SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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File No. 2-91229:
Pre-Effective Amendment No.____
Post-Effective Amendment No._19_ X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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File No. 811-4025:
Amendment No._20_
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
Vice President and
Associate 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
_____ on (date) pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
__X__ 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 17, 1996, the Registrant filed a Rule
24f-2 Notice on Form 24f-2 with respect to its fiscal year ended May 31, 1996.
<PAGE>
This Post-Effective Amendment is being filed to add the American Century-Benham
Limited-Term Tax-Free Fund to the Trust's Registration Statement. The Prospectus
for the American Century Benham Arizona Intermediate-Term Municipal, American
Century Benham Florida Municipal Money Market, American Century Benham Florida
Intermediate-Term Municipal, American Century Benham Tax-Free Money Market,
American Century Benham Intermediate-Term Tax-Free and American Century Benham
Long-Term Tax-Free Funds is not being filed in this Post-Effective Amendment and
is incorporated herein by reference.
<PAGE>
AMERICAN CENTURY MUNICIPAL TRUST
1933 Act Post-Effective Amendment No. 19
1940 Act Amendment No. 20
AMERICAN CENTURY - BENHAM
LIMITED-TERM TAX-FREE FUND
FORM N-1A
CROSS-REFERENCE SHEET
PART A: PROSPECTUS
ITEM PROSPECTUS CAPTION
1 Cover Page
2 Transaction and Operating Expense Table
3 Financial Highlights, Performance Advertising
4 Management, Further Information About American Century, Investment
Objective of the Fund, Investment Policies of the Fund, 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 Not Applicable
13 Investment Policies and Techniques, Investment Restrictions, Portfolio
Transactions
14 Trustee and Officers
15 Additional Purchase and Redemption Information, Trustees and Officers
16 Investment Advisory Services, Transfer and Administrative Services,
Expense Limitation Agreement, About the Trust
17 Portfolio Transactions
18 About the Trust
19 Additional Purchase and Redemption Information, Valuation of Portfolio
Securities
20 Taxes
21 Additional Purchase and Redemption Information
22 Performance
23 Cover Page
<PAGE>
PROSPECTUS
[american century logo]
American
Century(sm)
______________, 1997
BENHAM
GROUP(R)
Limited-Term Tax-Free
[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 Group American Century Group Twentieth Century(R) 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
Limited-Term Tax-Free
PROSPECTUS
__________________, 1997
Limited-Term Tax-Free
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. One of the funds from our Benham Group that invests
in various types of municipal securities American Century-Benham Limited-Term
Tax-Free Fund (the "Fund"), is described in this Prospectus. Its investment
objective is listed on page 2 of this Prospectus. The other funds are described
in separate prospectuses.
American Century offers investors a full line of no-load funds, investments that
have no sales charges or commissions.
This Prospectus gives you information about the Fund 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 ___________, 1997, and filed with the Securities and Exchange
Commission ("SEC"). It is incorporated into this Prospectus by reference. To
obtain a copy without charge, call or write:
American Century Investments
4500 Main Street o P.O. Box 419200
Kansas City, Missouri 64141-6200 o 1-800-345-2021
International calls: 816-531-5575
Telecommunications Device for the Deaf:
1-800-634-4113 o In Missouri: 816-753-1865
Internet: www.americancentury.com
Additional information, including this Prospectus and the Statement of
Additional Information, may be obtained by accessing the Web site maintained by
the SEC (www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
INVESTMENT OBJECTIVE OF THE FUND
AMERICAN CENTURY - BENHAM
LIMITED-TERM TAX-FREE FUND
Limited-Term Tax-Free Fund seeks income generally exempt from regular federal
income taxes. The Fund intends to pursue its investment objective by investing
in tax-free bonds and maintaining a weighted average maturity of five years or
less.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT.
There is no assurance that the Fund will achieve its investment objective.
NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED
OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUND, AND YOU SHOULD NOT RELY
ON ANY OTHER INFORMATION OR REPRESENTATION.
TABLE OF CONTENTS
Transaction and Operating Expense Table........................................4
Financial Highlights...........................................................5
INFORMATION REGARDING THE FUND
Investment Policies of the Fund...............................................11
Portfolio Investment Quality and Maturity
Guidelines...............................................................13
Risk Factors and Investment Techniques........................................14
Basic Fixed Income Investment Risks......................................14
Interest Rate Risk..................................................14
Credit Risk.........................................................14
Liquidity Risk......................................................14
Concentration Risk...................................................14
Call Risk...........................................................15
Municipal Securities.....................................................15
Tax-Exempt Securities....................................................16
Other Investment Practices, Their Characteristics and Risks...................17
Portfolio Turnover.......................................................17
When-Issued and Forward Commitment Agreement.............................17
Interest Rate Futures Contracts and Options Thereon......................17
Rule 144A Securities.....................................................18
Cash Management..........................................................18
Other Techniques.........................................................18
Performance Advertising.......................................................19
HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS
American Century Investments..................................................20
Investing in American Century.................................................20
How to Open an Account........................................................20
By Mail..................................................................20
By Wire..................................................................20
By Exchange..............................................................21
In Person................................................................21
Subsequent Investments.....................................................21
By Mail..................................................................21
By Telephone.............................................................21
By Online Access.........................................................21
By Wire..................................................................21
In Person................................................................21
Automatic Investment Plan..................................................21
How to Exchange from One Account to Another...................................21
By Mail .................................................................22
By Telephone.............................................................22
By Online Access.........................................................22
How to Redeem Shares..........................................................22
By Mail..................................................................22
By Telephone ............................................................22
By Check-A-Month.........................................................22
Other Automatic Redemptions..............................................22
Redemption Proceeds........................................................22
By Check.................................................................22
By Wire and ACH..........................................................22
Redemption of Shares in Low-Balance Accounts...............................23
Signature Guarantee...........................................................23
Special Shareholder Services..................................................23
Automated Information Line...............................................23
Online Account Access....................................................23
Open Order Service.......................................................24
Tax-Qualified Retirement Plans...........................................24
Important Policies Regarding Your Investments.................................24
Reports to Shareholders.......................................................25
Employer-Sponsored Retirement Plans and
Institutional Accounts.....................................................26
ADDITIONAL INFORMATION YOU SHOULD KNOW
Share Price...................................................................27
When Share Price Is Determined.............................................27
How Share Price Is Determined..............................................27
Where to Find Information About Share Price................................28
Distributions.................................................................28
Taxes.........................................................................28
Tax-Deferred Accounts......................................................28
Taxable Accounts...........................................................28
Special Tax Information....................................................29
Municipal Securities.......................................................30
Alternative Minimum Tax Liability..........................................30
Management....................................................................31
Investment Management......................................................31
Code of Ethics.............................................................31
Transfer and Administrative Services.......................................32
Distribution of Fund Shares...................................................32
Further Information About American Century....................................32
TRANSACTION AND OPERATING EXPENSE TABLE
Limited-Term Tax-Free
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed
on Purchases ........................ none
Maximum Sales Load Imposed
on Reinvested Dividends ............. none
Deferred Sales Load .................... none
Redemption Fee(1) ...................... none
Exchange Fee ........................... none
ANNUAL FUND OPERATING EXPENSE:(2)
(as a percentage of net assets)
Management Fees(3) ..................... 0.55%
12b-1 Fees ............................. none
Other Expenses(4) ...................... 0.00%
Total Fund Operating Expenses .......... 0.55%
EXAMPLE:
You would pay the following
expenses on a $1,000 invest- 1 year 6
ment, assuming a 5% annual 3 years 18
return and redemption at 5 years 31
the end of each time period: 10 years 69
(1) Redemption proceeds sent by wire are subject to a $10 processing fee.
(2) The management fees, other expenses and total operating expenses have been
restated to reflect current expenses.
(3) A portion of the management fee may be paid by the Fund's Manager to
unaffiliated third parties who provide recordkeeping and administrative
services that would otherwise be performed by an affiliate of the Manager.
See "Management - Transfer and Administrative Services," page __.
(4) Other expenses, 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, were 0.0014 of 1% of average net assets for
the most recent fiscal year.
The Fund pays American Century Investment Management, Inc. (the "Manager")
investment management fees equal to an annualized percentage of the Fund's
average daily net assets.
The purpose of the above table is to help you understand the various costs and
expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in the shares of the Fund offered by this
Prospectus. The example set forth above assumes reinvestment of all dividends
and distributions and uses a 5% annual rate of return as required by SEC
regulations.
NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED
INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
March 1, 1993
Years ended October 31, (inception) through
------------------------------------------------------------------------------------
1996 1995 1994 October 31, 1993
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Net Asset Value,
<S> <C> <C> <C> <C>
Beginning of Period ......................... $ 10.09 $ 9.95 $ 10.04 $ 10.00
----------- ----------- ----------- -----------
Income from
Investment Operations
Net Investment Income ..................... .43 .44 .36 .21
Net Realized and Unrealized
Gains (Losses) ............................ (.01) .14 (.09) .04
----------- ----------- ----------- -----------
Total from Investment
Operations ................................ .42 .58 .27 .25
----------- ----------- ----------- -----------
Distributions
From Net
Investment Income ......................... (.430) (.440) (.362) (.214)
----------- ----------- ----------- -----------
Net Asset Value,
End of Period ............................... $ 10.08 $ 10.09 $ 9.95 $ 10.04
=========== =========== =========== ===========
Total Return1 ............................. 4.26% 5.95% 2.75% 2.55%
Ratios/Supplemental Data
Ratio of Expenses
to Average Net Assets ..................... .38%(2) --- --- ---
Ratio of Net Investment
Income to Average
Net Assets ................................ 4.28% 4.38% 3.62% 3.09%(3)
Portfolio Turnover
Rate ...................................... 68% 78% 42% 3%
Net Assets, End of
Period (in thousands) ..................... $ 49,866 $ 58,837 $ 60,857 $ 52,265
- --------------------------------------------------------------------------------
1 Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
2 The Manager voluntarily waived its management fee through February 29,
1996. In absence of the waiver, the ratio of operating expenses to average
net assets would have been .60%.
3 Annualized.
</TABLE>
INFORMATION REGARDING THE FUND
INVESTMENT POLICIES OF THE FUND
The Fund has adopted certain investment restrictions that are set forth in the
Statement of Additional Information. Those restrictions, as well as the
investment objective of the Fund identified on page 2 of this Prospectus and any
other investment policies which are designated as "fundamental" in this
Prospectus or in the Statement of Additional Information, cannot be changed
without shareholder approval. The Fund has implemented additional investment
policies and practices to guide its activities in the pursuit of its investment
objective. These policies and practices, which are described throughout this
Prospectus, are not designated as fundamental policies and may be changed
without shareholder approval.
For an explanation of the securities ratings referred to in the following
discussion, see "Other Information" in the Statement of Additional Information.
The Fund seeks income generally exempt from regular federal income taxes. The
Fund intends to pursue its investment objective by investing in tax-free bonds
and maintaining a weighted average maturity of five years or less.
The Fund is a "diversified company" as defined in the Investment Company Act of
1940 (the "1940 Act"). This means that, with respect to 75% of its total assets,
the Fund will not invest more that 5% of its total assets in the securities of a
single issuer. This policy is fundamental.
The Fund intends to remain fully invested in municipal obligations, although for
temporary defensive purposes, it may invest a portion if its assets in U.S.
government securities, the interest income on which is subject to federal income
tax. The 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 Fund may invest up to 20% of its total assets in municipal obligations for
which the interest is a tax preference item for purposes of the federal
alternative minimum tax (the "AMT").
PORTFOLIO INVESTMENT QUALITY AND
MATURITY GUIDELINES
In terms of credit quality, the Fund restricts its investments to:
(1) Municipal bonds rated, when acquired, within the four highest categories
designated by a nationally recognized statistical rating agency ("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
The market value of the investments of the 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
The Fund is susceptible to changing interest rates. Changing interest rates
affect not only the level of income the Fund generates for shareholders, but its
share price as well. In general, when interest rates rise, the Fund's share
prices declines; when interest rates decline, its share price rises.
This pattern is due to the time value of money. A bond's worth is determined by
the present value of its future cash flows. Consequently, changing interest
rates have a greater effect on the present value of a long-term bond than a
short-term bond.
CREDIT RISK
In selecting investments for the Fund, the Manager carefully considers the
creditworthiness of parties 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.
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 Fund if these securities are
judged to be of a quality consistent with the Fund's investment policies.
Similarly, the Manager may purchase securities whose ratings are not consistent
with the Fund's rating criteria but which the Manager judges, under the
direction of the Board of Trustees, to present credit risks consistent with the
Fund's quality standards. The Fund may invest up to 10% of its assets in unrated
securities. Unrated securities may be less liquid than rated securities.
The Fund may invest in securities rated Baa or BBB- (the lowest investment grade
category). The Fund will limit its investment in securities rated Baa or BBB- to
25% of the 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
The Fund may invest 25% or more of its total assets in obligations that generate
income from similar types of projects (in particular, projects in health care,
electric, water/sewer, education, and transportation). Political or economic
developments affecting a single issuer or industry or similar types of projects
may have a significant effect on Fund performance.
CALL RISK
Many municipal obligations are issued with a call feature (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 the 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 Fund may buy. The Fund is
not limited by this discussion, and it may buy other types of securities and
enter into other types of transactions that meet its quality, maturity and
liquidity requirements.
MUNICIPAL NOTES typically have maturities of 13 months or less and are used to
provide short-term capital or to meet cash flow demands.
GENERAL OBLIGATION BONDS are backed by the taxing power of the issuer.
REVENUE BONDS are backed by the revenues derived from a specific project,
system, or facility. Industrial development bonds are a type of revenue bond
backed by the credit of a private issuer.
VARIABLE- AND FLOATING-RATE DEMAND OBLIGATIONS have interest rate adjustment
formulas designed to stabilize their market values. These obligations normally
have maturities in excess of one year but carry demand features permitting the
holders to demand repayment of principal at any time or at specified intervals.
TENDER OPTION BONDS are created by combining an intermediate- or long-term
fixed-rate tax-exempt bond with a tender agreement that gives the holder the
option to tender the bond at face value. Tender option bonds purchased by the
Fund are structured with rates that are reset weekly or at 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, the Fund might then own
a bond that does not meet its quality or maturity criteria.
The Manager monitors the credit quality of bonds underlying the Fund's tender
option bond holdings and will sell or put back a tender option bond if the
rating on the underlying bond falls below the second-highest rating designated
by a rating agency. In addition, the Fund limits its investments in tender
option bonds to 15% of net assets.
MUNICIPAL LEASE OBLIGATIONS are issued by state and local governments to acquire
land and a wide variety of equipment and facilities. These obligations typically
are not fully backed by the issuing municipality's ability to assess taxes to
meet its debt obligations. If the state or local government does not make
appropriations for the following year's lease payments, the lease may terminate,
with the possibility of default on the lease obligation and loss to investors.
Prior to purchasing a municipal lease obligation (or a participation interest in
such obligations) and on a regular basis thereafter, pursuant to guidelines
adopted by the Board of Trustees, the Manager evaluates the credit quality and
liquidity of the obligation. In making this evaluation, the Manager considers
various credit factors, such as the necessity of the project; the issuer's
credit quality, future borrowing plans, and sources of revenue pledged for lease
repayment; general economic conditions in the region where the security is
issued; liquidity indictors such as dealer activity; and with regard to unrated
obligations the likelihood such lease will not be canceled.
ZERO-COUPON MUNICIPAL SECURITIES do not make regular interest payments. Instead,
they are sold at a deep discount to their face value. In calculating daily
dividends, the Fund takes into account, as income, a portion of the difference
between these securities' purchase prices and face values. Because zero-coupon
securities do not pay current income, their prices can be very volatile when
interest rates change.
The Fund 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.
AMT BONDS 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 the 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.
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 Fund should be expected to invest some portion of its assets in bonds which,
in the hands of some holders, would be subject to the AMT, as long as the
Manager determines it is in the best interest of shareholders generally to
invest in such securities. See "Taxes," page __.
The 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 yield. As
a prospective investor in the Fund, 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 the 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
OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS
AND RISKS
For additional information regarding the investment practices of the Fund, see
the Statement of Additional Information.
PORTFOLIO TURNOVER
The portfolio turnover rates of the Fund are shown in the Financial Highlights
table of this Prospectus.
Investment decisions to purchase and sell securities are based on the
anticipated contribution of the security in question to the 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 anticipated.
The portfolio turnover of the Fund may be higher than other mutual funds with
similar investment objectives. A high turnover rate involves correspondingly
higher transaction costs that are borne directly by the Fund. It may also affect
the character of capital gains, if any, realized and distributed by the Fund
since short-term capital gains are taxable as ordinary income.
WHEN-ISSUED AND FORWARD COMMITMENT AGREEMENTS
The Fund 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 objective of the Fund. The price of when-issued
securities is established at the time commitment to purchase is made. Delivery
of and payment for these securities typically occurs 15 to 45 days after the
commitment to purchase. Market rates of interest on debt securities at the time
of delivery may be higher or lower than those contracted for on the security.
Accordingly, the value of each security may decline prior to delivery, which
could result in a loss to the Fund.
INTEREST RATE FUTURES CONTRACTS AND
OPTIONS THEREON
The Fund 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, the Fund will segregate cash or high-quality debt securities
equal to the value of securities underlying the option unless the option is
otherwise covered.
The Fund will deposit in a segregated account with its custodian bank
high-quality debt obligations maturing in one year or less, or cash, in an
amount equal to the fluctuating market value of long futures contracts it has
purchased, less any margin deposited on its long position. It may hold cash or
acquire such debt obligations for the purpose of making these deposits.
The Fund may use futures and options transactions to maintain cash reserves
while remaining fully invested, to facilitate trading, to reduce transaction
costs, or to pursue higher investment returns when a futures contract is priced
more attractively than its underlying security or index.
Since futures contracts and options thereon can replicate movements in the cash
markets for the securities in which the Fund invests without the large cash
investments required for dealing in such markets, they may subject the 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 natures of those markets, are subject to
distortion. Due to the possibility of distortion, a correct forecast of general
interest rate trends by the Manager may still not result in a successful
transaction. The Manager may be incorrect in its expectations as to the extent
of various interest rate movements or the time span within which the movements
take place.
See the Statement of Additional Information for further information about these
instruments and their risks.
RULE 144A SECURITIES
The Fund may, from time to time, purchase Rule 144A securities when they present
attractive investment opportunities that otherwise meet the Fund's criteria for
selection. Rule 144A securities are securities that are privately placed with
and traded among qualified institutional investors rather than the general
public. Although Rule 144A securities are considered "restricted securities,"
they are not necessarily illiquid.
With respect to securities eligible for resale under Rule 144A, the staff of the
SEC has taken the position that the liquidity of such securities in the
portfolio of a fund offering redeemable securities is a question of fact for the
Board of Trustees to determine, such determination to be based upon a
consideration of the readily available trading markets and the review of any
contractual restrictions. Accordingly, the Board of Trustees is responsible for
developing and establishing the guidelines and procedures for determining the
liquidity of Rule 144A securities. As allowed by Rule 144A, the Board of
Trustees of the Fund has delegated the day-to-day function of determining the
liquidity of Rule 144A securities to the Manager. The Board retains the
responsibility to monitor the implementation of the guidelines and procedures it
has adopted.
Since the secondary market for such securities is limited to certain qualified
institutional investors, the liquidity of such securities may be limited
accordingly and the 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 the Fund's liquidity. The Fund may not invest more than
10% of its total assets in illiquid securities (securities that may not be sold
within seven days at approximately the price used in determining the net asset
value of Fund shares).
CASH MANAGEMENT
For cash management purposes, the Fund may invest up to an aggregate total of 5%
of its total assets in other investment companies, provided that the investment
is consistent with the Fund's investment policies and restrictions.
OTHER TECHNIQUES
The Manager may buy other types of securities or employ other portfolio
management techniques on behalf of the Fund. When SEC guidelines require it to
do so, the Fund will set aside cash or appropriate liquid assets in a segregated
account to cover its obligations. See the Fund's Statement of Additional
Information for a more detailed discussion of these investments and some of the
risks associated with them.
PERFORMANCE ADVERTISING
From time to time, the Fund may advertise performance data. Fund performance may
be shown by presenting one or more performance measurements, including
cumulative total return or average annual total return, yield, effective yield
and tax-equivalent yield (for tax-exempt funds).
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 the Fund's income over a stated period expressed
as a percentage of the Fund's share price. Yield is calculated by adding over a
30-day (or one-month) period all interest and dividend income (net of fund
expenses) calculated on each day's market values, dividing this sum by the
average number of Fund shares outstanding during the period, and expressing the
result as a percentage of the Fund's share price on the last day of the 30-day
(or one month) period. The percentage is then annualized. Capital gains and
losses are not included in the calculation.
Yields are calculated according to accounting methods that are standardized in
accordance with SEC rules. The SEC yield should be regarded as an estimate of
the Fund's rate of investment income, and it may not equal the Fund's actual
income distribution rate, the income paid to a shareholder's account, or the
income reported in the Fund's financial statements.
A tax-equivalent yield demonstrates the taxable yield necessary to produce
after-tax yield equivalent to that of a mutual fund which invests in exempt
obligations. See "Tax-Exempt Securities," page __, for a description of the
formulas used in comparing yields to tax-equivalent yields.
The Fund may also include in advertisements data comparing performance with the
performance of non-related investment media, published editorial comments and
performance rankings compiled by independent organizations (such as Lipper
Analytical Services or Donoghue's Money Fund Report) and publications that
monitor the performance of mutual funds. Performance information may be quoted
numerically or may be presented in a table, graph or other illustration. In
addition, Fund performance may be compared to well-known indices of market
performance. 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 Fund is historical in nature and
is not intended to represent or guarantee future results. The value of Fund
shares when redeemed may be more or less than their original cost.
HOW TO INVEST WITH
AMERICAN CENTURY INVESTMENTS
AMERICAN CENTURY INVESTMENTS
The Fund offered by this Prospectus is 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 __.
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 $5,000.
The minimum investment requirements may be different for some types of
retirement accounts. Call one of our Investor Services Representatives for
information on out retirement plans, which are available for individual
investors or for those investing through their employers.
Please note: If you register your account as belonging to multiple owners (e.g.,
as joint tenants), you must provide us with specific authorization on your
application in order for us to accept written or telephone instructions from a
single owner. Otherwise, all owners will have to agree to any transactions that
involve the account (whether the transaction request is in writing or over the
telephone).
You may invest in the following ways:
BY MAIL
Send a completed application and check or money order payable in U.S. dollars to
American Century Investments.
BY WIRE
You may make your initial investment by wiring funds. To do so, call us or mail
a completed application and provide your bank with the following information:
o RECEIVING BANK AND ROUTING NUMBER:
Commerce Bank, N.A. (101000019)
o BENEFICIARY (BNF):
American Century Services Corporation
4500 Main St., Kansas City, Missouri 64111
o BENEFICIARY ACCOUNT NUMBER (BNF ACCT):
2804918
o REFERENCE FOR BENEFICIARY (RFB):
American Century account number into which you are investing. If more than
one, leave blank and see Bank to Bank Information below.
o ORIGINATOR TO BENEFICIARY (OBI):
Name and address of owner of account into which you are investing.
o BANK TO BANK INFORMATION
(BBI OR FREE FORM TEXT):
o Taxpayer identification or Social Security number
o If more than one account, account numbers and amount to be invested in each
account.
o Current tax year, previous tax year or rollover designation if an IRA.
Specify whether IRA, SEP-IRA or SARSEP-IRA.
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 page
___ for more information on exchanges.
IN PERSON
If you prefer to work with a representative in person, please visit one of our
Investors Centers, located at:
4500 Main Street
Kansas City, Missouri 64111
1665 Charleston Road
Mountain View, California 94043
2000 S. Colorado Blvd.
Denver, Colorado 80222
SUBSEQUENT INVESTMENTS
Subsequent investments may be made by an automatic bank, payroll or government
direct deposit (see "Automatic Investment Plan," this page) or by any of the
methods below. The minimum investment requirement for subsequent investments:
$250 for checks submitted without the remittance portion of a previous statement
or confirmation, $50 for all other types of subsequent investments.
BY MAIL
When making subsequent investments, enclose your check with the remittance
portion of the confirmation of a previous investment. If the investment slip is
not available, indicate your name, address and account number on your check or a
separate piece of paper. (Please be aware that the investment minimum for
subsequent investments is higher without an investment slip.)
BY TELEPHONE
Once your account is open, you may make investments by telephone if you have
authorized us (by choosing "Full Services" on your application) to draw on your
bank account. You may call an Investor Services Representative or use our
Automated Information Line.
BY ONLINE ACCESS
Once your account is open, you may make investments online if you have
authorized us (by choosing "Full Services" on your application) to draw on your
bank account.
BY WIRE
You may make subsequent investments by wire. Follow the wire transfer
instructions on page __ and indicate your account number.
IN PERSON
You may make subsequent investments in person at one of our Investors Centers.
The locations of our three Investors Centers are listed on 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 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 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 __.
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 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 __) 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 __.
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 account, you may redeem shares by
Check-A-Month. 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 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:
o redeeming more than $25,000; or
o 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
indexes and view historical performance of your funds. If you select "Full
Services" on your application, you can use your personal access code and Social
Security number to view your account balances and account activity, make
subsequent investments from your bank account or exchange shares from one fund
to another.
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
The Fund is available for your tax-deferred retirement plan. Call or write us
and request the appropriate forms for:
o Individual Retirement Accounts ("IRAs")
o 403(b) plans for employees of public school systems and non-profit
organizations; or
o Profit sharing plans and pension plans for corporations and other
employers.
If your IRA and 403(b) accounts do not total $10,000, each account is subject to
an annual $10 fee, up to a total of $30 per year.
You can also transfer your tax-deferred plan to us from another company or
custodian. Call or write us for a Request to Transfer form.
IMPORTANT POLICIES REGARDING YOUR INVESTMENTS
Every account is subject to policies that could affect your investment. Please
refer to the Investor Services Guide for further information about the policies
discussed below, as well as further detail about the services we offer.
(1) We reserve the right for any reason to suspend the offering of shares for a
period of time, or to reject any specific purchase order (including
purchases by exchange). Additionally, purchases may be refused if, in the
opinion of the Manager, they are of a size that would disrupt the
management of the Fund.
(2) We reserve the right to make changes to any stated investment requirements,
including those that relate to purchases, transfers and redemptions. In
addition, we may also alter, add to or terminate any investor services and
privileges. Any changes may affect all shareholders or only certain series
or classes of shareholders.
(3) Shares being acquired must be qualified for sale in your state of
residence.
(4) Transactions requesting a specific price and date, other than open orders,
will be refused. Once you have mailed or otherwise transmitted your
transaction instructions to us, they may not be modified or canceled.
(5) If a transaction request is made by a corporation, partnership, trust,
fiduciary, agent or unincorporated association, we will require evidence
satisfactory to us of the authority of the individual making the request.
(6) We have established procedures designed to assure the authenticity of
instructions received by telephone. These procedures include requesting
personal identification from callers, recording telephone calls, and
providing written confirmations of telephone transactions. These procedures
are designed to protect shareholders from unauthorized or fraudulent
instructions. If we do not employ reasonable procedures to confirm the
genuineness of instructions, then we may be liable for losses due to
unauthorized or fraudulent instructions. The company, its transfer agent
and investment advisor will not be responsible for any loss due to
instructions they reasonably believe are genuine.
(7) All signatures should be exactly as the name appears in the registration.
If the owner's name appears in the registration as Mary Elizabeth Jones,
she should sign that way and not as Mary E. Jones.
(8) Unusual stock market conditions have in the past resulted in an increase in
the number of shareholder telephone calls. If you experience difficulty in
reaching us during such periods, you may send your transaction instructions
by mail, express mail or courier service, or you may visit one of our
Investors Centers. You may also use our Automated Information Line if you
have requested and received an access code and are not attempting to redeem
shares.
(9) If you fail to provide us with the correct certified taxpayer
identification number, we may reduce any redemption proceeds by $50 to
cover the penalty the IRS will impose on us for failure to report your
correct taxpayer identification number on information reports.
(10) We will perform special inquiries on shareholder accounts. A research fee
of $15 per hour may be applied.
REPORTS TO SHAREHOLDERS
At the end of each calendar quarter, we will send you a consolidated statement
that summarizes all of your American Century holdings, as well as an individual
statement for each fund you own that reflects all year-to-date activity in your
account. You may request a statement of your account activity at any time.
With the exception of most automatic transactions, each time you invest, redeem,
transfer or exchange shares, we will send you a confirmation of the
transactions. See the Investor Services Guide for more detail.
Carefully review all the information relating to transactions on your statements
and confirmations to ensure that your instructions were acted on properly.
Please notify us immediately in writing if there is an error. If you fail to
provide notification of an error with reasonable promptness, i.e., within 30
days of non-automatic transactions or within 30 days of the date of your
consolidated quarterly statement, in the case of automatic transactions, we will
deem you to have ratified the transaction.
No later than January 31st of each year, we will send you reports that you may
use in completing your U.S. income tax return. See the Investor Services Guide
for more information.
Each year, we will send you an annual and a semiannual report relating to your
fund, each of which is incorporated herein by reference. The annual report
includes audited financial statements and a list of portfolio securities as of
the fiscal year end. The semiannual report includes unaudited financial
statements for the first six months of the fiscal year, as well as a list of
portfolio securities at the end of the period. You also will receive an updated
prospectus at least once each year. Please read these materials carefully, as
they will help you understand your fund.
EMPLOYER-SPONSORED RETIREMENT PLANS AND
INSTITUTIONAL ACCOUNTS
Information contained in our Investor Services Guide pertains to shareholders
who invest directly with American Century rather than through an
employer-sponsored retirement plan or through a financial intermediary.
If you own or are considering purchasing Fund shares through an
employer-sponsored retirement plan, your ability to purchase shares of the Fund,
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.
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 American Century Target Maturities Trust,
net asset value is determined at the close of regular trading on each day that
the New York Stock Exchange is open, usually 3 p.m. Central time. Net asset
value for the Target Maturities is determined one hour prior to the close of the
Exchange.
Investments and requests to redeem or exchange shares will receive the share
price next determined after receipt by us of the investment, redemption or
exchange request. For example, investments and requests to redeem or exchange
shares of a fund received by us or one of our agents before the net asset value
of the fund is determined, are effective on, and will receive the price
determined, that day. Investment, redemption and exchange requests received
thereafter are effective on, and receive the price determined on, the next day
the Exchange is open.
Investments are considered received only when payment is received by us. Wired
funds are considered received on the day they are deposited in our bank account
if they are deposited before the net asset value is determined.
Investments by telephone pursuant to your prior authorization to us to draw on
your bank account are considered received at the time of your telephone call.
Investment and transaction instructions received by us on any business day by
mail before the net asset value is determined will receive that day's price.
Investments and instructions received after that time will receive the price
determined on the next business day.
If you invest in Fund shares through an employer-sponsored retirement plan or
other financial intermediary, it is the responsibility of your plan recordkeeper
or financial intermediary to transmit your purchase, exchange and redemption
requests to the Fund's transfer agent prior to the applicable cut-off time for
receiving orders and to make payment for any purchase transactions in accordance
with the Fund's procedures or any contractual arrangements with the Fund or the
Fund's distributor in order for you to receive that day's price.
HOW SHARE PRICE IS DETERMINED
The valuation of assets for determining net asset value may be summarized as
follows:
The portfolio securities of the Fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or if
local convention or regulation so provides, the mean of the latest bid and asked
prices is used. Depending on local convention or regulation, securities traded
over-the-counter are priced at the mean of the latest bid and asked prices, or
at the last sale price. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in accordance
with procedures adopted by the Board of Trustees.
Debt securities not traded on a principal securities exchange are valued through
valuations obtained from a commercial pricing service or at the most recent mean
of the bid and asked prices provided by investment dealers in accordance with
procedures established by the Board of Trustees.
WHERE TO FIND INFORMATION ABOUT SHARE PRICE
The net asset value of the Fund is published in leading newspapers daily. The
net asset values, as well as yield information on the Fund and all of the 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 income
plus net realized gains on portfolio securities of the Fund 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.
You will begin to participate in the distributions the day after your purchase
is effective. See "When Share Price is Determined," page __.) If you redeem
shares, you will receive the distribution declared for the day of the
redemption. If all shares are redeemed, 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 Fund may make distributions on a more frequent
basis to comply with the distribution requirements of the Internal Revenue Code,
in all events in a manner consistent with the provisions of the 1940 Act.
Participants in employer-sponsored retirement or savings plans must reinvest all
distributions. For shareholders investing through taxable accounts,
distributions will be reinvested unless you elect to receive them in cash.
Distributions of less than $10 generally will be reinvested. Distributions made
shortly after a purchase by check or ACH may be held up to 15 days. You may
elect to have distributions on shares held in Individual Retirement Accounts and
403(b) plans paid in cash only if you are at least 591/2 years old or
permanently and totally disabled. Distribution checks normally are mailed within
seven days after the record date. Please consult our Investor Services Guide for
further information regarding your distribution options.
A distribution of shares of the 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
The 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 Fund will generally not be subject to current
taxation, but will accumulate in your account under the plan on a tax-deferred
basis.
Employer-sponsored retirement and savings plans are governed by complex tax
rules. If you elect to participate in your employer's plan, consult your plan
administrator, your plan's summary plan description, or a professional tax
advisor regarding the tax consequences of participation in the plan,
contributions to, and withdrawals or distributions from the plan.
TAXABLE ACCOUNTS
If Fund shares are purchased through taxable accounts, distributions of net
investment income and net short-term capital gains are taxable to you as
ordinary income, except as described below. The dividends from net income of the
Fund 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 Fund anticipates that substantially all of the dividends to be
paid by the Fund will be exempt from federal income taxes to an individual
unless, due to that person's own tax situation, he or she is subject to the AMT.
In that case, it is likely that a portion of the dividends will be taxable to
that shareholder while remaining tax-exempt in the hands of most other
shareholders. The Fund will advise shareholders of the percentage, if any, of
the dividends not exempt from federal income tax, and the percentage, if any,
subject to the individual AMT should a shareholder be subject to it.
Distributions may also be subject to state and local taxes, even if all or a
substantial part of such distribution 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 the 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,
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 the Fund (including redemptions made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
shareholders will generally recognize a gain or loss in an amount equal to the
difference between the basis of the shares and the amount received. Assuming
that shareholders hold such shares as a capital asset, the gain or loss will be
a capital gain or loss and will generally be long term if shareholders have held
such shares for a period of more than one year. If a loss is realized on the
redemption of Fund shares, the reinvestment in additional Fund shares within 30
days before or after the redemption may be subject to the "wash sale" rules of
the Internal Revenue Code, resulting in a postponement of the recognition of
such loss for federal income tax purposes.
SPECIAL TAX INFORMATION
The Fund intends to invest a sufficient portion of its assets in state and
municipal obligations so that it will qualify to pay "exempt-interest dividends"
to shareholders. Such exempt-interest dividends are generally excludable from a
shareholder's gross income for federal tax purposes. If the Fund earned
federally taxable income from any of its investments, the income would be
distributed to shareholders as a taxable dividend as described above.
MUNICIPAL SECURITIES
Opinions relating to the validity of municipal securities and the exemptions of
interest thereon from federal income tax are rendered by bond counsel to the
issuers. The Fund and the Manager rely on the opinion of bond counsel and do not
undertake any independent investigation of proceedings relating to the issuance
of state or municipal securities. The Fund may invest in various instruments
that are not traditional state and local obligations and that are believed to
generate interest excludable from taxable income under Code Section 103,
including, but not limited to, municipal lease obligations and inverse floaters.
Although the Fund may invest in these instruments, they cannot guarantee the
tax-exempt status of the income earned thereon from any other investment.
ALTERNATIVE MINIMUM TAX LIABILITY
To the extent that the Fund invests 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.
MANAGEMENT
INVESTMENT MANAGEMENT
American Century-Benham Limited-Term Tax-Free Fund is a series of the American
Century Municipal Trust (the "Trust"), a Massachusetts business trust, formerly
known as the Benham Municipal 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
Trust, American Century Investment Management, Inc. (the "Manager") serves as
the investment manager of the Fund. The Manager pays all the expenses of the
Fund except brokerage, taxes, interest, fees and expenses of the non-interested
person Trustees (including counsel fees) and extraordinary expenses. Its
principal place of business is 4500 Main Street, Kansas City, Missouri 64111.
The Manager has been providing investment advisory services to investment
companies and other clients since 1958.
The Manager supervises and manages the investment portfolio of the Fund and
directs the purchase and sale of its investment securities. It utilizes teams of
portfolio managers, assistant portfolio managers and analysts acting together to
manage the assets of the Fund. The teams meet regularly to review portfolio
holdings and to discuss purchase and sale activity. The teams adjust holdings in
the Fund's portfolio and the Fund's asset mix as they deem appropriate in
pursuit of the Fund's investment objective. Individual portfolio manager members
of the team may also adjust portfolio holdings of the Fund or of sectors of the
Fund as necessary between team meetings.
The portfolio manager members of the teams managing the Fund described in this
Prospectus and their work experience for the last five years are as follows:
COLLEEN M. DENZLER, Senior Municipal Portfolio Manager, joined the Manager
in January 1996 and is a member of the team that manages the Fund and other
Benham tax-exempt and tax-free funds. Prior to joining the Manager, Ms. Denzler
was a portfolio manager with the Calvert Group for 10 years, specializing in
state tax-exempt portfolios. Ms. Denzler is a Chartered Financial Analyst and is
a member of the Association for Investment Management and Research (AIMR) and
The Washington Society of Investment Analysts.
G. DAVID MACEWEN joined American Century in 1991 as a Senior Municipal
Portfolio Manager, and is a member of the teams that manages other Benham
tax-exempt and tax-free funds. Prior to joining the Manager, Mr. MacEwen was
Vice President and Municipal Portfolio Manager with Provident Institutional
Management Corporation, Wilmington, Delaware.
JOEL SILVA joined American Century in 1989, serving first as a customer
service representative, then moving to position as a municipal bond trader. As a
Municipal Portfolio Manager, Mr. Silva is a member of the teams that manages
Benham tax-exempt and tax-free funds.
The activities of the Manager are subject only to the direction of the Trust's
Board of Trustees. For the services provided to the Fund, the Manager receives
an annual fee of which is computed at 0.55% of average net assets of the Fund.
The rate at which this fee is assessed is determined annually in a two-step
process: First, a fee rate schedule is applied to the assets of all of the bond
funds managed by the Manager (the "Investment Category Fee"). Second, a separate
fee rate schedule is applied to the assets of all of the mutual funds managed by
the Manager (the "Complex Fee"). The Investment Category Fee and the Complex Fee
are then added to determine the annual fee payable by the Fund to the Manager.
For the current fiscal year, the Investment Category Fee is 0.25% of average net
assets of the Fund. The Complex Fee is 0.30% of the average net assets of the
Fund. Further information about the calculation of the annual management fee is
contained in the Statement of Additional Information.
On the first business day of each month, the Fund pays a management fee to
the Manager for the previous month at the specified rate. The fee for the
previous month is calculated by multiplying the applicable fee for the Fund by
the aggregate average daily closing value of the Fund's net assets during the
previous month by a fraction, the numerator of which is the number of days in
the previous month and the denominator of which is 365 (366 in leap years).
CODE OF ETHICS
The Fund and the Manager have adopted a Code of Ethics which restricts personal
investing practices by employees of the Manager and its affiliates. Among other
provisions, the Code of Ethics requires that employees with access to
information about the purchase or sale of securities in the Fund's portfolio
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 the Fund.
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 Fund. It provides facilities, equipment and personnel to the Fund and is
paid for such services by the Manager. For administrative services provided to
the Fund, the transfer agent is paid by the Manager out of its management fee.
Certain recordkeeping and administrative services that would otherwise be
performed by the transfer agent may be performed by an insurance company or
other entity providing similar services for various retirement plans using
shares of the Fund as a funding medium, by broker-dealers and financial advisors
for their customers investing in shares of American Century or by sponsors of
multi mutual fund no- or low-transaction fee program. The Manager or an
affiliate may enter into contracts to pay them for such recordkeeping and
administrative services out of its management fee.
Although there is no sales charge levied by the Fund, transactions in shares of
the Fund may be executed by brokers or investment advisors who charge a
transaction-based fee or other fee for their services. Such charges may vary
among broker-dealers and financial advisors, but in all cases will be retained
by the broker-dealer or financial advisor and not remitted to the Fund or the
investment manager. You should be aware of the fact that these transactions may
be made directly with American Century without incurring such fees.
The Manager and the transfer agent are both wholly owned by 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 Fund's shares are distributed by American Century Investment Services, Inc.
(the "Distributor"), a registered broker-dealer and an affiliate of the Manager.
The Manager pays all expenses for promoting and distributing the Fund's shares
offered by this Prospectus. The Fund does not pay any commissions or other fees
to the Distributor or to any other broker-dealers or financial intermediaries in
connection with the distribution of Fund shares.
FURTHER INFORMATION ABOUT AMERICAN CENTURY
American Century Municipal Trust was organized as a Massachusetts business trust
on May 1, 1984. The 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 Fund is an individual series of the Trust which issues shares with no par
value. The assets belonging to each series of shares are held separately by the
custodian and in effect each series is a separate fund.
Each share is entitled to one vote for each dollar of net asset value applicable
to such share on all questions. Matters affecting only one fund are voted upon
only by that fund.
Shares of the Trust have non-cumulative voting rights, which means that the
holders of more than 50% of the votes cast in an election of Trustees can elect
all of the Trustees if they choose to do so, and in such event the holders of
the remaining votes will not be able to elect any person or persons to the Board
of Trustees.
Unless required by the 1940 Act, it will not be necessary for the Trust to hold
annual meetings of shareholders. As a result, shareholders may not vote each
year on the election of members of the Board or the appointment of auditors.
However, pursuant to the Trust's by-laws, the holders of shares representing at
least 10% of the votes entitled to be cast may request that the Trust hold a
special meeting of shareholders. The Trust will assist in the communication with
other shareholders.
WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND PROCEDURES
DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL INFORMATION,
WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE SHAREHOLDER
APPROVAL IS EXPRESSLY REQUIRED.
THIS PROSPECTUS CONSTITUTES AN OFFER TO SELL SECURITIES OF THE FUND ONLY IN
THOSE STATES WHERE THE FUND'S SHARES HAVE BEEN REGISTERED OR OTHERWISE QUALIFIED
FOR SALE. THE FUND WILL NOT ACCEPT APPLICATIONS FROM PERSONS RESIDING IN STATES
WHERE THE FUND'S SHARES ARE NOT REGISTERED.
P.O. Box 419200
Kansas City, Missouri
64141-6200
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
Fax: 816-340-7962
Internet: www.americancentury.com
[american century logo]
American
Century(sm)
9701 [recycled logo]
SH-BKT-6159 Recycled
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
[company logo]
______________, 1997
BENHAM
GROUP(R)
Tax-Free Money Market
Intermediate-Term Tax-Free
Limited-Term Tax-Free
Long-Term Tax-Free
[front cover]
STATEMENT OF ADDITIONAL INFORMATION
___________________, 1997
AMERICAN CENTURY MUNICIPAL TRUST
This is the Statement of Additional Information for the American Century--Benham
Tax-Free Money Market Fund, American Century--Benham Intermediate-Term Tax-Free
Fund, American Century--Benham Limited-Term Tax-Free Fund and American
Century--Benham Long-Term Tax-Free Fund. This Statement is not a prospectus but
should be read in conjunction with the Funds' current Prospectus dated
_____________, 1997. The Funds' annual report for the fiscal year ended May 31,
1996, is 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 ........................... 8
Portfolio Transactions ............................10
Valuation of Portfolio Securities .................10
Performance .......................................12
Taxes .............................................13
About the Trust ...................................15
Trustees and Officers .............................16
Investment Advisory Services ......................17
Transfer and Administrative Services ..............18
Distribution of Fund Shares .......................19
Direct Fund Expenses ..............................19
Expense Limitation Agreement ......................19
Additional Purchase and Redemption
Information ....................................19
Other Information .................................20
NOTE: Throughout this document, Tax-Free Money Market Fund will be referred
to as the Money Market Fund. Intermediate-Term Tax-Free Fund (Intermediate-Term
Fund), Limited-Term Tax-Free Fund (Limited-Term Fund) and Long-Term Tax-Free
Fund (Long-Term Fund) are referred to collectively as the Variable-Price Funds.
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.
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 a return of
principal plus accrued interest from the issuer on 30 days' notice or less;
(2) Under the direction of the Board of Trustees, Benham Management
Corporation (American Century Investment Management, Inc. with respect to the
Limited-Term Fund) (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 the Fund may realize
taxable income as a result of holding TOBs. These steps may include
consideration of (a) legal opinions relating to the tax-exempt status of the
underlying municipal bonds, (b) legal opinions relating to the tax ownership of
the underlying bonds, and (c) other elements of the structure that could result
in taxable income or other adverse tax consequences.
After purchase, the Manager monitors factors related to the tax-exempt
status of the Fund's TOB holdings in order to minimize the risk of generating
taxable income.
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 Fund. However, any of the Funds may purchase these instruments.
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 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, U.S. government securities, or other high-quality liquid
debt securities in an amount sufficient to meet the purchase price. When the
time comes to pay for when-issued securities, the Fund will meet its obligations
with available cash, through 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.
As an operating policy, each Fund will not commit greater than 50% of its
total assets to when-issued or forward commitment agreements. If fluctuations in
the value of securities held cause more than 50% of a Fund's total assets to be
committed under when-issued or forward commitment agreements, the Manager need
not sell such agreements, but it will be restricted from entering into further
agreements on behalf of the Fund until the percentage of assets committed to
such agreements is below 50% of total assets.
MUNICIPAL LEASE OBLIGATIONS
Each Fund may invest in municipal lease obligations. These obligations,
which may take the form of a lease, an installment purchase, or a conditional
sale contract, are issued by state and local governments and authorities to
acquire land and a wide variety of equipment and facilities. Generally, the
Funds will not hold such obligations directly as a lessor of the property but
will purchase a participation interest in a municipal lease obligation from a
bank or other third party.
Municipal leases frequently carry risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set forth
requirements that states and municipalities must meet to incur debt. These may
include voter referenda, interest rate limits, or public sale requirements.
Leases, installment purchases, or conditional sale contracts (which normally
provide for title to the leased asset to pass to the government issuer) have
evolved as a way for government issuers to acquire property and equipment
without meeting constitutional and statutory requirements for the issuance of
debt.
Many leases and contracts include nonappropriation clauses 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).
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. 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 these Funds' investments in
short-term securities to exceed 35% of total assets. If a Fund invests in U.S.
government securities, a portion of dividends paid to shareholders will be
taxable at the federal level, and may be taxable at the state level, as ordinary
income. 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 a 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. 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. The Funds may engage in
futures and options transactions based on securities indexes, such as the Bond
Buyer Index of Municipal Bonds, that are consistent with the Funds' investment
objectives. The Funds 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 the Funds' investment restrictions.
RISKS RELATED TO FUTURES AND OPTIONS TRANSACTIONS. Futures and options
prices can be volatile, and trading in these markets involves certain risks. If
the Manager applies a hedge at an inappropriate time or judges interest rate
trends incorrectly, futures and options strategies may lower a Fund's return. A
Fund could also suffer losses if the prices of its futures and options positions
were poorly 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, the Funds 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 and appropriate liquid assets in
a segregated account to cover its obligations related to futures contracts and
options.
The Funds intend to comply with tax rules applicable to regulated
investment companies, including a requirement that capital gains from the sale
of securities held less than three months constitute less than 30% of a Fund's
gross income for each fiscal year. Gains on some futures contracts and options
are included in this 30% calculation, which may limit the Funds' investments in
such instruments.
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 1940 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 net
assets with respect to any one investment company and (c) 10% of the Fund's net
assets in the aggregate. Such purchases will be made in the open market where no
commissions or profit to a sponsor or dealer results from the purchase other
that the customary brokers' commission. 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.
INVESTMENT RESTRICTIONS
The Funds' investment restrictions set forth below are fundamental and may
not be changed without approval of a majority of the votes of shareholders of
each Fund, as determined in accordance with the Investment Company Act of 1940.
THE MONEY MARKET FUND, INTERMEDIATE-TERM FUND AND THE LONG-TERM FUND MAY
NOT:
(1) With respect to 75% of its total assets, 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, (a) more than
5% of the Fund's total assets would be invested in the securities of that
issuer, or (b) the Fund would own more than 10% of the outstanding voting
securities of that issuer.
(2) Act as an underwriter of securities issued by others, except to the extent
that the purchase of municipal securities, or other permitted investments,
directly from the issuer thereof or from an underwriter for an issuer and
the later disposition of such securities in accordance with the Fund's
investment policies and techniques may be deemed to be an underwriting.
(3) Make loans to others, except in accordance with the Fund's investment
objective and policies.
(4) Purchase any equity securities in any companies, including warrants, or
bonds with warrants attached, or any preferred stocks, convertible bonds,
or convertible debentures.
(5) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, illiquid
securities) if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
(6) Purchase or retain securities of any issuer if, to the knowledge of the
Fund's management, those officers and Trustees of the Trust and of its
investment advisor, who each own beneficially more than 0.5% of the
outstanding securities of such issuer, together own beneficially more than
5% of such securities. However, such restrictions shall not apply to
holdings of the issuers of industrial development bonds.
(7) Acquire securities for the purpose of exercising control over management of
the issuer.
(8) Purchase any security if, as a result, 25% or more of the value of the
Fund's total assets would be invested in the securities of issuers having
their principal business activity in the same industry. However, this
limitation does not apply to securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities, or to municipal
securities of any type.
THE MONEY MARKET FUND MAY NOT:
(1) Borrow money in excess of 33 1/3% of the market value of its total assets,
and then only from a bank and as a temporary measure to satisfy redemption
requests for extraordinary or emergency purposes, and provided that
immediately after any such borrowing there is an asset coverage of at least
300 per centum for all such borrowings. To secure any such borrowing, the
Fund may not mortgage, pledge, or hypothecate in excess of 331/3% of the
value of its total assets. The Fund will not purchase any security while
borrowings representing more than 5% of its total assets are outstanding.
(2) Purchase, sell, or invest in real estate, commodities, commodity contracts,
foreign exchange, or interests in oil, gas, or other mineral exploration or
development programs, provided that this limitation shall not prohibit the
purchase of municipal securities and other debt securities secured by real
estate or interests therein.
(3) Engage in any short-selling operations.
(4) Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads, except that it may purchase and hold securities with
rights to put securities to the seller or "standby commitments" in
accordance with its investment techniques.
(5) Issue or sell any class of senior security as defined in the Investment
Company Act of 1940 except to the extent that notes evidencing temporary
borrowings or the purchase of securities on a when-issued or
delayed-delivery basis might be deemed such.
(6) Acquire or retain the securities of any other investment company, except in
connection with a merger, consolidation, acquisition, or reorganization.
THE INTERMEDIATE-TERM FUND AND THE LONG-TERM FUND EACH MAY NOT:
(1) Borrow money in excess of 33 1/3% of the market value of its total assets,
and then only from a bank and as a temporary measure to satisfy redemption
requests for extraordinary or emergency purposes, and provided that
immediately after any such borrowing there is an asset coverage of at least
300 per centum for all such borrowings. To secure any such borrowing, the
Fund may not mortgage, pledge, or hypothecate in excess of 33 1/3% of the
value of its total assets. The Fund will not purchase any security while
borrowings representing more than 5% of its total assets are outstanding
(the deposit of assets in escrow in connection with the writing of covered
put and call options and collateral arrangements with respect to initial or
variation margin deposits for futures contracts will not be deemed a pledge
of the Fund's assets).
(2) Purchase, sell, or invest in real estate, commodities, commodity contracts,
foreign exchange, or interests in oil, gas, or other mineral exploration or
development programs, provided that this limitation shall not prohibit the
purchase of municipal securities and other debt securities secured by real
estate or interests therein, and shall not prohibit the Fund from
purchasing, selling, or entering into options on securities or indexes of
securities, futures contracts, options on futures contracts, or any other
interest rate hedging instrument, subject to the Fund's compliance with
applicable provisions of the federal securities or commodities laws.
(3) Engage in any short-selling operations, except that the Fund may purchase,
sell, or enter into short positions in options on securities or indexes of
securities, futures contracts, options on futures contracts, and any other
interest rate hedging instrument as may be permitted under the federal
securities or commodities laws.
(4) Engage in margin transactions, except that it may purchase, sell, or enter
into positions in options on securities or indexes of securities, futures
contracts, options on futures contracts, and other interest rate hedging
instruments, and may make margin deposits in connection therewith, and may
purchase and hold securities with rights to put securities to the seller
(standby commitments) in accordance with its investment techniques.
(5) Issue or sell any class of senior security as defined in the Investment
Company Act of 1940 except to the extent that transactions in options,
futures, options on futures, other interest rate hedging instruments, notes
evidencing temporary borrowings, or the purchase of securities on a
when-issued or delayed-delivery basis might be deemed such.
(6) Acquire or retain the securities of any other investment company, except
that the Fund may, for temporary purposes, purchase shares of the Money
Market Fund, subject to such restrictions as may be imposed by (i) the
Investment Company Act of 1940 and rules thereunder or (ii) any state in
which shares of the Fund are registered, and may acquire shares of any
investment company in connection with a merger, consolidation, acquisition,
or reorganization.
THE LIMITED-TERM FUND MAY NOT:
1) With respect to 75% of its total assets, purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. government
or its agencies or instrumentalities) if, as a result, (a) more than 5% of
the Fund's total assets would be invested in securities of that issuer, or
(b) the Fund would hold more than 10% of the outstanding voting securities
of that issuer.
2) Issue senior securities, except as permitted under the 1940 Act.
3) 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).
4) 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, (a)
through the purchase of a portion of an issue of debt securities in
accordance with its investment objective, policies and limitations, or (b)
by engaging in repurchase agreements with respect to portfolio securities.
5) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investment in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
6) 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.
7) Act as 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.
8) Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments.
9) Invest for purposes of exercising control over management.
The Funds are also subject to the following restrictions that are not
fundamental and may therefore be changed by the Board of Trustees without
shareholder approval.
THE MONEY MARKET FUND, INTERMEDIATE-TERM FUND AND THE LONG-TERM FUND MAY
NOT:
(a) Purchase any security if, as a result, more than 5% of the value of the
Fund's total assets would be invested in the securities of issuers that at
the time of purchase had been in operation for less than three years,
except obligations issued or guaranteed by the U.S. government or its
agencies, and municipal securities (for this purpose, the period of
operation of any issuer shall include the period of operation of any
predecessor or unconditional guarantor of such issuer); provided, however,
that for the purpose of this limitation, industrial development bonds
issued by nongovernmental users shall not be deemed municipal securities.
(b) Enter into when-issued or forward commitment transaction that settle in
more than 120 days.
THE LIMITED-TERM FUNDS MAY NOT:
a) Lend assets other than securities to other parties, except by (a)
lending money (up to 5% of the Fund's net assets) to a registered
investment company or portfolio for which its investment advisor or an
affiliate serves as investment advisor or (b) acquiring loans, loan
participation, or other forms of direct debt instruments and in
connection therewith, assuming any associated unfunded commitments of the
sellers. (This limitation does not apply to purchases of debt securities
or to repurchase agreements.)
b) 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.
c) Purchase any security or enter into a repurchase agreement if, as a result,
more than 15% of its net assets 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.
d) Except in connection with a merger, consolidation, acquisition, or
reorganization, invest in the securities of other investment companies,
including investment companies advised by the Manager, if, immediately
after such purchase or acquisition, more than 10% of the value of the
Fund's total assets would be invested in such securities.
e) Invest in securities of an issuer that, together with any predecessor, has
been in operation for less than three years if, as a result, more than 5%
of the total assets of the Fund would then be invested in such securities.
f) Purchase warrants, valued at the lower of cost or market, in excess of 10%
of the Fund's net assets. Included in that amount but not to exceed 2% of
net assets, are warrants whose underlying securities are not traded on
principal domestic or foreign exchanges. Warrants acquired by the Fund in
units or attached to securities are not subject to these restrictions.
g) Invest in oil, gas or other mineral exploration or development programs or
leases.
h) 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.
i) 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.
j) Purchase the securities of any issuer if, to the knowledge of the Fund's
management, those officers and directors of the Fund and of its investment
advisor, who each own beneficially more than 0.5% of the outstanding
securities of such issuer, together own more than 5% of such issuer's
securities.
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 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 appearing in the Prospectuses. 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 3:00 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),
Presidents' Day, Good 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 FUND. Securities held by the Money Market Fund 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 of 1940. 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. As an operating policy, the
Money Market Fund maintains a dollar-weighted average maturity of 60 days or
less.
The Board of Trustees has established procedures designed to stabilize the
Money Market Fund's NAV at $1.00 per share to the extent reasonably possible.
These procedures require the Trust's Chief Financial Officer to notify the
Trustees immediately if, at any time, the Money Market Fund's weighted average
maturity exceeds 60 days, or its NAV, as determined by using available market
quotations, deviates from its amortized cost per share by .25% or more. If such
deviation exceeds .40%, a meeting of the Board of Trustees' audit committee will
be called to consider what actions, if any, should be taken. If such deviation
exceeds .50%, the Trust's Chief Financial Officer is instructed to adjust daily
dividend distributions immediately to the extent necessary to reduce the
deviation to .50% or lower and to call a meeting of the Board of Trustees to
consider further action.
Actions the Board of Trustees may consider under these circumstances
include, but are not limited to: (a) selling portfolio securities prior to
maturity, (b) withholding dividends or distributions from capital, (c)
authorizing a one-time dividend adjustment, (d) discounting share purchases and
initiating redemptions in kind, or (e) valuing portfolio securities at market
for purposes of calculating NAV.
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.
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. The Funds' share price, yield, and return will
vary with changing market conditions.
For the MONEY MARKET FUND, 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
For the seven-day period ended November 30, 1996, the Money Market Fund's
yield was 2.96%, and its effective yield was 3.01 %.
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.
For the 30-day period ended Novermber 30, 1996, the Intermediate-Term
Fund's yield was 4.08%, and the Long-Term Fund's yield was 4.70%. For the 30-day
period ended October 31, 1996, the Limited-Term Fund's yield was 3.69%
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 Limited-Term Fund's average annual total returns for the one-year and
life-of-fund period ended October 31, 1996 are 4.26% and 4.23%, respectively.
The inception date of the Limited-Term Fund is March 1, 1993.
The remaining Funds' average annual total returns for the one-year,
five-year, ten-year and life-of-fund periods ended November 30, 1996, are
indicated in the following table.
Fund One Year Five Year Ten Year Life of Fund*
- -----------------------------------------------------------------------------
Money Market Fund 3.00% 2.62% 3.80% ____%
Intermediate-Term Fund 4.93% 6.51% 6.48% ____%
Long-Term Fund 4.62% 7.94% 6.82% ____%
- -----------------------------------------------------------------------------
*Commencement of Operations July 31, 1984.
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 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 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.
As of May 31, 1996, the Intermediate-Term Fund and Long-Term Fund had
capital loss carryovers of $420,126 and $427,920, respectively. No future
capital gain distributions will be made by either Fund until the loss carryover
has been offset or has expired. For the Intermediate-Term Fund, the capital loss
carryovers of $382,614 and $37,512 expire May 31, 2003 and May 31, 2004,
respectively. For the Long-Term Fund, the capital loss carryovers of $330,926
and $96,994 expire May 31, 2003 and May 31, 2004, respectively.
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.
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.
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 nine series of the
Trust. American Century-Benham Tax-Free Money Market Fund (formerly known as
"Benham National Tax-Free Money Market Fund"), American Century-Benham
Intermediate-Term Tax-Free Fund (formerly known as "Benham National Tax-Free
Intermediate-Term Fund"), American Century-Benham Limited-Term Tax-Free Fund and
American Century-Benham Long-Term Tax-Free Fund (formerly known as "Benham
National Tax-Free Long-Term Fund") are described in this Statement of Additional
Information. The Board of Trustees may create additional series from time to
time.
The Declaration of Trust permits the Board of Trustees to issue an
unlimited number of full and fractional shares of beneficial interest without
par value, which may be issued in series (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 BANK: 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 the Funds'
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, serve as the Trust's independent auditors and
provides services including the audit of the annual financial statements.
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 of 1940) by virtue of, among other considerations, their affiliation
with either the Trust; the Trust's investment advisor, Benham Management
Corporation or American Century Investment Management, Inc. with respect to the
Limited-Term Fund; 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 corporation,
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. Ropeke is 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 an
independent Director of each of Commercial Metals Co. (1982), Sungard Data
Systems (1991) and Business Objects S/A (1994). Previously, he served as Vice
President of Corporate Development and Corporate Secretary of Apple Computer
and served on its Board of Directors (1985 to 1993).
RONALD J. GILSON, independent Trustee (1995); Charles J. Meyers Professor
of Law and Business at Stanford Law School (1979) and the Mark and Eva Stern
Professor of Law and Business at Columbia University School of Law (1992);
counsel to Marron, Reid & Sheehy (a San Francisco law firm, 1984).
MYRON S. SCHOLES, independent Trustee (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 President, Chief
Executive Officer and Director of ACC, 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); Executive Vice
President, Chief Operating Officer, General Counsel and Secretary of the
Manager, ACS, and ACIS.
*DOUGLAS A. PAUL, Secretary (1988), Vice President (1990), and General
Counsel (1990); Secretary and Vice President of the funds advised by the
Manager.
*C. JEAN WADE, Controller (1996).
*MARYANNE ROEPKE, CPA, Chief Financial Officer and Treasurer (1995); Vice
President and Assistant Treasurer of ACS.
For the fiscal year ended, October 31, 1996 the table below indicates the
amounts that the Limited-Term Fund paid its Directors as an investment portfolio
in American Century Mutual Funds, Inc., (the "corporation") registered
investment company.
Aggregate Total Compensation from
Compensation the American Century
Director from the corporation1 Family of Funds2
================================================================================
Thomas A. Brown $40,880.74 $45,000
Robert W. Doering, MD. 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. Urie3 41,179.13 37,167
Del Hock3 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 next page summarizes the compensation that the Trustees of
the Funds (with the exception of the Limited-Term Fund) received for the Funds'
fiscal year ended May 31, 1996, as well as the compensation received for serving
as a Director or Trustee of all other funds advised by Benham Management
Corporation.
As of February 28, 1997, the Trust's Officer's and Trustees, as a group,
owned less than 1% of each Fund's total shares outstanding.
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION FOR THE FISCAL YEAR ENDED MAY 31, 1996
Aggregate Pension or Retirement Estimated Total Compensation
Name of Compensation Benefits Accrued As Part Annual Benefits From Fund and Fund
Trustee* From The Fund of Fund Expenses Upon Retirement Complex** Paid to Trustees
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Albert Eisenstat $ 78 (Money Market) Not Applicable Not Applicable $47,750
56 (Intermediate-Term)
47 (Long-Term)
Ronald J. Gilson $473 (Money Market) Not Applicable Not Applicable $97,333
432 (Intermediate-Term)
412 (Long-Term)
Myron S. Scholes $479 (Money Market) Not Applicable Not Applicable $69,750
435 (Intermediate-Term)
414 (Long-Term)
Kenneth E. Scott $543 (Money Market) Not Applicable Not Applicable $78,273
480 (Intermediate-Term)
452 (Long-Term)
Ezra Solomon $575 (Money Market) Not Applicable Not Applicable $68,499
458 (Intermediate-Term)
414 (Long-Term)
Isaac Stein $486 (Money Market) Not Applicable Not Applicable $71,500
441 (Intermediate-Term)
420 (Long-Term)
Jeanne D. Wohlers $504 (Money Market) Not Applicable Not Applicable $73,750
453 (Intermediate-Term)
429 (Long-Term)
- --------------------------------------------------------------------------------------------------------------------------------
* Interested Trustees receive no compensation for their services as such.
** American Century family of funds includes nearly 70 no-load mutual funds.
</TABLE>
INVESTMENT ADVISORY SERVICES
Each Fund with the exception of the Limited-Term Fund has an investment
advisory agreement with Benham Management Corporation dated June 1, 1995, that
was approved by shareholders on May 31, 1995. The Limited-Term Fund has an
investment management agreement with American Century Investment Management
Inc., (ACIM) dated ______, 1997.
Benham Management Corporation is a California corporation and became a
wholly owned subsidiary of ACC on June 1, 1995. Benham Management Corporation
has served as investment advisor to the Funds with the exception of the
Limited-Term Fund since each Fund's inception. ACC is a holding company that
owns all of the stock of the operating companies that provide the investment
management, transfer agency, shareholder service, and other services for the
American Century funds. James E. Stowers, Jr., controls ACC by virtue of his
ownership of a majority of its common stock. Benham Management Corporation has
been a registered investment advisor since 1971.
Each Fund's agreement with the Manager continues for an initial period of
two years and thereafter from year to year provided that, after the initial two
year period, it is approved at least annually by vote of a majority of the
Fund's shareholders or by vote of a majority of the Funds' Trustees, including a
majority of those Trustees who are neither parties to the agreement nor
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval.
Each investment agreement is terminable on sixty days' written notice,
either by the Fund or by the Manager, to the other party, and terminates
automatically in the event of its assignment.
Pursuant to the investment agreements, the Manage provides the Funds with
investment advice and portfolio management services in accordance with each
Fund's investment objectives, policies, and restrictions. The Manager determines
what securities will be purchased and sold by the Funds and assist the Trust's
officers in carrying out decisions made by the Board of Trustees.
For these services, each Fund (with the exception of the Limited-Term Fund)
pays the Manager a monthly investment advisory fee based on a percentage of the
Trust's average daily net assets to the following investment advisory fee
schedule:
.50% of the first $100 million;
.45% of the next $100 million;
.40% of the next $100 million;
.35% of the next $100 million;
.30% of the next $100 million;
.25% of the next $1 billion;
.24% of the next $1 billion;
.23% of the next $1 billion;
.22% of the next $1 billion;
.21% of the next $1 billion;
.20% of the next $1 billion; and
.19% of average daily net assets over $6.5 billion.
The Manager of the Limited-Term Fund pays all the Fund's expenses except
brokerage, taxes, interest, fees and expenses of the non-interested person
Trustees (including counsel fees) and extraordinary expenses.
For the services provided to the Limited-Term Fund, the Manager
receives an annual fee which is computed at 0.55% of average net assets of the
Fund. The rate at which this fee is assessed is determined annually in a
two-step process: First, a fee rate schedule is applied to the assets of all of
the bond funds managed by the Manager (the "Investment Category Fee"). Second, a
separate fee rate schedule is applied to the assets of all of the mutual funds
managed by the Manager (the "Complex Fee"). The Investment Category Fee and the
Complex Fee are then added to determine the annual fee payable by the
Limited-Term Fund to the Manager. For the current fiscal year, the Investment
Category Fee is 0.25% of average net assets of the Limited-Term Fund. The
Complex Fee is 0.30% of the average net assets of the Limited-Term Fund. The
computation of these fees is described below.
Calculation of the Investment Category Fee
The Investment Category Fee is calculated based the following schedule:
Investment Category Fee Schedule (Limited-Term Fund)
Investment Category Assets Under Management Fee Rate
First $1 billion 0.3100%
Next $1 billion 0.2580%
Next $3 billion 0.2280%
Next $5 billion 0.2080%
Next $15 billion 0.1950%
Next $25 billion 0.1930%
Assets greater than $50 billion 0.1925%
The calculation of the Investment Category Fee is based on applying the
schedule above to the assets of the funds managed by the Manager within its
Investment Category. There are three Investment Categories: Bond Funds, Equity
Funds and Money Market Funds. The funds included within an Investment Category
are all of the open-end investment companies managed by the Manager and
distributed by American Century Investment Services, Inc. Private label funds
and non-investment company clients are excluded from the asset base for
calculation of the fees for the funds.
To calculate a particular fund's fee, the fund's Investment Category Fee
schedule is applied to the total assets within the Investment Category. The
fund's fee is its pro rata share of the resulting fee.
Calculation of the Complex Fee
The Complex Fee is calculated based on the following schedule:
Complex Assets Under Management 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%
Assets greater than $1,250.0 billion 0.2900%
The calculation of the Investment Category Fee is based on applying the
schedule above to the assets of all of the funds managed by the Manager in the
three Fund Type categories. To calculate a particular fund's Complex Fee, the
Complex Fee schedule is applied to the total complex assets. The fund's fee is
its pro rata share of the resulting fee.
On the first business day of each month, the Limited-Term Fund pays a
management fee to the Manager for the previous month at the specified annual
rate. The fee for the previous month is calculated by multiplying the applicable
fee for the Limited-Term Fund by the aggregate average daily closing value of
the 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).
Investment advisory fees paid by each of the remaining Funds in the Trust
to the Manager for the fiscal periods ended May 31, 1996, 1995, and 1994 are
indicated in the following table.
Fee amounts are net of amounts reimbursed or recouped as described under the
section titled "Expense Limitation Agreement."
Investment Advisory Fees (net of reimbursements)
- -----------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
- -----------------------------------------------------------------------------
Money Market Fund $331,599 $367,683 $397,311
Intermediate-Term Fund 262,048 234,926 275,656
Long-Term Fund 197,247 165,409 218,160
- -----------------------------------------------------------------------------
TRANSFER AND ADMINISTRATIVE SERVICES
American Century Services Corporation, 4500 Main Street, Kansas City,
Missouri, 64111, (ACS) acts as transfer, administrative services and dividend
paying agent for the Funds. ACS provides facilities, equipment and personnel to
the Funds and is paid for such services by the Funds with the exception of the
Limited-Term Fund. For the Limited-Term Fund, the Manager pays for such
services. For administrative services, each Fund (except the Limited-Term Fund)
pays ACS a monthly fee equal to its pro rata share of the dollar amount derived
from applying the average daily net assets of all of the Funds advised by the
Manager to the following administrative fee rate schedule:
Group Assets Administrative Fee Rate
- -----------------------------------------------------------------------------
up to $4.5 billion .11%
up to $6 billion .10
up to $9 billion .09
over $9 billion .08
- -----------------------------------------------------------------------------
For transfer agent services, each Fund (except the Limited-Term Fund) pays
ACS a monthly fee of $1.3958 for each shareholder account maintained and $1.35
for each shareholder transaction executed during the month.
Administrative service and transfer agent fees paid by each Fund (except
for the Limited-Term Fund) for the fiscal years ended May 31, 1996, 1995, and
1994, are indicated in the following tables. Fee amounts are net of
reimbursements as described under the section titled "Expense Limitation
Agreement."
Administrative Fees
- -----------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
- -----------------------------------------------------------------------------
Money Market Fund $88,675 $103,791 $104,485
Intermediate-Term Fund 61,997 65,398 73,292
Long-Term Fund 49,774 49,352 59,711
- -----------------------------------------------------------------------------
Transfer Agent Fees
- -----------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
- -----------------------------------------------------------------------------
Money Market Fund $66,117 $65,409 $79,424
Intermediate-Term Fund 45,624 51,377 54,899
Long-Term Fund 41,782 43,687 46,314
- -----------------------------------------------------------------------------
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 offered by this Prospectus. The Funds do not pay any commissions or other
fees to the Distributor or to any other broker-dealers or financial
intermediaries in connection with the distribution of Fund shares.
DIRECT FUND EXPENSES
Each Fund (with the exception of the Limited-Term Fund) pays certain
operating expenses that are not assumed by the Manager or ACS. These include
fees and expenses of the independent Trustees; custodian, audit, tax preparation
and pricing fees; fees of outside counsel and counsel employed directly by the
Trust; costs of printing and mailing prospectuses, statements of additional
information, proxy statements, notices, confirmations, and reports to
shareholders; fees for registering the Fund's shares under federal and state
securities laws; brokerage fees and commissions; trade association dues; costs
of fidelity and liability insurance policies covering the Fund; costs for
incoming WATS lines maintained to receive and handle shareholder inquiries; and
organizational costs. The Manager pays all expenses of the Limited-Term Fund
except brokerage, taxes, interest, fees and expenses of the non-interested
person Trustees (including counsel fees) and extraordinary expenses.
EXPENSE LIMITATION AGREEMENT
The Manager may recover amounts (representing expenses in excess of the
contractual limit) reimbursed to the Funds with the exception of the
Limited-Term Fund during the preceding 11 months if, and to the extent that, for
any given month, a Funds' expenses were less than the lower of the contractual
or voluntary expense limit in effect at that time. The expense limit is subject
to annual renewal. The Manager has agreed to limit each Fund's expenses to a
specified percentage of average daily net assets until May 31, 1997, as listed
below.
1997 1996
Fund Expense Limit Expense Limit
- -----------------------------------------------------------------------------
Money Market Fund .67% .64%
Intermediate-Term Fund .67% .69%
Long-Term Fund .67% .69%
- -----------------------------------------------------------------------------
Net expense limitations/recoupments for the fiscal years ended May 31,
1996, 1995, and 1994 are indicated in the table that follows.
Net Expense Limitations (Recoupments)
- -----------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
- -----------------------------------------------------------------------------
Money Market
Fund $76,481 $88,328 $93,387
Intermediate-
Term Fund 23,199 69,263 68,582
Long-Term Fund 31,698 64,101 62,290
- -----------------------------------------------------------------------------
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 February 28, 1997, to the knowledge of the Trust, the shareholders
listed in the chart below were record holders of 5% or more of the outstanding
shares of the individual Funds.
FUND MONEY MARKET FUND
- -----------------------------------------------------------------------------
Ellen Haebler Skove
Shareholder Name and 48 Card Sound Road
Address Key Largo, FL 33037
- -----------------------------------------------------------------------------
# of Shares Held 4,813,318
- -----------------------------------------------------------------------------
% of Total Shares
Outstanding 5.5%
- -----------------------------------------------------------------------------
FUND INTERMEDIATE-TERM FUND
- -----------------------------------------------------------------------------
Charles Schwab & Co.
Shareholder Name and 101 Montgomery Street
Address San Francisco, CA 94101
- -----------------------------------------------------------------------------
# of Shares Held 737,838
- -----------------------------------------------------------------------------
% of Total Shares
Outstanding 12.9%
- -----------------------------------------------------------------------------
FUND LONG-TERM FUND
- -----------------------------------------------------------------------------
Charles Schwab & Co.
Shareholder Name and 101 Montgomery Street
Address San Francisco, CA 94101
- -----------------------------------------------------------------------------
# of Shares Held 730,055
- -----------------------------------------------------------------------------
% of Total Shares
Outstanding 15.5%
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
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.
MUNICIPAL SECURITIES RATINGS
Securities rating descriptions provided under this heading are excerpted
from publications of Moody's Investors Service, Inc. and Standard & Poor's
Corporation.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
MUNICIPAL BOND RATINGS:
Aaa: Bonds that are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds that are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group, they constitute what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present that make long-term risks appear somewhat larger than in Aaa securities.
A: Bonds that are rated "A" possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds that are rated "Baa" are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba: Bonds that are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times in the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds that are rated "B" generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be limited.
Caa: Bonds that are rated "Caa" are of poor standing. Such issues may be
in default, or there may be elements of danger present with respect to
principal or interest.
Ca: Bonds that are rated "Ca" represent obligations that are speculative
to a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds that are rated "C" are the lowest-rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Moody's may apply the numerical modifier "1" for municipally backed
bonds and modifiers "1," "2," and "3" for corporate-backed municipal bonds. The
modifier "1" indicates that the security ranks in the higher end of its generic
rating category; the modifier "2" indicates a mid-range ranking, and the
modifier "3" indicates that the issue ranks in the lower end of its generic
rating category.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S RATINGS OF NOTES AND
VARIABLE-RATE DEMAND OBLIGATIONS:
Moody's ratings for state and municipal short-term obligations are
designated Moody's Investment Grade or MIG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable-rate demand obligations) are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than on fixed maturity dates and payments
relying on external liquidity.
MIG 1/VMIG 1: This designation denotes best quality. There is strong
protection present through established cash flows, superior liquidity support,
or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This denotes high quality. Margins of protection are ample,
although not as large as in the preceding group.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
TAX-EXEMPT COMMERCIAL PAPER RATINGS:
Moody's commercial paper ratings are opinions of the ability of issuers to
punctually repay those promissory obligations that have an original maturity not
exceeding nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act of 1933, nor does it represent
that any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. The following designations, all judged to be
investment grade, indicate the relative repayment ability of rated issuers of
securities in which the Funds may invest.
PRIME 1: Issuers rated "Prime 1" (or supporting institutions) have a
superior ability for repayment of senior short-term promissory obligations.
PRIME 2: Issuers rated "Prime 2" (or supporting institutions) have a strong
ability for repayment of senior short-term promissory obligations.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S RATINGS FOR MUNICIPAL BONDS:
INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in a small degree.
A: Debt rated "A" has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
SPECULATIVE
BB, B, CCC, CC: Debt rated in these categories is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions that could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B: Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
CCC: Debt rated "CCC" has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC: The rating "CC" typically is applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" debt rating.
C: The "C" rating is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
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."
P.O. Box 419200
Kansas City, Missouri
64141-6200
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
Fax: 816-340-7962
Internet: www.americancentury.com
[american century logo]
American
Century(sm)
9701 [recycled logo]
SH-BKT-6748 Recycled
<PAGE>
AMERICAN CENTURY MUNICIPAL TRUST
1933 Act Post-Effective Amendment No. 19
1940 Act Amendment No. 20
- --------------------------------------------------------------------------------
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 - Limited-Term Tax-Free Fund, for the fiscal year
ended May 31, 1996, are filed herein as included in the Trust's
Statement of Additional Information by reference to the Annual
Report dated May 31, 1996, filed on July 25, 1996 (Accession #
0000746458-96-000011).
(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
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) a) Investment Advisory Agreement between American Century Municipal
Trust on behalf of all of its series, except American Century -
Benham Limited-Term Tax-Free Fund, and Benham Management Corporation
dated June 1, 1995, is incorporated herein by reference to Exhibit 5
of Post-Effective Amendment No. 17 filed on June 28, 1996 (Accession
# 746458-96-000009).
b) Investment Management Agreement between American Century - Benham
Limited-Term Tax-Free Fund and American Century Investment
Management, Inc., dated -----, 1997 is to be filed by amendment.
(6) Distribution Agreement between American Century Municipal Trust and
American Century Investment Services, Inc. dated as of September 3,
1996, is incorporated herein by reference to Exhibit 6 of
Post-Effective Amendment No. 30 to the Registration Statement of the
Benham Government Income Trust filed on November 25, 1996 (Accession
# 773674-96-000009).
(7) Not applicable.
(8) Custodian Agreement between American Century Municipal Trust and The
Chase Manhattan Bank dated August 9, 1996 is incorporated herein by
reference to Exhibit 8 to Post Effective Amendment No. 31 of
American Century Government Income Trust filed on February 7, 1997
(Accession # 773674-97-000002).
(9) Administrative Services and Transfer Agency Agreement between
American Century Municipal Trust and American Century Services,
Corporation dated as of September 3, 1996,. is incorporated herein
by reference to Exhibit 9 of Post-Effective Amendment No. 30 to the
Registration Statement of the American Century Government Income
Trust filed on November 25, 1996 (Accession # 773674-96-000009).
(10)Opinion and consent of counsel as to the legality of the securities
being registered, dated July 17, 1996 is incorporated herein by
reference to Rule 24f-2 Notice filed on July 17, 1996 (Accession #
0000746458-96-000010).
(11)Consent of KPMG Peat Marwick, independent auditors, is to be filed
by amendment.
(12)Not applicable.
(13)Not applicable.
(14)Not applicable.
(15)Not applicable.
(16)Schedule for computation of each performance quotation provided in
response to Item 22 is incorporated herein by reference to Exhibit
16 of Post-Effective Amendment No. 18 filed on September 3, 1996
(Accession # 0000746458-96-000013).
(17)Power of Attorney dated March 4, 1996 is incorporated herein by
reference to Exhibit 17 of Post-Effective Amendment No. 17 filed on
June 28, 1996 (Accession # 0000746458-96-000009).
Item 25. Persons Controlled by or Under Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
As of January 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 1,611
American Century - Benham Long-Term Tax-Free Fund 1,372
American Century - Benham Florida Municipal Money Market Fund 1,209
American Century - Benham Florida Intermediate-Term Municipal Fund 335
American Century - Benham Arizona Intermediate-Term Municipal Fund 653
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.
Benham Management Corporation, the investment advisor to each of the
Registrant's Funds, with the exception of American Century - Benham Limited-Term
Tax-Free Fund, provides investment advisory services for various collective
investment vehicles and institutional clients and serves as investment advisor
to a number of open-end investment companies. American Century Investment
Management, Inc., the investment advisor to American Century - Benham
Limited-Term Tax-Free Fund, 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, TCI
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.
Benham Management Corporation, the investment advisor to each of the
Registrant's Funds, with the exception of American Century - Benham Limited-Term
Tax-Free Fund, maintains its principal office at 1665 Charleston Road, Mountain
View, CA 94043. 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 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.
<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. 19/Amendment No. 20 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, and State of
California, on the 12th day of March, 1997.
AMERICAN CENTURY MUNICIPAL TRUST
By: /s/ Douglas A. Paul
Douglas A. Paul
Vice President and Associate General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 19/Amendment No. 20 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, March 12, 1997
- --------------------------------- President, and
James M. Benham Chief Executive Officer
* Trustee March 12, 1997
- ---------------------------------
Albert A. Eisenstat
* Trustee March 12, 1997
- ---------------------------------
Ronald J. Gilson
* Trustee March 12, 1997
- ---------------------------------
Myron S. Scholes
* Trustee March 12, 1997
- ---------------------------------
Kenneth E. Scott
* Trustee March 12, 1997
- ---------------------------------
Isaac Stein
* Trustee March 12, 1997
- ---------------------------------
James E. Stowers III
* Trustee March 12, 1997
- ---------------------------------
Jeanne D. Wohlers
* Chief Financial Officer, Treasurer March 12, 1997
- ---------------------------------
Maryanne Roepke
</TABLE>
/s/ Douglas A. Paul
*by Douglas A. Paul, Attorney in Fact (pursuant to a Power of Attorney dated
March 4, 1996).
EXHIBIT DESCRIPTION
EX-99.B1 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
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 a) Investment Advisory Agreement between American Century Municipal
Trust on behalf of all of its series, except American Century -
Benham Limited-Term Tax-Free Fund, and Benham Management Corporation
dated June 1, 1995, is incorporated herein by reference to Exhibit 5
of Post-Effective Amendment No. 17 filed on June 28, 1996 (Accession
# 746458-96-000009).
b) Investment Management Agreement between American Century - Benham
Limited-Term Tax-Free Fund and American Century Investment
Management, Inc., dated -----, 1997 is to be filed by amendment.
EX-99.B6 Distribution Agreement between Benham Municipal Trust and American
Century Investment Services, Inc. dated as of September 3, 1996, is
incorporated herein by reference to Exhibit 6 of Post-Effective
Amendment No. 30 to the Registration Statement of the Benham
Government Income Trust filed on November 25, 1996 (Accession #
773674-96-000009).
EX-99.B8 Custodian Agreement between American Century Municipal Trust and The
Chase Manhattan Bank dated August 9, 1996 is incorporated herein by
reference to Exhibit 8 to Post Effective Amendment No. 31 of
American Century Government Income Trust filed on February 7, 1997
(Accession # 773674-97-000002).
EX-99.B9 Administrative Services and Transfer Agency Agreement between
American Century Municipal Trust and American Century Services,
Corporation dated as of September 3, 1996,. is incorporated herein
by reference to Exhibit 9 of Post-Effective Amendment No. 30 to the
Registration Statement of the American Century Government Income
Trust filed on November 25, 1996 (Accession # 773674-96-000009).
EX-99.B10 Opinion and consent of counsel as to the legality of the securities
being registered, dated July 17, 1996 is incorporated herein by
reference to Rule 24f-2 Notice filed on July 17, 1996 (Accession #
0000746458-96-000010).
EX-99.B11 Consent of KPMG Peat Marwick, independent auditors, is to be filed
by amendment.
EX-99.B16 Schedule for computation of each performance quotation provided in
response to Item 22 is incorporated herein by reference to Exhibit
16 of Post-Effective Amendment No. 18 filed on September 3, 1996
(Accession # 0000746458-96-000013).
EX-99.B17 Power of Attorney dated March 4, 1996 is incorporated herein by
reference to Exhibit 17 of Post-Effective Amendment No. 17 filed on
June 28, 1996 (Accession # 0000746458-96-000009).
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.
AMENDMENT
TO THE
DECLARATION OF TRUST
OF
BENHAM MUNICIPAL TRUST
October 21, 1996
WHEREAS, Section 1 of Article I of the Declaration of Trust provides
that the Trustees may designate a new name for the Trust, or any Series, to be
effective upon execution by a majority of the Trustees of an instrument setting
forth the new names;
WHEREAS, the Trustees have determined that it is appropriate and in the
interests of the Trust to change the name of the Trust and its Series as set
forth below;
RESOLVED, that the Trust shall henceforth be known as the "American
Century Municipal Trust";
RESOLVED FURTHER, that the existing Series be renamed as follows (new
language appears in boldface type, deleted language is struck through):
<TABLE>
Former Name New Name
- ------------------------------------------------------------ ------------------------------------------------------------------
- ------------------------------------------------------------ ------------------------------------------------------------------
<S> <C>
Benham Arizona Municipal Intermediate-Term Fund American Century - Benham Arizona Intermediate-Term Municipal Fund
- ------------------------------------------------------------ ------------------------------------------------------------------
- ------------------------------------------------------------ ------------------------------------------------------------------
Benham Florida Municipal Money Market Fund American Century - Benham Florida Municipal Money Market Fund
- ------------------------------------------------------------ ------------------------------------------------------------------
- ------------------------------------------------------------ ------------------------------------------------------------------
Benham Florida Municipal Intermediate-Term Fund American Century - Benham Florida Intermediate-Term Municipal Fund
- ------------------------------------------------------------ ------------------------------------------------------------------
- ------------------------------------------------------------ ------------------------------------------------------------------
Benham National Tax-Free Money Market Fund American Century - Benham Tax-Free Money Market Fund
- ------------------------------------------------------------ ------------------------------------------------------------------
- ------------------------------------------------------------ ------------------------------------------------------------------
Benham National Tax-Free Intermediate-Term Fund American Century - Benham Intermediate-Term Tax-Free Fund
- ------------------------------------------------------------ ------------------------------------------------------------------
- ------------------------------------------------------------ ------------------------------------------------------------------
Benham National Tax-Free Long-Term Fund American Century - Benham Long-Term Tax-Free Fund
- ------------------------------------------------------------ ------------------------------------------------------------------
TRUSTEES OF THE BENHAM MUNICIPAL TRUST
/s/ James M. Benham 10/21/96 /s/ Ezra Solomon 10/21/96
- ---------------------------------------- ------------- ---------------------------------------- --------
James M. Benham* Date Ezra Solomon* Date
/s/ Albert A. Eisenstat 10/21/96 /s/ Isaac Stein 10/21/96
- ---------------------------------------- ------------- ---------------------------------------- --------
Albert A. Eisenstat* Date Isaac Stein* Date
/s/ Ronald J. Gilson 10/21/96 /s/ James E. Stowers III 10/21/96
- ---------------------------------------- ------------- ---------------------------------------- --------
Ronald J. Gilson* Date James E. Stowers III* Date
/s/ Myron S. Scholes 10/21/96 /s/ Jeanne D. Wohlers 10/21/96
- ---------------------------------------- ------------- ---------------------------------------- --------
Myron S. Scholes* Date Jeanne D. Wohlers* Date
/s/ Kenneth E. Scott 10/21/96
- ---------------------------------------- --------
Kenneth E. Scott* Date
*By: /s/Douglas A Paul Date: October 21, 1996
-----------------
Douglas A. Paul, Esq.
Pursuant to Power of Attorney dated March 4, 1996
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> TAX-FREE MONEY MARKET
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 90155958
<INVESTMENTS-AT-VALUE> 90155958
<RECEIVABLES> 1157861
<ASSETS-OTHER> 513032
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 91826851
<PAYABLE-FOR-SECURITIES> 635148
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74071
<TOTAL-LIABILITIES> 709219
<SENIOR-EQUITY> 911176320
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 91117632
<SHARES-COMMON-PRIOR> 92034098
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 91117632
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3466489
<OTHER-INCOME> 0
<EXPENSES-NET> 588310
<NET-INVESTMENT-INCOME> 2878179
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2878179
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2878179
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 93328673
<NUMBER-OF-SHARES-REDEEMED> 96996191
<SHARES-REINVESTED> 2751052
<NET-CHANGE-IN-ASSETS> (916466)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 408080
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 675725
<AVERAGE-NET-ASSETS> 91764156
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.03
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> FLORIDA MUNICIPAL MONEY MARKET
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 98779263
<INVESTMENTS-AT-VALUE> 98779263
<RECEIVABLES> 845549
<ASSETS-OTHER> 395070
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100022913
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29849
<TOTAL-LIABILITIES> 29849
<SENIOR-EQUITY> 999930640
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 99993064
<SHARES-COMMON-PRIOR> 45146823
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 99993064
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2956034
<OTHER-INCOME> 0
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<NET-INVESTMENT-INCOME> 2956034
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2956034
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2956034
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 196163359
<NUMBER-OF-SHARES-REDEEMED> 144204430
<SHARES-REINVESTED> 2887312
<NET-CHANGE-IN-ASSETS> 54846241
<ACCUMULATED-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 555823
<AVERAGE-NET-ASSETS> 78668414
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> INTERMEDIATE-TERM TAX-FREE
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 59729612
<INVESTMENTS-AT-VALUE> 61449665
<RECEIVABLES> 2076251
<ASSETS-OTHER> 725
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 63526641
<PAYABLE-FOR-SECURITIES> 451944
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 174598
<TOTAL-LIABILITIES> 626542
<SENIOR-EQUITY> 59012820
<PAID-IN-CAPITAL-COMMON> 2604883
<SHARES-COMMON-STOCK> 5901282
<SHARES-COMMON-PRIOR> 6059652
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (437657)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1720053
<NET-ASSETS> 62900099
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3491064
<OTHER-INCOME> 0
<EXPENSES-NET> 443620
<NET-INVESTMENT-INCOME> 3047444
<REALIZED-GAINS-CURRENT> 346493
<APPREC-INCREASE-CURRENT> (671581)
<NET-CHANGE-FROM-OPS> 2722356
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3047444
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12956225
<NUMBER-OF-SHARES-REDEEMED> 16958622
<SHARES-REINVESTED> 2324043
<NET-CHANGE-IN-ASSETS> (2003442)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (784150)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 285247
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 470878
<AVERAGE-NET-ASSETS> 64372282
<PER-SHARE-NAV-BEGIN> 10.71
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> (0.05)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.52
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.66
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> FLORIDA INTERMEDIATE-TERM MUNICIPAL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 9840698
<INVESTMENTS-AT-VALUE> 9970405
<RECEIVABLES> 148678
<ASSETS-OTHER> 215935
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10335018
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16185
<TOTAL-LIABILITIES> 16185
<SENIOR-EQUITY> 10132940
<PAID-IN-CAPITAL-COMMON> 17116
<SHARES-COMMON-STOCK> 1013294
<SHARES-COMMON-PRIOR> 925317
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 39070
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 129707
<NET-ASSETS> 10318833
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 546569
<OTHER-INCOME> 0
<EXPENSES-NET> 13603
<NET-INVESTMENT-INCOME> 532966
<REALIZED-GAINS-CURRENT> 60069
<APPREC-INCREASE-CURRENT> (154774)
<NET-CHANGE-FROM-OPS> 438261
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 532966
<DISTRIBUTIONS-OF-GAINS> 43635
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7316860
<NUMBER-OF-SHARES-REDEEMED> 6794465
<SHARES-REINVESTED> 408119
<NET-CHANGE-IN-ASSETS> 787174
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 22636
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 46704
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 93069
<AVERAGE-NET-ASSETS> 10546180
<PER-SHARE-NAV-BEGIN> 10.30
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> (0.08)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.56
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> ARIZONA INTERMEDIATE-TERM MUNICIPAL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 24578446
<INVESTMENTS-AT-VALUE> 24884624
<RECEIVABLES> 684910
<ASSETS-OTHER> 711418
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26280952
<PAYABLE-FOR-SECURITIES> 457456
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34528
<TOTAL-LIABILITIES> 491984
<SENIOR-EQUITY> 25003360
<PAID-IN-CAPITAL-COMMON> 492686
<SHARES-COMMON-STOCK> 2500336
<SHARES-COMMON-PRIOR> 1910084
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13256)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 306178
<NET-ASSETS> 25788968
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1162752
<OTHER-INCOME> 0
<EXPENSES-NET> 32219
<NET-INVESTMENT-INCOME> 1130533
<REALIZED-GAINS-CURRENT> 88040
<APPREC-INCREASE-CURRENT> (276781)
<NET-CHANGE-FROM-OPS> 941792
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1130533
<DISTRIBUTIONS-OF-GAINS> 12741
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11716512
<NUMBER-OF-SHARES-REDEEMED> 6389076
<SHARES-REINVESTED> 884795
<NET-CHANGE-IN-ASSETS> 6010749
<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 10.35
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> LONG-TERM TAX-FREE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 47780947
<INVESTMENTS-AT-VALUE> 49493391
<RECEIVABLES> 1918044
<ASSETS-OTHER> 70793
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 51482228
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 100485
<TOTAL-LIABILITIES> 100485
<SENIOR-EQUITY> 45498490
<PAID-IN-CAPITAL-COMMON> 4598729
<SHARES-COMMON-STOCK> 4549849
<SHARES-COMMON-PRIOR> 4123970
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (427920)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1712444
<NET-ASSETS> 51381743
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3058675
<OTHER-INCOME> 0
<EXPENSES-NET> 356696
<NET-INVESTMENT-INCOME> 2701979
<REALIZED-GAINS-CURRENT> 735144
<APPREC-INCREASE-CURRENT> (1549360)
<NET-CHANGE-FROM-OPS> 1887763
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2701979
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 64939756
<NUMBER-OF-SHARES-REDEEMED> 62081385
<SHARES-REINVESTED> 2023443
<NET-CHANGE-IN-ASSETS> 4067598
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1163064)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 228945
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 391419
<AVERAGE-NET-ASSETS> 51743222
<PER-SHARE-NAV-BEGIN> 11.47
<PER-SHARE-NII> 0.61
<PER-SHARE-GAIN-APPREC> (0.18)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.61
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.29
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
