the impact of this event on the fiscal resources of the
state and on local government is difficult to assess.
Florida is heavily dependent upon sales tax revenues, making the state's
general fund vulnerable to recession and presenting difficulties in expanding
the tax base in an economy increasingly geared to services. This dependence on
sales tax has resulted in budgetary shortfalls in the past; Florida has reacted
to preserve an adequate financial position primarily through expenditure
reductions and by doubling the intangibles tax.
For further information about the risks associated with investing in Florida
obligations, please see the Florida Funds' Statement of Additional Information.
TAX-FREE MONEY MARKET, LIMITED-TERM TAX-FREE, INTERMEDIATE-TERM TAX-FREE,
LONG-TERM TAX-FREE
The Tax-Free Funds seek as high a level of current income exempt from
regular federal income taxes as is consistent with prudent investment management
and conservation of shareholders' capital.
Each Tax-Free Fund is a "diversified company" as defined in the Investment
Company Act. This means that, with respect to 75% of its total assets, each
Tax-Free Fund will not invest more that 5% of its total assets in the securities
of a single issuer. This policy is fundamental.
Each Tax-Free Fund intends to remain fully invested in municipal
obligations, although for temporary defensive purposes, each may invest a
portion if its assets in U.S. government securities, the interest income on
which is subject to federal income tax. Each Tax-Free Fund may invest up to 20%
of its total assets in securities issued by U.S. territories or possessions,
such as Puerto Rico, provided that the interest on these securities is exempt
from the regular federal income tax.
The Tax-Free Funds may invest up to 20% of their total assets in municipal
obligations for which the interest is a tax preference item for purposes of the
AMT.
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
14 INFORMATION REGARDING THE FUNDS AMERICAN CENTURY INVESTMENTS
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 unrated obligation judged by the Manager, pursuant to guidelines
established by the board of trustees, to be of quality comparable to
the securities listed above.
VARIABLE PRICE FUNDS
The Variable Price Funds differ in their maturity criteria as follows:
Arizona Intermediate-Term Municipal invests primarily in intermediate-term
Arizona municipal obligations with maturities of four or more years. The
weighted average portfolio maturity is five to ten years.
Florida Intermediate-Term Municipal invests primarily in intermediate-term
Florida municipal obligations with maturities of four or more years. The
weighted average portfolio maturity is five to ten years.
Limited-Term Tax-Free invests primarily in short-term municipal obligations.
Its weighted average maturity will be five years or less.
Intermediate-Term Tax-Free invests primarily in municipal obligations with
maturities of four or more years. Its weighted average maturity ranges from five
to ten years.
Long-Term Tax-Free invests primarily in long-term municipal obligations. It
maintains a weighted average maturity of ten or more years.
In terms of credit quality, each Variable Price Fund 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 comparable quality.
RISK FACTORS AND INVESTMENT TECHNIQUES
Each Fund described in this Prospectus offers a range of potential for
income and total return based on its maturity criteria. The market value of the
investments of each Fund will change over time in response to a number of
factors, which are summarized in the following paragraphs.
BASIC FIXED INCOME INVESTMENT RISKS
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 and their reliability 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
other form of guarantee on the obligation.
PROSPECTUS INFORMATION REGARDING THE FUNDS 15
A security's ratings reflect 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.
Arizona Intermediate-Term Municipal and Florida Intermediate-Term Municipal
may invest up to 15% of its net assets in unrated securities. Each of the other
Funds described in this Prospectus may invest up to 10% of its assets in unrated
securities. Unrated securities may be less liquid than rated securities.
The Variable Price Funds may invest in securities rated Baa or BBB (the
lowest investment grade category). The Variable Price Funds will limit their
investment in securities rated Baa or BBB to 25% of a Fund's total assets. 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 (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.
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 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 other 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.
16 INFORMATION REGARDING THE FUNDS AMERICAN CENTURY INVESTMENTS
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.
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 be able to find a ready buyer for inverse
floaters. The Money Market Funds may not invest in inverse floaters.
AMT BONDS (VARIABLE PRICE FUNDS 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. Arizona Intermediate-Term
Municipal and the Florida Funds are authorized to invest as much as 100% of
their assets in AMT bonds.
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 Variable Price Funds 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 29.
Each Fund may quote tax-equivalent yields, which show the taxable yields an
investor would have to earn before taxes to equal the Fund's tax-free yields. As
a prospective investor in the Funds, you should determine whether your
tax-equivalent yield is likely to be higher with a taxable or with a tax-exempt
Fund. To determine this, you may use the formulas depicted below.
For the Florida Funds, the tax-equivalent yield is based on each Fund's
current tax-free yield, your federal income tax bracket, and the Florida
Intangibles Tax applicable to a taxable investment. The formula is:
Fund's Tax-Free Yield
- ------------------------------- Florida Your Tax-
100% - Federal + Intangibles Tax = Equivalent
Tax Rate Rate Yield
For Arizona Intermediate-Term Municipal, the tax-equivalent yield is based
on the current double tax-exempt yield and your combined federal and state
marginal tax rate. Assuming that all of Arizona Intermediate-Term Municipal's
dividends are tax-
PROSPECTUS INFORMATION REGARDING THE FUNDS 17
exempt in Arizona (which may not always be the case) and that your Arizona taxes
are fully deductible for federal income tax purposes, you can calculate your
tax-equivalent yield for Arizona Intermediate-Term Municipal using the following
equation:
Fund's Double Tax-Free Yield
- ---------------------------------------------------------- Your Tax-
(100% - Federal Tax Rate) (100% - Arizona Tax Rate) = Equivalent
Yield
You can calculate your tax-equivalent yield for a Tax-Free Fund (taking into
account only federal income taxes and not any applicable state taxes) using the
following equation:
Fund's Tax-Free Yield
- ------------------------------ Your Tax-
100% - Federal Tax Rate = Equivalent
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 5-11 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. High turnover would generate correspondingly
higher transaction costs that are borne directly by a Fund. 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 purchase new issues of securities on a when-issued or
forward commitment basis when, in the opinion of the Manager, such purchases
will further the investment objectives of the Fund. The price of when-issued
securities is established at the time 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
when-issued security. Accordingly, the value of such security may decline prior
to delivery, which could result in a loss to the Fund. A separate account
consisting of cash or appropriate liquid assets in an amount at least equal to
the when-issued commitments will be established and maintained with the
custodian. No income will accrue to the Fund prior to delivery.
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 debt
securities, and "bond index 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 cash or
appropriate liquid assets 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.
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 invest-
18 INFORMATION REGARDING THE FUNDS AMERICAN CENTURY INVESTMENTS
ment 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 Manager will attempt to create a closely correlated hedge but hedging
activities may not be completely successful in eliminating market value
fluctuation. The ordinary spreads between prices in the cash and futures
markets, due to the differences in the nature 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. The staff also acknowledges that while the Board
retains ultimate responsibility, it may delegate this function to the Manager.
Accordingly, the Board of Trustees has established guidelines and procedures for
determining the liquidity of Rule 144A securities and has delegated the
day-to-day function of determining the liquidity of Rule 144A securities to the
Manager. The Board retains the responsibility to monitor the implementation of
the guidelines and procedures it has adopted.
Since the secondary market for such securities is limited to certain
qualified institutional buyers, 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
For cash management purposes, each of the Variable Price Funds may invest in
any money market fund advised by the Manager, provided that the investment is
consistent with the Fund's investment policies and restrictions.
Up to 5% of the Variable Price Funds' total assets may be invested in this
manner.
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
PROSPECTUS INFORMATION REGARDING THE FUNDS 19
obligations. See the Funds' 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 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 17, for a description of the
formulas 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
other funds in our fund family. This relative comparison, which may be based
upon historical or expected Fund performance, volatility or other Fund
characteristics, may be presented numerically, graphically or in text. Fund
performance may also be combined or blended with other funds in our fund family,
and that combined or blended performance may be compared to the same indices to
which individual funds may be compared.
All performance information advertised by the Funds is historical in nature
and is not intended to represent or guarantee future results. The value of Fund
shares when redeemed may be more or less than their original cost.
20 INFORMATION REGARDING THE FUNDS AMERICAN CENTURY INVESTMENTS
HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS
AMERICAN CENTURY INVESTMENTS
The Funds offered by this Prospectus are a part of the American Century
Investments family of mutual funds. Our family provides a full range of
investment opportunities, from the aggressive equity growth funds in our
Twentieth Century Group, to the fixed income funds in our Benham Group, to the
moderate risk and specialty funds in our American Century Group. Please call
1-800-345-2021 for a brochure or prospectuses for the other funds in the
American Century Investments family.
INVESTING IN AMERICAN CENTURY
The following section explains how to invest in American Century funds,
including purchases, redemptions, exchanges and special services. You will find
more detail about doing business with us by referring to the Investor Services
Guide that you will receive when you open an account.
If you own or are considering purchasing Fund shares through an
employer-sponsored retirement plan or through a bank, broker-dealer or other
financial intermediary, the following sections, as well as the information
contained in our Investor Services Guide, may not apply to you. Please read
"Employer-Sponsored Retirement Plans and Institutional Accounts," page 27.
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:
(a) RECEIVING BANK AND ROUTING NUMBER:
Commerce Bank, N.A. (101000019)
(a) BENEFICIARY (BNF):
American Century Services Corporation
4500 Main St., Kansas City, Missouri 64111
(a) BENEFICIARY ACCOUNT NUMBER (BNF ACCT):
2804918
(a) 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.
(a) ORIGINATOR TO BENEFICIARY (OBI):
Name and address of owner of account into which you are investing.
(a) BANK TO BANK INFORMATION
(BBI OR FREE FORM TEXT):
* Taxpayer identification or Social Security
number
PROSPECTUS HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS 21
* 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 from 7 a.m. to 7 p.m. Central time to get information on
opening an account by exchanging from another American Century account. See this
page for more information on exchanges.
IN PERSON
If you prefer to work with a representative in person, please visit one of
our 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" on 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 a previous statement or confirmation. 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 Fund shares to our other funds up to six times per year per account. An
exchange request will be processed as of the same day it is received if it is
received before the funds' 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 28.
For any single exchange, the shares of each fund being acquired must have a
value of at least $100. However, we will allow investors to set up an
22 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS
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 W4-P and a reason for withdrawal as
specified by the IRS.
BY MAIL
Your written instructions to redeem shares may be made either by a
redemption form, which we will send to you upon request, or by a letter to us.
Certain redemptions may require a signature guarantee. Please see "Signature
Guarantee," page 24.
BY TELEPHONE
If you have authorized us to accept telephone instructions, you may redeem
your shares by calling an Investor Services Representative.
BY CHECK-A-MONTH
If you have at least a $10,000 balance in your Variable Price Fund account,
you may redeem shares by Check-A-Month. There are no minimum balance
requirements for Check-A-Month for Money Market Fund accounts. A Check-A-Month
plan automatically redeems enough shares each month to provide you a check in an
amount you choose (minimum $50). To set up a Check-A-Month plan, please call and
request our Check-A-Month brochure.
OTHER AUTOMATIC REDEMPTIONS
If you have at least $10,000 balance in your account, you may elect to make
redemptions automatically by authorizing us to send funds 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
PROSPECTUS HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS 23
of receipt and the funds' availability are not under our control.
REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS
Whenever the shares held in an account have a value of less than the
required minimum, a letter will be sent advising you of the necessity 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 can 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 Fund's daily share prices, receive
updates on major market indices 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
24 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS
telephone or mail for an appropriate form. For a new account, you may elect
CheckWriting on your purchase application by choosing the "Full Services"
option. CheckWriting is not available for any account held in an IRA or 403(b)
plan.
CheckWriting redemptions may only be made on checks provided by us.
Currently, there is no charge for checks or for the CheckWriting service.
We will return checks drawn on insufficient funds or on funds from
investments made by means other than by wire within the previous 15 days.
Neither the company nor our clearing bank will be liable for any loss or
expenses associated with returned checks. 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-priced fund by exchange from one of our money market funds,
or a price at which to sell shares of a variable-priced 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-priced
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.
PROSPECTUS HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS 25
Once you have mailed or otherwise transmitted your transaction
instructions to us, they may not be modified or canceled.
(5) If a transaction request is made by a corporation, partnership, trust,
fiduciary, agent or unincorporated association, we will require
evidence satisfactory to us of the authority of the individual making
the request.
(6) We have established procedures designed to assure the authenticity of
instructions received by telephone. These procedures include requesting
personal identification from callers, recording telephone calls, and
providing written confirmations of telephone transactions. These
procedures are designed to protect shareholders from unauthorized or
fraudulent instructions. 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 and transactions by
CheckWriting, each time you invest, redeem, transfer or exchange shares, we will
send you a confirmation of the transactions. Transactions initiated by
CheckWriting will be confirmed on a monthly basis. 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.
26 HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY INVESTMENTS
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, and 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 and
services that you are unable to obtain through your plan administrator or
financial intermediary.
PROSPECTUS HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS 27
ADDITIONAL INFORMATION YOU SHOULD KNOW
SHARE PRICE
WHEN SHARE PRICE IS DETERMINED
The price of your shares is also referred to as their net asset value. Net
asset value is determined by calculating the total value of a Fund's assets,
deducting total liabilities and dividing the result by the number of shares
outstanding. For all American Century funds, except the 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. The net asset values for the 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
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 of
the fund is determined.
Investments by telephone pursuant to your prior authorization to us to draw
on your bank account are considered received at the time of your telephone call.
Investment and transaction instructions received by us on any business day
by mail before the time as of which 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 arrangements 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:
The portfolio securities of each Fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or if
local convention or regulation so provides, the mean of the latest bid and asked
prices is used. Depending on local convention or regulation, securities traded
over-the-counter are priced at the mean of the latest bid and asked prices, or
at the last sale price. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in accordance
with procedures adopted by the Board of Trustees.
Debt securities not traded on a principal securities exchange are valued
through valuations obtained from a commercial pricing service or at the most
recent mean of the bid and asked prices provided by investment dealers in
accordance with procedures established by the Board of Trustees.
Pursuant to a determination by the Money Market Funds' Board of Trustees and
Rule 2a-7 under the Investment Company Act, 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 pre-
28 ADDITIONAL INFORMATION YOU SHOULD KNOW AMERICAN CENTURY INVESTMENTS
mium, regardless of the impact of fluctuating interest rates on the market
value of the instrument.
WHERE TO FIND INFORMATION ABOUT SHARE PRICE
The net asset values of the Investor Class of the Funds are published in
leading newspapers daily. The yields of the Investor Class of the Money Market
Funds are published weekly in leading financial publications and daily in many
local newspapers. The net asset values, as well as yield information on all of
the Funds and other funds in the American Century family of funds, may also be
obtained by calling us or by accessing our Web site at www.americancentury.com.
DISTRIBUTIONS
At the close of each day, including Saturdays, Sundays and holidays, net
investment income of the Variable Price Funds is determined and declared as a
distribution. The distribution 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. For the Money Market Funds, dividends are declared and credited
(i.e., available for redemption) daily and distributed monthly on the last
Friday of each month.
You will begin to participate in the distributions the day after your
purchase is effective. See "When Share Price is Determined," page 28.) 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 capital gains, 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.
Florida Municipal Money Market and Tax-Free Money Market do not expect to
realize any long-term capital gains, and accordingly do not expect to pay 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.
A distribution of shares of a Fund does not increase the value of your
shares of your total return. At any given time the value of your shares includes
the undistributed net gains, if any, realized by the Fund on the sale of
portfolio securities, and undistributed dividends and interest received, less
fund expenses.
Because such gains and dividends are included in the value of your shares,
when they are distributed the value of your shares is reduced by the amount of
the distribution. If you buy your shares through a taxable account just before
the distribution, you will pay the full price for your shares, and then receive
a portion of the purchase price back as a taxable distribution.
TAXES
Each Fund has elected to be taxed under Subchapter M of the Internal Revenue
Code, which means that to the extent its income is distributed to shareholders,
it pays no income tax.
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.
PROSPECTUS ADDITIONAL INFORMATION YOU SHOULD KNOW 29
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 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, 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.
Distributions may also be subject to state and local taxes, even if all or a
substantial part of such distributions are derived from interest on U.S.
government obligations which, if you received them directly, would be exempt
from state income tax. However, most but not all states allow this tax exemption
to pass through to Fund shareholders when a Fund pays distributions to its
shareholders. You should consult your tax advisor about the tax status of such
distributions in your own state.
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
30 ADDITIONAL INFORMATION YOU SHOULD KNOW AMERICAN CENTURY INVESTMENTS
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 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.
AMT LIABILITY
To the extent that the Funds 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.
ARIZONA INTERMEDIATE-TERM MUNICIPAL
Under a ruling by the Arizona Department of Revenue, shareholders who are
otherwise subject to Arizona income tax will not be subject to such tax on Fund
dividends to the extent that such dividends are attributable to either (1)
obligations of the state of Arizona or its political subdivisions or (2)
obligations issued by the governments of Guam, Puerto Rico, or the Virgin
Islands.
In addition, Arizona Intermediate-Term Municipal dividends that are
attributable to interest payments on direct obligations of the U.S. government
will not be subject to Arizona income tax if, as intended, Arizona
Intermediate-Term Municipal qualifies as a regulated investment company under
Subchapter M of the Code. Other distributions from the Fund, however, such as
distributions of short-term or long-term capital gains or income earned on
obligations of other states, will generally be subject to income, personal
property, intangibles or similar taxes in their respective states and
localities.
FLORIDA FUNDS
Florida currently does not have a personal income tax, so dividends from the
Florida Funds and distributions earned by Florida residents will not be subject
to such a tax. However, if you are domiciled outside of Florida, dividends and
distributions from the Florida Funds may be subject to your state's taxes.
Dividends and distributions earned by corporate shareholders that are subject to
the Florida corporate income tax may be taxable by Florida; these shareholders
should consult their tax advisors regarding the application of the Florida
corporate income tax to dividends and distributions from the Florida Funds.
The Florida Funds may apply for rulings from the Florida Department of
Revenue to the effect that shares of a Florida Fund be exempt from the Florida
intangibles tax each year if the Florida Fund's portfolio of investments on
January 1 of that year consists of qualifying investments.
Investments exempt from the Florida intangibles tax include but are not
limited to (1) notes, bonds and other obligations issued by Florida or its
municipalities, counties and other taxing districts and (2) notes, bonds, and
other obligations issued by the U.S. government and its agencies. Obligations
issued by the governments of Puerto Rico, Guam and the Virgin Islands are also
exempt if permitted by ruling.
If a Florida Fund's portfolio of investments on January 1 of each year
includes investments that are not exempt from the Florida intangibles tax, the
Florida Fund's shares could be subject to the Florida intangibles tax. The
Florida Funds intend that on January 1 of each year, each Florida Fund's
portfolio of investments will consist solely of investments exempt from the
Florida intangibles tax. Shareholders who
PROSPECTUS ADDITIONAL INFORMATION YOU SHOULD KNOW 31
are domiciled outside of Florida may be subject to income, personal property,
intangibles or similar taxes in their respective states.
MANAGEMENT
INVESTMENT MANAGEMENT
The Funds are open-end series of the American Century Municipal Trust (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 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 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 as
follows:
G. DAVID MACEWEN, Vice President, is the manager of the team which manages
the Funds in the American Century Municipal Trust and has been primarily
responsible for the day-to-day operations of Florida Municipal Intermediate
since May 1991. Mr. MacEwen joined American Century in 1991.
COLLEEN M. DENZLER, Senior Municipal Portfolio Manager, has been primarily
responsible for the day-to-day operations of Arizona Municipal Intermediate
since January 1996. Ms. Denzler is also a member of the teams which manage
Florida Intermediate-Term Municipal, Intermediate-Term Tax-Free and Long-Term
Tax-Free. Prior to joining American Century 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 of Investment Management and Research (AIMR) and the
Washington Society of Investment Analysts.
JOEL SILVA, Municipal Portfolio Manager, has been responsible for the
day-to-day operations of Intermediate-Term Tax-Free since June 1994. Mr. Silva
is also a member of the team which manages Arizona Intermediate-Term Municipal.
Before being promoted to his current position, Mr. Silva was a municipal bond
trader. Mr. Silva is a Registered Representative and has a B.S. degree from
California Polytechnic University and an MBA from California State University in
Hayward.
BRYAN E. KARCHER, Portfolio Manager, has been responsible for the
day-to-day operations of the Money Market Funds since April 1995. Mr. Karcher
joined American Century in 1989 and is a Chartered Financial Analyst.
TODD PARDULA, Portfolio Manager, has been a member of the teams which
manage the Money Market Funds since February 1990, when he joined American
Century. Mr. Pardula is a Chartered Financial Analyst.
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
32 ADDITIONAL INFORMATION YOU SHOULD KNOW AMERICAN CENTURY INVESTMENTS
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 each of the Funds is an annual rate
of the average net assets of the Fund as follows: Florida Municipal Money Market
and Tax-Free Money Market, 0.20%; and Arizona Intermediate-Term Municipal,
Florida Intermediate-Term Municipal, Limited-Term Tax-Free, Intermediate-Term
Tax-Free and Long-Term Tax-Free, 0.22%. 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 that 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 (the "transfer agent") 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 the transfer agent are both wholly owned by American Century
Companies, Inc. (ACC). 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
Investor Class of Fund shares offered by this Prospectus. The Investor Class of
shares 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
American Century Municipal Trust was organized as a Massachusetts business
trust on May 1, 1984. The
PROSPECTUS ADDITIONAL INFORMATION YOU SHOULD KNOW 33
Trust is a diversified, open-end management investment company. Its business and
affairs are managed by its officers under the direction of its Board of
Trustees.
The principal office of the Trust is American Century Tower, 4500 Main
Street, P.O. Box 419200, Kansas City, Missouri 64141-6200. All inquiries may be
made by mail to that address, or by telephone to 1-800-345-2021 (international
calls: 816-531-5575).
The Funds are individual series of the Trust which issues shares with no
par value. The assets belonging to each series of shares are held separately by
the custodian and in effect each series is a separate fund.
Each share, irrespective of series, is entitled to one vote for each dollar
of net asset value applicable to such share on all questions, except those
matters which must be voted on separately by the series of shares affected.
Matters affecting only one Fund are voted upon only by that Fund.
Shares have non-cumulative voting rights, which means that the holders of
more than 50% of the votes cast in an election of Trustees can elect all of the
Trustees if they choose to do so, and in such event the holders of the remaining
votes will not be able to elect any person or persons to the Board of Trustees.
Unless required by the 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. We 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.
34 ADDITIONAL INFORMATION YOU SHOULD KNOW AMERICAN CENTURY INVESTMENTS
NOTES
NOTES 35
NOTES
36 NOTES
NOTES
NOTES 37
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
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
[american century logo]
American
Century(reg.sm)
SEPTEMBER 2, 1997
BENHAM
GROUP(reg.tm)
Arizona Intermediate-Term Municipal
Florida Municipal Money Market
Florida Intermediate-Term Municipal
Tax-Free Money Market
Limited-Term Tax-Free
Intermediate-Term Tax-Free
Long-Term Tax-Free
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 2, 1997
AMERICAN CENTURY MUNICIPAL TRUST
This Statement is not a prospectus but should be read in conjunction with the
Funds' current Prospectus dated September 2, 1997. The Arizona Fund, Florida
Funds, and Tax-Free Money Market Fund's annual reports, which are dated May 31,
1997, and the Limited-Term Tax-Free, Intermediate-Term Tax-Free and Long-Term
Tax-Free Funds' annual report, which is dated October 31, 1996, are incorporated
herein 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
Investment Restrictions .................................................... 10
Portfolio Transactions ..................................................... 11
Valuation of Portfolio Securities .......................................... 11
Performance ................................................................ 13
Taxes ...................................................................... 14
About the Trust ............................................................ 17
Trustees and Officers ...................................................... 18
Management ................................................................. 21
Transfer and Administrative Services ....................................... 23
Distribution of Fund Shares ................................................ 23
Additional Purchase and Redemption Information ............................. 23
Other Information .......................................................... 25
NOTE: Throughout this document, Benham Arizona Intermediate-Term Municipal
Fund is referred to as the "Arizona Fund."
Benham Florida Municipal Money Market and Benham Florida Municipal
Intermediate-Term Funds are referred to as the "Florida Funds."
Benham Tax-Free Money Market and Benham Florida Municipal Money Market Funds
are referred to as the "Money Market Funds." Finally, the remaining non-money
market Funds are referred to as the "Variable-Price Funds."
STATEMENT OF ADDITIONAL INFORMATION 1
INVESTMENT POLICIES AND TECHNIQUES
The following pages provide a more detailed description of 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.
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), types of revenue bonds, 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 depends solely on the ability of the
facility's user to meet its 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 financial
intermediaries. Floating-rate instruments have interest rates that change
whenever there is a change in a designated base rate; variable-rate instruments
provide for a specified, periodic adjustment in the interest rate, which is
typically based on an index. These formulas are designed to result in a market
value for the VRDO or FRDO that approximates par value.
2 STATEMENT OF ADDITIONAL INFORMATION
The Board of Trustees has approved investments in VRDOs and FRDOs on the
following conditions:
(1) The Fund must have an unconditional right to demand the return of
principal plus accrued interest from the issuer on 30 days' notice or
less;
(2) Under the direction of the Board of Trustees, American Century Investment
Management, Inc. (the "Manager") must determine that the issuer will be
able to make payment upon such demand, either from its own resources or
through an unqualified commitment (such as a letter of credit) from a
third party; and
(3) The rate of interest payable on the VRDO or FRDO must be calculated to
ensure that its market value will approximate par value on interest rate
adjustment dates.
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.
The Manager 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. Where 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) 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 a 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.
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.
STATEMENT OF ADDITIONAL INFORMATION 3
WHEN-ISSUED AND FORWARD COMMITMENT AGREEMENTS
The Funds may engage in 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,
each Fund assumes the rights and risks of ownership, including the risks of
price and yield fluctuations. Although a Fund will make commitments to purchase
or sell securities with the intention of actually receiving or delivering them,
it may nevertheless sell the securities before the settlement date if doing so
is deemed advisable as a matter of investment strategy.
In purchasing securities on a when-issued or forward commitment basis, a
Fund will establish and maintain until the settlement date a segregated account
consisting of cash or appropriate liquid assets 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 sales of
securities, or, although it would not normally expect to do so, through the sale
of 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.
The Funds may sell a security and at the same time make a commitment to
purchase the same security at a future date and specified price. Conversely, the
Funds may purchase a security and at the same time make a commitment to sell the
same security at a future date and specified price. These types of transactions
are executed simultaneously in what are known as "dollar-roll" or
"cash-and-carry" transactions. For example, a broker-dealer may seek to purchase
a particular security that the Funds own. The Funds will sell that security to
the broker-dealer and simultaneously enter into a forward commitment agreement
to buy it back at a future date. This type of transaction generates income for
the Funds if the dealer is willing to execute the transaction at a favorable
price in order to acquire a specific security.
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 sales 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 providing 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.
INVERSE FLOATERS (VARIABLE-PRICE FUNDS)
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 an inverse floater 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).
4 STATEMENT OF ADDITIONAL INFORMATION
Inverse floaters may be issued in conjunction with an equal amount of Dutch
Auction floating-rate bonds (floaters), or a market-based index may be used to
set the interest rate on these securities. Floaters and inverse floaters may be
brought to market by a broker-dealer who purchases fixed-rate bonds and places
them in a trust or by an issuer seeking to reduce interest expenses by using a
floater/inverse floater structure in lieu of fixed-rate bonds.
In the case of a broker-dealer structured offering (where underlying
fixed-rate bonds have been placed in a trust), distributions from the underlying
bonds are allocated to floater and inverse floater holders in the following
manner:
(a) Floater holders receive interest based on rates set at a Dutch Auction,
which is typically held every 28 to 35 days. Current and prospective
floater holders bid the minimum interest rate that they are willing to
accept on the floaters, and the interest rate is set just high enough to
ensure that all of the floaters are sold.
(b) 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 such 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 because of the way interest payments are determined. The
interest rates on inverse floaters may be significantly reduced, even to zero,
if interest rates rise.
RESTRICTED SECURITIES
The Funds may buy securities that are subject to restrictions on resale.
These securities will be deemed illiquid unless (a) the Board of Trustees
establishes guidelines for determining the liquidity of restricted securities
and (b) the securities (on a case by case basis) are determined to be liquid in
accordance with Board-approved guidelines.
SHORT-TERM INVESTMENTS (VARIABLE-PRICE FUNDS)
Under certain circumstances, the Variable-Price Funds 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 the 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. The Manager intends to minimize such investments, however, and may allow
the Funds to hold cash to avoid generating taxable dividends when suitable
short-term municipal securities are unavailable.
Pursuant to an exemptive order that the Manager received from the Securities
and Exchange Commission (SEC), for liquidity purposes each Variable-Price Fund
may invest up to 5% of its total assets in shares of any money market fund
advised by the Manager, provided that the investment is consistent with the
Fund's investment policies and restrictions.
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.
STATEMENT OF ADDITIONAL INFORMATION 5
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 that a Fund holds 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 of or the means of financing municipal projects, material or manpower
shortages, and declining demand for the 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 can 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
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. A Fund may engage in
futures and options transactions based on securities indexes, such as the Bond
Buyer Index of Municipal Bonds, that are consistent with that Fund's investment
objectives. A 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
Municipal Bond Index. Although other types of futures contracts, by their terms,
call for actual delivery or acceptance of the underlying securities, in most
cases the contracts are closed out before the settlement date. A futures
position may be closed by taking an opposite position in an identical contract
(i.e., buying a contract that has previously been sold or selling a contract
that has previously been bought).
To initiate and maintain an open position in a futures contract, a Fund
would be required to make a good-faith margin deposit in cash or government
securities with a 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 broker for as long as the contract remains open and do not constitute
margin transactions for purposes of a Fund's 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 also suffer losses if the prices of its futures and options positions
were poorly
6 STATEMENT OF ADDITIONAL INFORMATION
correlated with its other investments, or 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 might 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 the futures contracts it holds. The Manager will seek to
minimize these risks by limiting the contracts it enters 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 the Fund had different maturities than
those of the portfolio securities being hedged. Such imperfect correlation may
give rise to circumstances in which the Fund loses money on a futures contract
at the same time that it experiences a decline in the value of its hedged
portfolio securities. The Fund could also lose margin payments it has deposited
with a margin broker if, for example, the broker becomes bankrupt.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of the trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond the limit. However, the daily limit
governs only price movement during a particular trading day and, therefore, does
not limit potential losses. In addition, the daily limit may prevent liquidation
of unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
OPTIONS ON FUTURES. By purchasing an option on a futures contract, a Fund
obtains the right, but not the obligation, to sell the futures contract (a put
option) or to buy the contract (a call option) at a fixed "strike" price. A Fund
can terminate its position in a put option by allowing it to expire or by
exercising the option. If the option is exercised, the Fund completes the sale
of the underlying security at the strike price. Purchasing an option on a
futures contract does not require a Fund to make margin payments unless the
option is exercised.
Although they do not currently intend to do so, the Funds may write (or
sell) call options that obligate them to sell (or deliver) the option's
underlying instrument upon exercise of the option. While the receipt of option
premiums would mitigate the effects of price declines, a Fund would give up some
ability to participate in a price increase on the underlying security. If a Fund
engages in options transactions, it would own the futures contract at the time a
call was written and would keep the contract open until the obligation to
deliver it pursuant to the call expired.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS. Each
Variable-Price Fund may enter into futures contracts, options, or options on
futures contracts, provided that such obligations represent no more than 20% of
the Fund's net assets. Under the Commodity Exchange Act, a fund may enter into
futures and options transaction (a) for hedging purposes without regard to the
percentage of assets committed to initial margin and option premiums or (b) for
other than hedging purposes, provided that assets committed to initial margin
and option premiums do not exceed 5% of the fund's net assets. To the extent
required by law, each Fund will set aside cash or 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
STATEMENT OF ADDITIONAL INFORMATION 7
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.
OTHER INVESTMENT COMPANIES
Each Fund may invest in securities issued by open and closed-end investment
companies advised by the Manager which are consistent with its investment
objective and policies. Under the Investment Company Act of 1940 (the "
Investment Company Act"), the Fund's investment in such securities, subject to
certain exceptions, currently is limited to (a) 3% of the total voting stock of
any one investment company, (b) 5% of the Fund's total assets with respect to
any one investment company and (c) 10% of the Fund's total assets in the
aggregate. Such purchases will be made in the open market where no commission or
profit to a sponsor or dealer results from the purchase other that the customary
brokers' commissions. As a shareholder of another investment company, a Fund
would bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the management fee that each Fund bears directly in connection
with its own operations.
SPECIAL CONSIDERATIONS REGARDING ARIZONA MUNICIPAL SECURITIES
As briefly discussed in the Prospectus, the Arizona Fund is susceptible to
political, economic, and regulatory events that affect issuers of Arizona
municipal obligations. The following information about risk factors is provided
in view of the Arizona Fund's policy of concentrating its assets in Arizona
municipal securities. This information is based on certain official statements
of the state of Arizona published in connection with the issuance of specific
Arizona municipal securities as well as from other publicly available sources.
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.
Located in the country's sunbelt, Arizona has been, and is projected to
continue to be, one of the faster growing areas in the United States. Over the
last several decades, the state has outpaced most other regions of the country
in population and personal income growth, gross state product, and job creation
Geographically, Arizona is the nation's sixth largest state in terms of
area. It is divided into three distinct topographic regions: the northern third
which is high plateau country traversed by deep canyons, such as Grand Canyon
National Park; central Arizona which is rugged, mountainous, and heavily
forested; and the southern third which encompasses desert areas and flat,
fertile agricultural lands in valleys between mountains rich in mineral
deposits. These topographic areas all have different climates, which have
distinctively influenced development in each region. Land ownership is vested
largely in the federal and state governments: 32% is owned by the federal
government, 28% is held as Federal Trust Land (Indian), 17% is in private
ownership, and 13% is held by the state, leaving approximately 10% held in other
categories.
Over the last twenty-five years, the state's emphasis on the mining and
agricultural employment sectors has diminished, and significant job growth has
occurred in the areas of aerospace and high technology, construction, finance,
insurance, and real estate. Arizona's economy has continued to grow in recent
years, although at a slower rate of growth than was experienced in earlier
periods.
Under its constitution, the state of Arizona is not permitted to issue
general obligation bonds secured by the full faith and credit of the state.
However, certain agencies and instrumentalities of the state are authorized to
issue bonds secured by revenues from specific projects and activities, and the
state and local governmental units may enter into lease transactions. The
particular source of payments and security for an Arizona municipal obligation
is detailed in the instruments themselves and in related offering materials.
The state and local governmental units are subject to limitations imposed by
Arizona law with respect to ad valorem taxation, bonded indebtedness, the amount
of annual increases in taxes, and other matters. These limitations may affect
the ability of the issuers to generate revenues to satisfy their debt
obligations. There are periodic attempts in the form of voter initiatives and
legislative proposals to further limit the amount of annual increases in taxes
that may
8 STATEMENT OF ADDITIONAL INFORMATION
be levied without voter approval. If such a proposal were enacted, there might
be an adverse impact on state or local government financing.
Arizona is required by law to maintain a balanced budget. In the past, the
state has used a combination of spending reductions and tax increases to avoid
potential budgetary shortfalls and may be required to do so again in the future.
SPECIAL CONSIDERATIONS REGARDING FLORIDA MUNICIPAL SECURITIES
As briefly discussed in the Prospectus, the Florida Funds are susceptible to
political, economic, and regulatory events that affect issuers of Florida
municipal obligations. The following information about risk factors is provided
in view of the Florida Funds' policies of concentrating their assets in Florida
municipal securities. This information is based on independent municipal credit
reports relating to securities offerings of Florida issuers and other publicly
available sources. 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 this information, it has no reason to believe the
information is inaccurate.
Because the Florida Funds invest primarily in Florida municipal securities,
they will be affected by political and economic conditions and developments
within the state of Florida. In general, the credit quality and credit risk of
any issuer's debt depend on the state and local economy, the health of the
issuer's finances, the amount of the issuer's debt, the quality of management,
and the strength of legal provisions in debt documents that protect debt
holders. Credit risk is usually lower whenever the economy is strong, growing
and diversified, financial operations are sound, and the debt burden is
reasonable.
The state of Florida's economy is characterized by a large service sector, a
dependence on the tourism and construction industries, and a large retirement
population. The management of rapid growth has been the major challenge facing
state and local governments. Florida's population has grown rapidly and is now
the fourth largest state; this growth is expected to continue, but at reduced
rates. The retiree component is expected to continue to be a major factor. As
this growth continues, particularly within the retirement population, the demand
for both public and private services will increase, which may strain the service
sector's capacity and impede the state's budget balancing efforts.
In recent years, the Florida economy has been transforming from a narrow
base of agriculture and seasonal tourism into a service and trade economy, with
substantial insurance, banking, and export participation as well as greater
year-round attraction. The outlook for the Florida economy is continued
expansion fueled by population growth but at a slower rate than that of the
1980s.
Debt levels in the state of Florida are moderate to high, reflecting the
tremendous capital demands associated with rapid population growth. Florida is
unusual among states in that all general obligation full faith and credit debt
issues of municipalities must be approved by public referendum and are,
therefore, relatively rare. Most debt instruments issued by local municipalities
and authorities have a narrower pledge of security, such as a sales tax stream,
special assessment revenue, user fees, utility taxes, or fuel taxes. Credit
quality of such debt instruments tends to be somewhat lower than that of general
obligation debt. The state of Florida issues general obligation debt for a
variety of purposes; however, the state constitution requires a specific revenue
stream to be pledged to state general obligation bonds as well.
The state of Florida is heavily dependent upon sales tax, which makes the
state's general fund vulnerable to recession and presents difficulties in
expanding the tax base in an economy increasingly geared to services. This
dependence upon sales tax, combined with economic recession, has resulted in
budgetary shortfalls in the past; Florida has reacted to preserve an adequate
financial position primarily through expenditure reductions. State officials,
however, still face tremendous capital and operating pressures due to the growth
that will continue to strain the state's narrow revenue base. Future budgets may
require a wider revenue base to meet such demands; the most likely candidate for
such revenue enhancement is a tax on consumer services. The creation of a
Florida personal income tax is a remote possibility because it would require an
amendment to the state's constitution. However, there can be no assurance that a
personal income tax will not be implemented in the
STATEMENT OF ADDITIONAL INFORMATION 9
future if such a tax were to be imposed, there is no assurance that interest
earned on Florida municipal obligations would be exempt from this tax.
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.
AS A FUNDAMENTAL POLICY, EACH FUND SHALL NOT:
1) issue senior securities, except as permitted under the Investment
Company Act of 1940.
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 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.
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) [Arizona and Florida Funds 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. Each 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.
10 STATEMENT OF ADDITIONAL INFORMATION
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 transaction 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
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 limitation
on borrowing, percentage limitations included in 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 is backed
only by the assets and revenues of a nongovernmental user, the nongovernmental
user would be deemed the sole issuer. If, in either case, the creating
government or some other entity guarantees the security, the guarantee would be
considered a separate security and would be 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.
The portfolio turnover rates for each of the Variable-Price Funds appear in
the Financial Highlights section of the Prospectus. 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.
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
STATEMENT OF ADDITIONAL INFORMATION 11
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas
(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.
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 Fund's yield. During periods of declining interest rates, for
example, the daily yield on Fund shares computed as described above may be
higher than that of a fund with identical investments priced at market value.
The converse would apply in a period of rising interest rates.
The amortized cost valuation method is permitted in accordance with Rule
2a-7 under the Investment Company Act. Under the Rule, a fund holding itself out
as a money market fund must adhere to certain quality and maturity criteria
which are described in the Prospectus.
Each Money Market Fund operates 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, each Fund's price per
share as computed for the purpose of sales and redemptions at $1.00. While the
day-to-day operation of each Fund 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 rating agency or, in the case of an unrated security, of
comparable quality. The procedures require review of each Fund's portfolio
holdings at such intervals as are reasonable in light of current market
conditions to determine whether the 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.
VARIABLE-PRICE FUNDS. Most securities held by the Variable-Price Funds 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 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 asked 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 broker-dealers.
Securities maturing within 60 days of the valuation date may be valued at
amortized cost, which is plus or minus any amortized discount or premium, unless
the Trustees determine that this would not result in fair valuation of a given
security. Other assets and securities for which quotations are not readily
available are valued in good faith at their fair market value using methods
approved by the Board of Trustees.
12 STATEMENT OF ADDITIONAL INFORMATION
PERFORMANCE
The Funds may quote performance in various ways. Historical performance
information will be used in advertising and sales literature and is not
indicative of future results. A Fund's share price, yield, and return will vary
with changing market conditions.
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 it 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 May 31, 1997, are listed in the following table:
7-Day Yield 7-Day Effective Yield
- --------------------------------------------------------------------------------
Tax-Free Money Market 3.32% 3.37%
Florida Municipal Money Market 3.42% 3.48%
- --------------------------------------------------------------------------------
For the VARIABLE-PRICE FUNDS, yield quotations are based on the investment
income per share earned during a given 30-day period, less expenses accrued
during the period (net investment income), and are computed by dividing a 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 Funds' yields for the 30-day period ended May 31, 1997, are listed in
the following table:
30-Day Yield
- --------------------------------------------------------------------------------
Arizona Fund 4.18%
Florida Intermediate-Term 4.17%
- --------------------------------------------------------------------------------
The Funds' yields for the 30-day period ended October 31, 1996, are listed
in the following table:
30-Day Yield
- --------------------------------------------------------------------------------
Limited-Term Tax-Free 3.69%
Intermediate-Term Tax-Free 4.34%
Long-Term Tax-Free 4.80%
- --------------------------------------------------------------------------------
Total returns quoted in advertising and sales literature reflect all aspects
of a Fund's return, including the effect of reinvesting dividends and capital
gain distributions and any change in the Fund's NAV during the period.
Average annual total returns are calculated by determining the growth or
decline in value of a hypothetical historical investment in a Fund over a stated
period and then calculating the annually compounded 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 total return of 7.18%, which is
the steady annual rate that would result in 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 a fund's 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,
ten-year and life-of-fund periods are indicated in the following tables.
Period ended May 31, 1997
-------------------------------------------------
Fund One Year Five Year Ten Year Life of Fund
- -------------------------------------------------------------------------------
Arizona Intermediate-Term(1) 5.77% N/A N/A 6.37%
Florida Money Market(1) 3.55% N/A N/A 3.67%
Florida Intermediate-Term(1) 6.63% N/A N/A 6.41%
Tax-Free Money Market(2) 2.98% 2.63% 3.73% 4.01%
- -------------------------------------------------------------------------------
(1)Commencement of Operations April 11, 1994.
(2)Commencement of Operations July 31, 1984.
STATEMENT OF ADDITIONAL INFORMATION 13
Period ended October 31, 1996
-----------------------------------------------
Fund One Year Five Year Ten Year Life of Fund
- -----------------------------------------------------------------------------
Limited-Term Tax-Free(1) 4.26% N/A N/A 4.23%
Intermediate-Term Tax-Free(2) 4.47% 6.09% N/A 5.94%
Long-Term Tax-Free(2) 5.60% 7.19% 6.82% 7.13%
- -----------------------------------------------------------------------------
(1)Commencement of Operations March 1, 1993.
(2)Commencement of Operations March 2, 1987.
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 a percentage or as a dollar amount 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.
Performance information may be quoted numerically or in a table, graph, or
similar illustration.
Each Fund may also quote tax-equivalent yields, which show the taxable
yields an investor would have to earn before taxes to equal the Fund's tax-free
yields. As a prospective investor in the Funds, you should determine whether
your tax-equivalent yield is likely to be higher with a taxable or with a
tax-exempt Fund. To determine this, you may use the formula depicted below.
You can calculate your tax-equivalent yield for a Fund (taking into account
only federal income taxes and not any applicable state taxes) using the
following equation:
Fund's Tax-Free Yield Your Tax-
- ------------------------------ = Equivalent
100% - Federal Tax Rate Yield
The Funds' performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indexes of market
performance. This may include comparisons with funds that, unlike American
Century family of 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
performance.
The Funds' shares are sold without a sales charge (or "load"). No-load funds
offer an advantage to investors when compared to load funds with comparable
investment objectives and strategies.
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, the Funds will not incur federal or state income
taxes on its net investment income and on net realized capital gains to the
extent distributed as dividends to shareholders.
It is intended that each Fund's assets will be sufficiently invested in
municipal securities to qualify to pay "exempt-interest dividends" (as defined
in the Code) to shareholders. A Fund's dividends payable
14 STATEMENT OF ADDITIONAL INFORMATION
from net tax-exempt interest earned from municipal securities will qualify as
exempt-interest dividends if, at the close of each quarter of its taxable year,
at least 50% of the value of its total assets consists of municipal securities.
Exempt-interest dividends distributed to shareholders are not included in
shareholders' gross income for purposes of the regular federal income tax. 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.
Each Fund will determine periodically which distributions will be designated
as exempt-interest dividends. If a Fund earns income which is not eligible to be
designated as exempt-interest dividends, the Fund, nonetheless, intends to
distribute such income. Such distributions will be subject to federal, state,
and local taxes, as applicable, in the hands of shareholders.
Distributions of net investment income received by a Fund from investment in
debt securities other than municipal securities 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.
The timing of your investment could have undesirable tax consequences. If
you open an account or buy shares for your account before the day a dividend or
distribution is declared, you may receive a portion of your investment back as
taxable income if that dividend or distribution is not an exempt-interest
dividend.
Under the Code, any distribution from a fund's net realized long-term
capital gains is taxable to shareholders as a long-term capital gain, regardless
of the length of time shares have been held.
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 investments in such
instruments.
Upon the sale or exchange of a Fund's shares, a shareholder generally will
realize a taxable gain or loss depending upon his/her basis in the shares. Such
gain or loss will be treated as a capital gain or loss if the shares are capital
assets in the shareholder's hands and will be long-term if the shareholder's
holding period for the shares is more than one year and, generally, will
otherwise be short-term.
Any loss realized from a disposition of Fund shares held for six months or
less will be disallowed to the extent that dividends from the Fund have been
designated as exempt-interest dividends. Any loss realized on a sale or exchange
of Fund shares also will be disallowed to the extent that the shares disposed of
are replaced (including replacement through reinvesting of dividends and capital
gain distributions in the Fund) within a period of 61 days beginning 30 days
before and ending 30 days after the disposition of the shares. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss.
Interest on certain types of industrial development bonds is subject to
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 "nonexempt 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/she or his/her immediate family (spouse, brothers,
sisters, and lineal descendants) owns directly or indirectly in aggregate more
than 50% of the equity value of the substantial user.
Certain options, futures contracts, and forward contracts in which the Funds
may invest are "section 1256 contracts." Gains or losses on section 1256
contracts generally are considered 60% long-term and 40% short-term capital
gains or losses (60-40). Also, section 1256 contracts held by a Fund at the end
of each taxable year (and, in some cases, for purposes of the 4% excise tax, on
October 31st of each
STATEMENT OF ADDITIONAL INFORMATION 15
year) are marked to market with the result that unrealized gains or losses are
treated as though they were realized.
The hedging transactions undertaken by the Funds may result in straddles for
federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by a fund. In addition, losses realized by a fund on
positions that are part of a straddle may be deferred under the straddle rules,
rather than being taken into account in calculating the taxable income for the
taxable year in which such losses are realized. Because only a few regulations
implementing the straddle rules have been promulgated, the tax consequences to
the Funds of hedging transactions are not entirely clear. The hedging
transactions may increase the amount of short-term capital gains realized by the
Funds, which are taxed as ordinary income when distributed to shareholders.
Each Fund may make one or more of the elections available under the Code
that are applicable to straddles. If a Fund makes any of the elections, the
amount, character, and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the elections made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses, and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount that must be distributed to
shareholders and that will be taxed to shareholders as ordinary income or as a
long-term capital gain may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.
Opinions relating to the tax status of interest derived from individual
municipal securities are rendered by bond counsel to the issuer. The Funds, the
investment manager, and the Funds' counsel do not review the proceedings
relating to the issuance of state or municipal securities on the basis of bond
counsel opinions.
From time to time, proposals have been introduced in Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities, and similar proposals may be introduced in the
future. If such a proposal were enacted, the availability of municipal
securities for investment by the Funds and the Funds' NAVs would be adversely
affected. Under these circumstances, the Board of Trustees would re-evaluate the
Funds' investment objectives and policies and would consider either changes in
the structure of the Trust or its dissolution.
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. To determine whether a Fund is a suitable
investment based on his or her situation, a prospective investor may wish to
consult a tax advisor.
ALTERNATIVE MINIMUM TAX
While the interest on bonds issued to finance essential state and local
government operations is generally tax-exempt, interest on certain nonessential
or private activity securities issued after August 7, 1986, while tax-exempt for
regular federal income tax purposes, constitutes a tax-preference item for
taxpayers in determining alternative minimum tax liability under the Code and
income tax provisions of several states. The interest on private activity
securities could subject a shareholder to, or increase liability under, the
federal alternative minimum tax, depending on the shareholder's tax situation.
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.
The Trust will inform shareholders annually as to the dollar amount of
distributions derived from interest payments on private activity securities.
STATE AND LOCAL TAXES (ARIZONA FUND)
Under a ruling by the Arizona Department of Revenue, shareholders who are
otherwise subject to Arizona income tax will not be subject to such tax on
dividends paid by the Arizona Fund to the extent that such dividends are
attributable to either (a) obligations of the State of Arizona or its political
subdivisions thereof or (b) obligations issued by the governments of Guam,
Puerto Rico, or the Virgin Islands. In addi-
16 STATEMENT OF ADDITIONAL INFORMATION
tion, dividends paid by the Arizona Fund that are attributable to interest
payments on direct obligations of the United States government will not be
subject to Arizona income tax so long as the Arizona Fund qualifies as a
regulated investment company under Subchapter M of the Code. Other distributions
from the Arizona Fund, however, such as distributions of short-term or long-term
capital gains, will generally not be exempt from Arizona income tax.
The Arizona Fund's dividends may not qualify for exemption under income or
other tax laws of state or local taxing authorities outside of Arizona.
Shareholders should consult their tax advisors or state or local tax authorities
about the status of distributions from the Arizona Fund in this regard.
The information above is only a summary of some of the tax considerations
affecting the Arizona Fund and its shareholders. No attempt has been made to
discuss individual tax consequences. To determine whether the Arizona Fund is a
suitable investment based on his or her tax situation, a prospective shareholder
may wish to consult a tax advisor.
STATE AND LOCAL TAXES (FLORIDA FUNDS)
Dividends and distributions paid by the Florida Funds to individuals who are
Florida residents will not be subject to personal income taxation by Florida
because Florida does not have a personal income tax. Corporate shareholders that
are subject to the Florida corporate income tax should consult with their tax
advisor regarding the application of the Florida corporate income tax to
dividends and distributions paid by the Florida Funds.
The Florida Funds may apply for rulings from the Florida Department of
Revenue (FDR) to the effect that shares of a Florida Fund will be exempt from
the Florida intangibles tax each year if the Florida Fund's portfolio of
investments on January 1st of that year consists of investments exempt from the
Florida intangibles tax. Investments exempt from the Florida intangibles tax
include, but are not limited to, (a) notes, bonds and other obligations issued
by the state of Florida or its municipalities, counties, and other taxing
districts and (b) notes, bonds, and other obligations issued by the U.S.
government and its agencies. Obligations issued by the government of Puerto Rico
are also exempt if permitted by ruling. If the Florida Fund's portfolio of
investments on January 1st of each year includes investments that are not exempt
from the Florida intangibles tax, the Florida Fund's shares could be wholly or
partially subject to the Florida intangibles tax. The Florida Funds intend that
on January 1st of each year, each Florida Fund's portfolio of investments will
consist solely of investments exempt from the Florida intangibles tax.
The Florida Funds' dividends may not qualify for exemption under income or
other tax laws of state or local taxing authorities outside of Florida.
Shareholders should consult their tax advisors or state or local tax authorities
about the status of distributions from the Florida Funds in this regard.
The information above is only a summary of some of the tax considerations
affecting the Florida Funds and their shareholders. No attempt has been made to
discuss individual tax consequences. To determine whether the Florida Funds are
a suitable investment based on his or her tax situation, a prospective investor
may wish to consult a tax advisor.
ABOUT THE TRUST
American Century Municipal Trust (the "Trust") is a registered, open-end
management investment company that was organized as a Massachusetts business
trust on May 1, 1984 (the Trust was formerly known as "Benham Municipal Trust"
and "Benham National Tax-Free Trust"). Currently, there are seven series of the
Trust which are: American Century-Benham Arizona Intermediate-Term Municipal
Fund (formerly known as "Benham Arizona Municipal Intermediate-Term Fund"),
American Century-Benham Florida Municipal Money Market Fund (formerly "Benham
Florida Municipal Money Market Fund"), American Century-Benham Florida
Intermediate-Term Municipal Fund (formerly known as "Benham Florida Municipal
Intermediate-Term Fund"), American Century-Benham Tax-Free Money Market Fund
(formerly known as "Benham National Tax-Free Money Market Fund"), American
Century-Benham Limited-Term Tax-Free Fund, American Century-Benham
Intermediate-Term Tax-Free Fund (formerly known as "Benham National Tax-Free
Intermediate-Term Fund") and American Century-Benham Long-Term Tax-Free Fund
(formerly known as "Benham National Tax-Free Long-Term Fund"). The Board
STATEMENT OF ADDITIONAL INFORMATION 17
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 (funds). Shares issued are fully paid and
nonassessable and have no preemptive, conversion, or similar rights.
Each series votes separately on matters affecting that series exclusively.
Voting rights are not cumulative, so that investors holding more than 50% of the
Trust's (i.e., all series') outstanding shares may elect a Board of Trustees.
The Trust 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 shareholders of any one series voted in
favor of a particular nominee or all nominees as a group. Each shareholder has
equal rights to dividends and distributions declared by the Fund and to the net
assets of such Fund upon its liquidation or dissolution proportionate to his or
her share ownership interest in the Fund. 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 itself 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 Trust's assets. Services provided by the custodian
banks include (a) settling portfolio purchases and sales, (b) reporting failed
trades, (c) identifying and collecting portfolio income, and (d) providing
safekeeping of securities. The custodian takes no part in determining a Fund's
investment policies or in determining which securities are sold or purchased by
the Fund.
INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 1000 Walnut, Suite 1600, Kansas
City, Missouri 64106, serves as the Trust's independent auditors for the Arizona
Fund, the Florida Funds and Tax-Free Money Market Fund and audits the annual
financial statements.
Baird, Kurtz & Dobson, 1100 Main Street, Kansas City, Missouri 64105, serves
as independent accountants for Limited-Term Tax-Free, Intermediate-Term Tax-Free
and Long-Term Tax-Free, providing services including (1) audit of the annual
financial statements, (2) assistance and consultation in connection with SEC
filings and (3) review of the annual federal income tax return filed for the
Funds.
For the current fiscal year, which started on June 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 six
independent Trustees. The individuals listed below whose names are marked by an
asterisk (*) are "interested persons" of the Trust (as defined in the Investment
Company Act) by virtue of, among other considerations, their affiliation with
either the Trust; the Trust's Manager, American Century Investment Management,
Inc. (ACIM); 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); their parent corpora-
18 STATEMENT OF ADDITIONAL INFORMATION
tion, American Century Companies, Inc. (ACC) or ACC's subsidiaries; or other
funds advised by the Manager. Each Trustee listed below serves as Trustee or
Director of other funds advised by the Manager. Unless otherwise noted, a date
in parentheses indicates the date the Trustee or officer began his or her
service in a particular capacity. The Trustees' and officers' address, with the
exception of Mr. Stowers III and Ms. Roepke, is 1665 Charleston Road, Mountain
View, California 94043. The address of Mr. Stowers III and Ms. Roepke is
American Century Tower, 4500 Main Street, Kansas City, Missouri 64111.
TRUSTEES
*JAMES M. BENHAM, Chairman of the Board of Trustees (1985), President and
Chief Executive Officer (1996). Mr. Benham is also President and Chairman of the
Board of the Manager (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 currently
the general partner of Discovery Ventures (1996), a venture capital firm. He is
also an independent Director of each of Commercial Metals Co. (1982), Sungard
Data Systems (1991) and Business Objects S/A (1994). Previously, he served as
Executive 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 (1985). 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 (1985). 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; Chief Executive Officer and Director of ACS and
ACIS.
JEANNE D. WOHLERS, independent Trustee (1985). Ms. Wohlers is a private
investor and an independent Director and Partner of Windy Hill Productions, LP.
Previously, she served as Vice President and Chief Financial Officer of Sybase,
Inc. (software company, 1988 to 1992).
OFFICERS
*JAMES M. BENHAM, President and Chief Executive Officer (1996).
*WILLIAM M. LYONS, Executive Vice President (1996); 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.
For the fiscal year ended, October 31, 1996, the table on the following page
indicates the amounts that Limited-Term Tax-Free, Intermediate-Term Tax-Free and
Long-Term Tax-Free paid its Directors as investment portfolios in American
Century Mutual Funds, Inc., (the "corporation") a registered investment company.
STATEMENT OF ADDITIONAL INFORMATION 19
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION FOR THE FISCAL YEAR ENDED MAY 31, 1997
Aggregate Pension or Retirement Estimated Total Compensation
Name of Compensation Benefits Accrued As Part Annual Benefits From The American Century
Trustee* From The Fund of Fund Expenses Upon Retirement Family of Funds**
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Albert Eisenstat $191 (Arizona) Not Applicable Not Applicable $71,500
775 (Florida Money Market)
77 (Florida Intermediate)
662 (Money Market)
- ------------------------------------------------------------------------------------------------------------------
Ronald J. Gilson $195 (Arizona) Not Applicable Not Applicable $72,500
791 (Florida Money Market)
78 (Florida Intermediate)
667 (Money Market)
- ------------------------------------------------------------------------------------------------------------------
Myron S. Scholes $178 (Arizona) Not Applicable Not Applicable $65,000
712 (Florida Money Market)
71 (Florida Intermediate)
615 (Money Market)
- ------------------------------------------------------------------------------------------------------------------
Kenneth E. Scott $212 (Arizona) Not Applicable Not Applicable $80,750
888 (Florida Money Market)
85 (Florida Intermediate)
728 (Money Market)
- ------------------------------------------------------------------------------------------------------------------
Ezra Solomon*** $102 (Arizona) Not Applicable Not Applicable $11,417
404 (Florida Money Market)
41 (Florida Intermediate)
356 (Money Market)
- ------------------------------------------------------------------------------------------------------------------
Isaac Stein $193 (Arizona) Not Applicable Not Applicable $72,000
787 (Florida Money Market)
78 (Florida Intermediate)
664 (Money Market)
- ------------------------------------------------------------------------------------------------------------------
Jeanne D. Wohlers $201 (Arizona) Not Applicable Not Applicable $76,250
833 (Florida Money Market)
81 (Florida Intermediate)
696 (Money Market)
- ------------------------------------------------------------------------------------------------------------------
* Interested Trustees receive no compensation for their services as such.
** Includes compensation paid by the fifteen investment company members of the American Century family of funds.
*** Retired December, 1996.
</TABLE>
20 STATEMENT OF ADDITIONAL INFORMATION
Aggregate Total Compensation from
Compensation the American Century
Director from the corporation(1) family of funds(2)
- --------------------------------------------------------------------------------
Thomas A. Brown $40,880.74 $45,000
Robert W. Doering, M.D. 38,046.00 41,500
Linsley L. Lundgaard 41,179.13 45,000
Donald H. Pratt 39,388.80 43,333
Lloyd T. Silver Jr. 39,388.80 43,300
M. Jeannine Strandjord 39,388.80 42,500
John M. Urie(3) 41,179.13 37,167
Del Hock(3) 0 7,500
- --------------------------------------------------------------------------------
(1)Includes compensation actually paid by American Century Mutual Funds, Inc.
during the fiscal year ended October 31, 1996.
(2)Includes compensation paid by the fifteen investment company members of the
American Century family of funds for the calendar year ended December 31, 1996.
(3)Del Hock replaced Jack Urie as an independent director effective October 31,
1996.
The table on the previous page summarizes the compensation that the Trustees
of the Funds (with the exception of Intermediate-Term Tax-Free, Limited-Term
Tax-Free and Long-Term Tax-Free) received for the Funds' fiscal year ended May
31, 1997, as well as the compensation received for serving as a Director or
Trustee of all other funds advised by Benham Management Corporation, a
predecessor to the Manager.
As of May 5, 1997, the Trust's Officer's and Trustees, 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%
- --------------------------------------------------------------------------------
ARIZONA, FLORIDA INTERMEDIATE-TERM,
LIMITED-TERM TAX-FREE,
INTERMEDIATE-TERM TAX-FREE,
LONG-TERM 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%
- --------------------------------------------------------------------------------
The Complex Fee Schedule is as follows:
Complex 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
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).
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 Government Income Trust,
American Century Investment Trust, American Century Target Maturities Trust,
American Century California Tax-Free and Municipal Funds, 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 advisory fees paid by the Arizona Fund, the Florida Funds, and
the Tax-Free Money
22 STATEMENT OF ADDITIONAL INFORMATION
Market Fund to the Benham Management Corporation, a predecessor to the Manager,
for the fiscal periods ended May 31, 1997, 1996, and 1995, are indicated in the
following table.
Fee amounts are net of amounts reimbursed or recouped under the prior
investment advisory agreement with Benham Management Corporation.
Investment Advisory Fees (net of reimbursements)
- --------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1997 1996 1995
- --------------------------------------------------------------------------------
Arizona $ 81,705 $ 0 $ 0
Florida Money Market 0 0 0
Florida Intermediate 23,601 0 0
Tax-Free Money Market 341,854 331,599 367,683
- --------------------------------------------------------------------------------
The remaining Funds paid Investment Management Fees (net of fees waived) to
American Century Investment Management, Inc. for the fiscal periods ended
October 31, 1996, 1995, and 1994, as indicated in the following table.
Investment Management Fees (net of fees waived)
- --------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
- --------------------------------------------------------------------------------
Limited-Term
Tax-Free $205,918 $ 0 $ 0
Intermediate-Term
Tax-Free 484,914 471,159 537,893
Long-Term Tax-Free 352,945 317,622 361,732
- --------------------------------------------------------------------------------
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 the Arizona Fund, the
Florida Funds, and the Tax-Free Money Market Fund for the fiscal years ended May
31, 1997, 1996, and 1995, are indicated in the following tables. Fee amounts are
net of reimbursements in effect in the periods presented.
Administrative Fees
- --------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1997 1996 1995
- --------------------------------------------------------------------------------
Arizona $26,168 $ 0 $ 0
Florida Money Market 0 0 0
Florida Intermediate 10,678 0 0
Tax-Free Money Market 84,467 88,675 103,791
- --------------------------------------------------------------------------------
Transfer Agent Fees
- --------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1997 1996 1995
- --------------------------------------------------------------------------------
Arizona $19,990 $ 0 $ 0
Florida Money Market 0 0 0
Florida Intermediate 10,178 0 0
Tax-Free Money Market 61,414 66,117 65,409
- --------------------------------------------------------------------------------
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 Funds'
shares. 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
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 is in the Trust's or a series' best interest.
As of May 5, 1997, to the knowledge of the Trust, the shareholders listed in
the chart below were record
STATEMENT OF ADDITIONAL INFORMATION 23
holders of 5% or more of the outstanding shares of the individual Funds.
Fund Arizona Fund
- --------------------------------------------------------------------------------
Shareholder Name and Charles Schwab & Co.
Address 101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------
# of Shares Held 693,477
- --------------------------------------------------------------------------------
% of Total Shares
Outstanding 22.6%
- --------------------------------------------------------------------------------
Fund Florida Intermediate-Term
- --------------------------------------------------------------------------------
Shareholder Name and Charles Schwab & Co.
Address 101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------------
# of Shares Held 208,668
- --------------------------------------------------------------------------------
% of Total Shares
Outstanding 8.3%
- --------------------------------------------------------------------------------
Shareholder Name and American Century Investment
Address Management
4500 Main Street
Kansas City, MO 64111
- --------------------------------------------------------------------------------
# of Shares Held 1,333,144
- --------------------------------------------------------------------------------
% of Total Shares
Outstanding 54.0%
- --------------------------------------------------------------------------------
Fund Tax-Free Money Market
- --------------------------------------------------------------------------------
Ellen Haebler Skove
Shareholder Name and 48 Card Sound Road
Address Key Largo, FL 33037
- --------------------------------------------------------------------------------
# of Shares Held 5,031,450
- --------------------------------------------------------------------------------
% of Total Shares
Outstanding 5.5%
- --------------------------------------------------------------------------------
Fund Intermediate-Term Tax-Free
- --------------------------------------------------------------------------------
Charles Schwab & Co.
Shareholder Name and 101 Montgomery Street
Address San Francisco, CA 94104
- --------------------------------------------------------------------------------
# of Shares Held 737,353
- --------------------------------------------------------------------------------
% of Total Shares
Outstanding 5.8%
- --------------------------------------------------------------------------------
Fund Long-Term Tax-Free
- --------------------------------------------------------------------------------
Charles Schwab & Co.
Shareholder Name and 101 Montgomery Street
Address San Francisco, CA 94104
- --------------------------------------------------------------------------------
# of Shares Held 711,743
- --------------------------------------------------------------------------------
% of Total Shares
Outstanding 7.2%
- --------------------------------------------------------------------------------
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.
Pursuant to Rule 18f-1 under the Investment Company Act of 1940, the Trust
has elected to pay in cash all requests for redemption by any shareholder of
record, limited in amount with respect to each shareholder during any 90-day
period to the lesser of $250,000 or 1% of the net assets of the Fund in which
shares are held at the beginning of such period. This election is irrevocable
without the prior approval of the Securities and Exchange Commission. With
respect to redemption requests in excess of the above limit, it is the intention
of the Trust to make payments in cash, although the Trustees reserve the right
to make payments in whole or in part in securities under emergency circumstances
or when payment in cash would impair the liquidity of a Fund to the detriment of
shareholders. In this event, the securities would be valued in the same manner
applied in valuing the Funds' assets for purposes of calculating NAV. An
investor may incur brokerage costs upon the sale of such securities.
OTHER INFORMATION
The financial statements of the Funds (except Limited-Term Tax-Free,
Intermediate-Term Tax-Free and Long-Term Tax-Free) for the fiscal year ended May
31, 1997 are included in the annual report to shareholders, which is
incorporated by herein by reference. The financial statements of Limited-Term
Tax-Free, Intermediate-Term Tax-Free and Long-Term Tax- Free, for the fiscal
year ended October 31, 1996 and the period ended April 30, 1997 are included in
24 STATEMENT OF ADDITIONAL INFORMATION
MUNICIPAL SECURITIES RATINGS
the annual and semiannual reports to shareholders of American Century--Benham
Limited-Term Tax-Exempt, American Century--Benham Intermediate-Term Tax-Exempt
and American Century--Benham Long-Term Tax-Exempt Funds, which are incorporated
by herein by reference. You may receive copies of the reports without charge
upon request to us at the address and phone number shown on the cover of this
Statement of Additional Information.
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.
For further information, refer to registration statements 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.
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
STATEMENT OF ADDITIONAL INFORMATION 25
that the security ranks in the higher end of its generic rating category; the
modifier "2" indicates a mid-range ranking, and the modifier "3" indicates that
the issue ranks in the lower end of its generic rating category.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S RATINGS OF NOTES AND
VARIABLE-RATE DEMAND OBLIGATIONS:
Moody's ratings for state and municipal short-term obligations are
designated Moody's Investment Grade or MIG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable-rate demand obligations) are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than on fixed maturity dates and payments
relying on external liquidity.
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.
26 STATEMENT OF ADDITIONAL INFORMATION
CCC: Debt rated "CCC" has a currently identifiable vulnerability to default and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC: The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" debt rating.
C: The "C" rating is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
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."
STATEMENT OF ADDITIONAL INFORMATION 27
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)
9708 [recycled logo]
SH-BKT-9507 Recycled
<PAGE>
AMERICAN CENTURY MUNICIPAL TRUST
1933 Act Post-Effective Amendment No. 20
1940 Act Amendment No. 21
- --------------------------------------------------------------------------------
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS. Audited financial statements for each series of
the American Century Municipal Trust, with the exception of American
Century - Benham Limited-Term Tax-Free Fund, American Century - Benham
Intermediate-Term Tax-Free Fund, and American Century - Benham Long-Term
Tax-Free Fund, for the fiscal year ended May 31, 1997, are filed herein
as included in the Trust's Statement of Additional Information by
reference to the Annual Report dated May 31, 1997, filed on July 28,
1997 (Accession #746458-97-000009). Financial statements for American
Century - Benham Limited-Term Tax-Free Fund, American Century - Benham
Intermediate-Term Tax-Free Fund, and American Century - Benham Long-Term
Tax-Free Fund are incorporated herein by reference to the Semiannual and
Annual Reports of American Century - Benham Limited-Term Tax-Exempt
Fund, American Century - Benham Intermediate-Term Tax-Exempt Fund, and
American Century - Benham Long-Term Tax-Exempt Fund (each formerly a
series of American Century Mutual Funds, Inc.), filed on June 27, 1997
(Accession #100334-97-000010) and December 23, 1996, (Accession
#100334-96-000018), respectively.
(b) EXHIBITS.
(1) a) Amended Declaration of Trust dated May 31, 1995, is incorporated
herein by reference to Exhibit 1(a) of Post-Effective Amendment No.
16 filed on July 28, 1995.
b) Amendment to the Declaration of Trust dated October 21, 1996 is
incorporated herein by reference to Exhibit 1(b) of Post-Effective
Amendment No. 19 to the Registration Statement, filed on March 12,
1997 (Accession No. 746458-97-000004).
c) Amendment to the Declaration of Trust dated May 23, 1997, is
included herein.
(2) Amended and Restated Bylaws dated May 17, 1995 are incorporated
herein by reference to Exhibit 2 of Post-Effective Amendment No. 17
filed on June 28, 1996 (Accession # 0000746458-96-000009).
(3) Not applicable.
(4) a) Specimen copy of American Century - Benham Tax-Free Money Market
Fund, American Century - Benham Intermediate-Term Tax-Free Fund and
American Century - Benham Long-Term Tax-Free Fund share certificate
is incorporated herein by reference to Exhibit 4 to Post-Effective
Amendment No. 10.
b) Specimen copy of American Century - Benham Florida Municipal
Money Market Fund's share certificate is incorporated herein by
reference to Exhibit 4 to Post-Effective Amendment No. 15.
c) Specimen copy of American Century - Benham Florida
Intermediate-Term Municipal Fund's share certificate is incorporated
herein by reference to Exhibit 4 to Post-Effective Amendment No. 15.
d) Specimen copy of American Century - Benham Arizona
Intermediate-Term Municipal Fund's share certificate is incorporated
herein by reference to Exhibit 4 to Post-Effective Amendment No. 15.
e) Specimen copy American Century - Benham Limited-Term Tax-Free
Fund's share certificate is to be filed by amendment.
(5) Investor Class Investment Management Agreement between American
Century Municipal Trust and American Century Investment Management,
Inc., dated August 1, 1997, is incorporated herein by reference to
Exhibit 5 of Post-Effective Amendment #33 to the Registration
Statement of American Century Government Income Trust, filed July
31, 1997 (Accession #773674-97-000014).
(6) Distribution Agreement between American Century Municipal Trust and
American Century Investment Services, Inc., dated August 1, 1997, is
incorporated herein by reference to Exhibit 6 of Post-Effective
Amendment #33 to the Registration Statement of American Century
Government Income Trust, filed July 31, 1997 (Accession
#773674-97-000014).
(7) Not applicable.
(8) Custodian Agreement between American Century Investments (including
American Century Municipal Trust), and The Chase Manhattan Bank,
dated August 9, 1996, is incorporated herein by reference to Exhibit
8 of Post-Effective Amendment #31 to the Registration Statement for
American Century Government Income Trust, filed February 7, 1997
(Accession #773674-97-000002).
(9) Transfer Agency Agreement between American Century Municipal Trust
and American Century Services Corporation, dated August 1, 1997, is
incorporated herein by reference to Exhibit 9 of Post-Effective
Amendment #33 to the Registration Statement for 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 July 28, 1997 is incorporated herein by
reference to Rule 24f-2 Notice filed on July 28, 1997 (Accession #
0000746458-97-000009).
(11)a)Consent of KPMG Peat Marwick LLP, independent auditors, is
included herein.
b)Consent of Baird, Kurtz & Dobson, independent auditors, is
included herein.
(12)Not applicable.
(13)Not applicable.
(14)Not applicable.
(15)Not applicable.
(16)a) Schedule for computation of each performance quotation provided
in response to Item 22 for American Century-Benham Arizona
Intermediate-Term Municipal Fund, American Century-Benham Florida
Municipal Money Market, American Century-Benham Florida
Intermediate-Term Municipal Fund, and American Century-Benham
Tax-Free Money Market Fund is included herein.
b) Schedule for computation of each performance quotation provided
in response to Item 22 for American Century-Benham Limited-Term
Tax-Free Fund, American Century-Benham Intermediate-Term Tax-Free
Fund, and American Century-Benham Long-Term Tax-Free Fund are
incorporated herein by reference Exhibit 16 of Post-Effective
Amendment No. 76 to the Registration Statement for American Century
Mutual Funds, Inc., filed on February 28, 1997 (Accession
#0000100334-97-000005).
(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 July 31, 1997, each operating series of the Registrant had the following
number of record shareholders:
American Century - Benham Tax-Free Money Market Fund 2,133
American Century - Benham Intermediate-Term Tax-Free Fund 1,493
American Century - Benham Long-Term Tax-Free Fund 1,270
American Century - Benham Florida Municipal Money Market Fund 1,117
American Century - Benham Florida Intermediate-Term Municipal Fund 311
American Century - Benham Arizona Intermediate-Term Municipal Fund 618
American Century - Benham Limited-Term Tax Free 0
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, incorporated
herein by reference to Exhibit 2 of Post-Effective Amendment No. 17 filed on
June 28, 1996 (Accession # 0000746458-96-000009).
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 Capital Preservation Fund, Inc.,
American Century Capital Preservation Fund II, Inc., 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 Manager Funds, 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.
a) Registrant undertakes to furnish each person to whom a Prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
b) Registrant hereby undertakes to file, with respect to American Century -
Benham Limited-Term Tax-Free Fund, a post-effective amendment using
financial statements which need not be certified within four to six months
from the commencement of operations.
c) Registrant hereby undertakes to call a meeting of shareholders of the Trust
upon written request of shareholders owning at least one-tenth of the
outstanding shares.
d) The Registrant undertakes to assist shareholders in their communications
with other shareholders.
<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. 20/Amendment No. 21 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, and State of
California, on the 27th day of August, 1997. I hereby certify that this
Amendment meets the requirements for immediate effectiveness pursuant to Rule
485(b).
AMERICAN CENTURY MUNICIPAL TRUST
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. 20/Amendment No. 21 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, August 27, 1997
- --------------------------------- President, and
James M. Benham Chief Executive Officer
* Trustee August 27, 1997
- ---------------------------------
Albert A. Eisenstat
* Trustee August 27, 1997
- ---------------------------------
Ronald J. Gilson
* Trustee August 27, 1997
- ---------------------------------
Myron S. Scholes
* Trustee August 27, 1997
- ---------------------------------
Kenneth E. Scott
* Trustee August 27, 1997
- ---------------------------------
Isaac Stein
* Trustee August 27, 1997
- ---------------------------------
James E. Stowers III
* Trustee August 27, 1997
- ---------------------------------
Jeanne D. Wohlers
* Chief Financial Officer, Treasurer August 27, 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.B1 a)Amended Declaration of Trust dated May 31, 1995, is incorporated
herein by reference to Exhibit 1(a) of Post-Effective Amendment No.
16 filed on July 28, 1995.
b) Amendment to the Declaration of Trust dated October 21, 1996 is
incorporated herein by reference to Exhibit 1(b) of Post-Effective
Amendment No. 19 to the Registration Statement, filed on March 12,
1997 (Accession No. 746458-97-000004).
(c) Amendment to the Declaration of Trust dated May 23, 1997, is
included herein.
EX-99.B2 Amended and Restated Bylaws dated May 17, 1995 are incorporated
herein by reference to Exhibit 2 of Post-Effective Amendment No. 17
filed on June 28, 1996 (Accession # 0000746458-96-000009).
EX-99.B4 a) Specimen copy of American Century - Benham Tax-Free Money Market
Fund, American Century - Benham Intermediate-Term Tax-Free Fund and
American Century - Benham Long-Term Tax-Free Fund share certificate
is incorporated herein by reference to Exhibit 4 to Post-Effective
Amendment No. 10.
b) Specimen copy of American Century - Benham Florida Municipal
Money Market Fund's share certificate is incorporated herein by
reference to Exhibit 4 to Post-Effective Amendment No. 15.
c) Specimen copy of American Century - Benham Florida
Intermediate-Term Municipal Fund's share certificate is incorporated
herein by reference to Exhibit 4 to Post-Effective Amendment No. 15.
d) Specimen copy of American Century - Benham Arizona
Intermediate-Term Municipal Fund's share certificate is incorporated
herein by reference to Exhibit 4 to Post-Effective Amendment No. 15.
e) Specimen copy American Century - Benham Limited-Term Tax-Free
Fund's share certificate is to be filed by amendment.
EX-99.B5 Investor Class Investment Management Agreement between American
Century Municipal Trust and American Century Investment Management,
Inc., dated August 1, 1997, is incorporated herein by reference to
Exhibit 5 of Post-Effective Amendment #33 to the Registration
Statement of American Century Government Income Trust, filed July
31, 1997 (Accession #773674-97-000014).
EX-99.B6 Distribution Agreement between American Century Municipal Trust and
American Century Investment Services, Inc., dated August 1, 1997, is
incorporated herein by reference to Exhibit 6 of Post-Effective
Amendment #33 to the Registration Statement of American Century
Government Income Trust, filed July 31, 1997 (Accession
#773674-97-000014).
EX-99.B8 Custodian Agreement between American Century Investments (including
American Century Municipal Trust), and The Chase Manhattan Bank,
dated August 9, 1996, is incorporated herein by reference to Exhibit
8 of Post-Effective Amendment #31 to the Registration Statement for
American Century Government Income Trust, filed February 7, 1997
(Accession #773674-97-000002).
EX-99.B9 Transfer Agency Agreement between American Century Municipal Trust
and American Century Services Corporation, dated August 1, 1997, is
incorporated herein by reference to Exhibit 9 of Post-Effective
Amendment #33 to the Registration Statement for 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 July 28, 1997 is incorporated herein by
reference to Rule 24f-2 Notice filed on July 28, 1997 (Accession #
0000746458-97-000009).
EX-99.B11 a)Consent of KPMG Peat Marwick LLP, independent auditors, is
included herein.
b)Consent of Baird, Kurtz & Dobson, independent auditors, is
included herein.
EX-99.B16 a) Schedule for computation of each performance quotation provided
in response to Item 22 for American Century-Benham Arizona
Intermediate-Term Municipal Fund, American Century-Benham Florida
Municipal Money Market, American Century-Benham Florida
Intermediate-Term Municipal Fund, and American Century-Benham
Tax-Free Money Market Fund is included herein.
b) Schedule for computation of each performance quotation provided
in response to Item 22 for American Century-Benham Limited-Term
Tax-Free Fund, American Century-Benham Intermediate-Term Tax-Free
Fund, and American Century-Benham Long-Term Tax-Free Fund are
incorporated herein by reference Exhibit 16 of Post-Effective
Amendment No. 76 to the Registration Statement for American Century
Mutual Funds, Inc., filed on February 28, 1997 (Accession
#0000100334-97-000005).
EX-99.B17 Power of Attorney dated February 28, 1997 is included herein.
EX-27.4.1 FDS - American Century - Benham Tax-Free Money Market Fund.
EX-27.4.2 FDS - American Century - Benham Florida Municipal Money Market Fund.
EX-27.5.3 FDS - American Century - Benham Intermediate-Term Tax-Free Fund.
EX-27.5.4 FDS - American Century - Benham Florida Intermediate-Term Municipal
Fund.
EX-27.5.5 FDS - American Century - Benham Arizona Intermediate-Term Municipal
Fund.
EX-27.5.6 FDS - American Century - Benham Long-Term Tax-Free Fund.
EX-27.5.7 FDS - American Century - Benham Limited-Term Tax-Free Fund.
AMENDMENT NO. 2
TO THE
DECLARATION OF TRUST
OF
AMERICAN CENTURY MUNICIPAL TRUST
Effective May 23, 1997
WHEREAS, Section 5(a) of Article III of the Declaration of Trust
provides that the Trustees may establish and designate a new Series of Shares 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 establish a new Series of Shares to be designated as
"American Century - Benham Limited-Term Tax-Free Fund";
RESOLVED, that Article III, Section 8 of the Declaration of Trust for
the American Century Government Income Trust is hereby amended as follows:
Section 8. Trustees' Establishment and Designation of Series.
The Board of Trustees hereby establishes and designates American
Century--Benham Arizona Intermediate-Term Municipal Fund, American
Century--Benham Florida Municipal Money Market Fund, American
Century--Benham Florida Intermediate-Term Municipal Fund, American
Century--Benham Tax-Free Money Market Fund, American Century--Benham
Limited-Term Tax-Free Fund, American Century--Benham Intermediate-Term
Tax-Free Fund and American Century--Benham Long-Term Tax-Free Fund as
Series of the Trust with the relative rights and preferences as
described in Section 6 of Article III.
RESOLVED FURTHER, that the assets and liabilities of the Trust shall be
allocated among the series of the Trust as set forth in Article III, Section 6
of the Declaration of Trust.
<TABLE>
Trustees of the Benham Government Income Trust
<S> <C> <C> <C>
/s/ James M. Benham 5/23/97 /s/ Ezra Solomon 5/23/97
- ---------------------------------------- ------------- ---------------------------------------- -------
James M. Benham* Date Ezra Solomon* Date
/s/ Albert A. Eisenstat 5/23/97 /s/ Isaac Stein 5/23/97
- ---------------------------------------- ------------- ---------------------------------------- -------
Albert A. Eisenstat* Date Isaac Stein* Date
/s/ Ronald J. Gilson 5/23/97 /s/ James E. Stowers III 5/23/97
- ---------------------------------------- ------------- ---------------------------------------- -------
Ronald J. Gilson* Date James E. Stowers III* Date
/s/ Myron S. Scholes 5/23/97 /s/ Jeanne D. Wohlers 5/23/97
- ---------------------------------------- ------------- ---------------------------------------- -------
Myron S. Scholes* Date Jeanne D. Wohlers* Date
/s/ Kenneth E. Scott 5/23/97
- ---------------------------------------- -------------
Kenneth E. Scott* Date
*By: /s/Douglas A. Paul Date: May 23, 1997
Douglas A. Paul, Esq.
Pursuant to Power of Attorney dated March 4, 1996
</TABLE>
Consent of Independent Auditors
The Board of Trustees and Shareholders
American Century Municipal Trust:
We consent to the inclusion in American Century Municipal Trust's Post-Effective
Amendment No. 20 to the Registration Statement No. 2-91229 on Form N-1A under
the Securities Act of 1933 and Amendment No. 21 to the Registration Statement
No. 811-4025 filed on Form N-1A under the Investment Company Act of 1940 of our
reports dated July 7, 1997 on the financial statements and financial highlights
of the American Century-Benham Arizona Intermediate-Term Municipal Fund,
American Century-Benham Florida Municipal Money Market Fund, American
Century-Benham Florida Intermediate-Term Municipal Fund, American Century-Benham
Tax-Free Money Market Fund, American Century-Benham Limited-Term Tax-Free Fund
American Century-Benham Intermediate-Term Tax-Free Fund and American
Century-Benham Long-Term Tax-Free Fund (the seven funds comprising the American
Century Municipal Trust) for the periods indicated therein, which reports have
been incorporated by reference into the Statement of Additional Information of
American Century Municipal Trust. 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 are
incorporated by reference in the Prospectus.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Kansas City, Missouri
August 30, 1997
Consent of
Independent Auditors
American Century Municipal Trust
American Century Investments
1665 Charleston Road
Mountain View, California 94043
We hereby consent to the use in this Post-Effective Amendment No. 20 to the
Registration Statement under the Securities Act of 1933 and this Amendment No.
21 to the Registration Statement under the Investment Company Act of 1940, both
on form N-1A, of our report dated November 20, 1996, accompanying and pertaining
to the financial statements of Limited-Term Tax Free, Intermediate-Term Tax Free
and Long-Term Tax Free, all series of American Century Municipal Trust, as of
October 31, 1996, which are included in such Post-Effective Amendments.
/s/Baird, Kurtz & Dobson
Baird, Kurtz & Dobson
Kansas City, Missouri
August 27, 1997
BENHAM ARIZONA INTERMEDIATE MUNI FUND
AVERAGE ANNUAL TOTAL RETURN
5/31/97
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 $1,057.70 1.000000 5.77%
Five Year
Ten Year
Inception * $1,000.00 $1,213.80 3.137577 6.37%
TR = Total return for period TR=(ERV/P)-1 21.38%
*Date of Inception: 4/11/94
<PAGE>
BENHAM ARIZONA INTERMEDIATE MUNI FUND
YIELD CALCULATION
5/31/97
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 = $122,174.19
B = $16,735.82
C = 2,924,975.376
D = $10.44
Yield = 4.18%
<PAGE>
BENHAM FLORIDA INTERMEDIATE MUNI FUND
AVERAGE ANNUAL TOTAL RETURN
5/31/97
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 $1,066.30 1.000000 6.63%
Five Year
Ten Year
Inception * $1,000.00 $1,215.10 3.137577 6.41%
TR = Total return for period TR=(ERV/P)-1 21.51%
*Date of Inception: 4/11/94
<PAGE>
BENHAM FLORIDA INTERMEDIATE MUNI FUND
YIELD CALCULATION
5/31/97
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 = $59,261.31
B = $8,004.09
C = 1,437,993.408
D = $10.34
Yield = 4.17%
<PAGE>
BENHAM FLORIDA MUNI MONEY MARKET FUND
AVERAGE ANNUAL TOTAL RETURN
5/31/97
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 $1,035.50 1.000000 3.55%
Five Year
Ten Year
Inception * $1,000.00 $1,119.80 3.137577 3.67%
TR = Total return for period TR=(ERV/P)-1 11.98%
*Date of Inception: 4/11/94
<PAGE>
BENHAM FLORIDA MUNI MM
YIELD CALCULATION
5/31/97
Effective Yield: [(Base Period Return)+1)^365/7]-1
Base Period Return = 0.00065666
7 Day Effective Yield = 3.48%
Yield: = I/B X 365/7
Y = Yield
I = total income of hypothetical account over the seven
day period
B = beginning account value
I = 0.00065666
B = $1.00
7 Day Yield = 3.42%
<PAGE>
BENHAM TAX FREE MONEY MARKET FUND
AVERAGE ANNUAL TOTAL RETURN
5/31/97
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 $1,029.80 1.000000 2.98%
Five Year $1,000.00 $1,138.60 5.000000 2.63%
Ten Year $1,000.00 $1,442.60 10.000000 3.73%
Inception * $1,000.00 $1,656.50 12.832307 4.01%
TR = Total return for period TR=(ERV/P)-1 65.65%
*Date of Inception: 7/31/84
<PAGE>
BENHAM TAX FREE MONEY MARKET
YIELD CALCULATION
5/31/97
Effective Yield: [(Base Period Return)+1)^365/7]-1
Base Period Return = 0.00063656
7 Day Effective Yield = 3.37%
Yield: = I/B X 365/7
Y = Yield
I = total income of hypothetical account over the seven
day period
B = beginning account value
I = 0.00063656
B = $1.00
7 Day Yield = 3.32%
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, AMERICAN CENTURY
MUNICIPAL TRUST, 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 MUNICIPAL TRUST
(A Massachusetts Business Trust)
By:/*/James M. Benham
James M. Benham, President
SIGNATURE AND TITLE
/*/James M. Benham /*/Isaac Stein
James M. Benham Isaac Stein
Chairman Director
/*/Albert A. Eisenstat /*/Jeanne D. Wohlers
Albert A. Eisenstat Jeanne D. Wohlers
Director Director
/*/Ronald J. Gilson /*/James E. Stowers, III
Ronald J. Gilson James E. Stowers, III
Director Director
/*/Myron S. Scholes /*/Maryanne Roepke
Myron S. Scholes Maryanne Roepke
Director Treasurer
/*/Kenneth E. Scott
Kenneth E. Scott
Director Attest:
By:/*/Douglas A. Paul, Secretary
Douglas A. Paul, Secretary
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 45595
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1126
<OTHER-INCOME> 0
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<NET-INVESTMENT-INCOME> 981
<REALIZED-GAINS-CURRENT> 177
<APPREC-INCREASE-CURRENT> (440)
<NET-CHANGE-FROM-OPS> 718
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 981
<DISTRIBUTIONS-OF-GAINS> 16
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1617
<NUMBER-OF-SHARES-REDEEMED> 2104
<SHARES-REINVESTED> 90
<NET-CHANGE-IN-ASSETS> (4271)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
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<AVERAGE-NET-ASSETS> 48851
<PER-SHARE-NAV-BEGIN> 10.08
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<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
