SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
File No. 2-91229
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 26 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
File No. 811-4025
Amendment No. 27 [X]
(Check appropriate box or boxes.)
AMERICAN CENTURY MUNICIPAL TRUST
_________________________________________________________________
(Exact Name of Registrant as Specified in Charter)
4500 Main Street, Kansas City, MO 64111
_________________________________________________________________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (816) 531-5575
David C. Tucker, Esq., 4500 Main Street, Kansas City, MO 64111
_________________________________________________________________
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: September 7, 1999
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
[american century logo(reg.sm)]
American
Century
PROSPECTUS
SEPTEMBER 7, 1999
- --------------------------------------------------------------------------------
FLORIDA MUNICIPAL MONEY MARKET FUND
FLORIDA INTERMEDIATE-TERM MUNICIPAL FUND
ARIZONA INTERMEDIATE-TERM MUNICIPAL FUND
INVESTOR CLASS
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this Prospectus is accurate or complete. Anyone who
tells you otherwise is committing a crime.
Distributed by Funds Distributor, Inc.
Dear Investor,
Reading a prospectus doesn't have to be a chore. We've done the hard work so you
can focus on what's important--learning about the funds. Take a look inside and
you'll see this prospectus is different from others. It takes a clear-cut
approach to fund information.
Here's what you'll find:
o The funds' primary investments and risks
o A description of who may or may not want to invest in the funds
o Fund performance, including returns for each year, best and worst quarters
and average annual returns compared to the funds' benchmarks
o An overview of ways to best manage your accounts
o Helpful tips and definitions of key investment terms
Whether you're a current investor or investing in mutual funds for the first
time, this prospectus will give you a clear understanding of the funds. If you
have questions, our Investor Services Representatives are available weekdays, 7
a.m. to 7 p.m., and Saturdays, 9 a.m. to 2 p.m., Central time. Our toll-free
number is 1-800-345-2021. We look forward to helping you achieve your financial
goals.
Sincerely,
Mark Killen
Senior Vice President
American Century Investment Services, Inc.
TABLE OF CONTENTS
An Overview of the Funds.......................................................2
Fund Performance History.......................................................3
Fees and Expenses..............................................................6
Information about the Funds....................................................7
Florida Municipal Money Market Fund
Florida Intermediate-Term Municipal Fund
Arizona Intermediate-Term Municipal Fund
Basics of Fixed-Income Investing..............................................xx
Management....................................................................xx
Investing with American Century...............................................xx
Share Price and Distributions.................................................xx
Taxes.........................................................................xx
Financial Highlights..........................................................xx
**********LEFT MARGIN CALLOUTS
Throughout this book you'll find definitions to key investment terms and
phrases. When you see a word printed in GREEN ITALICS, look for its definition
in the left margin.
o........This symbol highlights special information and helpful tips.
**********END LEFT MARGIN CALLOUTS
AN OVERVIEW OF THE FUNDS
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
These funds seek high current income and investment returns that are exempt from
regular federal income tax and taxes imposed by Florida or Arizona.
WHAT ARE THE FUNDS' PRIMARY INVESTMENT STRATEGIES AND PRINCIPAL RISKS?
The funds invest most of their assets in DEBT SECURITIES issued by cities,
counties and other municipalities and U.S. territories. Each of the funds
invests in different types of these municipal debt securities and involves
different risks. The chart below shows the primary differences among the funds.
A more detailed description about the funds' investment strategies and risks
begins on page 7.
<TABLE>
Fund Primary Investments Primary Risks
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Florida Municipal Money High-quality, very short-term debt securities Florida economic risk
Market Some credit risk
Florida Intermediate-Term Quality debt securities that mature in one Florida economic risk
Municipal to five years Credit risk
Interest rate risk
Arizona Intermediate-Term Quality debt securities that mature in four Arizona economic risk
Municipal or more years Credit risk
Interest rate risk
</TABLE>
WHO MAY WANT TO INVEST IN THE FUNDS?
The funds may be a good investment if you are
o a Florida or Arizona resident or taxpayer
o seeking current tax-free income
o comfortable with risk based on Florida's or Arizona's economy
o comfortable with the funds' other investment risks
o seeking diversification by investing in a fixed-income mutual fund
WHO MAY NOT WANT TO INVEST IN THE FUNDS?
The funds may not be a good investment if you are
o investing in a IRA or other tax-advantaged retirement plan
o investing for long-term growth
o looking for the added security of FDIC insurance
**********LEFT MARGIN CALLOUTS
DEBT SECURITIES include fixed-income investments such as notes, bonds,
commercial paper and debentures.
o An investment in the funds is not a bank deposit, and it is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. Although the Florida Money Market Fund seeks to preserve
the value of your investment at $1.00 per share, it is possible to lose
money by investing in it.
**********END LEFT MARGIN CALLOUTS
FUND PERFORMANCE HISTORY
Florida Municipal Money Market Fund
ANNUAL TOTAL RETURNS (1)
The following bar chart shows the performance of the fund's Investor Class
shares for each full calendar year in the life of the fund. It indicates the
volatility of the fund's historical returns from year to year.
[bar chart]
1998 3.13%
1997 3.39%
1996 3.67%
1995 4.07%
1 As of June 30, 1999, the end of the most recent calendar quarter, Florida
Municipal Money Market's year-to-date return was ___%.
The highest and lowest quarterly returns for the period reflected in the chart
are:
Highest Lowest
- --------------------------------------------------------------------------------
Florida Municipal Money Market 1.06% (2Q 1995) 0.73% (4Q 1998)
AVERAGE ANNUAL RETURNS
The following table shows the average annual returns of the fund's Investor
Class Shares for the periods indicated. The benchmark is included in the table
for performance comparison.
<TABLE>
For the calendar year ended December 31, 1998 1 year Life of Fund (1)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Florida Municipal Money Market 3.13% 3.52%
Lipper Other States Tax-Exempt Money Market Funds 3.01% 3.20% (2)
</TABLE>
1 The inception date for the fund is April 11, 1994.
2 Benchmark from April 30, 1994.
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o The performance information on this page is designed to help you see how
fund returns can vary. Keep in mind that past performance does not predict
how the fund will perform in the future.
o For current performance information, including yields, please call us at
1-800-345-2021 or visit American Century's Web site at
www.americancentury.com.
**********END LEFT MARGIN CALLOUTS
FUND PERFORMANCE HISTORY
Florida Intermediate-Term Municipal Fund
ANNUAL TOTAL RETURNS (1)
The following bar chart shows the performance of the fund's Investor Class
shares for each full calendar year in the life of the fund. It indicates the
volatility of the fund's historical returns from year to year.
[bar chart]
1998 6.49%
1997 8.22%
1996 3.66%
1995 13.49%
1 As of June 30, 1999, the end of the most recent calendar quarter, Florida
Intermediate-Term Municipal's year-to-date return was ___%.
The highest and lowest quarterly returns for the period reflected in the chart
are:
Highest Lowest
- --------------------------------------------------------------------------------
Florida Intermediate-Term Municipal 5.06% (1Q 1995) -0.51% (1Q 1996)
AVERAGE ANNUAL RETURNS
The following table shows the average annual returns of the fund's Investor
Class Shares for the periods indicated. The benchmark is an unmanaged index that
has no operating costs and is included in the table for performance comparison.
<TABLE>
For the calendar year ended December 31, 1998 1 year Life of Fund (1)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Florida Intermediate-Term Municipal 3.13% 3.52%
Lehman 5-Year General Obligation 5.84% 6.25% (2)
</TABLE>
1 The inception date for Florida Intermediate-Term Municipal is April 11, 1994.
2 Benchmark from April 30, 1994.
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o The performance information on this page is designed to help you see how
fund returns can vary. Keep in mind that past performance does not predict
how the funds will perform in the future.
o For current performance information, including yields, please call us at
1-800-345-2021 or visit American Century's Web site at
www.americancentury.com.
**********END LEFT MARGIN CALLOUTS
FUND PERFORMANCE HISTORY
Arizona Intermediate-Term Municipal Fund
ANNUAL TOTAL RETURNS (1)
The following bar chart shows the performance of the fund's Investor Class
shares for each full calendar year in the life of the fund. It indicates the
volatility of the fund's historical returns from year to year.
[bar chart]
1998 5.90%
1997 6.90%
1996 3.74%
1995 13.15%
1 As of June 30, 1999, the end of the most recent calendar quarter, Arizona
Intermediate-Term Municipal's year-to-date return was ___%.
The highest and lowest quarterly returns for the period reflected in the chart
are:
Highest Lowest
- --------------------------------------------------------------------------------
Arizona Intermediate-Term Municipal 4.60% (1Q 1995) -0.53% (1Q 1996)
AVERAGE ANNUAL RETURNS
The following table shows the average annual returns of the fund's Investor
Class Shares for the periods indicated. The benchmark is an unmanaged index that
has no operating costs and is included in the table for performance comparison.
<TABLE>
For the calendar year ended December 31, 1998 1 year Life of Fund (1)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Arizona Intermediate-Term Municipal 5.90% 6.66%
Lehman 5-Year General Obligation Index 5.84% 6.25% (2)
</TABLE>
1 The inception date for Arizona Intermediate-Term Municipal is April 11, 1994.
2 Benchmark from April 30, 1994.
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o The performance information on this page is designed to help you see how
fund returns can vary. Keep in mind that past performance does not predict
how the funds will perform in the future.
o For current performance information, including yields, please call us at
1-800-345-2021 or visit American Century's Web site at
www.americancentury.com.
**********END LEFT MARGIN CALLOUTS
Fees and Expenses
There are no sales loads, fees or other charges
o to buy fund shares directly from American Century
o to reinvest dividends in additional shares
o to exchange into the Investor Class shares of other American Century funds
o to redeem your shares
The following table describes the fees and expenses that you will pay if you buy
and hold shares of the funds.
<TABLE>
ANNUAL OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Distribution and Other Total Annual Fund
Fee(1) Service (12b-1) Fees Expenses(2) Operating Expenses
- ------------------------------------------- ---------------- ------------------------ -------------- -----------------------
<S> <C> <C> <C>
Florida Municipal Money Market 0.50% None 0.01% 0.51%
Florida Intermediate-Term Municipal 0.50% None 0.01% 0.51%
- ------------------------------------------- ---------------- ------------------------ -------------- -----------------------
- ------------------------------------------- ---------------- ------------------------ -------------- -----------------------
Arizona Intermediate-Term Municipal 0.51% None 0.01% 0.52%
</TABLE>
1 Based on expenses incurred during the funds' most recent fiscal year. The
funds have a stepped fee schedule. As a result, the funds' management fee
rate generally decreases as fund assets increase.
2 Other expenses include the fees and expenses of the funds' independent
trustees, their legal counsel and interest.
EXAMPLES
The examples in the table below are intended to help you compare the costs of
investing in a fund with the costs of investing in other mutual funds. Assuming
you ...
o invest $10,000 in the fund
o redeem all of your shares at the end of the periods shown below
o earn a 5% return each year and
o incur the same operating expenses shown above,
... your cost of investing in the fund would be:
<TABLE>
1 year 3 years 5 years 10 years
- -------------------------------------------- ------------------ ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Florida Municipal Money Market $52 $163 $285 $640
- -------------------------------------------- ------------------ ------------------- ------------------- -------------------
Florida Intermediate-Term Municipal $52 $163 $285 $640
- -------------------------------------------- ------------------ ------------------- ------------------- -------------------
Arizona Intermediate-Term Municipal $53 $167 $290 $652
</TABLE>
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o Use this example to compare the costs of investing in other funds. Of
course, your actual costs may be higher or lower.
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INFORMATION ABOUT THE FUNDS
FLORIDA MUNICIPAL MONEY MARKET FUND
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?
Florida Municipal Money Market seeks safety of principal and high current income
that is exempt from federal income tax and seeks to be exempt from the Florida
intangible personal property tax.
HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVES?
The fund managers buy cash-equivalent, HIGH-QUALITY DEBT SECURITIES with income
payments exempt from federal income tax and which are exempt from the Florida
intangible personal property tax. Cities, counties and other municipalities in
Florida usually issue these securities for public projects, such as schools and
roads.
The fund managers also may buy cash-equivalent, high-quality debt securities
with income payments exempt federal income tax and which are exempt from the
Florida intangible personal property tax, but are not exempt from the federal
alternative minimum tax. Cities, counties and other municipalities in Florida
usually issue these securities (called private activity bonds) to fund
for-profit private projects, such as hospitals and athletic stadiums.
Additional information about the fund's investments is available in its annual
and semiannual reports. In these reports you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund's performance during the most recent six-month period. You may get these
reports at no cost by calling us.
WHAT ARE THE PRIMARY RISKS OF INVESTING IN THE FUNDS?
Because cash-equivalent securities are among the safest securities available,
the interest they pay is among the lowest for income-paying securities.
Accordingly, the yield on this fund will likely be lower than funds that invest
in longer-term or lower-quality securities.
Because the fund invests primarily in Florida municipal securities, it will be
sensitive to events that affect Florida's economy. Florida Municipal Money
Market may have a higher level of risk than funds that invest in a larger
universe of securities.
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o Income from Tax-Free Money Market may be subject to the alternative minimum
tax. For more information, see "Taxes" in this Prospectus.
A HIGH-QUALITY DEBT SECURITY is one that has been determined to be in the top
two credit quality categories. This can be established in a number of ways. For
example, independent rating agencies may rate the security in their higher
rating categories. The fund's advisor also can analyze an unrated security to
determine if its credit quality is high enough for investment. The details of
the fund's credit quality standards are described in the Statement of Additional
Information.
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FLORIDA INTERMEDIATE-TERM MUNICIPAL FUND
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?
Florida Intermediate-Term Municipal seeks safety of principal and high current
income that is exempt from federal income tax and seeks to be exempt from the
Florida intangible personal property tax.
HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVES?
The fund managers buy QUALITY, intermediate-term debt securities with income
payments exempt from federal income tax and which are exempt from the Florida
intangible personal property tax. Cities, counties and other municipalities in
Florida usually issue these securities for public projects, such as schools and
roads.
The fund managers also may buy quality, intermediate-term debt securities with
income payments exempt federal income tax and which are exempt from the Florida
intangible personal property tax, but are not exempt from the federal
alternative minimum tax. Cities, counties and other municipalities in Florida
usually issue these securities (called private activity bonds) to fund
for-profit private projects, such as hospitals and athletic stadiums.
The fund managers also may use futures contracts and options to pursue its
investment objective.
During unusual market conditions, the fund is permitted to keep a significant
amount of its assets in cash or cash equivalents. If it does, it may not achieve
its investment objective and may generate taxable income.
The WEIGHTED AVERAGE MATURITY of the fund is expected to be between five and 10
years.
Additional information about the fund's investments is available in its annual
and semiannual reports. In these reports you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund's performance during the most recent six-month period. You may get these
reports at no cost by calling us.
WHAT ARE THE PRIMARY RISKS OF INVESTING IN THE FUND?
When interest rates change, the fund's share value will be affected. Generally,
when interest rates rise, the fund's share value will decline. The opposite is
true when interest rates decline. The interest rate risk is higher for Florida
Intermediate-Term Municipal than for funds that have shorter weighted average
maturities, such as money market and short-term bond funds.
The fund may invest part of its assets in securities rated in the lowest
investment-grade category (e.g., Baa or BBB). The issuers of these securities
are more likely to have problems making interest and principal payments.
Because the fund invests primarily in Florida municipal securities, it will be
sensitive to events that affect Florida's economy. Florida Intermediate-Term
Municipal may have a higher level of risk than funds that invest in a larger
universe of securities.
As with all funds, at any given time the value of your shares of Florida
Intermediate-Term Municipal may be worth more or less than the price you paid.
If you sell your shares when the value is less than the price you paid, you will
lose money.
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o Income from the funds may be subject to the alternative minimum tax. For
more information, see "Taxes" in this Prospectus.
A QUALITY debt security is one that has been determined to be in the top two
credit quality categories. This can be established in a number of ways. For
example, independent rating agencies may rate the security in their higher
rating categories. The fund's advisor also can analyze an unrated security to
determine if its credit quality is high enough for investment. The details of
the fund's credit quality standards are described in the Statement of Additional
Information.
WEIGHTED AVERAGE MATURITY is a measure of a fund's interest rate sensitivity.
For more information, see "Weighted Average Maturity" in this Prospectus.
**********END LEFT MARGIN CALLOUTS
ARIZONA INTERMEDIATE-TERM MUNICIPAL FUND
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?
Arizona Intermediate-Term Municipal seeks safety of principal and high current
income that is exempt from federal and Arizona income taxes.
HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVES?
The fund managers buy intermediate-term, QUALITY DEBT SECURITIES with income
payments exempt from federal and Arizona income taxes. Cities, counties and
other municipalities in Arizona usually issue these securities for public
projects, such as schools and roads.
The fund managers also may buy intermediate-term,quality debt securities whose
payments are exempt from federal and Arizona income taxes, but not the federal
alternative minimum tax. Cities, counties and other municipalities in Arizona
usually issue these securities (called private activity bonds) to fund
for-profit private projects, such as hospitals and athletic stadiums.
The fund managers also may use futures contracts and options to pursue the
fund's investment objectives.
During unusual market conditions, the fund is permitted to keep a significant
amount of its assets in cash or cash equivalents. If it does, it may not achieve
its investment objective and may generate taxable income.
The WEIGHTED AVERAGE MATURITY of the fund is expected to be between five and 10
years.
Additional information about the fund's investments is available in its annual
and semiannual reports. In these reports you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund's performance during the most recent six-month period. You may get these
reports at no cost by calling us.
WHAT ARE THE PRIMARY RISKS OF INVESTING IN THE FUND?
When interest rates change, the fund's share value will be affected. Generally,
when interest rates rise, the fund's share value will decline. The opposite is
true when interest rates decline. The interest rate risk is higher for Arizona
Intermediate-Term Municipal than for funds which have shorter weighted average
maturities, such as money market and short-term bond funds.
The fund may invest part of its assets in securities rated in the lowest
investment-grade category (e.g., Baa or BBB). The issuers of these securities
are more likely to have problems making interest and principal payments.
Because the fund invests primarily in Arizona municipal securities, it will be
sensitive to events that affect Arizona's economy. Arizona Intermediate-Term
Municipal may have a higher level of risk than funds that invest in a larger
universe of securities.
As with all funds, at any given time the value of your shares of Arizona
Intermediate-Term Municipal may be worth more or less than the price you paid.
If you sell your shares when the value is less than the price you paid, you will
lose money.
**********LEFT MARGIN CALLOUTS
o Income from the funds may be subject to the alternative minimum tax. For
more information, see "Taxes" in this Prospectus.
A QUALITY DEBT SECURITY is one that has been determined to be in the top two
credit quality categories. This can be established in a number of ways. For
example, independent rating agencies may rate the security in their higher
rating categories. The fund's advisor also can analyze an unrated security to
determine if its credit quality is high enough for investment. The details of
the fund's credit quality standards are described in the Statement of Additional
Information.
WEIGHTED AVERAGE MATURITY is a measure of a fund's interest rate sensitivity.
For more information, see "Weighted Average Maturity" in this Prospectus.
**********END LEFT MARGIN CALLOUTS
BASICS OF FIXED INCOME INVESTING
DEBT SECURITIES
When a fund buys a debt security, which is also called a fixed-income security,
it is essentially lending money to the issuer of the security. Notes, bonds,
commercial paper and Treasury bills are examples of debt securities. After the
debt security is first sold by the issuer, it may be bought and sold by other
investors. The price of the security may rise or fall based on many factors,
including changes in interest rates, inflation, liquidity and credit quality.
The fund managers decide which debt securities to buy and sell by
o determining which securities help a fund meet its maturity requirements
o eliminating securities that do not satisfy a fund's credit quality
standards
o evaluating the current economic conditions and assessing the risk of
inflation
o evaluating special features of the securities that may make them more or
less attractive
WEIGHTED AVERAGE MATURITY
Like most loans, debt securities eventually must be repaid (or refinanced) at
some date. This date is called the maturity date. The number of days left to a
debt security's maturity date is called the remaining maturity. The longer a
debt security's remaining maturity, the more sensitive it is to changes in
interest rates.
Because a bond fund will own many debt securities, the fund managers calculate
the average of the remaining maturities of all of the debt securities the fund
owns to evaluate the interest rate sensitivity of the entire portfolio. This
average is weighted according to the size of the fund's individual holdings and
is called WEIGHTED AVERAGE MATURITY. The following chart shows how fund managers
would calculate the weighted average maturity for a fund that owned only two
debt securities.
<TABLE>
Amount of Security Owned Percent of Portfolio Remaining Maturity Weighted Maturity
- ---------------------- ------------------------------ ---------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Debt Security A $100,000 25% 1,000 days 250 days
Debt Security B $300,000 75% 10,000 days 7,500 days
WEIGHTED AVERAGE MATURITY 7,750 DAYS
</TABLE>
TYPES OF RISK
The basic types of risk that the funds face are described below.
INTEREST RATE RISK
Generally, interest rates and the prices of debt securities move in opposite
directions. When interest rates fall, the prices of most debt securities rise;
when interest rates rise, prices fall. Because the funds invest primarily in
debt securities, changes in interest rates will affect the funds' performance.
The degree to which interest rate changes affect a funds' performance varies and
is related to the weighted average maturity of a particular fund. For example,
when interest rates rise, you can expect the share value of a long-term bond
fund to fall more than that of a short-term bond fund. When rates fall, the
opposite is true. This sensitivity to interest rate changes is called interest
rate risk.
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WEIGHTED AVERAGE MATURITY is a tool that the fund managers use to approximate
the remaining maturity of a fund's investment portfolio.
o The longer a fund's weighted average maturity, the more sensitive it is to
changes in interest rates.
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When interest rates change, longer maturity bonds experience a greater change in
price. The following table shows the effect of a 1% increase in interest rates
on the price of 7% coupon bonds of differing maturities:
Remaining Maturity Current Price Price after 1% increase Change in price
- ------------------- -------------- ------------------------- ------------------
1 year $100.00 $99.06 -0.94%
3 years 100.00 97.38 -2.62%
10 years 100.00 93.20 -6.80%
30 years 100.00 88.69 -11.31%
CREDIT RISK
Credit risk is the risk that an obligation won't be paid and a loss will result.
A high credit rating indicates a high degree of confidence by the rating
organization that the issuer will be able to withstand adverse business,
financial or economic conditions and be able to make interest and principal
payments on time. Generally, a lower credit rating indicates a greater risk of
non-payment. A lower rating also may indicate that the issuer has a more senior
series of debt securities, which means that if the issuer has difficulties
making its payments, the more senior series of debt is first in line for
payment.
It's not as simple as buying the highest-rated debt securities. Higher credit
ratings usually mean lower interest rates, so investors often purchase
securities that aren't the highest rated to increase return. If a fund purchases
lower-rated securities, it has assumed additional credit risk.
The following chart shows the authorized credit quality ranges for the funds
offered by this Prospectus.
<TABLE>
Quality
High-Quality
A-1 A-2 A-3
P-1 P-2 P-3
<S> <C> <C> <C> <C> <C> <C> <C>
MIG-1 MIG-2 MIG-3
SP-1 SP-2 SP-3
AAA AA A BBB BB B CCC CC C D
- -------------------------- ----------------------------------------------- --------- --------- --------- ---------
Florida Municipal Money Market
-----------------------------------------------
Florida Intermediate-Term Municipal
- --------------------------------------------------
Arizona Intermediate-Term Municipal
- --------------------------------------------------
Investment Grade Non-investment grade
- -------------- ----------------------------------- ---------------------------------------------------------------
</TABLE>
Securities rated in one of the highest four categories by a nationally
recognized securities rating organization (e.g., Moody's or Standard & Poor's)
are considered "investment grade." Although they are considered investment
grade, an investment in these securities still involves some credit risk since a
AAA rating is not a guarantee of payment. For a complete description of the
ratings system, see "Explanation of Fixed-Income Securities Ratings" in the
Statement of Additional Information. The funds' credit quality restrictions
apply at the time of purchase; the fund will not necessarily sell securities if
they are downgraded by a rating agency.
LIQUIDITY RISK
Debt securities can become difficult to sell, or less liquid, for a variety of
reasons, such as lack of an active trading market. The chance that a fund will
have liquidity issues is called liquidity risk.
INFLATION RISK
The safest investments usually have the lowest potential income and performance.
However, returns from these investments may fail to significantly outpace
inflation. Even if the value of your investment has not gone down, your money
will not be worth as much as if there had been no inflation. Your
after-inflation return may be quite small. This risk is called inflation risk.
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o Credit quality may be lower when the issuer has
o a high debt level
o a short operating history
o a senior level of debt
o a difficult, competitive environment
o a less stable cash flow
o The Statement of Additional Information provides a detailed description of
these securities ratings.
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A COMPARISON OF BASIC RISK FACTORS
The following chart depicts the basic risks of investing in the funds. It is
designed to help you compare these funds with each other; it shouldn't be used
to compare these funds with other mutual funds.
<TABLE>
Interest Rate Risk Credit Risk Liquidity Risk Inflation Risk
- --------------------------------------- ------------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
Florida Municipal Money Market Lowest Lowest Lowest Lowest
Florida Intermediate-Term Municipal Medium Medium Medium Medium
Arizona Intermediate-Term Municipal Medium Medium Medium Medium
</TABLE>
The funds engage in a variety of investment techniques as they pursue their
investment objectives. Each technique has its own characteristics, and may pose
some level of risk to the funds. If you would like to learn more about these
techniques, you should review the Statement of Additional Information before
making an investment.
MANAGEMENT
WHO MANAGES THE FUNDS?
The Board of Trustees, investment advisor and fund management team play key
roles in the management of the funds.
THE BOARD OF TRUSTEES
The Board of Trustees oversees the management of the funds and meets at least
quarterly to review reports about fund operations. Although the Board of
Trustees does not manage the funds, it has hired an investment advisor to do so.
More than two-thirds of the trustees are independent of the funds' advisor; that
is, they are not employed by and have no financial interest in the advisor.
THE INVESTMENT ADVISOR
The funds' investment advisor is American Century Investment Management, Inc.
The advisor has been managing mutual funds since 1958. American Century is
headquartered at 4500 Main Street, Kansas City, Missouri 64111.
The advisor is responsible for managing the investment portfolios of the funds
and directing the purchase and sale of their investment securities. The advisor
also arranges for transfer agency, custody and all other services necessary for
the funds to operate.
For the services it provided to the funds during their most recent fiscal year,
the advisor received a unified management fee based on a percentage of the
average net assets of the Investor Class shares of the funds. The rate of the
management fee for a fund is determined on a class-by-class basis monthly using
a two-step formula that takes into account the fund's strategy (money market,
bond or equity) and the total amount of mutual fund assets the advisor manages.
The Statement of Additional Information contains detailed information about the
calculation of the management fee. Out of that fee, the advisor paid all
expenses of managing and operating the fund except brokerage expenses, taxes,
interest, fees and expenses of the independent directors (including legal
counsel fees), and extraordinary expenses. A portion of the management fee may
be paid by the funds' advisor to unaffiliated third parties who provide
recordkeeping and administrative services that would otherwise be performed by
an affiliate of the advisor.
Management Fees Paid by the Funds to the Advisor
as a Percentage of Average Net Assets
for the Most Recent Fiscal Year Ended May 31, 1999
- ---------------------------------------------------------------------------
Florida Municipal Money Market 0.50%
Florida Intermediate-Term Municipal 0.50%
Arizona Intermediate-Term Municipal 0.51%
THE FUND MANAGEMENT TEAM
The advisor uses teams of portfolio managers, assistant portfolio managers and
analysts to manage the funds. Teams meet regularly to review portfolio holdings
and to discuss purchase and sale activity. Team members buy and sell securities
for a fund as they see fit, guided by the fund's investment objective and
strategy.
The portfolio managers who lead the investment teams are identified below:
BRYAN E. KARCHER
Mr. Karcher, Portfolio Manager, has been a member of the team that manages
Florida Municipal Money Market since June 1995. He joined American Century in
July 1989 and has been a Portfolio Manager since 1995. He holds a bachelor's
degree in economics from the University of California--Los Angeles. He is a
Chartered Financial Analyst.
KENNETH M. SALINGER
Mr. Salinger, Portfolio Manager, has been a member of the team that manages
Arizona Intermediate-Term Municipal team since June 1998 and the Florida
Intermediate-Term Municipal team since October 1996. He joined American Century
in April 1992. He has a bachelor's degree in quantitative economics from the
University of California--San Diego.
**********LEFT MARGIN CALLOUTS
o CODE OF ETHICS
American Century has a Code of Ethics designed to ensure that the interests
of fund shareholders come before the interests of the people who manage the
funds. Among other provisions, the Code of Ethics prohibits portfolio
managers and other investment personnel from buying securities in an
initial public offering or from profiting from the purchase and sale of the
same security within 60 calendar days. In addition, the Code of Ethics
requires portfolio managers and other employees with access to information
about the purchase or sale of securities by the funds to obtain approval
before executing permitted personal trades.
**********END LEFT MARGIN CALLOUTS
FUNDAMENTAL INVESTMENT POLICIES
Fundamental investment policies contained in the Statement of Additional
Information and the investment objectives of the funds may not be changed
without a shareholder vote. The Board of Trustees may change any other policies
and investment strategies.
YEAR 2000 ISSUES
Many of the world's computer systems were originally programmed in a way that
prevented them from properly recognizing or processing date-sensitive
information relating to the Year 2000 and beyond. Because this may impact the
computer systems of various American Century-affiliated and external service
providers for the funds, American Century formally initiated a Year 2000
readiness project in July 1997. It involves a team of information technology
professionals assisted by outside consultants and guided by a senior-level
steering committee. The team's goal is to assess the impact of the Year 2000 on
American Century's systems, renovate or replace noncompliant critical systems
and test those systems. In addition, the team has been working to gather
information about the Year 2000 efforts of the funds' other major service
providers.
Although American Century believes its critical systems will function properly
in the Year 2000, this is not guaranteed. If the efforts of American Century or
its external service providers are not successful, the funds' business,
particularly the provision of shareholder services, may be hampered.
In addition, the issuers of securities the funds own could have Year 2000
computer problems. These problems could negatively affect the value of their
securities, which, in turn, could impact the funds' performance. The advisor has
established a process to gather publicly available information about the Year
2000 readiness of these issuers. However, this process may not uncover all
relevant information, and the information gathered may not be complete and
accurate. Moreover, an issuer's Year 2000 readiness is only one of many factors
the fund managers may consider when making investment decisions, and other
factors may receive greater weight.
INVESTING WITH AMERICAN CENTURY
SERVICES AUTOMATICALLY AVAILABLE TO YOU
You automatically will have access to the services listed below when you open
your account. If you do not want these services, see "Conducting Business in
Writing" below.
CONDUCTING BUSINESS IN WRITING
If you prefer to conduct business in writing only, you can indicate this on the
account application. If you choose this option, you must provide written
instructions to invest, exchange and redeem. All account owners must sign
transaction instructions (with signatures guaranteed for redemptions in excess
of $100,000). If you want to add services later, you can complete an Investor
Service Options form.
<TABLE>
Ways to Manage Your Account
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------- ---------------------------------------------- -----------------------------------------------
<S> <C> <C>
By telephone Open an account Make additional investments
Investor Relations If you are a current investor, you can open Call us or use our Automated Information Line
1-800-345-2021 an account by exchanging shares from another if you have authorized us to invest from your
American Century account. bank account.
Business, Not-For-Profit
and Employer-Sponsored Exchange shares Sell shares
Retirement Plans Call us or use our Automated Information Call an Investor Relations Representative.
1-800-345-3533 Line if you have authorized us to accept
telephone instructions.
Automated Information Line
1-800-345-8765
- ---------------------------------- ---------------------------------------------- -----------------------------------------------
- ---------------------------------- ---------------------------------------------- -----------------------------------------------
By mail or fax Open an account Make additional investments
P.O. Box 419200 Send a signed, completed application and Send us your check or money order for at
Kansas City, MO 64141-6200 check or money order payable to American least $50 with an investment slip or $250
Century Investments. without an investment slip. If you don't have
Fax an investment slip, include your name,
816-340-7962 Exchange shares address and account number on your check or
Send us written instructions to exchange money order.
your shares from one American Century
account to another. Sell shares
Send us written instructions or a redemption
form to sell shares. Call an Investor
Relations Representative to request a form.
- ---------------------------------- ---------------------------------------------- -----------------------------------------------
Online Open an account Make additional investments
www.americancentury.com If you are a current investor, you can open Make an additional investment into an
an account by exchanging shares from another established American Century account if you
American Century account. have authorized us to invest from your bank
account.
Exchange shares
Exchange shares from another American Sell shares
Century account. Not available.
</TABLE>
A NOTE ABOUT MAILINGS TO SHAREHOLDERS
To reduce expenses and demonstrate respect for our environment, we will deliver
most financial reports, prospectuses and account statements to households in a
single envelope, even if the accounts are registered under different names. If
you would like additional copies of financial reports and prospectuses or
separate mailing of account statements, please call us.
<TABLE>
YOUR GUIDE TO SERVICES AND POLICIES
When you open an account, you will receive a services guide, which explains the
services available to you and the policies of the funds and the transfer agent.
<S> <C> <C>
By wire Open an account Make additional investments
Call us to set up your account or mail a Follow the wire instructions provided in the
completed application to the address provided "Open an account" section
in the "By Mail" section and give your bank
the following information. Sell shares
Our bank information: You can receive redemption proceeds by wire
Please remember that if you Commerce Bank N.A. or electronic transfer.
request redemptions by wire, Routing No. 101000019
$10 will be deducted from the Account No. 2804918
amount wired. Your bank also The fund name
may charge a fee. Your American Century account number*
Your name Exchange shares The contribution year
(for IRAs only) Not available.
*For additional investments only
- -------------------------------- ------------------------------------------------ -----------------------------------------------
- -------------------------------- ------------------------------------------------ -----------------------------------------------
Automatically Open an account Make additional investments
Not available. With the automatic investment privilege, you
can purchase shares on a regular basis. You
Exchange shares must invest at least $600 per year per
Send us written instructions to set up an account.
automatic exchange of your shares from one
American Century account to another. Sell shares
If you have at least $10,000 in your account,
you may sell shares automatically by
establishing Check-A-Month or Automatic
Redemption plans.
- -------------------------------- ------------------------------------------------ -----------------------------------------------
- -------------------------------- ------------------------------------------------------------------------------------------------
In person If you prefer to handle your transactions in person, visit one of our Investor Centers and a
representative can help you open an account, make additional investments and sell or exchange
shares.
4500 Main St. 4917 Town Center Drive
Kansas City, Missouri Leawood, Kansas
8 a.m. to 5:30 p.m., Monday-Friday 8 a.m. to 6 p.m., Monday-Friday
8 a.m. to noon, Saturday
1665 Charleston Road 9445 East County Line Road, Suite A
Mountain View, California Englewood, Colorado
8 a.m. to 5 p.m., Monday-Friday 8 a.m. to 6 p.m., Monday-Friday
8 a.m. to noon, Saturday
- -------------------------------- ------------------------------------------------------------------------------------------------
- -------------------------------- ------------------------------------------------------------------------------------------------
</TABLE>
MINIMUM INITIAL INVESTMENT AMOUNTS (1)
<TABLE>
To open an account the minimum investments are as follows: Florida Municipal Money Market Other Funds
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Individual or Joint $2,500 $5,000
UGMA/UTMA $2,500 $5,000
</TABLE>
1 The funds in this Prospectus are not available for retirement accounts
REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS
If your redemption activity causes your account balance to fall below the
minimum initial investment amount, we will notify you and give you 90 days to
meet the minimum. If you do not meet the deadline, American Century will redeem
the shares in the account and send the proceeds to your address of record.
ABUSIVE TRADING PRACTICES
We do not permit market timing or other abusive trading practices in our funds.
Excessive, short-term (market timing) or other abusive trading practices may
disrupt portfolio management strategies and harm fund performance. To minimize
harm to the funds and their shareholders, we reserve the right to reject any
purchase order (including exchanges) from any investor we believe has a history
of abusive trading or whose trading, in our judgment, has been or may be
disruptive to a fund. In making this judgment, we may consider trading done in
multiple accounts under common ownership or control. We also reserve the right
to delay delivery of your redemption proceeds -- up to seven days -- or to honor
certain redemptions with securities, rather than cash, as described in the next
section.
SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS
If, during any 90-day period, you redeem fund shares worth more than $250,000
(or 1% of the assets of the fund if that percentage is less than $250,000), we
reserve the right to pay part or all of the redemption proceeds in excess of
this amount in readily marketable securities instead of cash. If we make payment
in securities, we will value the securities selected by the fund managers in the
same manner as we do in computing the fund's net asset value. We may provide
these securities in lieu of cash without prior notice.
If your redemption would exceed this limit and you would like to avoid being
paid in securities, please provide us with an unconditional instruction to
redeem at least 15 days prior to the date on which the redemption transaction is
to occur. The instruction must specify the dollar amount or number of shares to
be redeemed and the date of the transaction. This minimizes the effect of the
redemption on the fund and its remaining shareholders.
INVESTING THROUGH FINANCIAL INTERMEDIARIES
If you do business with us through a financial intermediary or a retirement
plan, your ability to purchase, exchange and redeem shares will depend on the
policies of that entity. Some policy differences may include
o minimum investment requirements
o exchange policies
o fund choices
o cutoff time for investments
Please contact your financial intermediary or plan sponsor for a complete
description of its policies. Copies of the funds' annual reports, semiannual
reports and Statements of Additional Information are available from your
intermediary or plan sponsor.
Certain financial intermediaries perform recordkeeping and administrative
services for their clients that would otherwise be performed by American
Century's transfer agent. In some circumstances, American Century will pay the
service provider a fee for performing those services.
Although transactions in fund shares may be made directly with American Century
at no charge, you also may purchase, redeem and exchange fund shares through
financial intermediaries that charge a transaction-based or other fee for their
services. Those charges are retained by the intermediary and are not shared with
American Century or the funds.
American Century has contracts with certain financial intermediaries requiring
them to track the time investment orders are received and to comply with
procedures relating to the transmission of orders. The funds have authorized
those intermediaries to accept orders on each fund's behalf up to the time at
which the net asset value is determined. If those orders are transmitted to
American Century and paid for in accordance with the contract, they will be
priced at the net asset value next determined after your request is received in
the form required by the intermediary on a fund's behalf.
**********LEFT MARGIN CALLOUTS
o Financial intermediaries include banks, broker-dealers, insurance companies
and investment advisors.
**********END LEFT MARGIN CALLOUTS
SHARE PRICE AND DISTRIBUTIONS
SHARE PRICE
American Century determines the NET ASSET VALUE (NAV) of the funds as of the
close of regular trading on the New York Stock Exchange (usually 4 p.m. Eastern
time) on each day the Exchange is open. On days when the Exchange is not open
(including certain U.S. holidays), we do not calculate the NAV. The NAV of a
fund share is the current value of the fund's assets, minus any liabilities,
divided by the number of fund shares outstanding.
If current market prices of securities owned by a fund (except Florida Municipal
Money Market) are not readily available, the advisor may determine their fair
value in accordance with procedures adopted by the fund's Board of Trustees.
We will price your purchase, exchange or redemption at the net asset value next
determined after we receive your transaction request in good order.
DISTRIBUTIONS
Federal tax laws require each fund to make distributions to its shareholders in
order to qualify as a "regulated investment company." Qualification as a
regulated investment company means that the funds will not be subject to state
or federal income tax on amounts distributed. The distributions generally
consist of dividends and interest received, as well as CAPITAL GAINS realized on
the sale of investment securities.
Each money market fund declares and reinvests distributions from net income
daily. Each of the other funds declares distributions from net income daily and
pays these distributions monthly. Each fund (except Florida Municipal Money
Market) generally pays distributions of capital gains, if any, once a year
usually in December. A fund may make more frequent distributions if necessary to
comply with Internal Revenue Code provisions. Distributions are reinvested
automatically in additional shares unless you choose another option.
You will participate in fund distributions, when they are declared, starting on
the day after your purchase is effective. For example, if you purchase shares on
a day that a distribution is declared, you will not receive that distribution.
If you redeem shares, you will receive any distribution declared on the day you
redeem. If you redeem all shares, we will include any distribution received with
your redemption proceeds.
Participants in employer-sponsored retirement or savings plans must reinvest all
distributions. For shareholders investing through taxable accounts, we will
reinvest distributions unless you elect to receive them in cash. Please consult
our services guide for further information regarding distributions and your
distribution options.
**********LEFT MARGIN CALLOUTS
The NET ASSET VALUE of a fund is the price of the fund's shares.
CAPITAL GAINS are increases in the values of capital assets, such as stock, from
the time the assets are purchased. Tax becomes due on capital gains once an
asset is sold.
**********END LEFT MARGIN CALLOUTS
TAXES
TAX-EXEMPT INCOME. Most of the income that the funds receive from municipal
securities is exempt from regular federal income taxes. Distributions from
Arizona Intermediate-Term Municipal will also be exempt from Arizona income
taxes. Shares of Florida Municipal Money Market and Florida Intermediate-Term
Municipal will also generally be exempt from the Florida intangible personal
property tax. However, corporate shareholders should be aware that distributions
may be subject to state corporate franchise tax.
The funds may also purchase private activity bonds. The income from these
securities is subject to the federal alternative minimum tax. If you are subject
to the alternative minimum tax, then distributions from the funds that represent
income derived from private activity bonds is taxable to you. Consult your tax
advisor to determine whether you are subject to the alternative minimum tax.
TAXABLE INCOME. The funds' investment performance is also based on sources other
than income from municipal securities. These investment performance sources,
while not the primary source of fund distributions, will generate taxable income
to you. Some of these investment performance sources are:
>> Market Discount Purchases. The funds may buy a tax-exempt security for a
price less than the principal amount of the bond. If the price of the bond
increases over time, a portion of the gain may be treated as ordinary
income and taxable as ordinary income to shareholders if it is distributed
to you.
>> Capital Gains. When a fund sells a security, even a tax-exempt municipal
security, it can generate a capital gain or loss.
>> Temporary Investments. Some temporary investments, such as securities loans
and repurchase agreements, can generate taxable income.
<TABLE>
Type of distribution Tax rate for 15% bracket Tax rate for 28% bracket or above
- ------------------------- -------------------------- -----------------------------------------
<S> <C> <C>
Short-term capital gains Ordinary income rate Ordinary income rate
Long-term capital gains 10% 20%
</TABLE>
The tax status of any distribution of capital gains is determined by how long
the fund held the underlying security that was sold, not by how long you have
been invested in the fund or whether you reinvest your distribution in
additional shares or take them in cash. American Century will send you the tax
status of fund distributions for each calendar year in an annual tax mailing
(Form 1099-DIV) from the fund.
Distributions also may be subject to state and local taxes. Because everyone's
tax situation is unique, always consult your tax professional about federal,
state and local tax consequences.
TAXES ON TRANSACTIONS
Your redemptions--including exchanges to other American Century funds--are
subject to capital gains tax. The table above can provide a general guide for
your potential tax liability when selling or exchanging fund shares. Short-term
capital gains are gains on fund shares you held for 12 months or less. Long-term
capital gains are gains on fund shares you held for more than 12 months. If your
shares decrease in value, their sale or exchange will result in a long-term or
short-term capital loss. 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. 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. This may result in a postponement of the recognition of such loss
for federal income tax purposes.
If you have not certified to us that your Social Security number or tax
identification number is correct and that you are not subject to 31%
withholding, we are required to withhold and remit 31% of dividends, capital
gains distributions and redemptions to the IRS.
**********LEFT MARGIN CALLOUTS
o BUYING A DIVIDEND
Purchasing fund shares in a taxable account shortly before a distribution
is sometimes known as buying a dividend. In taxable accounts, you must pay
income taxes on the distribution whether you reinvest the distribution or
take it in cash. In addition, you will have to pay taxes on the
distribution whether the value of your investment decreased, increased or
remained the same after you bought the fund shares. The risk in buying a
dividend is that a fund's portfolio may build up taxable gains throughout
the period covered by a distribution, as securities are sold at a profit.
We distribute those gains to you, after subtracting any losses, even if you
did not own the shares when the gains occurred. If you buy a dividend, you
incur the full tax liability of the distribution period, but you may not
enjoy the full benefit of the gains realized in the fund's portfolio.
**********END LEFT MARGIN CALLOUTS
Financial Highlights
UNDERSTANDING THE FINANCIAL HIGHLIGHTS
The tables on the next few pages itemize what contributed to the changes in
share price during the period. They also show the changes in share price for
this period in comparison to changes over the last five fiscal years (or less,
if the share class is not five years old).
On a per-share basis, each table includes as appropriate
o share price at the beginning of the period
o investment income and capital gains or losses
o distributions of income and capital gains paid to shareholders
o share price at the end of the period
Each table also includes some key statistics for the period as appropriate
o Total Return--the overall percentage of return of the fund, assuming the
reinvestment of all distributions
o Expense Ratio--operating expenses as a percentage of average net assets
o Net Income Ratio--net investment income as a percentage of average net assets
o Portfolio Turnover--the percentage of the fund's buying and selling activity
The Financial Highlights for the fiscal years ended March 31, 1998 and 1999 have
been audited by PricewaterhouseCoopers LLP, independent accountants. Their
report is included in the funds' annual reports, which are incorporated by
reference into the Statement of Additional Information, and are available upon
request. Prior years' information was audited by other independent auditors,
whose report also is incorporated by reference into the Statement of Additional
Information.
<TABLE>
<CAPTION>
FLORIDA MUNICIPAL MONEY MARKET
Investor Class
For a Share Outstanding Throughout the Years Ended March 31
1998 1997 1996 1995
------------------------------------------------------------------------------
PER-SHARE DATA
Net Asset Value, Audited
<S> <C> <C> <C> <C>
Beginning of Period........... Numbers $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Not Yet
Income From Available
Investment Operations
Net Investment Income ........... 0.03 0.03 0.04 0.04
------------------------------------------------------------------------------
Distributions
From Net
Investment Income........... (0.03) (0.03) (0.04) (0.04)
------------------------------------------------------------------------------
Net Asset Value,
End of Period................. $1.00 $1.00 $1.00 $1.00
==============================================================================
TOTAL RETURN(1).................. 3.31% 3.55% 3.86% 3.71%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............ 0.51% 0.12% 0.01% -
Ratio of Operating Expenses to Average
Net Assets (Before Expense Waiver) . 0.53% 0.66% 0.71% 0.88%
Ratio of Net Investment
Income to Average Net Assets. 3.25% 3.48% 3.75% 3.93%
Ratio of Net Investment Income to
Average Net Assets (Before Expense Waiver) 3.23% 2.94% 3.05% 3.05%
Net Assets, End
of Period (in thousands)................ $109,684 $112,129 $99,993 $45,147
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
Florida Intermediate-Term Municipal
Investor Class
For a Share Outstanding Throughout the Years Ended March 31
1999 1998 1997 1996 1995
----------------------------------------------------------------------------
PER-SHARE DATA
Net Asset Value, Audited
Beginning of Period...... Numbers $10.34 $10.18 $10.30 $10.11
----------------------------------------------------------------------------
Not Yet
Income From Investment Operations Available
Net Investment Income .............. 0.45 0.46 0.52 0.52
Net Realized and
Unrealized Gain (Loss)
on Investment Transactions..... 0.38 0.20 (0.08) 0.19
----------------------------------------------------------------------------
Total From
Investment Operations......... 0.83 0.66 0.44 0.71
----------------------------------------------------------------------------
Distributions
From Net Investment Income..... (0.45) (0.46) (0.52) (0.52)
From Net Realized
Capital Gains........ (0.16) (0.04) (0.04) -
----------------------------------------------------------------------------
Total Distributions........ (0.61) (0.50) (0.56) (0.52)
----------------------------------------------------------------------------
Net Asset Value,
End of Period.......................... $10.56 $10.34 $10.18 $10.30
============================================================================
TOTAL RETURN(1).............. 8.20% 6.63% 4.34% 7.31%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets............ 0.54% 0.65% 0.13% -
Ratio of Operating Expenses to Average
Net Assets (Before Expense Waiver)...... 0.58% 0.86% 0.88% 1.09%
Ratio of Net Investment
Income to Average Net Assets. 4.28% 4.42% 5.05% 5.23%
Ratio of Net Investment Income to
Average Net Assets (Before Expense Waiver)... 4.24% 4.21% 4.30% 4.14%
Portfolio Turnover Rate....... 154% 82% 66% 37%
Net Assets, End
of Period (in thousands)................ $29,605 $16,513 $10,319 $9,532
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
Arizona Intermediate-Term Municipal
Investor Class
For a Share Outstanding Throughout the Years Ended March 31
1998 1997 1996 1995
-------------------------------------------------------
PER-SHARE DATA
Audited
Net Asset Value, Numbers
Beginning of Period....... Not Yet $10.44 $10.31 $10.35 $10.13
-------------------------------------------------------
Available
Income From
Investment Operations
Net Investment Income 0.46 0.45 0.51 0.51
Net Realized and
Unrealized Gain (Loss)
on Investment Transactions..... 0.28 0.13 (0.03) 0.22
-------------------------------------------------------
Total From
Investment Operations......... 0.74 0.58 0.48 0.73
-------------------------------------------------------
Distributions
From Net Investment Income....... (0.46) (0.45) (0.51) (0.51)
From Net Realized Gains on
Investment Transactions........ (0.05) - (0.01) -
-------------------------------------------------------
Total Distributions........ (0.51) (0.45) (0.52) (0.51)
-------------------------------------------------------
Net Asset Value,
End of Period......... $10.67 $10.44 $10.31 $10.35
=======================================================
TOTAL RETURN(1).......... 7.19% 5.77% 4.65% 7.52%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets............ 0.54% 0.66% 0.14% -
Ratio of Operating Expenses to Average
Net Assets (Before Expense Waiver). 0.60% 0.79% 0.82% 1.01%
Ratio of Net Investment
Income to Average Net Assets. 4.33% 4.35% 4.85% 5.16%
Ratio of Net Investment Income to
Average Net Assets (Before Expense Waiver) 4.27% 4.22% 4.17% 4.15%
Portfolio Turnover Rate....... 39% 81% 36% 33%
Net Assets, End
of Period (in thousands)................ $40,047 $30,555 $25,789 $19,778
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
More information about the funds is contained in these documents
ANNUAL AND SEMIANNUAL REPORTS
These reports contain more information about the funds' investments and the
market conditions and investment strategies that significantly affected the
funds' performance during the most recent fiscal period.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains a more detailed, legal description of the funds' operations,
investment restrictions, policies and practices. The SAI is incorporated by
reference into this Prospectus. This means that it is legally part of this
Prospectus, even if you don't request a copy.
You may obtain a free copy of the SAI or annual and semiannual reports, and ask
questions about the funds or your accounts, by contacting American Century at
the address or telephone numbers listed below.
You also can get information about the funds (including the SAI) from the
Securities and Exchange Commission (SEC).
In person SEC Public Reference Room
Washington, D.C.
Call 1-800-SEC-0330 for location and hours.
On the internet www.sec.gov
By mail SEC Public Reference Section
Washington, D.C. 20549-6009
(The SEC will charge a fee for copying the
documents.)
Investment Company Act File No. 811-4025
[american century logo(reg.sm)]
American
Century
American Century Investments
P.O. Box 419200
Kansas City, Missouri 64141-6200
1-800-345-2021 or 816-531-5575
FUND REFERENCE
Fund Code Ticker Newspaper Listing
- --------------------------------------------------------------------------------
Florida Municipal Money Market 945 BEFXX AmC FLMu
Florida Intermediate-Term Municipal 946 ACBFX FLIntMu
Arizona Intermediate-Term Municipal 948 BEAMX AZIntMu
- --------------------------------------------------------------------------------
<PAGE>
[american century logo(reg.sm)]
American
Century
PROSPECTUS
SEPTEMBER 7, 1999
- --------------------------------------------------------------------------------
TAX-FREE MONEY MARKET FUND
LIMITED-TERM TAX-FREE FUND
INTERMEDIATE-TERM TAX-FREE FUND
LONG-TERM TAX-FREE FUND
HIGH-YIELD MUNICIPAL FUND
INVESTOR CLASS
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this Prospectus is accurate or complete. Anyone who
tells you otherwise is committing a crime.
Distributed by Funds Distributor, Inc.
Dear Investor,
Reading a prospectus doesn't have to be a chore. We've done the hard work so you
can focus on what's important--learning about the funds. Take a look inside and
you'll see this prospectus is different from others. It takes a clear-cut
approach to fund information.
Here's what you'll find:
o The funds' primary investments and risks
o A description of who may or may not want to invest in the funds
o Fund performance, including returns for each year, best and worst quarters
and average annual returns compared to the funds' benchmarks
o An overview of ways to best manage your accounts
o Helpful tips and definitions of key investment terms
Whether you're a current investor or investing in mutual funds for the first
time, this prospectus will give you a clear understanding of the funds. If you
have questions, our Investor Services Representatives are available weekdays, 7
a.m. to 7 p.m., and Saturdays, 9 a.m. to 2 p.m., Central time. Our toll-free
number is 1-800-345-2021. We look forward to helping you achieve your financial
goals.
Sincerely,
Mark Killen
Senior Vice President
American Century Investment Services, Inc.
TABLE OF CONTENTS
An Overview of the Funds.......................................................2
Fund Performance History.......................................................3
Fees and Expenses..............................................................5
Information about the Funds....................................................6
Tax-Free Money Market Fund
Limited-Term Tax-Free Fund
Intermediate-Term Tax-Free Fund
Long-Term Tax-Free Fund
High-Yield Municipal Fund
Basics of Fixed-Income Investing...............................................9
Management....................................................................11
Investing with American Century...............................................13
Share Price and Distributions.................................................17
Taxes.........................................................................18
Financial Highlights..........................................................19
**********LEFT MARGIN CALLOUTS
Throughout this book you'll find definitions to key investment terms and
phrases. When you see a word printed in GREEN ITALICS, look for its definition
in the left margin.
o........This symbol highlights special information and helpful tips.
**********END LEFT MARGIN CALLOUTS
AN OVERVIEW OF THE FUNDS
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
These funds seek high current income and investment returns that are exempt from
federal income tax.
High-Yield Municipal also seeks capital appreciation as a secondary objective.
WHAT ARE THE FUNDS' PRIMARY INVESTMENT STRATEGIES AND PRINCIPAL RISKS?
The funds invest most of their assets in DEBT SECURITIES issued by cities,
counties and other municipalities and U.S. territories. Each of the funds
invests in different types of these municipal debt securities and involves
different risks. The chart below shows the primary differences among the funds.
A more detailed description about the funds' investment strategies and risks
begins on page 6.
<TABLE>
Fund Primary Investments Primary Risks
- ------------------------------------ ------------------------------------- -------------------------------
<S> <C> <C>
Tax-Free Money Market High-quality, very short-term debt Some credit risk
securities
Limited-Term Tax-Free Quality debt securities that mature Credit risk
in five years or less Some interest rate risk
Intermediate-Term Tax-Free Quality debt securities that mature Credit risk
in five to 10 years Interest rate risk
Long-Term Tax-Free Quality debt securities that mature Credit risk
in 10 years or more High interest rate risk
High-Yield Municipal Debt securities that provide high High credit risk
income, including non-investment High interest rate risk
grade debt securities and private
activity bonds
</TABLE>
WHO MAY WANT TO INVEST IN THE FUNDS?
The funds may be a good investment if you are
o seeking current tax-free income
o seeking diversification by investing in a fixed-income mutual fund
o comfortable with the funds' other investment risks
WHO MAY NOT WANT TO INVEST IN THE FUNDS?
The funds may not be a good investment if you are
o investing in a IRA or other tax-advantaged retirement plan
o investing for long-term growth
o looking for the added security of FDIC insurance
**********LEFT MARGIN CALLOUTS
DEBT SECURITIES include fixed-income investments such as notes, bonds,
commercial paper and debentures.
o An investment in the funds is not a bank deposit, and it is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. Although the Tax-Free Money Market Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in it.
**********END LEFT MARGIN CALLOUTS
FUND PERFORMANCE HISTORY
Tax-Free Money Market Fund
ANNUAL TOTAL RETURNS (1)
The following bar chart shows the performance of the fund's Investor Class
shares for each full calendar year in the life of the fund. It indicates the
volatility of the fund's historical returns from year to year.
[bar chart]
1989 6.04%
1990 5.60%
1991 4.21%
1992 2.47%
1993 1.90%
1994 2.31%
1995 1.90%
1996 2.98%
1997 3.43%
1998 3.47%
1 As of June 30, 1999, the end of the most recent calendar quarter, Tax-Free
Money Market's year-to-date return was ____%.
The highest and lowest quarterly returns for the period reflected in the bar
chart are:
Highest Lowest
- -------------------------------------------------------------------------------
Tax-Free Money Market 1.59% (2Q 1989) 0.44% (1Q 1994)
AVERAGE ANNUAL RETURNS
The following table shows the average annual returns of the funds' Investor
Class Shares for the periods indicated. The benchmark is included in the table
for performance comparison.
<TABLE>
For the calendar year ended December 31, 1998 1 year 5 years 10 years Life of
Fund(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax-Free Money Market 3.417% 3.11% 3.57% 3.96%
Lipper Tax-Exempt Money Market Average 2.92% 2.93% 3.47% 3.72%(2)
</TABLE>
1 The inception date for Tax-Free Money Market is July 31, 1984. 2 Benchmark
from August 31, 1984.
**********LEFT MARGIN CALLOUTS
o The performance information on this page is designed to help you see how
fund returns can vary. Keep in mind that past performance does not predict
how the funds will perform in the future.
o For current performance information, including yields, please call us at
1-800-345-2021 or visit American Century's Web site at
www.americancentury.com.
**********END LEFT MARGIN CALLOUTS
FUND PERFORMANCE HISTORY
Limited-Term Tax-Free Fund
Intermediate-Term Tax-Free Fund
Long-Term Tax-Free Fund
ANNUAL TOTAL RETURNS (1)
The following bar chart shows the performance of the funds' Investor Class
shares for full calendar year in the life of the funds. It indicates the
volatility of the funds' historical returns from year to year.
High-Yield Municipal is not included because it does not yet have a full
calendar year of performance.
<TABLE>
[bar chart]
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Limited-Term Tax-Free Intermediate-Term Tax-Free Long-Term Tax-Free
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
<S> <C> <C> <C>
1998 5.13% 5.81% 5.94%
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
1997 5.60% 7.44% 9.59%
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
1996 3.68% 3.94% 3.08%
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
1995 6.75% 11.93% 18.50%
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
1994 2.47% -2.06% -5.58%
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
1993 - 9.07% 12.15%
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
1992 - 7.17% 7.61%
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
1991 - 10.05% 12.01%
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
1990 - 6.28% 6.15%
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
1989 - 6.66% 9.55%
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
</TABLE>
1 As of June 30, 1999, the end of the most recent calendar quarter, the
funds' year-to-date returns were: Limited-Term Tax-Free ____%,
Intermediate-Term Tax-Free ____% and Long-Term Tax-Free ____%.
The highest and lowest quarterly returns for the period reflected in the bar
chart are:
Highest Lowest
- -------------------------------------------------------------------------------
Limited-Term Tax-Free 2.10% (3Q 1998) -0.14% (1Q 1994)
Intermediate-Term Tax-Free 4.17% (1Q 1995) -3.54% (1Q 1994)
Long-Term Tax-Free 6.68% (1Q 1995) -5.46% (1Q 1994)
AVERAGE ANNUAL RETURNS
The following table shows the average annual returns of the funds' Investor
Class Shares for the periods. The benchmarks are unmanaged indices that have no
operating costs and are included in the table for performance comparison.
<TABLE>
1 year 5 years 10 years Life of
Fund(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Limited-Term Tax-Free 5.13% 4.71% N/A 4.62%
Merrill Lynch 0-3 Year Municipal Index 5.01% 4.45% N/A 4.37%
- --------------------------------------------------------------------------------------------------------------------
Intermediate-Term Tax-Free 5.81% 5.31% 6.57% 6.08%
Lehman 5-Year General Obligation Index 5.84% 5.35%% 6.98% 6.35%
- --------------------------------------------------------------------------------------------------------------------
Long-Term Tax-Free 5.94% 6.01% 7.73% 7.25%%
Lehman Long-Term Municipal Bond Index 6.89% 6.84% 9.15% 8.51%%
</TABLE>
1 The inception dates for the funds are: Limited-Term Tax-Free, March 1,
1993, Intermediate-Term Tax-Free and Long-Term Tax-Free, March 2, 1987.
**********LEFT MARGIN CALLOUTS
o The performance information on this page is designed to help you see how
fund returns can vary. Keep in mind that past performance does not predict
how the funds will perform in the future.
o For current performance information, including yields, please call us at
1-800-345-2021 or visit American Century's Web site at
www.americancentury.com.
**********END LEFT MARGIN CALLOUTS
Fees and Expenses
There are no sales loads, fees or other charges
o to buy fund shares directly from American Century
o to reinvest dividends in additional shares
o to exchange into the Investor Class shares of other American Century funds
o to redeem your shares
The following table describes the fees and expenses that you will pay if you buy
and hold shares of the funds.
<TABLE>
ANNUAL OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Distribution and Other Total Annual Fund
Fee(1) Service (12b-1) Fees Expenses Operating Expenses
- ------------------------------- ---------------- ------------------------ -------------- -----------------------
<S> <C> <C> <C>
Tax-Free Money Market 0.50% None 0.00%(2) 0.50%(3)
- ------------------------------- ---------------- ------------------------ -------------- -----------------------
Limited-Term Tax-Free 0.51% None 0.01%(4) 0.52%
Intermediate-Term Tax-Free 0.51% None 0.01%(4) 0.52%
Long-Term Tax-Free 0.51% None 0.01%(4) 0.52%
- ------------------------------- ---------------- ------------------------ -------------- -----------------------
- ------------------------------- ---------------- ------------------------ -------------- -----------------------
High-Yield Municipal 0.64% None 0.01%(4) 0.65%(5)
</TABLE>
1 Based on expenses incurred during the funds' most recent fiscal year. The
funds have a stepped fee schedule. As a result, the funds' management fee
rate generally decreases as fund assets increase.
2 Other expenses, which include the fees and expenses of the funds'
independent trustees, their legal counsel and interest, were less than
0.005% for the most recent fiscal year.
3 The advisor voluntarily waived its management fee from August 1, 1997
through July 31, 1998. Effective August 1, 1998, the advisor began
decreasing the waiver by 0.10% of the fund's net assets, until the waiver
expired in December 1998. The fee is shown without effect of the fee
waiver.
4 Other expenses include the fees and expenses of the funds' independent
trustees, their legal counsel and interest.
5 The advisor waived all expenses of High-Yield Municipal through April 30,
1999. The fee is shown without the effect of the fee waiver.
EXAMPLES
The examples in the table below are intended to help you compare the costs of
investing in a fund with the costs of investing in other mutual funds. Assuming
you ...
o invest $10,000 in the fund
o redeem all of your shares at the end of the periods shown below
o earn a 5% return each year and
o incur the same operating expenses shown above,
... your cost of investing in the fund would be:
<TABLE>
1 year 3 years 5 years 10 years
- ------------------------------ ------------------ ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Tax-Free Money Market $51 $160 $279 $627
- ------------------------------ ------------------ ------------------- ------------------- -------------------
- ------------------------------ ------------------ ------------------- ------------------- -------------------
Limited-Term Tax-Free $52 $167 $290 $652
Intermediate-Term Tax-Free $52 $167 $290 $652
Long-Term Tax-Free $52 $167 $290 $652
- ------------------------------ ------------------ ------------------- ------------------- -------------------
High-Yield Municipal $66 $208 $362 $809
</TABLE>
**********LEFT MARGIN CALLOUTS
o Use this example to compare the costs of investing in other funds. Of
course, your actual costs may be higher or lower.
**********END LEFT MARGIN CALLOUTS
INFORMATION ABOUT THE FUNDS
TAX-FREE MONEY MARKET FUND
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?
Tax-Free Money Market seeks safety of principal and high current income that is
exempt from federal income tax.
HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVES?
The fund managers buy cash-equivalent, HIGH-QUALITY DEBT SECURITIES with income
payments exempt from federal income tax. Cities, counties and other
municipalities in the 50 states and U.S. territories usually issue these
securities for public projects, such as schools and roads.
The fund managers also may buy some cash-equivalent, high-quality debt
securities whose payments are exempt from regular federal income tax, but not
the federal alternative minimum tax. Cities, counties and other municipalities
usually issue these securities (called private activity bonds) to fund
for-profit private projects, such as hospitals and athletic stadiums. No more
than 20% of the fund's total assets may be invested in these securities.
Additional information about the fund's investments is available in its annual
and semiannual reports. In these reports you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund's performance during the most recent fiscal period. You may get these
reports at no cost by calling us.
WHAT ARE THE PRIMARY RISKS OF INVESTING IN THE FUND?
Because cash-equivalent securities are among the safest securities available,
the interest they pay is among the lowest for income-paying securities.
Accordingly, the yield on this fund will likely be lower than funds that invest
in longer-term or lower-quality securities.
Because the fund invests primarily in municipal securities, it will be sensitive
to events that affect municipal markets. Tax-Free Money Market may have a higher
level of risk than funds that invest in a larger universe of securities.
**********LEFT MARGIN CALLOUTS
o Income from Tax-Free Money Market may be subject to the alternative minimum
tax. For more information, see "Taxes" in this Prospectus.
A HIGH-QUALITY DEBT SECURITY is one that has been determined to be in the top
two credit quality categories. This can be established in a number of ways. For
example, independent rating agencies may rate the security in their higher
rating categories. The fund's advisor also can analyze an unrated security to
determine if its credit quality is high enough for investment. The details of
the fund's credit quality standards are described in the Statement of Additional
Information.
**********END LEFT MARGIN CALLOUTS
LIMITED-TERM TAX-FREE FUND
INTERMEDIATE-TERM TAX-FREE FUND
LONG-TERM TAX-FREE FUND
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
These funds seek safety of principal and high current income that is exempt from
federal income tax.
HOW DO THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES?
The fund managers buy QUALITY DEBT SECURITIES with income payments exempt from
federal income tax. Cities, counties and other municipalities in the 50 states
and U.S. territories usually issue these securities for public projects, such as
schools and roads.
The fund managers also may buy quality debt securities whose payments are exempt
from regular federal income tax, but not the federal alternative minimum tax.
Cities, counties and other municipalities usually issue these securities (called
private activity bonds) to fund for-profit private projects, such as hospitals
and athletic stadiums. No more than 20% of the funds' total assets may be
invested in these securities.
The funds may purchase securities in a number of different ways to seek higher
rates of return. For example, by using when-issued and forward commitment
transactions, the funds may purchase securities in advance to generate
additional income.
Additional information about the funds' investments is available in their annual
and semiannual reports. In these reports you will find a discussion of the
market conditions and investment strategies that significantly affected the
funds' performance during the most recent fiscal period. You may get these
reports at no cost by calling us.
WHAT IS THE DIFFERENCE BETWEEN THE FUNDS?
The funds differ in the maturity of the debt securities they purchase. This
difference is shown on the chart below.
Weighted Average Maturity Range
- --------------------------------------------------------------------------------
Limited-Term Tax-Free 5 years or less
Intermediate-Term Tax-Free 5-10 years
Long-Term Tax-Free 10 years or longer
WHAT ARE THE PRIMARY RISKS OF INVESTING IN THE FUNDS?
The funds have different WEIGHTED AVERAGE MATURITIES. Because of this, the funds
will respond differently to changes in interest rates. Funds with longer
weighted average maturities are more sensitive to interest rate changes. When
interest rates rise, the values of the funds usually fall, but the values of
funds with longer weighted average maturities generally will fall farther.
The funds may invest part of their assets in securities rated in the lowest
investment-grade category (e.g., BBB). The issuers of these securities are more
likely to have problems making interest and principal payments than issuers of
higher-rated securities.
Because these funds invest primarily in municipal securities, they will be
sensitive to events that affect municipal markets. The funds may have a higher
level of risk than funds that invest in a larger universe of securities.
As with all funds, at any given time the value of your shares may be worth more
or less than the price you paid. If you sell your shares when the value is less
than the price you paid, you will lose money.
The funds' share values will fluctuate. In general, the funds that have higher
potential income have a higher potential loss.
Potential Income Potential Loss
- --------------------------------------------------------------------------------
Limited-Term Tax-Free Lower Lower
Intermediate-Term Tax-Free Moderate Moderate
Long-Term Tax-Free Higher Higher
**********LEFT MARGIN CALLOUTS
o Income from the funds may be subject to the alternative minimum tax. For
more information, see "Taxes" in this Prospectus.
A QUALITY DEBT SECURITY is one that has been determined to be in the top four
credit quality categories. This can be established in a number of ways. For
example, independent rating agencies may rate the security in their higher
rating categories. The fund's advisor also can analyze an unrated security to
determine if its credit quality is high enough for investment. The details of
the fund's credit quality standards are described in the Statement of Additional
Information.
WEIGHTED AVERAGE MATURITY is a measure of a fund's interest rate sensitivity.
For more information, see "Weighted Average Maturity" in this Prospectus.
**********END LEFT MARGIN CALLOUTS
HIGH-YIELD MUNICIPAL FUND
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?
High-Yield Municipal seeks high current income that is exempt from federal
income tax. Capital appreciation is a secondary objective.
HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVE?
The fund managers buy long- and intermediate-term debt securities with income
payments exempt from federal income tax. Cities, counties and other
municipalities in the 50 states and U.S. territories usually issue these
securities for public projects, such as schools and roads.
The fund managers also may buy long- and intermediate-term debt securities whose
payments are exempt from regular federal income tax, but not the federal
alternative minimum tax. Cities, counties and other municipalities usually issue
these securities (called private activity bonds) to fund for-profit private
projects, such as hospitals and athletic stadiums.
The fund managers buy securities that are considered below investment grade,
including so-called junk bonds. Issuers of these securities often have short
financial histories or have questionable credit.
The WEIGHTED AVERAGE MATURITY of the fund is expected to be 10 years or longer.
Additional information about the fund's investments is available in its annual
and semiannual reports. In these reports you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund's performance during the most recent fiscal period. You may get these
reports at no cost by calling us.
WHAT ARE THE PRIMARY RISKS OF INVESTING IN THE FUND?
When interest rates change, the fund's share value will be affected. Generally,
when interest rates rise, the fund's share value will decline. The opposite is
true when interest rates decline. This interest rate risk is higher for
High-Yield Municipal than for funds that have shorter weighted average
maturities, such as short-term and intermediate-term funds.
The fund may invest part of its assets in securities rated below investment
grade, including bonds that are in technical or monetary default. By definition,
the issuers of many of these securities have had and may continue to have
problems making interest and principal payments.
Some or all of the fund's income may be subject to the federal alternative
minimum tax.
Because the fund invests primarily in municipal securities, it will be sensitive
to events that affect municipal markets. High-Yield Municipal may have a higher
level of risk than funds that invest in a larger universe of securities.
As with all funds, at any given time the value of your shares of High-Yield
Municipal may be worth more or less than the price you paid. If you sell your
shares when the value is less than the price you paid, you will lose money.
**********LEFT MARGIN CALLOUTS
o Income from the fund may be subject to the alternative minimum tax. For
more information, see "Taxes" in this Prospectus.
WEIGHTED AVERAGE MATURITY is a measure of a fund's interest rate sensitivity.
For more information, see "Weighted Average Maturity" in this Prospectus.
**********END LEFT MARGIN CALLOUTS
BASICS OF FIXED INCOME INVESTING
DEBT SECURITIES
When a fund buys a debt security, which is also called a fixed-income security,
it is essentially lending money to the issuer of the security. Notes, bonds,
commercial paper and Treasury bills are examples of debt securities. After the
debt security is first sold by the issuer, it may be bought and sold by other
investors. The price of the security may rise or fall based on many factors,
including changes in interest rates, inflation, liquidity and credit quality.
The fund managers decide which debt securities to buy and sell by
o determining which securities help a fund meet its maturity requirements
o eliminating securities that do not satisfy a fund's credit quality
standards
o evaluating the current economic conditions and assessing the risk of
inflation
o evaluating special features of the securities that may make them more or
less attractive
WEIGHTED AVERAGE MATURITY
Like most loans, debt securities eventually must be repaid (or refinanced) at
some date. This date is called the maturity date. The number of days left to a
debt security's maturity date is called the remaining maturity. The longer a
debt security's remaining maturity, the more sensitive it is to changes in
interest rates.
Because a bond fund will own many debt securities, the fund managers calculate
the average of the remaining maturities of all of the debt securities the fund
owns to evaluate the interest rate sensitivity of the entire portfolio. This
average is weighted according to the size of the fund's individual holdings and
is called WEIGHTED AVERAGE MATURITY. The following chart shows how fund managers
would calculate the weighted average maturity for a fund that owned only two
debt securities.
<TABLE>
Amount of Security Owned Percent of Portfolio Remaining Maturity Weighted Maturity
- ---------------------- ------------------------------ ---------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Debt Security A $100,000 25% 1,000 days 250 days
Debt Security B $300,000 75% 10,000 days 7,500 days
WEIGHTED AVERAGE MATURITY 7,750 DAYS
</TABLE>
TYPES OF RISK
The basic types of risk that the funds face are described below.
INTEREST RATE RISK
Generally, interest rates and the prices of debt securities move in opposite
directions. When interest rates fall, the prices of most debt securities rise;
when interest rates rise, prices fall. Because the funds invest primarily in
debt securities, changes in interest rates will affect the funds' performance.
The degree to which interest rate changes affect a fund's performance varies and
is related to the weighted average maturity of a particular fund. For example,
when interest rates rise, you can expect the share value of a long-term bond
fund to fall more than that of a short-term bond fund. When rates fall, the
opposite is true. This sensitivity to interest rate changes is called interest
rate risk.
***********LEFT MARGIN CALLOUTS
WEIGHTED AVERAGE MATURITY is a tool that the fund managers use to approximate
the remaining maturity of a fund's investment portfolio.
o The longer a fund's weighted average maturity, the more sensitive it is to
changes in interest rates.
***********END LEFT MARGIN CALLOUTS
When interest rates change, longer maturity bonds experience a greater change in
price. The following table shows the effect of a 1% increase in interest rates
on the price of 7% coupon bonds of differing maturities:
<TABLE>
Remaining Maturity Current Price Price after 1% increase Change in price
- ---------------------- --------------------------- -------------------------------- ------------------------
<S> <C> <C> <C>
1 year $100.00 $99.06 -0.94%
3 years 100.00 97.38 -2.62%
10 years 100.00 93.20 -6.80%
30 years 100.00 88.69 -11.31%
</TABLE>
CREDIT RISK
Credit risk is the risk that an obligation won't be paid and a loss will result.
A high credit rating indicates a high degree of confidence by the rating
organization that the issuer will be able to withstand adverse business,
financial or economic conditions and be able to make interest and principal
payments on time. Generally, a lower credit rating indicates a greater risk of
non-payment. A lower rating also may indicate that the issuer has a more senior
series of debt securities, which means that if the issuer has difficulties
making its payments, the more senior series of debt is first in line for
payment.
It's not as simple as buying the highest-rated debt securities. Higher credit
ratings usually mean lower interest rates, so investors often purchase
securities that aren't the highest rated to increase return. If a fund purchases
lower-rated securities, it has assumed additional credit risk.
The following chart shows the authorized credit quality ranges for the funds
offered by this Prospectus.
<TABLE>
Quality
High-Quality
A-1 A-2 A-3
P-1 P-2 P-3
<S> <C> <C> <C> <C> <C> <C> <C>
MIG-1 MIG-2 MIG-3
SP-1 SP-2 SP-3
AAA AA A BBB BB B CCC CC C D
- -------------------------- ----------------------------------------------- ----------- ----------- ----------- -----------
Tax-Free Money Market
-----------------------------------------------
Limited-Term Tax-Free
- --------------------------------------------------
Intermediate-Term Tax-Free
- --------------------------------------------------
Long-Term Tax-Free
- --------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
High-Yield Municipal
- --------------------------------------------------------------------------------------------------------------------------
Investment Grade Non-investment grade
- -------------- ----------------------------------- -----------------------------------------------------------------------
</TABLE>
Securities rated in one of the highest four categories by a nationally
recognized securities rating organization (e.g., Moody's or Standard & Poor's)
are considered "investment grade." Although they are considered investment
grade, an investment in these securities still involves some credit risk since a
AAA rating is not a guarantee of payment. For a complete description of the
ratings system, see "Explanation of Fixed-Income Securities Ratings" in the
Statement of Additional Information. The funds' credit quality restrictions
apply at the time of purchase; the fund will not necessarily sell securities if
they are downgraded by a rating agency.
LIQUIDITY RISK
LIQUIDITY RISK
Debt securities can become difficult to sell, or less liquid, for a variety of
reasons, such as lack of an active trading market. The chance that a fund will
have liquidity issues is called liquidity risk.
INFLATION RISK
The safest investments usually have the lowest potential income and performance.
However, returns from these investments may fail to significantly outpace
inflation. Even if the value of your investment has not gone down, your money
will not be worth as much as if there had been no inflation. Your
after-inflation return may be quite small. This risk is called inflation risk.
**********LEFT MARGIN CALLOUTS
o Credit quality may be lower when the issuer has
o a high debt level
o a short operating history
o a senior level of debt
o a difficult, competitive environment
o a less stable cash flow
o The Statement of Additional Information provides a detailed description of
these securities ratings.
**********END LEFT MARGIN CALLOUTS
A COMPARISON OF BASIC RISK FACTORS
The following chart depicts the basic risks of investing in the funds. It is
designed to help you compare these funds with each other; it shouldn't be used
to compare these funds with other mutual funds.
<TABLE>
Interest Rate Risk Credit Risk Liquidity Risk Inflation Risk
- ----------------------------- ------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Tax-Free Money Market Lowest Lowest Lowest Lowest
Limited-Term Tax-Free Low Medium Medium Low
Intermediate-Term Tax-Free Medium Medium Medium Medium
Long-Term Tax-Free High Medium Medium High
High-Yield Municipal Highest Highest Highest Highest
</TABLE>
The funds engage in a variety of investment techniques as they pursue their
investment objectives. Each technique has its own characteristics, and may pose
some level of risk to the funds. If you would like to learn more about these
techniques, you should review the Statement of Additional Information before
making an investment.
MANAGEMENT
WHO MANAGES THE FUNDS?
The Board of Trustees, investment advisor and fund management team play key
roles in the management of the funds.
THE BOARD OF TRUSTEES
The Board of Trustees oversees the management of the funds and meets at least
quarterly to review reports about fund operations. Although the Board of
Trustees does not manage the funds, it has hired an investment advisor to do so.
More than two-thirds of the trustees are independent of the funds' advisor; that
is, they are not employed by and have no financial interest in the advisor.
THE INVESTMENT ADVISOR
The funds' investment advisor is American Century Investment Management, Inc.
The advisor has been managing mutual funds since 1958. American Century is
headquartered at 4500 Main Street, Kansas City, Missouri 64111.
The advisor is responsible for managing the investment portfolios of the funds
and directing the purchase and sale of their investment securities. The advisor
also arranges for transfer agency, custody and all other services necessary for
the funds to operate.
For the services it provided to the funds during their most recent fiscal year,
the advisor received a unified management fee based on a percentage of the
average net assets of the Investor Class shares of the funds. The rate of the
management fee for a fund is determined on a class-by-class basis monthly using
a two-step formula that takes into account the fund's strategy (money market,
bond or equity) and the total amount of mutual fund assets the advisor manages.
The Statement of Additional Information contains detailed information about the
calculation of the management fee. Out of that fee, the advisor paid all
expenses of managing and operating the fund except brokerage expenses, taxes,
interest, fees and expenses of the independent directors (including legal
counsel fees), and extraordinary expenses. A portion of the management fee may
be paid by the funds' advisor to unaffiliated third parties who provide
recordkeeping and administrative services that would otherwise be performed by
an affiliate of the advisor.
Management Fees Paid by the Funds to the Advisor
as a Percentage of Average Net Assets
for the Most Recent Fiscal Year Ended May 31, 1999
- -----------------------------------------------------------------------------
Tax-Free Money Market 0.50%
Limited-Term Tax-Free 0.51%
Intermediate-Term Tax-Free 0.51%
Long-Term Tax-Free 0.51%
High-Yield Municipal 0.65%
THE FUND MANAGEMENT TEAM
The advisor uses teams of portfolio managers, assistant portfolio managers and
analysts to manage the funds. Teams meet regularly to review portfolio holdings
and to discuss purchase and sale activity. Team members buy and sell securities
for a fund as they see fit, guided by the fund's investment objective and
strategy.
The portfolio managers who lead the investment teams are identified below:
G. DAVID MACEWEN
Mr. MacEwen, Senior Vice President and Portfolio Manager, supervises the
American Century Municipal Trust team. He has been a member of the team that
manages Long-Term Tax-Free since May 1991 and Limited-Term Tax-Free since June
1999. He joined American Century in May 1991 as a Municipal Portfolio Manager.
He has a bachelor's degree in economics from Boston University and an MBA in
finance from the University of Delaware.
STEVEN M. PERMUT
Mr. Permut, Vice President, Director of Municipal Research and Portfolio
Manager, has been a member of the High-Yield Municipal team since its inception
in March 1998. He joined American Century in June 1987. He has bachelor's
degrees in business and geography from State University of New York--Oneonta and
an MBA in finance from Golden Gate University--San Francisco.
BRYAN E. KARCHER
Mr. Karcher, Portfolio Manager, has been a member of the team that manages
Tax-Free Money Market since June 1995 and Limited-Term Tax-Free since June 1999.
He joined American Century in July 1989 and has been a Portfolio Manager since
1995. He has a bachelor's degree in economics from the University of
California--Los Angeles. He is a Chartered Financial Analyst.
KENNETH M. SALINGER
Mr. Salinger, Portfolio Manager, has been a member of the team that manages
Intermediate-Term Tax-Free since June 1999. He joined American Century in April
1992. He has a bachelor's degree in quantitative economics from the University
of California--San Diego.
**********LEFT MARGIN CALLOUTS
o CODE OF ETHICS
American Century has a Code of Ethics designed to ensure that the interests
of fund shareholders come before the interests of the people who manage the
funds. Among other provisions, the Code of Ethics prohibits portfolio
managers and other investment personnel from buying securities in an
initial public offering or from profiting from the purchase and sale of the
same security within 60 calendar days. In addition, the Code of Ethics
requires portfolio managers and other employees with access to information
about the purchase or sale of securities by the funds to obtain approval
before executing permitted personal trades.
**********END LEFT MARGIN CALLOUTS
FUNDAMENTAL INVESTMENT POLICIES
Fundamental investment policies contained in the Statement of Additional
Information and the investment objectives of the funds may not be changed
without a shareholder vote. The Board of Trustees may change any other policies
and investment strategies.
YEAR 2000 ISSUES
Many of the world's computer systems were originally programmed in a way that
prevented them from properly recognizing or processing date-sensitive
information relating to the Year 2000 and beyond. Because this may impact the
computer systems of various American Century-affiliated and external service
providers for the funds, American Century formally initiated a Year 2000
readiness project in July 1997. It involves a team of information technology
professionals assisted by outside consultants and guided by a senior-level
steering committee. The team's goal is to assess the impact of the Year 2000 on
American Century's systems, renovate or replace noncompliant critical systems
and test those systems. In addition, the team has been working to gather
information about the Year 2000 efforts of the funds' other major service
providers.
Although American Century believes its critical systems will function properly
in the Year 2000, this is not guaranteed. If the efforts of American Century or
its external service providers are not successful, the funds' business,
particularly the provision of shareholder services, may be hampered.
In addition, the issuers of securities the funds own could have Year 2000
computer problems. These problems could negatively affect the value of their
securities, which, in turn, could impact the funds' performance. The advisor has
established a process to gather publicly available information about the Year
2000 readiness of these issuers. However, this process may not uncover all
relevant information, and the information gathered may not be complete and
accurate. Moreover, an issuer's Year 2000 readiness is only one of many factors
the fund managers may consider when making investment decisions, and other
factors may receive greater weight.
Investing With American Century
SERVICES AUTOMATICALLY AVAILABLE TO YOU
You automatically will have access to the services listed below when you open
your account. If you do not want these services, see "Conducting Business in
Writing" below.
CONDUCTING BUSINESS IN WRITING
If you prefer to conduct business in writing only, you can indicate this on the
account application. If you choose this option, you must provide written
instructions to invest, exchange and redeem. All account owners must sign
transaction instructions (with signatures guaranteed for redemptions in excess
of $100,000). If you want to add services later, you can complete an Investor
Service Options form.
<TABLE>
Ways to Manage Your Account
- -------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------- ---------------------------------------------- -----------------------------------------------
<S> <C> <C>
By telephone Open an account Make additional investments
Investor Relations If you are a current investor, you can open Call us or use our Automated Information Line
1-800-345-2021 an account by exchanging shares from another if you have authorized us to invest from your
American Century account. bank account.
Business, Not-For-Profit
and Employer-Sponsored Exchange shares Sell shares
Retirement Plans Call us or use our Automated Information Call an Investor Relations Representative.
1-800-345-3533 Line if you have authorized us to accept
telephone instructions.
Automated Information Line
1-800-345-8765
- ---------------------------------- ---------------------------------------------- -----------------------------------------------
- ---------------------------------- ---------------------------------------------- -----------------------------------------------
By mail or fax Open an account Make additional investments
P.O. Box 419200 Send a signed, completed application and Send us your check or money order for at
Kansas City, MO 64141-6200 check or money order payable to American least $50 with an investment slip or $250
Century Investments. without an investment slip. If you don't have
Fax an investment slip, include your name,
816-340-7962 Exchange shares address and account number on your check or
Send us written instructions to exchange money order.
your shares from one American Century
account to another. Sell shares
Send us written instructions or a redemption
form to sell shares. Call an Investor
Relations Representative to request a form.
- ---------------------------------- ---------------------------------------------- -----------------------------------------------
- ---------------------------------- ---------------------------------------------- -----------------------------------------------
Online Open an account Make additional investments
www.americancentury.com If you are a current investor, you can open Make an additional investment into an
an account by exchanging shares from another established American Century account if you
American Century account. have authorized us to invest from your bank
account.
Exchange shares
Exchange shares from another American Sell shares
Century account. Not available.
A NOTE ABOUT MAILINGS TO SHAREHOLDERS
To reduce expenses and demonstrate respect for our environment, we will deliver
most financial reports, prospectuses and account statements to households in a
single envelope, even if the accounts are registered under different names. If
you would like additional copies of financial reports and prospectuses or
separate mailing of account statements, please call us.
YOUR GUIDE TO SERVICES AND POLICIES
When you open an account, you will receive a services guide, which explains the
services available to you and the policies of the funds and the transfer agent.
By wire Open an account Make additional investments
Call us to set up your account or mail a Follow the wire instructions provided in the
completed application to the address provided "Open an account" section
in the "By Mail" section and give your bank
the following information. Sell shares
Our bank information: You can receive redemption proceeds by wire
Please remember that if you Commerce Bank N.A. or electronic transfer.
request redemptions by wire, Routing No. 101000019
$10 will be deducted from the Account No. 2804918
amount wired. Your bank also The fund name
may charge a fee. Your American Century account number*
Your name Exchange shares
The contribution year (for IRAs only) Not available.
*For additional investments only
- -------------------------------- ------------------------------------------------ -----------------------------------------------
- -------------------------------- ------------------------------------------------ -----------------------------------------------
Automatically Open an account Make additional investments
Not available. With the automatic investment privilege, you
can purchase shares on a regular basis. You
Exchange shares must invest at least $600 per year per
Send us written instructions to set up an account.
automatic exchange of your shares from one
American Century account to another. Sell shares
If you have at least $10,000 in your account,
you may sell shares automatically by
establishing Check-A-Month or Automatic
Redemption plans.
- -------------------------------- ------------------------------------------------ -----------------------------------------------
- -------------------------------- ------------------------------------------------------------------------------------------------
In person If you prefer to handle your transactions in person, visit one of our Investor Centers and a
representative can help you open an account, make additional investments and sell or exchange
shares.
4500 Main St. 4917 Town Center Drive
Kansas City, Missouri Leawood, Kansas
8 a.m. to 5:30 p.m., Monday-Friday 8 a.m. to 6 p.m., Monday-Friday
8 a.m. to noon, Saturday
1665 Charleston Road 9445 East County Line Road, Suite A
Mountain View, California Englewood, Colorado
8 a.m. to 5 p.m., Monday-Friday 8 a.m. to 6 p.m., Monday-Friday
8 a.m. to noon, Saturday
- -------------------------------- ------------------------------------------------------------------------------------------------
- -------------------------------- ------------------------------------------------------------------------------------------------
</TABLE>
MINIMUM INITIAL INVESTMENT AMOUNTS(1)
<TABLE>
To open an account the minimum investments are as follows: Tax-Free Money Market Other Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Individual or Joint $2,500 $5,000
UGMA/UTMA $2,500 $5,000
</TABLE>
1 The funds in this Prospectus are not available for retirement accounts
REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS
If your redemption activity causes your account balance to fall below the
minimum initial investment amount we will notify you and give you 90 days to
meet the minimum. If you do not meet the deadline, American Century will redeem
the shares in the account and send the proceeds to your address of record.
ABUSIVE TRADING PRACTICES
We do not permit market timing or other abusive trading practices in our funds.
Excessive, short-term (market timing) or other abusive trading practices may
disrupt portfolio management strategies and harm fund performance. To minimize
harm to the funds and their shareholders, we reserve the right to reject any
purchase order (including exchanges) from any investor we believe has a history
of abusive trading or whose trading, in our judgment, has been or may be
disruptive to a fund. In making this judgment, we may consider trading done in
multiple accounts under common ownership or control. We also reserve the right
to delay delivery of your redemption proceeds -- up to seven days -- or to honor
certain redemptions with securities, rather than cash, as described in the next
section.
SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS
If, during any 90-day period, you redeem fund shares worth more than $250,000
(or 1% of the assets of the fund if that percentage is less than $250,000), we
reserve the right to pay part or all of the redemption proceeds in excess of
this amount in readily marketable securities instead of cash. If we make payment
in securities, we will value the securities selected by the fund managers in the
same manner as we do in computing the fund's net asset value. We may provide
these securities in lieu of cash without prior notice.
If your redemption would exceed this limit and you would like to avoid being
paid in securities, please provide us with an unconditional instruction to
redeem at least 15 days prior to the date on which the redemption transaction is
to occur. The instruction must specify the dollar amount or number of shares to
be redeemed and the date of the transaction. This minimizes the effect of the
redemption on the fund and its remaining shareholders.
INVESTING THROUGH FINANCIAL INTERMEDIARIES
If you do business with us through a financial intermediary or a retirement
plan, your ability to purchase, exchange and redeem shares will depend on the
policies of that entity. Some policy differences may include
o minimum investment requirements
o exchange policies
o fund choices
o cutoff time for investments
Please contact your financial intermediary or plan sponsor for a complete
description of its policies. Copies of the funds' annual reports, semiannual
reports and Statement of Additional Information are available from your
intermediary or plan sponsor.
Certain financial intermediaries perform recordkeeping and administrative
services for their clients that would otherwise be performed by American
Century's transfer agent. In some circumstances, American Century will pay the
service provider a fee for performing those services.
Although transactions in fund shares may be made directly with American Century
at no charge, you also may purchase, redeem and exchange fund shares through
financial intermediaries that charge a transaction-based or other fee for their
services. Those charges are retained by the intermediary and are not shared with
American Century or the funds.
American Century has contracts with certain financial intermediaries requiring
them to track the time investment orders are received and to comply with
procedures relating to the transmission of orders. The funds have authorized
those intermediaries to accept orders on each fund's behalf up to the time at
which the net asset value is determined. If those orders are transmitted to
American Century and paid for in accordance with the contract, they will be
priced at the net asset value next determined after your request is received in
the form required by the intermediary on a fund's behalf.
**********LEFT MARGIN CALLOUTS
o Financial intermediaries include banks, broker-dealers, insurance companies
and investment advisors.
**********END LEFT MARGIN CALLOUTS
SHARE PRICE AND DISTRIBUTIONS
SHARE PRICE
American Century determines the NET ASSET VALUE (NAV) of the funds as of the
close of regular trading on the New York Stock Exchange (usually 4 p.m. Eastern
time) on each day the Exchange is open. On days when the Exchange is not open
(including certain U.S. holidays), we do not calculate the NAV. The NAV of a
fund share is the current value of the fund's assets, minus any liabilities,
divided by the number of fund shares outstanding.
If current market prices of securities owned by a fund (except Tax-Free Money
Market) are not readily available, the advisor may determine their fair value in
accordance with procedures adopted by the fund's Board of Trustees.
We will price your purchase, exchange or redemption at the net asset value next
determined after we receive your transaction request in good order.
DISTRIBUTIONS
Federal tax laws require each fund to make distributions to its shareholders in
order to qualify as a "regulated investment company." Qualification as a
regulated investment company means that the funds will not be subject to state
or federal income tax on amounts distributed. The distributions generally
consist of dividends and interest received, as well as CAPITAL GAINS realized on
the sale of investment securities.
Each money market fund declares and reinvests distributions from net income
daily. Each of the other funds declares distributions from net income daily and
pays these distributions monthly. Each fund (except Tax-Free Money Market)
generally pays distributions of capital gains, if any, once a year usually in
December. A fund may make more frequent distributions if necessary to comply
with Internal Revenue Code provisions. Distributions are reinvested
automatically in additional shares unless you choose another option.
You will participate in fund distributions, when they are declared, starting on
the day after your purchase is effective. For example, if you purchase shares on
a day that a distribution is declared, you will not receive that distribution.
If you redeem shares, you will receive any distribution declared on the day you
redeem. If you redeem all shares, we will include any distribution received with
your redemption proceeds.
Participants in employer-sponsored retirement or savings plans must reinvest all
distributions. For shareholders investing through taxable accounts, we will
reinvest distributions unless you elect to receive them in cash. Please consult
our services guide for further information regarding distributions and your
distribution options.
**********LEFT MARGIN CALLOUTS
The NET ASSET VALUE of a fund is the price of the fund's shares.
CAPITAL GAINS are increases in the values of capital assets, such as stock, from
the time the assets are purchased. Tax becomes due on capital gains once an
asset is sold.
**********END LEFT MARGIN CALLOUTS
TAXES
TAX-EXEMPT INCOME. Most of the income that the funds receive from municipal
securities is exempt from regular federal income taxes. However, corporate
shareholders should be aware that these distributions may be subject to state
corporate franchise tax.
The funds may also purchase private activity bonds. The income from these
securities is subject to the federal alternative minimum tax. If you are subject
to the alternative minimum tax, then distributions from the funds that represent
income derived from private activity bonds is taxable to you. Consult your tax
advisor to determine whether you are subject to the alternative minimum tax.
TAXABLE INCOME. The funds' investment performance is also based on sources other
than income from municipal securities. These investment performance sources,
while not the primary source of fund distributions, will generate taxable income
to you. Some of these investment performance sources are:
o Market Discount Purchases. The funds may buy a tax-exempt security for a
price less than the principal amount of the bond. If the price of the bond
increases over time, a portion of the gain may be treated as ordinary
income and taxable as ordinary income to shareholders if it is distributed
to you.
o Capital Gains. When a fund sells a security, even a tax-exempt municipal
security, it can generate a capital gain or loss.
o Temporary Investments. Some temporary investments, such as securities loans
and repurchase agreements, can generate taxable income.
<TABLE>
Type of Distribution Tax Rate for 15% bracket Tax Rate for 28% bracket or above
- --------------------------- ------------------------------ -----------------------------------------
<S> <C> <C>
Short-term capital gains Ordinary income rate Ordinary income rate
Long-term capital gains 10% 20%
</TABLE>
The tax status of any distribution of capital gains is determined by how long
the fund held the underlying security that was sold, not by how long you have
been invested in the fund or whether you reinvest your distribution in
additional shares or take them in cash. American Century will send you the tax
status of fund distributions for each calendar year in an annual tax mailing
(Form 1099-DIV) from the fund.
Distributions also may be subject to state and local taxes. Because everyone's
tax situation is unique, always consult your tax professional about federal,
state and local tax consequences.
TAXES ON TRANSACTIONS
Your redemptions--including exchanges to other American Century funds--are
subject to capital gains tax. The table above can provide a general guide for
your potential tax liability when selling or exchanging fund shares. Short-term
capital gains are gains on fund shares you held for 12 months or less. Long-term
capital gains are gains on fund shares you held for more than 12 months. If your
shares decrease in value, their sale or exchange will result in a long-term or
short-term capital loss. 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. 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. This may result in a postponement of the recognition of such loss
for federal income tax purposes.
If you have not certified to us that your Social Security number or tax
identification number is correct and that you are not subject to 31%
withholding, we are required to withhold and remit 31% of dividends, capital
gains distributions and redemptions to the IRS.
**********LEFT MARGIN CALLOUTS
o BUYING A DIVIDEND
Purchasing fund shares in a taxable account shortly before a distribution
is sometimes known as buying a dividend. In taxable accounts, you must pay
income taxes on the distribution whether you reinvest the distribution or
take it in cash. In addition, you will have to pay taxes on the
distribution whether the value of your investment decreased, increased or
remained the same after you bought the fund shares. The risk in buying a
dividend is that a fund's portfolio may build up taxable gains throughout
the period covered by a distribution, as securities are sold at a profit.
We distribute those gains to you, after subtracting any losses, even if you
did not own the shares when the gains occurred. If you buy a dividend, you
incur the full tax liability of the distribution period, but you may not
enjoy the full benefit of the gains realized in the fund's portfolio.
**********END LEFT MARGIN CALLOUTS
Financial Highlights
UNDERSTANDING THE FINANCIAL HIGHLIGHTS
The tables on the next few pages itemize what contributed to the changes in
share price during the period. They also show the changes in share price for
this period in comparison to changes over the last five fiscal years (or less,
if the share class is not five years old).
On a per-share basis, each table includes as appropriate
o share price at the beginning of the period
o investment income and capital gains or losses
o distributions of income and capital gains paid to shareholders
o share price at the end of the period
Each table also includes some key statistics for the period as appropriate
o Total Return--the overall percentage of return of the fund, assuming the
reinvestment of all distributions
o Expense Ratio--operating expenses as a percentage of average net assets
o Net Income Ratio--net investment income as a percentage of average net assets
o Portfolio Turnover--the percentage of the fund's buying and selling activity
The Financial Highlights for the fiscal years ended March 31, 1998 and 1999 have
been audited by PricewaterhouseCoopers LLP, independent accountants. Their
report is included in the funds' annual reports, which are incorporated by
reference into the Statement of Additional Information, and are available upon
request. Prior years' information was audited by other independent auditors,
whose report also is incorporated by reference into the Statement of Additional
Information.
<TABLE>
<CAPTION>
TAX-FREE MONEY MARKET FUND
Investor Class
For a Share Outstanding Throughout the Years Ended March 31
1999 1998 1997 1996 1995
---------------------------------------------------------
PER-SHARE DATA
Audited
Net Asset Value, Numbers
<S> <C> <C> <C> <C>
Beginning of Period............ Not Yet $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------
Available
Income From
Investment Operations
Net Investment Income ....... 0.04 0.03 0.03 0.03
---------------------------------------------------------
Distributions
From Net
Investment Income..... (0.04) (0.03) (0.03) (0.03)
---------------------------------------------------------
Net Asset Value,
End of $1.00 $1.00 $1.00 $1.00
Period..........................
=========================================================
Total Return(1).................... 3.70% 2.98% 3.19% 2.95%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets.... 0.04%(2) 0.67% 0.65% 0.66%
Ratio of Net Investment
Income to Average
Net Assets...... 3.68%(2) 2.93% 3.12% 2.88%
Net Assets, End
of Period (in thousands)........ $444,277 $85,730 $91,118 $92,034
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
(2) The advisor voluntarily waived its management fee from August 1, 1997
through July 31, 1998. Effective August 1, 1998, the advisor began
decreasing the waiver by 0.10% of the fund's net assets, until the waiver
expired in December 1998. In absence of the waiver, expenses to average net
assets and annualized ratio of net investment income to average net assets
would have been 0.52% and 3.20% for 1998 and 0.50% and 2.90% for 1999
respectively.
LIMITED-TERM TAX-FREE FUND
Investor Class
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
1999 1998(1) 1997(1) 1996(1) 1995(1) 1994(1)
----------------------------------------------------------------------
PER-SHARE DATA
Net Asset Value, Audited
Beginning of Period............. Numbers $10.11 $10.08 $10.09 $9.95 $10.04
----------------------------------------------------------------------
Not Yet
Income From Available
Investment Operations
Net Investment Income ........... 0.24 0.41 0.43 0.44 0.36
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions 0.05 0.10 (0.01) 0.14 (0.09)
----------------------------------------------------------------------
Total From
Investment Operations......... 0.29 0.51 0.42 0.58 0.27
----------------------------------------------------------------------
Distributions
From Net Investment Income..... (0.24) (0.41) (0.43) (0.44) (0.36)
From Net Realized Gains
on Investment Transactions.... - (0.07) - - -
----------------------------------------------------------------------
Total Distributions.......... (0.24) (0.48) (0.43) (0.44) (0.36)
----------------------------------------------------------------------
Net Asset Value,
End of Period......... $10.16 $10.11 $10.08 $10.09 $9.95
======================================================================
TOTAL RETURN(2) ..... 2.87% 5.22% 4.26% 5.95% 2.75%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets........... 0.52%(3) 0.59% 0.38%(4) -(4) -(4)
Ratio of Net Investment
Income to Average Net Assets.. 4.04%(3) 4.05% 4.28% 4.38% 3.62%
Portfolio Turnover Rate.... 28% 74% 68% 78% 42%
Net Assets, End
of Period (in thousands).......... $38,410 $36,437 $49,866 $58,837 $60,857
(1) The period ended May 31, 1998 represents a seven month reporting period.
The fund's fiscal year end was changed from October 31 to May 31 during the
period. Periods prior to 1998 are based on a fiscal year ended October 31.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
(4) The advisor had 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 0.60%.
INTERMEDIATE-TERM TAX-FREE FUND
Investor Class
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
1999 1998(1) 1997(1) 1996(1) 1995(1) 1994(1)
----------------------------------------------------------------------------
PER-SHARE DATA
Net Asset Value, Audited
Beginning of Period..... Numbers $10.46 $10.35 $10.45 $10.01 $10.75
----------------------------------------------------------------------------
Not Yet
Income From Available
Investment Operations
Net Investment Income .... 0.28 0.49 0.48 0.49 0.48
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions 0.08 0.21 (0.03) 0.52 (0.61)
----------------------------------------------------------------------------
Total From
Investment Operations...... 0.36 0.70 0.45 1.01 (0.13)
----------------------------------------------------------------------------
Distributions
From Net Investment Income. (0.28) (0.49) (0.48) (0.49) (0.48)
From Net Realized
Gains on Investment
Transactions................. (0.02) (0.10) (0.07) (0.08) (0.13)
----------------------------------------------------------------------------
Total Distributions.......... (0.30) (0.59) (0.55) (0.57) (0.61)
----------------------------------------------------------------------------
Net Asset Value,
End of Period........... $10.52 $10.46 $10.35 $10.45 $10.01
============================================================================
TOTAL RETURN(2)... 3.50% 6.88% 4.47% 10.41% (1.25)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets........... 0.51%(3) 0.58% 0.60% 0.60% 0.60%
Ratio of Net Investment
Income to Average
Net Assets....... 4.62%(3) 4.71% 4.66% 4.77% 4.59%
Portfolio Turnover Rate.... 17% 35%(4) 39% 32% 74%
Net Assets, End
of Period (in thousands)............ $137,907 $132,416 $80,568 $80,248 $81,400
(1) The period ended May 31, 1998 represents a seven month reporting period.
The fund's fiscal year end was changed from October 31 to May 31 during the
period. Periods prior to 1998 are based on a fiscal year ended October 31.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
(4) Purchases, sales, and market value amounts for Benham Intermediate-Term
Tax-Free Fund prior to the merger were excluded from the portfolio turnover
calculation.
LONG-TERM TAX-FREE FUND
Investor Class
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
1999 1998(1) 1997 1996 1995 1994
-----------------------------------------------------------------------
PER-SHARE DATA
Net Asset Value,
Beginning of Period ........... $10.75 $10.58 $10.54 $9.75 $11.10
-----------------------------------------------------------------------
Income From
Investment Operations
Net Investment Income ... 0.31 0.55 0.53 0.53 0.52
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions 0.13 0.33 0.04 0.83 (1.01)
-----------------------------------------------------------------------
Total From
Investment Operations.. 0.44 0.88 0.57 1.36 (0.49)
-----------------------------------------------------------------------
Distributions
From Net Investment Income.. (0.31) (0.55) (0.53) (0.53) (0.52)
From Net Realized
Gains on Investment
Transactions............ (0.07) (0.16) - (0.04) (0.34)
-----------------------------------------------------------------------
Total Distributions.......... (0.38) (0.71) (0.53) (0.57) (0.86)
-----------------------------------------------------------------------
Net Asset Value,
End of Period........ $10.81 $10.75 $10.58 $10.54 $9.75
=======================================================================
Total Return(2)... 4.18% 8.59% 5.60% 14.45% (4.70)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets...... 0.51%(3) 0.58% 0.59% 0.59% 0.60%
Ratio of Net Investment
Income to Average
Net Assets...................... 4.96%(3) 5.16% 5.06% 5.24% 5.00%
Portfolio Turnover Rate.... 47% 65%(4) 60% 61% 66%
Net Assets, End
of Period (in thousands)..... $116,615 $108,868 $60,772 $57,997 $50,964
(1) Seven months ended May 31, 1998. The Fund's fiscal year end was changed
from October 31 to May 31 resulting in a seven month reporting period.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
(4) Purchases, sales, and market value amounts for Benham Long-Term Tax-Free
Fund prior to the merger were excluded from the portfolio turnover
calculation.
HIGH-YIELD MUNICIPAL FUND
Investor Class
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
1999 1998(1)
-------------------------
PER-SHARE DATA
Net Asset Value, Audited
Beginning of Period......... Numbers $9.99
-------------------------
Not Yet
Income From Available
Investment Operations
Net Investment Income ............. 0.09
Net Realized and
Unrealized Gain
on Investment Transactions..... 0.09
-------------------------
Total from Investment Operations...... 0.18
-------------------------
Distributions
From Net Investment Income.......... (0.09)
From Net Realized Gains on
Investment Transactions ........ -
-------------------------
Total Distributions ..................... (0.09)
-------------------------
Net Asset Value,
End of Period.......................... $10.08
=========================
TOTAL 1.81%
Return(2)...................................
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets(3) ....... -
Ratio of Net Investment
Income to Average Net Assets(3)....... 5.38%(4)
Portfolio Turnover Rate....... 44%
Net Assets, End
of Period (in thousands)................ $18,788
</TABLE>
(1) March 31, 1998 (inception) through May 31, 1998.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) The advisor has voluntarily agreed to pay all expenses of the fund from
March 31, 1998 (inception) through April 30, 1999. In absence of the
waiver, the annualized ratio of operating expenses to average net assets
would have been 0.64% for both periods and the annualized ratio of net
investment income to average net assets would have been 4.66% and 4.74%,
for the year ended May 31, 1999 and the period March 31, 1998 through May
31, 1998, respectively.
(4) Annualized.
More information about the funds is contained in these documents
ANNUAL AND SEMIANNUAL REPORTS
These reports contain more information about the funds' investments and the
market conditions and investment strategies that significantly affected the
funds' performance during the most recent fiscal period.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains a more detailed, legal description of the funds' operations,
investment restrictions, policies and practices. The SAI is incorporated by
reference into this Prospectus. This means that it is legally part of this
Prospectus, even if you don't request a copy.
You may obtain a free copy of the SAI or annual and semiannual reports, and ask
questions about the funds or your accounts, by contacting American Century at
the address or telephone numbers listed below.
You also can get information about the funds (including the SAI) from the
Securities and Exchange Commission (SEC).
In person SEC Public Reference Room
Washington, D.C.
Call 1-800-SEC-0330 for location and hours.
On the internet www.sec.gov
By mail SEC Public Reference Section
Washington, D.C. 20549-6009
(The SEC will charge a fee for copying the
documents.)
Investment Company Act File No. 811-4025
[american century logo(reg.sm)]
American
Century
American Century Investments
P.O. Box 419200
Kansas City , Missouri 64141-6200
1-800-345-2021 or 816-531-5575
FUND REFERENCE
Fund Code Ticker Newspaper Listing
- ---------------------------------------------------------------------------
Tax-Free Money Market 941 BNTXX AmC TF
Limited-Term Tax-Free 032 TWTSX LtdTF
Intermediate-Term Tax-Free 028 TWTIX IntTF
Long-Term Tax-Free 029 TWTLX LgTF
High-Yield Municipal 942 ABHYZ HiYldMu
- ---------------------------------------------------------------------------
<PAGE>
[american century logo(reg.sm)]
American
Century
PROSPECTUS
SEPTEMBER 7, 1999
- --------------------------------------------------------------------------------
NEW YORK MUNICIPAL MONEY MARKET FUND
FLORIDA MUNICIPAL MONEY MARKET FUND
FLORIDA INTERMEDIATE-TERM MUNICIPAL FUND
ARIZONA INTERMEDIATE-TERM MUNICIPAL FUND
INVESTOR CLASS
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this Prospectus is accurate or complete. Anyone who
tells you otherwise is committing a crime.
Distributed by Funds Distributor, Inc.
Dear Investor,
Reading a prospectus doesn't have to be a chore. We've done the hard work so you
can focus on what's important--learning about the funds. Take a look inside and
you'll see this prospectus is different from others. It takes a clear-cut
approach to fund information.
Here's what you'll find:
o The funds' primary investments and risks
o A description of who may or may not want to invest in the funds
o Fund performance, including returns for each year, best and worst quarters
and average annual returns compared to the funds' benchmarks
o An overview of ways to best manage your accounts
o Helpful tips and definitions of key investment terms
Whether you're a current investor or investing in mutual funds for the first
time, this prospectus will give you a clear understanding of the funds. If you
have questions, our Investor Services Representatives are available weekdays, 7
a.m. to 7 p.m., and Saturdays, 9 a.m. to 2 p.m., Central time. Our toll-free
number is 1-800-345-2021. We look forward to helping you achieve your financial
goals.
Sincerely,
Mark Killen
Senior Vice President
American Century Investment Services, Inc.
TABLE OF CONTENTS
An Overview of the Funds.......................................................2
Fund Performance History.......................................................3
Fees and Expenses..............................................................6
Information about the Funds....................................................7
New York Municipal Money Market Fund
Florida Municipal Money Market Fund
Florida Intermediate-Term Municipal Fund
Arizona Intermediate-Term Municipal Fund
Basics of Fixed-Income Investing..............................................xx
Management....................................................................xx
Investing with American Century...............................................xx
Share Price and Distributions.................................................xx
Taxes.........................................................................xx
Financial Highlights..........................................................xx
**********LEFT MARGIN CALLOUTS
Throughout this book you'll find definitions to key investment terms and
phrases. When you see a word printed in GREEN ITALICS, look for its definition
in the left margin.
o........This symbol highlights special information and helpful tips.
**********END LEFT MARGIN CALLOUTS
AN OVERVIEW OF THE FUNDS
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
These funds seek high current income and investment returns that are exempt from
regular federal income tax and taxes imposed by NewYork (both city and state),
Florida or Arizona.
WHAT ARE THE FUNDS' PRIMARY INVESTMENT STRATEGIES AND PRINCIPAL RISKS?
The funds invest most of their assets in DEBT SECURITIES issued by cities,
counties and other municipalities and U.S. territories. Each of the funds
invests in different types of these municipal debt securities and involves
different risks. The chart below shows the primary differences among the funds.
A more detailed description about the funds' investment strategies and risks
begins on page 7.
<TABLE>
FUND PRIMARY INVESTMENTS PRIMARY RISKS
- --------------------------- ---------------------------------------------- -------------------------------
<S> <C> <C>
New York Municipal Money High-quality, very short-term debt securities New York economic risk
Market Some credit risk
Florida Municipal Money High-quality, very short-term debt securities Florida economic risk
Market Some credit risk
Florida Intermediate-Term Quality debt securities that mature in one Florida economic risk
Municipal to five years Credit risk
Interest rate risk
Arizona Intermediate-Term Quality debt securities that mature in four Arizona economic risk
Municipal or more years Credit risk
Interest rate risk
</TABLE>
WHO MAY WANT TO INVEST IN THE FUNDS?
The funds may be a good investment if you are
o a New York, Florida or Arizona resident or taxpayer
o seeking current tax-free income
o comfortable with risk based on New York's, Florida's or Arizona's economy
o comfortable with the funds' other investment risks
o seeking diversification by investing in a fixed-income mutual fund
WHO MAY NOT WANT TO INVEST IN THE FUNDS?
The funds may not be a good investment if you are
o investing in a IRA or other tax-advantaged retirement plan
o investing for long-term growth
o looking for the added security of FDIC insurance
**********LEFT MARGIN CALLOUTS
DEBT SECURITIES include fixed-income investments such as notes, bonds,
commercial paper and debentures.
o An investment in the funds is not a bank deposit, and it is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. Although the money market funds seek to preserve the
value of your investment at $1.00 per share, it is possible to lose money
by investing in it.
**********END LEFT MARGIN CALLOUTS
FUND PERFORMANCE HISTORY
Florida Municipal Money Market Fund
ANNUAL TOTAL RETURNS (1)
The following bar chart shows the performance of the fund's Investor Class
shares for each full calendar year in the life of the fund. It indicates the
volatility of the fund's historical returns from year to year.
[bar chart]
1998 3.13%
1997 3.39%
1996 3.67%
1995 4.07%
1 As of June 30, 1999, the end of the most recent calendar quarter, Florida
Municipal Money Market's year-to-date return was ___%.
The highest and lowest quarterly returns for the period reflected in the chart
are:
Highest Lowest
- --------------------------------------------------------------------------------
Florida Municipal Money Market 1.06% (2Q 1995) 0.73% (4Q 1998)
AVERAGE ANNUAL RETURNS
The following table shows the average annual returns of the fund's Investor
Class Shares for the periods indicated. The benchmark is included in the table
for performance comparison.
For the calendar year ended December 31, 1998 1 year Life of Fund (1)
- --------------------------------------------------------------------------------
Florida Municipal Money Market 3.13% 3.52%
Lipper Other States Tax-Exempt Money Market Funds 3.01% 3.20% (2)
1 The inception date for the fund is April 11, 1994.
2 Benchmark from April 30, 1994.
**********LEFT MARGIN CALLOUTS
o The performance information on this page is designed to help you see how
fund returns can vary. Keep in mind that past performance does not predict
how the fund will perform in the future.
o For current performance information, including yields, please call us at
1-800-345-2021 or visit American Century's Web site at
www.americancentury.com.
**********END LEFT MARGIN CALLOUTS
FUND PERFORMANCE HISTORY
Florida Intermediate-Term Municipal Fund
ANNUAL TOTAL RETURNS (1)
The following bar chart shows the performance of the fund's Investor Class
shares for each full calendar year in the life of the fund. It indicates the
volatility of the fund's historical returns from year to year.
[bar chart]
1998 6.49%
1997 8.22%
1996 3.66%
1995 13.49%
1 As of June 30, 1999, the end of the most recent calendar quarter, Florida
Intermediate-Term Municipal's year-to-date return was ___%.
The highest and lowest quarterly returns for the period reflected in the chart
are:
Highest Lowest
- --------------------------------------------------------------------------------
Florida Intermediate-Term Municipal 5.06% (1Q 1995) -0.51% (1Q 1996)
AVERAGE ANNUAL RETURNS
The following table shows the average annual returns of the fund's Investor
Class Shares for the periods indicated. The benchmark is an unmanaged index that
has no operating costs and is included in the table for performance comparison.
For the calendar year ended December 31, 1998 1 year Life of Fund (1)
- --------------------------------------------------------------------------------
Florida Intermediate-Term Municipal 3.13% 3.52%
Lehman 5-Year General Obligation 5.84% 6.25% (2)
1 The inception date for Florida Intermediate-Term Municipal is April 11, 1994.
2 Benchmark from April 30, 1994.
**********LEFT MARGIN CALLOUTS
o The performance information on this page is designed to help you see how
fund returns can vary. Keep in mind that past performance does not predict
how the funds will perform in the future.
o For current performance information, including yields, please call us at
1-800-345-2021 or visit American Century's Web site at
www.americancentury.com.
**********END LEFT MARGIN CALLOUTS
FUND PERFORMANCE HISTORY
Arizona Intermediate-Term Municipal Fund
ANNUAL TOTAL RETURNS (1)
The following bar chart shows the performance of the fund's Investor Class
shares for each full calendar year in the life of the fund. It indicates the
volatility of the fund's historical returns from year to year.
[bar chart]
1998 5.90%
1997 6.90%
1996 3.74%
1995 13.15%
1 As of June 30, 1999, the end of the most recent calendar quarter, Arizona
Intermediate-Term Municipal's year-to-date return was ___%.
The highest and lowest quarterly returns for the period reflected in the chart
are:
Highest Lowest
- --------------------------------------------------------------------------------
Arizona Intermediate-Term Municipal 4.60% (1Q 1995) -0.53% (1Q 1996)
AVERAGE ANNUAL RETURNS
The following table shows the average annual returns of the fund's Investor
Class Shares for the periods indicated. The benchmark is an unmanaged index that
has no operating costs and is included in the table for performance comparison.
For the calendar year ended December 31, 1998 1 year Life of Fund (1)
- --------------------------------------------------------------------------------
Arizona Intermediate-Term Municipal 5.90% 6.66%
Lehman 5-Year General Obligation Index 5.84% 6.25% (2)
1 The inception date for Arizona Intermediate-Term Municipal is April 11, 1994.
2 Benchmark from April 30, 1994.
**********LEFT MARGIN CALLOUTS
o The performance information on this page is designed to help you see how
fund returns can vary. Keep in mind that past performance does not predict
how the funds will perform in the future.
o For current performance information, including yields, please call us at
1-800-345-2021 or visit American Century's Web site at
www.americancentury.com.
**********END LEFT MARGIN CALLOUTS
Fees and Expenses
There are no sales loads, fees or other charges
o to buy fund shares directly from American Century
o to reinvest dividends in additional shares
o to exchange into the Investor Class shares of other American Century funds
o to redeem your shares
The following table describes the fees and expenses that you will pay if you buy
and hold shares of the funds.
<TABLE>
ANNUAL OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Distribution and Other Total Annual Fund
Fee(1) Service (12b-1) Fees Expenses(2) Operating Expenses
- ------------------------------------------- ---------------- ------------------------ -------------- -----------------------
<S> <C> <C> <C>
New York Municipal Money Market 0.50% None 0.01% 0.51%
Florida Municipal Money Market 0.50% None 0.01% 0.51%
Florida Intermediate-Term Municipal 0.50% None 0.01% 0.51%
- ------------------------------------------- ---------------- ------------------------ -------------- -----------------------
- ------------------------------------------- ---------------- ------------------------ -------------- -----------------------
Arizona Intermediate-Term Municipal 0.51% None 0.01% 0.52%
1 Based on expenses incurred during the funds' most recent fiscal year. The
funds have a stepped fee schedule. As a result, the funds' management fee
rate generally decreases as fund assets increase.
2 Other expenses include the fees and expenses of the funds' independent
trustees, their legal counsel and interest.
EXAMPLES
The examples in the table below are intended to help you compare the costs of
investing in a fund with the costs of investing in other mutual funds. Assuming
you ...
o invest $10,000 in the fund
o redeem all of your shares at the end of the periods shown below
o earn a 5% return each year and
o incur the same operating expenses shown above,
... your cost of investing in the fund would be:
1 year 3 years 5 years 10 years
- -------------------------------------------- ------------------ ------------------- ------------------- -------------------
New York Municipal Money Market $52 $163 $285 $640
- -------------------------------------------- ------------------ ------------------- ------------------- -------------------
Florida Municipal Money Market $52 $163 $285 $640
- -------------------------------------------- ------------------ ------------------- ------------------- -------------------
Florida Intermediate-Term Municipal $52 $163 $285 $640
- -------------------------------------------- ------------------ ------------------- ------------------- -------------------
Arizona Intermediate-Term Municipal $53 $167 $290 $652
</TABLE>
**********LEFT MARGIN CALLOUTS
o Use this example to compare the costs of investing in other funds. Of
course, your actual costs may be higher or lower.
**********END LEFT MARGIN CALLOUTS
INFORMATION ABOUT THE FUNDS
NEW YORK MUNICIPAL MONEY MARKET FUND
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?
New York Municipal Money Market seeks safety of principal and high current
income that is exempt from federal income tax and seeks to be exempt from the
New York tax.
HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVES?
The fund managers buy cash-equivalent, HIGH-QUALITY DEBT SECURITIES with income
payments exempt from federal, New York state and New York City income taxes.
Cities, counties and other municipalities in New York and U.S. territories (such
as Puerto Rico) usually issue these securities for public projects, such as
schools and roads.
The fund managers also may buy cash-equivalent, high-quality debt securities
with income payments exempt from federal, New York state and New York City
income taxes. Cities, counties and other municipalities in New York and U.S.
territories (such as Puerto Rico) usually issue these securities (called private
activity bonds) to fund for-profit private projects, such as hospitals and
athletic stadiums.
Additional information about the fund's investments is available in its annual
and semiannual reports. In these reports you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund's performance during the most recent six-month period. You may get these
reports at no cost by calling us.
WHAT ARE THE PRIMARY RISKS OF INVESTING IN THE FUNDS?
Because cash-equivalent securities are among the safest securities available,
the interest they pay is among the lowest for income-paying securities.
Accordingly, the yield on this fund will likely be lower than funds that invest
in longer-term or lower-quality securities.
Because the fund invests primarily in New York municipal securities, it will be
sensitive to events that affect New York's economy. New York Municipal Money
Market may have a higher level of risk than funds that invest in a larger
universe of securities.
**********LEFT MARGIN CALLOUTS
o Income from New York Municipal Money Market may be subject to the
alternative minimum tax. For more information, see "Taxes" in this
Prospectus.
A HIGH-QUALITY DEBT SECURITY is one that has been determined to be in the top
two credit quality categories. This can be established in a number of ways. For
example, independent rating agencies may rate the security in their higher
rating categories. The fund's advisor also can analyze an unrated security to
determine if its credit quality is high enough for investment. The details of
the fund's credit quality standards are described in the Statement of Additional
Information.
**********END LEFT MARGIN CALLOUTS
FLORIDA MUNICIPAL MONEY MARKET FUND
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?
Florida Municipal Money Market seeks safety of principal and high current income
that is exempt from federal income tax and seeks to be exempt from the Florida
intangible personal property tax.
HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVES?
The fund managers buy cash-equivalent, HIGH-QUALITY DEBT SECURITIES with income
payments exempt from federal income tax and which are exempt from the Florida
intangible personal property tax. Cities, counties and other municipalities in
Florida usually issue these securities for public projects, such as schools and
roads.
The fund managers also may buy cash-equivalent, high-quality debt securities
with income payments exempt federal income tax and which are exempt from the
Florida intangible personal property tax, but are not exempt from the federal
alternative minimum tax. Cities, counties and other municipalities in Florida
usually issue these securities (called private activity bonds) to fund
for-profit private projects, such as hospitals and athletic stadiums.
Additional information about the fund's investments is available in its annual
and semiannual reports. In these reports you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund's performance during the most recent six-month period. You may get these
reports at no cost by calling us.
WHAT ARE THE PRIMARY RISKS OF INVESTING IN THE FUNDS?
Because cash-equivalent securities are among the safest securities available,
the interest they pay is among the lowest for income-paying securities.
Accordingly, the yield on this fund will likely be lower than funds that invest
in longer-term or lower-quality securities.
Because the fund invests primarily in Florida municipal securities, it will be
sensitive to events that affect Florida's economy. Florida Municipal Money
Market may have a higher level of risk than funds that invest in a larger
universe of securities.
**********LEFT MARGIN CALLOUTS
o Income from Florida Municipal Money Market may be subject to the
alternative minimum tax. For more information, see "Taxes" in this
Prospectus.
A HIGH-QUALITY DEBT SECURITY is one that has been determined to be in the top
two credit quality categories. This can be established in a number of ways. For
example, independent rating agencies may rate the security in their higher
rating categories. The fund's advisor also can analyze an unrated security to
determine if its credit quality is high enough for investment. The details of
the fund's credit quality standards are described in the Statement of Additional
Information.
**********END LEFT MARGIN CALLOUTS
FLORIDA INTERMEDIATE-TERM MUNICIPAL FUND
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?
Florida Intermediate-Term Municipal seeks safety of principal and high current
income that is exempt from federal income tax and seeks to be exempt from the
Florida intangible personal property tax.
HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVES?
The fund managers buy QUALITY, intermediate-term debt securities with income
payments exempt from federal income tax and which are exempt from the Florida
intangible personal property tax. Cities, counties and other municipalities in
Florida usually issue these securities for public projects, such as schools and
roads.
The fund managers also may buy quality, intermediate-term debt securities with
income payments exempt federal income tax and which are exempt from the Florida
intangible personal property tax, but are not exempt from the federal
alternative minimum tax. Cities, counties and other municipalities in Florida
usually issue these securities (called private activity bonds) to fund
for-profit private projects, such as hospitals and athletic stadiums.
The fund managers also may use futures contracts and options to pursue its
investment objective.
During unusual market conditions, the fund is permitted to keep a significant
amount of its assets in cash or cash equivalents. If it does, it may not achieve
its investment objective and may generate taxable income.
The WEIGHTED AVERAGE MATURITY of the fund is expected to be between five and 10
years.
Additional information about the fund's investments is available in its annual
and semiannual reports. In these reports you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund's performance during the most recent six-month period. You may get these
reports at no cost by calling us.
WHAT ARE THE PRIMARY RISKS OF INVESTING IN THE FUND?
When interest rates change, the fund's share value will be affected. Generally,
when interest rates rise, the fund's share value will decline. The opposite is
true when interest rates decline. The interest rate risk is higher for Florida
Intermediate-Term Municipal than for funds that have shorter weighted average
maturities, such as money market and short-term bond funds.
The fund may invest part of its assets in securities rated in the lowest
investment-grade category (e.g., Baa or BBB). The issuers of these securities
are more likely to have problems making interest and principal payments.
Because the fund invests primarily in Florida municipal securities, it will be
sensitive to events that affect Florida's economy. Florida Intermediate-Term
Municipal may have a higher level of risk than funds that invest in a larger
universe of securities.
As with all funds, at any given time the value of your shares of Florida
Intermediate-Term Municipal may be worth more or less than the price you paid.
If you sell your shares when the value is less than the price you paid, you will
lose money.
**********LEFT MARGIN CALLOUTS
o Income from the funds may be subject to the alternative minimum tax. For
more information, see "Taxes" in this Prospectus.
A QUALITY debt security is one that has been determined to be in the top two
credit quality categories. This can be established in a number of ways. For
example, independent rating agencies may rate the security in their higher
rating categories. The fund's advisor also can analyze an unrated security to
determine if its credit quality is high enough for investment. The details of
the fund's credit quality standards are described in the Statement of Additional
Information.
WEIGHTED AVERAGE MATURITY is a measure of a fund's interest rate sensitivity.
For more information, see "Weighted Average Maturity" in this Prospectus.
**********END LEFT MARGIN CALLOUTS
ARIZONA INTERMEDIATE-TERM MUNICIPAL FUND
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?
Arizona Intermediate-Term Municipal seeks safety of principal and high current
income that is exempt from federal and Arizona income taxes.
HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVES?
The fund managers buy intermediate-term, QUALITY DEBT SECURITIES with income
payments exempt from federal and Arizona income taxes. Cities, counties and
other municipalities in Arizona usually issue these securities for public
projects, such as schools and roads.
The fund managers also may buy intermediate-term,quality debt securities whose
payments are exempt from federal and Arizona income taxes, but not the federal
alternative minimum tax. Cities, counties and other municipalities in Arizona
usually issue these securities (called private activity bonds) to fund
for-profit private projects, such as hospitals and athletic stadiums.
The fund managers also may use futures contracts and options to pursue the
fund's investment objectives.
During unusual market conditions, the fund is permitted to keep a significant
amount of its assets in cash or cash equivalents. If it does, it may not achieve
its investment objective and may generate taxable income.
The WEIGHTED AVERAGE MATURITY of the fund is expected to be between five and 10
years.
Additional information about the fund's investments is available in its annual
and semiannual reports. In these reports you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund's performance during the most recent six-month period. You may get these
reports at no cost by calling us.
WHAT ARE THE PRIMARY RISKS OF INVESTING IN THE FUND?
When interest rates change, the fund's share value will be affected. Generally,
when interest rates rise, the fund's share value will decline. The opposite is
true when interest rates decline. The interest rate risk is higher for Arizona
Intermediate-Term Municipal than for funds which have shorter weighted average
maturities, such as money market and short-term bond funds.
The fund may invest part of its assets in securities rated in the lowest
investment-grade category (e.g., Baa or BBB). The issuers of these securities
are more likely to have problems making interest and principal payments.
Because the fund invests primarily in Arizona municipal securities, it will be
sensitive to events that affect Arizona's economy. Arizona Intermediate-Term
Municipal may have a higher level of risk than funds that invest in a larger
universe of securities.
As with all funds, at any given time the value of your shares of Arizona
Intermediate-Term Municipal may be worth more or less than the price you paid.
If you sell your shares when the value is less than the price you paid, you will
lose money.
**********LEFT MARGIN CALLOUTS
o Income from the funds may be subject to the alternative minimum tax. For
more information, see "Taxes" in this Prospectus.
A QUALITY DEBT SECURITY is one that has been determined to be in the top two
credit quality categories. This can be established in a number of ways. For
example, independent rating agencies may rate the security in their higher
rating categories. The fund's advisor also can analyze an unrated security to
determine if its credit quality is high enough for investment. The details of
the fund's credit quality standards are described in the Statement of Additional
Information.
WEIGHTED AVERAGE MATURITY is a measure of a fund's interest rate sensitivity.
For more information, see "Weighted Average Maturity" in this Prospectus.
**********END LEFT MARGIN CALLOUTS
BASICS OF FIXED INCOME INVESTING
DEBT SECURITIES
When a fund buys a debt security, which is also called a fixed-income security,
it is essentially lending money to the issuer of the security. Notes, bonds,
commercial paper and Treasury bills are examples of debt securities. After the
debt security is first sold by the issuer, it may be bought and sold by other
investors. The price of the security may rise or fall based on many factors,
including changes in interest rates, inflation, liquidity and credit quality.
The fund managers decide which debt securities to buy and sell by
o determining which securities help a fund meet its maturity requirements
o eliminating securities that do not satisfy a fund's credit quality
standards
o evaluating the current economic conditions and assessing the risk of
inflation
o evaluating special features of the securities that may make them more or
less attractive
WEIGHTED AVERAGE MATURITY
Like most loans, debt securities eventually must be repaid (or refinanced) at
some date. This date is called the maturity date. The number of days left to a
debt security's maturity date is called the remaining maturity. The longer a
debt security's remaining maturity, the more sensitive it is to changes in
interest rates.
Because a bond fund will own many debt securities, the fund managers calculate
the average of the remaining maturities of all of the debt securities the fund
owns to evaluate the interest rate sensitivity of the entire portfolio. This
average is weighted according to the size of the fund's individual holdings and
is called WEIGHTED AVERAGE MATURITY. The following chart shows how fund managers
would calculate the weighted average maturity for a fund that owned only two
debt securities.
<TABLE>
Amount of Security Owned Percent of Portfolio Remaining Maturity Weighted Maturity
- ---------------------- ------------------------------ ---------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Debt Security A $100,000 25% 1,000 days 250 days
Debt Security B $300,000 75% 10,000 days 7,500 days
WEIGHTED AVERAGE MATURITY 7,750 DAYS
</TABLE>
TYPES OF RISK
The basic types of risk that the funds face are described below.
INTEREST RATE RISK
Generally, interest rates and the prices of debt securities move in opposite
directions. When interest rates fall, the prices of most debt securities rise;
when interest rates rise, prices fall. Because the funds invest primarily in
debt securities, changes in interest rates will affect the funds' performance.
The degree to which interest rate changes affect a funds' performance varies and
is related to the weighted average maturity of a particular fund. For example,
when interest rates rise, you can expect the share value of a long-term bond
fund to fall more than that of a short-term bond fund. When rates fall, the
opposite is true. This sensitivity to interest rate changes is called interest
rate risk.
***********LEFT MARGIN CALLOUTS
WEIGHTED AVERAGE MATURITY is a tool that the fund managers use to approximate
the remaining maturity of a fund's investment portfolio.
o The longer a fund's weighted average maturity, the more sensitive it is to
changes in interest rates.
***********END LEFT MARGIN CALLOUTS
When interest rates change, longer maturity bonds experience a greater change in
price. The following table shows the effect of a 1% increase in interest rates
on the price of 7% coupon bonds of differing maturities:
Remaining Maturity Current Price Price after 1% increase Change in price
- ------------------ ---------------- -------------------------- -----------------
1 year $100.00 $99.06 -0.94%
3 years 100.00 97.38 -2.62%
10 years 100.00 93.20 -6.80%
30 years 100.00 88.69 -11.31%
CREDIT RISK
Credit risk is the risk that an obligation won't be paid and a loss will result.
A high credit rating indicates a high degree of confidence by the rating
organization that the issuer will be able to withstand adverse business,
financial or economic conditions and be able to make interest and principal
payments on time. Generally, a lower credit rating indicates a greater risk of
non-payment. A lower rating also may indicate that the issuer has a more senior
series of debt securities, which means that if the issuer has difficulties
making its payments, the more senior series of debt is first in line for
payment.
It's not as simple as buying the highest-rated debt securities. Higher credit
ratings usually mean lower interest rates, so investors often purchase
securities that aren't the highest rated to increase return. If a fund purchases
lower-rated securities, it has assumed additional credit risk.
The following chart shows the authorized credit quality ranges for the funds
offered by this Prospectus.
<TABLE>
Quality
High-Quality
<S> <C> <C> <C> <C> <C> <C>
A-1 A-2 A-3
P-1 P-2 P-3
MIG-1 MIG-2 MIG-3
SP-1 SP-2 SP-3
AAA AA A BBB BB B CCC CC C D
- -------------------------- ----------------------------------------------- ----------- ----------- ----------- -----------
New York Municipal Money Market
-----------------------------------------------
- -------------------------- ----------------------------------------------- ----------- ----------- ----------- -----------
Florida Municipal Money Market
-----------------------------------------------
Florida Intermediate-Term Municipal
- --------------------------------------------------
- --------------------------------------------------
Arizona Intermediate-Term Municipal
- --------------------------------------------------
- --------------------------------------------------
Investment Grade Non-investment grade
- -------------- ----------------------------------- -----------------------------------------------------------------------
</TABLE>
Securities rated in one of the highest four categories by a nationally
recognized securities rating organization (e.g., Moody's or Standard & Poor's)
are considered "investment grade." Although they are considered investment
grade, an investment in these securities still involves some credit risk since a
AAA rating is not a guarantee of payment. For a complete description of the
ratings system, see "Explanation of Fixed-Income Securities Ratings" in the
Statement of Additional Information. The funds' credit quality restrictions
apply at the time of purchase; the fund will not necessarily sell securities if
they are downgraded by a rating agency.
LIQUIDITY RISK
Debt securities can become difficult to sell, or less liquid, for a variety of
reasons, such as lack of an active trading market. The chance that a fund will
have liquidity issues is called liquidity risk.
INFLATION RISK
The safest investments usually have the lowest potential income and performance.
However, returns from these investments may fail to significantly outpace
inflation. Even if the value of your investment has not gone down, your money
will not be worth as much as if there had been no inflation. Your
after-inflation return may be quite small. This risk is called inflation risk.
**********LEFT MARGIN CALLOUTS
o Credit quality may be lower when the issuer has
o a high debt level
o a short operating history
o a senior level of debt
o a difficult, competitive environment
o a less stable cash flow
o The Statement of Additional Information provides a detailed description of
these securities ratings.
**********END LEFT MARGIN CALLOUTS
A COMPARISON OF BASIC RISK FACTORS
The following chart depicts the basic risks of investing in the funds. It is
designed to help you compare these funds with each other; it shouldn't be used
to compare these funds with other mutual funds.
<TABLE>
Interest Rate Risk Credit Risk Liquidity Risk Inflation Risk
- ---------------------------------------------- ------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
New York Municipal Money Market Lowest Lowest Lowest Lowest
Florida Municipal Money Market Lowest Lowest Lowest Lowest
Florida Intermediate-Term Municipal Medium Medium Medium Medium
Arizona Intermediate-Term Municipal Medium Medium Medium Medium
</TABLE>
The funds engage in a variety of investment techniques as they pursue their
investment objectives. Each technique has its own characteristics, and may pose
some level of risk to the funds. If you would like to learn more about these
techniques, you should review the Statement of Additional Information before
making an investment.
MANAGEMENT
WHO MANAGES THE FUNDS?
The Board of Trustees, investment advisor and fund management team play key
roles in the management of the funds.
THE BOARD OF TRUSTEES
The Board of Trustees oversees the management of the funds and meets at least
quarterly to review reports about fund operations. Although the Board of
Trustees does not manage the funds, it has hired an investment advisor to do so.
More than two-thirds of the trustees are independent of the funds' advisor; that
is, they are not employed by and have no financial interest in the advisor.
THE INVESTMENT ADVISOR
The funds' investment advisor is American Century Investment Management, Inc.
The advisor has been managing mutual funds since 1958. American Century is
headquartered at 4500 Main Street, Kansas City, Missouri 64111.
The advisor is responsible for managing the investment portfolios of the funds
and directing the purchase and sale of their investment securities. The advisor
also arranges for transfer agency, custody and all other services necessary for
the funds to operate.
For the services it provided to the funds during their most recent fiscal year,
the advisor received a unified management fee based on a percentage of the
average net assets of the Investor Class shares of the funds. The rate of the
management fee for a fund is determined on a class-by-class basis monthly using
a two-step formula that takes into account the fund's strategy (money market,
bond or equity) and the total amount of mutual fund assets the advisor manages.
The Statement of Additional Information contains detailed information about the
calculation of the management fee. Out of that fee, the advisor paid all
expenses of managing and operating the fund except brokerage expenses, taxes,
interest, fees and expenses of the independent directors (including legal
counsel fees), and extraordinary expenses. A portion of the management fee may
be paid by the funds' advisor to unaffiliated third parties who provide
recordkeeping and administrative services that would otherwise be performed by
an affiliate of the advisor.
Management Fees Paid by the Funds to the Advisor
as a Percentage of Average Net Assets
for the Most Recent Fiscal Year Ended May 31, 1999
- --------------------------------------------------------------------------------
Florida Municipal Money Market 0.50%
Florida Intermediate-Term Municipal 0.50%
Arizona Intermediate-Term Municipal 0.51%
THE FUND MANAGEMENT TEAM
The advisor uses teams of portfolio managers, assistant portfolio managers and
analysts to manage the funds. Teams meet regularly to review portfolio holdings
and to discuss purchase and sale activity. Team members buy and sell securities
for a fund as they see fit, guided by the fund's investment objective and
strategy.
The portfolio managers who lead the investment teams are identified below:
BRYAN E. KARCHER
Mr. Karcher, Portfolio Manager, has been a member of the team that manages
Florida Municipal Money Market since June 1995. He joined American Century in
July 1989 and has been a Portfolio Manager since 1995. He holds a bachelor's
degree in economics from the University of California--Los Angeles. He is a
Chartered Financial Analyst.
KENNETH M. SALINGER
Mr. Salinger, Portfolio Manager, has been a member of the team that manages
Arizona Intermediate-Term Municipal team since June 1998 and the Florida
Intermediate-Term Municipal team since October 1996. He joined American Century
in April 1992. He has a bachelor's degree in quantitative economics from the
University of California--San Diego.
**********LEFT MARGIN CALLOUTS
o CODE OF ETHICS
American Century has a Code of Ethics designed to ensure that the interests
of fund shareholders come before the interests of the people who manage the
funds. Among other provisions, the Code of Ethics prohibits portfolio
managers and other investment personnel from buying securities in an
initial public offering or from profiting from the purchase and sale of the
same security within 60 calendar days. In addition, the Code of Ethics
requires portfolio managers and other employees with access to information
about the purchase or sale of securities by the funds to obtain approval
before executing permitted personal trades.
**********END LEFT MARGIN CALLOUTS
FUNDAMENTAL INVESTMENT POLICIES
Fundamental investment policies contained in the Statement of Additional
Information and the investment objectives of the funds may not be changed
without a shareholder vote. The Board of Trustees may change any other policies
and investment strategies.
YEAR 2000 ISSUES
Many of the world's computer systems were originally programmed in a way that
prevented them from properly recognizing or processing date-sensitive
information relating to the Year 2000 and beyond. Because this may impact the
computer systems of various American Century-affiliated and external service
providers for the funds, American Century formally initiated a Year 2000
readiness project in July 1997. It involves a team of information technology
professionals assisted by outside consultants and guided by a senior-level
steering committee. The team's goal is to assess the impact of the Year 2000 on
American Century's systems, renovate or replace noncompliant critical systems
and test those systems. In addition, the team has been working to gather
information about the Year 2000 efforts of the funds' other major service
providers.
Although American Century believes its critical systems will function properly
in the Year 2000, this is not guaranteed. If the efforts of American Century or
its external service providers are not successful, the funds' business,
particularly the provision of shareholder services, may be hampered.
In addition, the issuers of securities the funds own could have Year 2000
computer problems. These problems could negatively affect the value of their
securities, which, in turn, could impact the funds' performance. The advisor has
established a process to gather publicly available information about the Year
2000 readiness of these issuers. However, this process may not uncover all
relevant information, and the information gathered may not be complete and
accurate. Moreover, an issuer's Year 2000 readiness is only one of many factors
the fund managers may consider when making investment decisions, and other
factors may receive greater weight.
INVESTING WITH AMERICAN CENTURY
SERVICES AUTOMATICALLY AVAILABLE TO YOU
You automatically will have access to the services listed below when you open
your account. If you do not want these services, see "Conducting Business in
Writing" below.
CONDUCTING BUSINESS IN WRITING
If you prefer to conduct business in writing only, you can indicate this on the
account application. If you choose this option, you must provide written
instructions to invest, exchange and redeem. All account owners must sign
transaction instructions (with signatures guaranteed for redemptions in excess
of $100,000). If you want to add services later, you can complete an Investor
Service Options form.
<TABLE>
Ways to Manage Your Account
- ---------------------------------- ---------------------------------------------- -----------------------------------------------
<S> <C> <C>
By telephone Open an account Make additional investments
Investor Relations If you are a current investor, you can open Call us or use our Automated Information Line
1-800-345-2021 an account by exchanging shares from another if you have authorized us to invest from your
American Century account. bank account.
Business, Not-For-Profit
and Employer-Sponsored Exchange shares Sell shares
Retirement Plans Call us or use our Automated Information Call an Investor Relations Representative.
1-800-345-3533 Line if you have authorized us to accept
telephone instructions.
Automated Information Line
1-800-345-8765
- ---------------------------------- ---------------------------------------------- -----------------------------------------------
- ---------------------------------- ---------------------------------------------- -----------------------------------------------
By mail or fax Open an account Make additional investments
P.O. Box 419200 Send a signed, completed application and Send us your check or money order for at
Kansas City, MO 64141-6200 check or money order payable to American least $50 with an investment slip or $250
Century Investments. without an investment slip. If you don't have
Fax an investment slip, include your name,
816-340-7962 Exchange shares address and account number on your check or
Send us written instructions to exchange money order.
your shares from one American Century
account to another. Sell shares
Send us written instructions or a redemption
form to sell shares. Call an Investor
Relations Representative to request a form.
- ---------------------------------- ---------------------------------------------- -----------------------------------------------
- ---------------------------------- ---------------------------------------------- -----------------------------------------------
Online Open an account Make additional investments
www.americancentury.com If you are a current investor, you can open Make an additional investment into an
an account by exchanging shares from another established American Century account if you
American Century account. have authorized us to invest from your bank
account.
Exchange shares
Exchange shares from another American Sell shares
Century account. Not available.
A NOTE ABOUT MAILINGS TO SHAREHOLDERS
To reduce expenses and demonstrate respect for our environment, we will deliver
most financial reports, prospectuses and account statements to households in a
single envelope, even if the accounts are registered under different names. If
you would like additional copies of financial reports and prospectuses or
separate mailing of account statements, please call us.
YOUR GUIDE TO SERVICES AND POLICIES
When you open an account, you will receive a services guide, which explains the
services available to you and the policies of the funds and the transfer agent.
- -------------------------------- ------------------------------------------------ -----------------------------------------------
By wire Open an account Make additional investments
Call us to set up your account or mail a Follow the wire instructions provided in the
completed application to the address provided "Open an account" section
in the "By Mail" section and give your bank
the following information. Sell shares
Our bank information: You can receive redemption proceeds by wire
Please remember that if you Commerce Bank N.A. or electronic transfer.
request redemptions by wire, Routing No. 101000019
$10 will be deducted from the Account No. 2804918
amount wired. Your bank also The fund name
may charge a fee. Your American Century account number*
Your name Exchange shares
The contribution year (for IRAs only) Not available.
*For additional investments only
- -------------------------------- ------------------------------------------------ -----------------------------------------------
- -------------------------------- ------------------------------------------------ -----------------------------------------------
Automatically Open an account Make additional investments
Not available. With the automatic investment privilege, you
can purchase shares on a regular basis. You
Exchange shares must invest at least $600 per year per
Send us written instructions to set up an account.
automatic exchange of your shares from one
American Century account to another. Sell shares
If you have at least $10,000 in your account,
you may sell shares automatically by
establishing Check-A-Month or Automatic
Redemption plans.
- -------------------------------- ------------------------------------------------ -----------------------------------------------
- -------------------------------- ------------------------------------------------------------------------------------------------
In person If you prefer to handle your transactions in person, visit one of our Investor Centers and a
representative can help you open an account, make additional investments and sell or exchange
shares.
4500 Main St. 4917 Town Center Drive
Kansas City, Missouri Leawood, Kansas
8 a.m. to 5:30 p.m., Monday-Friday 8 a.m. to 6 p.m., Monday-Friday
8 a.m. to noon, Saturday
1665 Charleston Road 9445 East County Line Road, Suite A
Mountain View, California Englewood, Colorado
8 a.m. to 5 p.m., Monday-Friday 8 a.m. to 6 p.m., Monday-Friday
8 a.m. to noon, Saturday
- -------------------------------- ------------------------------------------------------------------------------------------------
- -------------------------------- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
MINIMUM INITIAL INVESTMENT AMOUNTS (1)
To open an account the minimum investments are as follows: Florida Municipal Money Market Other Funds
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Individual or Joint $2,500 $5,000
UGMA/UTMA $2,500 $5,000
</TABLE>
1 The funds in this Prospectus are not available for retirement accounts
REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS
If your redemption activity causes your account balance to fall below the
minimum initial investment amount, we will notify you and give you 90 days to
meet the minimum. If you do not meet the deadline, American Century will redeem
the shares in the account and send the proceeds to your address of record.
ABUSIVE TRADING PRACTICES
We do not permit market timing or other abusive trading practices in our funds.
Excessive, short-term (market timing) or other abusive trading practices may
disrupt portfolio management strategies and harm fund performance. To minimize
harm to the funds and their shareholders, we reserve the right to reject any
purchase order (including exchanges) from any investor we believe has a history
of abusive trading or whose trading, in our judgment, has been or may be
disruptive to a fund. In making this judgment, we may consider trading done in
multiple accounts under common ownership or control. We also reserve the right
to delay delivery of your redemption proceeds -- up to seven days -- or to honor
certain redemptions with securities, rather than cash, as described in the next
section.
SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS
If, during any 90-day period, you redeem fund shares worth more than $250,000
(or 1% of the assets of the fund if that percentage is less than $250,000), we
reserve the right to pay part or all of the redemption proceeds in excess of
this amount in readily marketable securities instead of cash. If we make payment
in securities, we will value the securities selected by the fund managers in the
same manner as we do in computing the fund's net asset value. We may provide
these securities in lieu of cash without prior notice.
If your redemption would exceed this limit and you would like to avoid being
paid in securities, please provide us with an unconditional instruction to
redeem at least 15 days prior to the date on which the redemption transaction is
to occur. The instruction must specify the dollar amount or number of shares to
be redeemed and the date of the transaction. This minimizes the effect of the
redemption on the fund and its remaining shareholders.
INVESTING THROUGH FINANCIAL INTERMEDIARIES
If you do business with us through a financial intermediary or a retirement
plan, your ability to purchase, exchange and redeem shares will depend on the
policies of that entity. Some policy differences may include
o minimum investment requirements
o exchange policies
o fund choices
o cutoff time for investments
Please contact your financial intermediary or plan sponsor for a complete
description of its policies. Copies of the funds' annual reports, semiannual
reports and Statements of Additional Information are available from your
intermediary or plan sponsor.
Certain financial intermediaries perform recordkeeping and administrative
services for their clients that would otherwise be performed by American
Century's transfer agent. In some circumstances, American Century will pay the
service provider a fee for performing those services.
Although transactions in fund shares may be made directly with American Century
at no charge, you also may purchase, redeem and exchange fund shares through
financial intermediaries that charge a transaction-based or other fee for their
services. Those charges are retained by the intermediary and are not shared with
American Century or the funds.
American Century has contracts with certain financial intermediaries requiring
them to track the time investment orders are received and to comply with
procedures relating to the transmission of orders. The funds have authorized
those intermediaries to accept orders on each fund's behalf up to the time at
which the net asset value is determined. If those orders are transmitted to
American Century and paid for in accordance with the contract, they will be
priced at the net asset value next determined after your request is received in
the form required by the intermediary on a fund's behalf.
**********LEFT MARGIN CALLOUTS
o Financial intermediaries include banks, broker-dealers, insurance companies
and investment advisors.
**********END LEFT MARGIN CALLOUTS
SHARE PRICE AND DISTRIBUTIONS
SHARE PRICE
American Century determines the NET ASSET VALUE (NAV) of the funds as of the
close of regular trading on the New York Stock Exchange (usually 4 p.m. Eastern
time) on each day the Exchange is open. On days when the Exchange is not open
(including certain U.S. holidays), we do not calculate the NAV. The NAV of a
fund share is the current value of the fund's assets, minus any liabilities,
divided by the number of fund shares outstanding.
If current market prices of securities owned by a fund (except Florida Municipal
Money Market) are not readily available, the advisor may determine their fair
value in accordance with procedures adopted by the fund's Board of Trustees.
We will price your purchase, exchange or redemption at the net asset value next
determined after we receive your transaction request in good order.
DISTRIBUTIONS
Federal tax laws require each fund to make distributions to its shareholders in
order to qualify as a "regulated investment company." Qualification as a
regulated investment company means that the funds will not be subject to state
or federal income tax on amounts distributed. The distributions generally
consist of dividends and interest received, as well as CAPITAL GAINS realized on
the sale of investment securities.
Each money market fund declares and reinvests distributions from net income
daily. Each of the other funds declares distributions from net income daily and
pays these distributions monthly. Each fund (except Florida Municipal Money
Market) generally pays distributions of capital gains, if any, once a year
usually in December. A fund may make more frequent distributions if necessary to
comply with Internal Revenue Code provisions. Distributions are reinvested
automatically in additional shares unless you choose another option.
You will participate in fund distributions, when they are declared, starting on
the day after your purchase is effective. For example, if you purchase shares on
a day that a distribution is declared, you will not receive that distribution.
If you redeem shares, you will receive any distribution declared on the day you
redeem. If you redeem all shares, we will include any distribution received with
your redemption proceeds.
Participants in employer-sponsored retirement or savings plans must reinvest all
distributions. For shareholders investing through taxable accounts, we will
reinvest distributions unless you elect to receive them in cash. Please consult
our services guide for further information regarding distributions and your
distribution options.
**********LEFT MARGIN CALLOUTS
The NET ASSET VALUE of a fund is the price of the fund's shares.
CAPITAL GAINS are increases in the values of capital assets, such as stock, from
the time the assets are purchased. Tax becomes due on capital gains once an
asset is sold.
**********END LEFT MARGIN CALLOUTS
TAXES
TAX-EXEMPT INCOME. Most of the income that the funds receive from municipal
securities is exempt from regular federal income taxes. Distributions from New
York Municipal Money Market and Arizona Intermediate-Term Municipal will also be
exempt from New York and Arizona income taxes, respectively. Shares of Florida
Municipal Money Market and Florida Intermediate-Term Municipal will also
generally be exempt from the Florida intangible personal property tax. However,
corporate shareholders should be aware that distributions may be subject to
state corporate franchise tax.
The funds may also purchase private activity bonds. The income from these
securities is subject to the federal alternative minimum tax. If you are subject
to the alternative minimum tax, then distributions from the funds that represent
income derived from private activity bonds is taxable to you. Consult your tax
advisor to determine whether you are subject to the alternative minimum tax.
TAXABLE INCOME. The funds' investment performance is also based on sources other
than income from municipal securities. These investment performance sources,
while not the primary source of fund distributions, will generate taxable income
to you. Some of these investment performance sources are:
>> Market Discount Purchases. The funds may buy a tax-exempt security for a
price less than the principal amount of the bond. If the price of the bond
increases over time, a portion of the gain may be treated as ordinary
income and taxable as ordinary income to shareholders if it is distributed
to you.
>> Capital Gains. When a fund sells a security, even a tax-exempt municipal
security, it can generate a capital gain or loss.
>> Temporary Investments. Some temporary investments, such as securities loans
and repurchase agreements, can generate taxable income.
<TABLE>
Type of distribution Tax rate for 15% bracket Tax rate for 28% bracket or above
- --------------------------- ---------------------------------------- -----------------------------------------
<S> <C> <C>
Short-term capital gains Ordinary income rate Ordinary income rate
Long-term capital gains 10% 20%
</TABLE>
The tax status of any distribution of capital gains is determined by how long
the fund held the underlying security that was sold, not by how long you have
been invested in the fund or whether you reinvest your distribution in
additional shares or take them in cash. American Century will send you the tax
status of fund distributions for each calendar year in an annual tax mailing
(Form 1099-DIV) from the fund.
Distributions also may be subject to state and local taxes. Because everyone's
tax situation is unique, always consult your tax professional about federal,
state and local tax consequences.
TAXES ON TRANSACTIONS
Your redemptions--including exchanges to other American Century funds--are
subject to capital gains tax. The table above can provide a general guide for
your potential tax liability when selling or exchanging fund shares. Short-term
capital gains are gains on fund shares you held for 12 months or less. Long-term
capital gains are gains on fund shares you held for more than 12 months. If your
shares decrease in value, their sale or exchange will result in a long-term or
short-term capital loss. 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. 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. This may result in a postponement of the recognition of such loss
for federal income tax purposes.
If you have not certified to us that your Social Security number or tax
identification number is correct and that you are not subject to 31%
withholding, we are required to withhold and remit 31% of dividends, capital
gains distributions and redemptions to the IRS.
**********LEFT MARGIN CALLOUTS
o BUYING A DIVIDEND
Purchasing fund shares in a taxable account shortly before a distribution
is sometimes known as buying a dividend. In taxable accounts, you must pay
income taxes on the distribution whether you reinvest the distribution or
take it in cash. In addition, you will have to pay taxes on the
distribution whether the value of your investment decreased, increased or
remained the same after you bought the fund shares. The risk in buying a
dividend is that a fund's portfolio may build up taxable gains throughout
the period covered by a distribution, as securities are sold at a profit.
We distribute those gains to you, after subtracting any losses, even if you
did not own the shares when the gains occurred. If you buy a dividend, you
incur the full tax liability of the distribution period, but you may not
enjoy the full benefit of the gains realized in the fund's portfolio.
**********END LEFT MARGIN CALLOUTS
Financial Highlights
UNDERSTANDING THE FINANCIAL HIGHLIGHTS
The tables on the next few pages itemize what contributed to the changes in
share price during the period. They also show the changes in share price for
this period in comparison to changes over the last five fiscal years (or less,
if the share class is not five years old).
On a per-share basis, each table includes as appropriate
o share price at the beginning of the period
o investment income and capital gains or losses
o distributions of income and capital gains paid to shareholders
o share price at the end of the period
Each table also includes some key statistics for the period as appropriate
o Total Return--the overall percentage of return of the fund, assuming the
reinvestment of all distributions
o Expense Ratio--operating expenses as a percentage of average net assets
o Net Income Ratio--net investment income as a percentage of average net
assets
o Portfolio Turnover--the percentage of the fund's buying and selling
activity
The Financial Highlights for the fiscal years ended March 31, 1998 and 1999 have
been audited by PricewaterhouseCoopers LLP, independent accountants. Their
report is included in the funds' annual reports, which are incorporated by
reference into the Statement of Additional Information, and are available upon
request. Prior years' information was audited by other independent auditors,
whose report also is incorporated by reference into the Statement of Additional
Information.
<TABLE>
<CAPTION>
FLORIDA MUNICIPAL MONEY MARKET
Investor Class
For a Share Outstanding Throughout the Years Ended March 31
1998 1997 1996 1995
------------------------------------------------------------------------------
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Audited
Beginning of Period........... Numbers $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Not Yet
Income From Available
Investment Operations
Net Investment Income ........... 0.03 0.03 0.04 0.04
------------------------------------------------------------------------------
Distributions
From Net
Investment Income........... (0.03) (0.03) (0.04) (0.04)
------------------------------------------------------------------------------
Net Asset Value,
End of Period................. $1.00 $1.00 $1.00 $1.00
==============================================================================
TOTAL RETURN(1).................. 3.31% 3.55% 3.86% 3.71%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............ 0.51% 0.12% 0.01% -
Ratio of Operating Expenses to Average
Net Assets (Before Expense Waiver) . 0.53% 0.66% 0.71% 0.88%
Ratio of Net Investment
Income to Average Net Assets. 3.25% 3.48% 3.75% 3.93%
Ratio of Net Investment Income to
Average Net Assets (Before Expense Waiver) 3.23% 2.94% 3.05% 3.05%
Net Assets, End
of Period (in thousands)................ $109,684 $112,129 $99,993 $45,147
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
Florida Intermediate-Term Municipal
Investor Class
For a Share Outstanding Throughout the Years Ended March 31
1999 1998 1997 1996 1995
----------------------------------------------------------------------------
PER-SHARE DATA
Net Asset Value, Audited
Beginning of Period...... Numbers $10.34 $10.18 $10.30 $10.11
----------------------------------------------------------------------------
Not Yet
Income From Investment Operations Available
Net Investment Income .............. 0.45 0.46 0.52 0.52
Net Realized and
Unrealized Gain (Loss)
on Investment Transactions..... 0.38 0.20 (0.08) 0.19
----------------------------------------------------------------------------
Total From
Investment Operations......... 0.83 0.66 0.44 0.71
----------------------------------------------------------------------------
Distributions
From Net Investment Income..... (0.45) (0.46) (0.52) (0.52)
From Net Realized
Capital Gains........ (0.16) (0.04) (0.04) -
----------------------------------------------------------------------------
Total Distributions........ (0.61) (0.50) (0.56) (0.52)
----------------------------------------------------------------------------
Net Asset Value,
End of Period.......................... $10.56 $10.34 $10.18 $10.30
============================================================================
TOTAL RETURN(1).............. 8.20% 6.63% 4.34% 7.31%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets............ 0.54% 0.65% 0.13% -
Ratio of Operating Expenses to Average
Net Assets (Before Expense Waiver)...... 0.58% 0.86% 0.88% 1.09%
Ratio of Net Investment
Income to Average Net Assets. 4.28% 4.42% 5.05% 5.23%
Ratio of Net Investment Income to
Average Net Assets (Before Expense Waiver)... 4.24% 4.21% 4.30% 4.14%
Portfolio Turnover Rate....... 154% 82% 66% 37%
Net Assets, End
of Period (in thousands)................ $29,605 $16,513 $10,319 $9,532
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
Arizona Intermediate-Term Municipal
Investor Class
For a Share Outstanding Throughout the Years Ended March 31
1998 1997 1996 1995
-------------------------------------------------------
PER-SHARE DATA
Audited
Net Asset Value, Numbers
Beginning of Period....... Not Yet $10.44 $10.31 $10.35 $10.13
-------------------------------------------------------
Available
Income From
Investment Operations
Net Investment Income 0.46 0.45 0.51 0.51
Net Realized and
Unrealized Gain (Loss)
on Investment Transactions..... 0.28 0.13 (0.03) 0.22
-------------------------------------------------------
Total From
Investment Operations......... 0.74 0.58 0.48 0.73
-------------------------------------------------------
Distributions
From Net Investment Income....... (0.46) (0.45) (0.51) (0.51)
From Net Realized Gains on
Investment Transactions........ (0.05) - (0.01) -
-------------------------------------------------------
Total Distributions........ (0.51) (0.45) (0.52) (0.51)
-------------------------------------------------------
Net Asset Value,
End of Period......... $10.67 $10.44 $10.31 $10.35
=======================================================
TOTAL RETURN(1).......... 7.19% 5.77% 4.65% 7.52%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets............ 0.54% 0.66% 0.14% -
Ratio of Operating Expenses to Average
Net Assets (Before Expense Waiver). 0.60% 0.79% 0.82% 1.01%
Ratio of Net Investment
Income to Average Net Assets. 4.33% 4.35% 4.85% 5.16%
Ratio of Net Investment Income to
Average Net Assets (Before Expense Waiver) 4.27% 4.22% 4.17% 4.15%
Portfolio Turnover Rate....... 39% 81% 36% 33%
Net Assets, End
of Period (in thousands)................ $40,047 $30,555 $25,789 $19,778
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
More information about the funds is contained in these documents:
ANNUAL AND SEMIANNUAL REPORTS
These reports contain more information about the funds' investments and the
market conditions and investment strategies that significantly affected the
funds' performance during the most recent fiscal period.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains a more detailed, legal description of the funds' operations,
investment restrictions, policies and practices. The SAI is incorporated by
reference into this Prospectus. This means that it is legally part of this
Prospectus, even if you don't request a copy.
You may obtain a free copy of the SAI or annual and semiannual reports, and ask
questions about the funds or your accounts, by contacting American Century at
the address or telephone numbers listed below.
You also can get information about the funds (including the SAI) from the
Securities and Exchange Commission (SEC).
In person SEC Public Reference Room
Washington, D.C.
Call 1-800-SEC-0330 for location and hours.
On the internet www.sec.gov
By mail SEC Public Reference Section
Washington, D.C. 20549-6009
(The SEC will charge a fee for copying the
documents.)
Investment Company Act File No. 811-4025
[american century logo(reg.sm)]
American Century
American Century Investments
P.O. Box 419200
Kansas City, Missouri 64141-6200
1-800-345-2021 or 816-531-5575
<TABLE>
FUND REFERENCE
Fund Code Ticker Newspaper Listing
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Florida Municipal Money Market 945 BEFXX AmC FLMu
Florida Intermediate-Term Municipal 946 ACBFX FLIntMu
Arizona Intermediate-Term Municipal 948 BEAMX AZIntMu
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
SEPTEMBER 7, 1999
AMERICAN CENTURY
MUNICIPAL TRUST
This Statement of Additional Information adds to the discussion in the funds'
Prospectuses, dated August 31, 1999, but is not a prospectus. The Statement of
Additional Information should be read in conjunction with the funds' current
Prospectuses. If you would like a copy of a Prospectus, please contact us at the
address or telephone numbers listed on the back cover or visit American
Century's Web site at www.americancentury.com.
This Statement of Additional Information incorporates by reference certain
information that appears in the funds' annual and semiannual reports, which are
delivered to all shareholders. You may obtain a free copy of the funds' annual
or semiannual report by calling 1-800-345-2021.
TAX-FREE MONEY MARKET FUND
FLORIDA MUNICIPAL MONEY MARKET FUND
LIMITED-TERM TAX-FREE FUND
INTERMEDIATE-TERM TAX-FREE FUND
LONG-TERM TAX-FREE FUND
HIGH-YIELD MUNICIPAL FUND
ARIZONA INTERMEDIATE-TERM MUNICIPAL FUND
FLORIDA INTERMEDIATE-TERM MUNICIPAL FUND
[american century logo(reg.sm)]
American
Century
Distributed by Funds Distributor, Inc.
TABLE OF CONTENTS
================================================================================
THE FUNDS'HISTORY..............................................................1
FUND INVESTMENT GUIDELINES.....................................................1
Florida Municipal MoneyMarket Fund and
Florida Intermediate-Term Municipal Fund...................................
Arizona Intermediate-Term Municipal Fund.....................................
Tax-Free Money Market Fund, Limited-Term Tax-Free Fund,
Intermediate-Term Tax-Free Fund and
Long-Term Tax Free Fund......................................................
High-Yield Municipal Fund....................................................
Credit Quality and Maturity Guidelines.....................................13
DETAILED INFORMATION ABOUT THE FUNDS............................................
Investment Strategies and Risks..............................................
Investment Policies........................................................13
Temporary Defensive Measures...............................................15
Portfolio Turnover.........................................................15
MANAGEMENT....................................................................15
The Board of Trustees......................................................15
Officers...................................................................17
THE FUNDS'PRINCIPAL SHAREHOLDERS..............................................18
SERVICE PROVIDERS.............................................................19
Investment Advisor.........................................................19
Transfer Agent and Administrator...........................................21
Distributor................................................................21
OTHER SERVICE PROVIDERS.......................................................22
Custodian Banks............................................................21
Independent Accountants....................................................21
BROKERAGE ALLOCATION..........................................................22
INFORMATION ABOUT FUND SHARES.................................................23
Buying and Selling Fund Shares.............................................XX
Valuation of Portfolio Securities..........................................XX
Money Market Funds......................................................23
Non-Money Market Funds..................................................24
TAXES.........................................................................24
Federal Income Tax.........................................................XX
HOW FUND PERFORMANCE INFORMATION IS CALCULATED................................24
FINANCIAL STATEMENTS..........................................................28
EXPLANATION OF FIXED-INCOME SECURITIES RATINGS................................XX
THE FUNDS' HISTORY
American Century Municipal Trust is a registered open-end management investment
company that was organized as a Massachusetts business trust on May 1, 1984.
From then until January 1997, it was known as Benham Municipal Income Trust.
Throughout this Statement of Additional Information we refer to American Century
Municipal Trust as the Trust.
Each fund described in this Statement of Additional Information is a separate
series of the Trust and operates for many purposes as if it were an independent
company. Each fund has its own investment objective, strategy, management team,
assets, tax identification and stock registration number.
Fund Ticker Symbol Inception Date
- ------------------------------------------------- --------------- --------------
Tax-Free Money Market BNTXX 7/31/84
Florida Municipal Money Market BEFXX 4/11/94
Limited-Term Tax-Free TWTSX 3/1/93
Intermediate-Term Tax-Free TWT1X 3/2/87
Long-Term Tax-Free TWTLX 3/2/87
High-Yield Municipal ABHY2 3/31/98
Arizona Intermediate-Term Municipal BEAMX 4/11/94
Florida Intermediate-Term Municipal ACBFX 4/11/94
- ------------------------------------------------- --------------- --------------
FUND INVESTMENT GUIDELINES
This section explains the extent to which the funds' advisor, American Century
Investment Management, Inc. can use various investment vehicles and strategies
in managing a fund's assets. Descriptions of the investment techniques and risks
associated with each appear in the section, "Investment Strategies and Risks,"
which begins on page XX. In the case of the funds' principal investment
strategies, these descriptions elaborate upon discussion contained in the
Prospectuses.
Each fund (except High-Yield Municipal, Florida Municipal Money Market, Florida
Intermediate-Term Municipal and Arizona Intermediate-Term Municipal) is a
diversified open-end investment company as defined in the Investment Company Act
of 1940 (the Investment Company Act). Diversified means that, with respect to
75% of its total assets, each fund will not invest more than 5% of its total
assets in the securities of a single issuer.
Tax-Free Money Market and Florida Municipal Money Market each operate pursuant
to Rule 2a-7 under the Investment Company Act. That rule permits the valuation
of portfolio securities on the basis of amortized cost. To rely on the rule,
each fund must be diversified with regard to 100% of its assets other than U.S.
government securities. This operating policy is more restrictive than the
Investment Company Act, which requires a diversified investment company to be
diversified with regard to only 75% of its assets.
To meet federal tax requirements for qualification as a regulated investment
company, each fund must limit its investments so that at the close of each
quarter of its taxable year (1) no more than 25% of its total assets are
invested in the securities of a single issuer (other than the U.S government or
a regulated investment company), and (2) with respect to at least 50% of its
total assets, no more than 5% of its total assets are invested in the securities
of a single issuer.
In general, within the restrictions outlined here and in the funds'
Prospectuses, the fund managers have broad powers to decide how to invest fund
assets, including the power to hold them uninvested.
So long as a sufficient number of acceptable securities are available, the
managers intend to keep the funds fully invested. However, under exceptional
conditions, the funds may assume a defensive position, temporarily investing all
or a substantial portion of their assets in cash or short-term securities.
FLORIDA MUNICIPAL MONEY MARKET FUND
FLORIDA INTERMEDIATE-TERM MUNICIPAL FUND
The Florida Municipal Money Market Fund and Florida Intermediate-Term Municipal
Fund seek to obtain as high a level of current income exempt from regular
federal income tax as is consistent with prudent investment management and
conservation of shareholders' capital. In addition, fund shares are intended to
be exempt from the Florida Intangibles Tax.
The funds are designed for individuals in upper tax brackets seeking income free
from regular federal income tax, although the funds may generate some taxable
income. The funds also provide an investment that is intended to be exempt from
the Florida Intangibles Tax. Because of this emphasis on tax-exempt income, the
funds by themselves do not constitute a balanced investment plan.
Each fund intends to remain fully invested in municipal obligations (obligations
issued by or on behalf of a state, its political subdivisions, agencies, and
instrumentalities). As a fundamental policy, each fund will invest at least 80%
of its net assets in obligations with interest exempt from the regular federal
income tax. The funds are not limited, however, in their investments in
securities that are subject to the Federal Alternative Minimum Tax (AMT).
In addition, each fund will invest at least 65% of its net assets in Florida
municipal obligations (obligations issued by or on behalf of Florida, its
political subdivisions, agencies and instrumentalities, or U.S. possessions or
territories such as Puerto Rico). The remaining 35% of each fund's net assets
may be invested in (1) obligations issued by other states and their political
subdivisions and (2) U.S. government securities.
Each fund is authorized under normal conditions to invest as much as 100% of its
net assets in municipal obligations for which the interest is a tax preference
item for purposes of the AMT. If you are or become subject to the AMT, a portion
of your income distributions that are exempt from the regular federal income tax
may not be exempt from the AMT. Interest from AMT bonds is considered to be
exempt from federal income tax purposes of the 80% policy noted above.
A fund may need to sell certain investments near the end of each calendar year
so that on January 1 of each year, its portfolio consists only of investments
that are exempt from the Florida Intangibles Tax. As a result, a fund could
incur additional costs or taxable income or gains.
ARIZONA INTERMEDIATE-TERM MUNICIPAL FUND
Arizona Intermediate-Term Municipal seeks to obtain as high a level of current
income exempt from Arizona and regular federal income tax as is consistent with
prudent investment management and conservation of shareholders' capital.
Arizona Intermediate-Term Municipal is designed for individuals in upper tax
brackets seeking income free from Arizona state and regular federal income
taxes, although the fund may generate some taxable income. Because of this
emphasis on tax-exempt income, the fund does not constitute a balanced
investment.
The fund intends to remain fully invested in municipal obligations (obligations
issued by or on behalf of a state, its political subdivisions, agencies, and
instrumentalities). As a fundamental policy, the fund will invest at least 80%
of its net assets in obligations with interest exempt from the regular federal
income tax. The fund is not limited, however, in its investments in securities
that are subject to the AMT.
In addition, Arizona Intermediate-Term Municipal will invest at least 65% of its
net assets in Arizona municipal obligations (obligations issued by or on behalf
of Arizona; its political subdivisions, agencies and instrumentalities; or U.S.
possessions or territories such as Puerto Rico). The remaining 35% of its net
assets may be invested in (1) obligations issued by other states and their
political subdivisions and (2) U.S. government securities.
The fund is authorized under normal conditions to invest as much as 100% of its
net assets in municipal obligations for which the interest is a tax preference
item for purposes of the AMT. If you are or become subject to the AMT, a portion
of your income distributions that are exempt from the regular federal income tax
may not be exempt from the AMT. Interest from AMT bonds is considered to be
exempt from federal income tax for purposes of the 80% policy noted above.
TAX-FREE MONEY MARKET FUND, LIMITED-TERM TAX-FREE FUND, INTERMEDIATE-TERM
TAX-FREE FUND, LONG-TERM TAX-FREE FUND
Tax-Free Money Market Fund, Limited-Term Tax-Free Fund, Intermediate-Term
Tax-Free Fund, and Long-Term Tax-Free Fund seek as high a level of current
income exempt from regular federal income tax as is consistent with prudent
investment management and conservation of shareholders' capital.
Each fund intends to remain fully invested in municipal obligations, although
for temporary defensive purposes, each may invest a portion of its assets in
U.S. government securities, the interest income on which is subject to federal
income tax. The municipal obligations in which the funds may invest include
securities issued by U.S. territories or possessions, such as Puerto Rico,
provided that the interest on these securities is exempt from regular federal
income tax.
The funds may invest up to 20% of their total assets in municipal obligations
for which the interest is a tax preference item for purposes of the AMT.
HIGH-YIELD MUNICIPAL FUND
High-Yield Municipal Fund seeks to provide high current income exempt from
federal income tax as is consistent with its investment policies, which permit
investment in lower-rated and unrated securities. As a secondary objective, the
fund seeks capital appreciation.
The fund intends to remain fully invested in municipal obligations (obligations
issued by or on behalf of a state or its political subdivisions, agencies and
instrumentalities). The fund also may invest in securities issued by U.S.
territories or possessions, such as Puerto Rico, provided that the interest on
these securities is exempt from regular federal income tax. As a fundamental
policy, the fund will invest at least 80% of its net assets in obligations with
interest exempt from regular federal income tax. The fund is not limited,
however, in its investments in securities that are subject to the AMT.
The fund is authorized, under normal conditions, to invest as much as 100% of
its net assets in municipal obligations for which the interest is a tax
preference item for purposes of the AMT. If you are or become subject to the
AMT, a portion of your income distributions that are exempt from regular federal
income tax may not be exempt from the AMT.
The fund intends to remain fully invested in municipal obligations, although for
temporary defensive purposes, it may invest a portion of its assets in U.S.
government securities, the interest income on which is subject to federal income
tax.
CREDIT QUALITY AND MATURITY GUIDELINES
The Money Market Funds
Tax-Free Money Market Fund and Florida Municipal Money Market Fund seek to
maintain a $1.00 share price, although there is no guarantee they will be able
to do so. Shares of the funds are neither insured nor guaranteed by the U.S.
government.
The money market funds may be appropriate for investors seeking share price
stability who can accept the lower yields that short-term obligations typically
provide.
In selecting investments for the money market funds, the advisor adheres to
regulatory guidelines concerning the quality and maturity of money market fund
investments as well as to internal guidelines designed to minimize credit risk.
In particular, each fund: (1) buys only U.S. dollar-denominated obligations with
remaining maturities of 13 months or less (and variable- and floating-rate
obligations with demand features that effectively shorten their maturities to 13
months or less); (2) maintains a dollar-weighted average portfolio maturity of
90 days or less; and (3) restricts its investments to high-quality obligations
determined by the advisor to present minimal credit risks, pursuant to
guidelines established by the Board of Trustees.
To be considered high-quality, an obligation must be one of the following: (1) a
U.S. government obligation; (2) rated (or issued by an issuer rated with respect
to a class of short-term obligations) within the two highest rating categories
for short-term debt obligations by at least two nationally recognized
statistical rating organizations (rating agencies) (or one if only one has rated
the obligation); or (3) an unrated obligation judged by the advisor, pursuant to
guidelines established by the Board of Trustees, to be of comparable quality.
The fund managers intend to buy only obligations that are designated as
first-tier securities as defined by the SEC; that is, securities with the
highest rating.
The acquisition of securities that are unrated or rated by only one rating
agency must be approved or ratified by the Board of Trustees.
Non-Money Market Funds (except High-Yield Municipal)
Limited-Term Tax-Free, Intermediate-Term Tax-Free, Long-Term Tax-Free, Arizona
Intermediate-Term Municipal and Florida Intermediate-Term Municipal have
identical policies governing the quality of securities in which they may invest.
The funds differ in their maturity criteria as stated in the Prospectus.
In terms of credit quality, each of these funds restricts its investments to (1)
municipal bonds rated, when acquired, within the four highest categories
designated by a rating agency; (2) municipal notes (including variable-rate
demand obligations) and tax-exempt commercial paper rated, when acquired, within
the two highest categories designated by a rating agency; and (3) unrated
obligations judged by the advisor, under the direction of the Board of Trustees,
to be of comparable quality.
DETAILED INFORMATION ABOUT THE FUNDS
INVESTMENT STRATEGIES AND RISKS
This section describes each of the investment vehicles and strategies that the
fund managers can use in managing a fund's assets. It also details the risks
associated with each, because each technique contributes to a fund's overall
risk profile.
Concentration in Types of Municipal Activities
From time to time, a significant portion of a fund's assets may be invested in
municipal obligations that are related to the extent that economic, business or
political developments affecting one of these obligations could affect the other
obligations in a similar manner. For example, if a fund invested a significant
portion of its assets in utility bonds and a state or federal government agency
or legislative body promulgated or enacted new environmental protection
requirements for utility providers, projects financed by utility bonds could
suffer as a group. Additional financing might be required to comply with the new
environmental requirements, and outstanding debt might be downgraded in the
interim. Among other factors that could negatively affect bonds issued to
finance similar types of projects are state and federal legislation regarding
financing for municipal projects, pending court decisions relating to the
validity or means of financing municipal projects, material or manpower
shortages and declining demand for projects or facilities financed by the
municipal bonds.
About the Risks Affecting Arizona Municipal Securities
As noted in the Prospectus, the Arizona Intermediate-Term Municipal fund is
susceptible to political, economic and regulatory events that affect issuers of
Arizona municipal obligations. These include possible adverse affects of Arizona
constitutional amendments, legislative measures, voter initiatives and other
matters described below.
The following information about risk factors is provided in view of the fund's
policy of concentrating its assets in Arizona municipal securities. This
information is based on certain official statements of the state of Arizona
published in connection with the issuance of specific Arizona municipal
securities as well as from other publicly available sources. It does not
constitute a complete description of the risk associated with investing in
securities of these issuers. While the advisor has not independently verified
the information contained in the official statements, it has no reason to
believe the information is inaccurate.
Located in the country's sunbelt, Arizona has been, and is projected to continue
to be, one of the faster growing areas in the United States. Over the last
several decades, the state has outpaced most other regions of the country in
population and personal income growth, gross state product, and job creation.
Geographically, Arizona is the nation's sixth largest state in terms of area. It
is divided into three distinct topographic regions: the northern third, which is
high plateau country traversed by deep canyons, such as Grand Canyon National
Park; central Arizona, which is rugged, mountainous, and heavily forested; and
the southern third, which encompasses desert areas and flat, fertile
agricultural lands in valleys between mountains rich in mineral deposits. These
topographic areas all have different climates, which have distinctively
influenced development in each region. Land ownership is vested largely in the
federal and state governments: 32% is owned by the federal government, 28% is
held as Federal Trust Land (Indian), 17% is in private ownership, and 13% is
held by the state, leaving approximately 10% held in other categories.
The Arizona economy continues to diversify away from its historical reliance on
the mining and agricultural employment sectors. Significant job growth has
occurred in the areas of aerospace and high technology, construction, finance,
insurance, and real estate. Arizona's economy has continued to grow in recent
years, as it is among the fastest growing states in the nation.
Under its constitution, the state of Arizona is not permitted to issue general
obligation bonds secured by the full faith and credit of the state. However,
certain agencies and instrumentalities of the state are authorized to issue
bonds secured by revenues from specific projects and activities, and the state
and local governmental units may enter into lease transactions. The particular
source of payments and security for an Arizona municipal obligation is detailed
in the instruments themselves and in related offering materials.
The state and local governmental units are subject to limitations imposed by
Arizona law with respect to ad valorem taxation, bonded indebtedness, the amount
of annual increases in taxes, and other matters. These limitations may affect
the ability of the issuers to generate revenues to satisfy their debt
obligations. There are periodic attempts in the form of voter initiatives and
legislative proposals to further limit the amount of annual increases in taxes
that may be levied without voter approval. If such a proposal were enacted,
there might be an adverse impact on state or local government financing.
Arizona is required by law to maintain a balanced budget. In the past, the state
has used a combination of spending reductions and tax increases to avoid
potential budgetary shortfalls and may be required to do so again in the future.
About the Risks Affecting Florida Municipal Securities
As noted in the Prospectus, the Florida Municipal Money Market and Florida
Intermediate-Term Municipal funds are susceptible to political, economic and
regulatory events that affect issuers of Florida municipal obligations. These
include possible adverse affects of Florida constitutional amendments,
legislative measures, voter initiatives and other matters described below.
The following information about risk factors is provided in view of the funds'
policies of concentrating their assets in Florida municipal securities. This
information is based on independent municipal credit reports relating to
securities offerings of Florida issuers and other publicly available sources. It
does not constitute a complete description of the risk associated with investing
in securities of these issuers. While the advisor has not independently verified
this information, it has no reason to believe the information is inaccurate.
Because the funds invest primarily in Florida municipal securities, they will be
affected by political and economic conditions and developments within the state
of Florida. In general, the credit quality and credit risk of any issuer's debt
depend on the state and local economy, the health of the issuer's finances, the
amount of the issuer's debt, the quality of management, and the strength of
legal provisions in debt documents that protect debt holders. Credit risk is
usually lower whenever the economy is strong, growing and diversified, financial
operations are sound, and the debt burden is reasonable.
The state of Florida's economy is characterized by a large service sector, a
dependence on the tourism and construction industries, and a large retirement
population. The management of rapid growth has been the major challenge facing
state and local governments. Florida's population has grown rapidly and is now
the fourth largest state; this growth is expected to continue, but at reduced
rates. The retiree component is expected to continue to be a major factor. As
this growth continues, particularly within the retirement population, the demand
for both public and private services will increase, which may strain the service
sector's capacity and impede the state's budget balancing efforts.
In recent years, the Florida economy has been transforming from a narrow base of
agriculture and seasonal tourism into a service and trade economy, with
substantial insurance, banking and export participation as well as greater
year-round attraction. The outlook for the Florida economy is continued
expansion fueled by population growth but at a slower rate than that of the
1980s.
Debt levels in the state of Florida are moderate to high, reflecting the
tremendous capital demands associated with rapid population growth. Florida is
unusual among states in that all general obligation full faith and credit debt
issues of municipalities must be approved by public referendum and are,
therefore, relatively rare. Most debt instruments issued by local municipalities
and authorities have a narrower pledge of security, such as a sales tax stream,
special assessment revenue, user fees, utility taxes or fuel taxes. Credit
quality of such debt instruments tends to be somewhat lower than that of general
obligation debt. The state of Florida issues general obligation debt for a
variety of purposes; however, the state constitution requires a specific revenue
stream to be pledged to state general obligation bonds as well.
The state of Florida is heavily dependent upon sales tax, which makes the
state's general fund vulnerable to recession and presents difficulties in
expanding the tax base in an economy increasingly geared to services. This
dependence upon sales tax, combined with economic recession, has resulted in
budgetary shortfalls in the past; Florida has reacted to preserve an adequate
financial position primarily through expenditure reductions. State officials,
however, still face tremendous capital and operating pressures due to the growth
that will continue to strain the state's narrow revenue base. Future budgets may
require a wider revenue base to meet such demands; the most likely candidate for
such revenue enhancement is a tax on consumer services. The creation of a
Florida personal income tax is a remote possibility because it would require an
amendment to the state's constitution. However, there can be no assurance that a
personal income tax will not be implemented in the future. If such a tax were to
be imposed, there is no assurance that interest earned on Florida municipal
obligations would be exempt from this tax.
About the Risks Affecting Puerto Rico Municipal Securities
From time to time the funds invest in obligations of the Commonwealth of Puerto
Rico and its public corporations which are exempt from federal, state, and city
or local income taxes. The majority of the Commonwealth's debt is issued by the
major public agencies that are responsible for many of the island's public
functions, such as water, wastewater, highways, telecommunications, education
and public construction. As of December 31, 1996, public sector debt issued by
the Commonwealth and its public corporations totaled $18.4 billion.
Since the 1980s, Puerto Rico's economy and financial operations have paralleled
the economic cycles of the United States. The island's economy, particularly the
manufacturing sector, has experienced substantial gains in employment. Much of
these economic gains are attributable in part to favorable treatment under
Section 936 of the federal Internal Revenue Code for U.S. corporations doing
business in Puerto Rico. The number of persons employed in Puerto Rico during
fiscal 1994 averaged one million persons -- a record level. Unemployment,
however, still remains high at 13.8 percent.
Debt ratios for the Commonwealth are high as it assumes much of the
responsibility for local infrastructure. Sizable infrastructure programs are
ongoing to upgrade the island's water, sewer and road systems. The
Commonwealth's general obligation debt is secured by a first lien on all
available revenues. The Commonwealth has maintained a fiscal policy, which seeks
to correlate the growth in public sector debt to the growth of the economic base
available to service that debt. Between fiscal years 1992 and 1996, debt
increased 27.5% while gross product rose 27.7%. Short-term debt remains a modest
13% of total debt outstanding as of December 31, 1996. The maximum annual debt
service requirement on Commonwealth general obligation debt totaled 8.7% of
governmental revenues for fiscal 1997. This is well below the 15% limit imposed
by the Constitution of Puerto Rico.
After recording three years of positive operating results from 1989 to 1991, the
Commonwealth's General Fund moved into a deficit position, with a $62 million
cash deficit for fiscal 1992 and a $116 million deficit for fiscal 1993. The
fiscal 1994 budget was balanced with an increase in the "tollgate" tax on
Section 936 companies and improved revenue collections, which enabled the
Commonwealth to record a strong turnaround in the General Fund balance to $309
million (6.8% of General Fund expenses). A General Fund unreserved balance of
$171 million was recorded for the end of fiscal year 1996.
The Commonwealth's economy remains vulnerable to changes in oil prices, American
trade, foreign policy and levels of federal assistance. Per-capita income
levels, while being the highest in the Caribbean, lag far behind the United
States. In November 1993, the voters of Puerto Rico were asked in a non-binding
referendum to consider the options of statehood, continued Commonwealth status
or independence. Of the 48.4% of the voters who favored continuation of
Commonwealth status, 46.2% were for statehood, and 4.4% were for independence.
In February 1997, legislation was introduced in Congress proposing a mechanism
to permanently settle the political relationship with the United States.
For many years, U.S. companies operating in Puerto Rico were eligible to receive
a special tax credit available under Section 936 of the federal tax code, which
helped spur significant expansion in capital-intensive manufacturing activity.
Federal tax legislation was passed in 1993, which revised the tax benefits
received by U.S. corporations (Section 936 firms) that operate manufacturing
facilities in Puerto Rico. The legislation provides these firms with two
options: a five-year phased reduction of the income-based tax credit to 40% of
the previously allowable credit or the conversion to a wage-based standard,
allowing a tax credit for the first 60% of qualified compensation paid to
employees as defined in the Internal Revenue Code. Studies indicate that there
have been no reductions in the economic growth rate or employment in industries
that were expected to be impacted by the 1993 amendments. In 1996, amendments
were signed into law to phase out the tax credit over a 10-year period for
existing claimants and to eliminate it for corporations without established
operations after October 1995. At present, it is difficult to forecast what the
short- and long-term effects of a phase-out of the Section 936 credit would have
on the economy of Puerto Rico.
A final risk factor with the Commonwealth is the large amount of unfunded
pension liabilities. The two main public pension systems are largely
underfunded. The employees' retirement system has a funded ratio of 19% and an
unfunded liability of $5.0 billion. The teachers' retirement system has a funded
ratio of 56% and an unfunded liability of $1.1 billion. A measure enacted by the
legislature in 1990 is designed to address the solvency of the plans over a
50-year period.
Municipal Notes
Municipal notes are issued by state and local governments or government entities
to provide short-term capital or to meet cash flow needs.
Tax Anticipation Notes (TANs) are issued in anticipation of seasonal tax
revenues, such as ad valorem property, income, sales, use and business taxes,
and are payable from these future taxes. Tax anticipation notes usually are
general obligations of the issuer. General obligations are secured by the
issuer's pledge of its full faith and credit (i.e., taxing power) for the
payment of principal and interest. Revenue Anticipation Notes (RANs) are issued
with the expectation that receipt of future revenues, such as federal revenue
sharing or state aid payments, will be used to repay the notes. Typically, these
notes also constitute general obligations of the issuer.
Bond Anticipation Notes (BANs) are issued to provide interim financing until
long-term financing can be arranged. In most cases, the long-term bonds provide
the money for repayment of the notes.
Tax-Exempt Commercial Paper is an obligation with a stated maturity of 365 days
or less issued to finance seasonal cash flow needs or to provide short-term
financing in anticipation of longer-term financing.
Revenue Anticipation Warrants, or reimbursement warrants, are issued to meet the
cash flow needs of state governments at the end of a fiscal year and in the
early weeks of the following fiscal year. These warrants are payable from
unapplied money in the state's General Fund, including the proceeds of revenue
anticipation notes issued following enactment of a state budget or the proceeds
of refunding warrants issued by the state.
Municipal Bonds
Municipal bonds, which generally have maturities of more than one year when
issued, are designed to meet longer-term capital needs. These securities have
two principal classifications: general obligation bonds and revenue bonds.
General Obligation (GO) Bonds are issued by states, counties, cities, towns and
regional districts to fund a variety of public projects, including construction
of and improvements to schools, highways, and water and sewer systems. General
obligation bonds are backed by the issuer's full faith and credit based on its
ability to levy taxes for the timely payment of interest and repayment of
principal, although such levies may be constitutionally or statutorily limited
as to rate or amount.
Revenue Bonds are not backed by an issuer's taxing authority; rather, interest
and principal are secured by the net revenues from a project or facility.
Revenue bonds are issued to finance a variety of capital projects, including
construction or refurbishment of utility and waste disposal systems, highways,
bridges, tunnels, air and sea port facilities, schools and hospitals. Many
revenue bond issuers provide additional security in the form of a debt-service
reserve fund that may be used to make payments of interest and repayments of
principal on the issuer's obligations. Some revenue bond financings are further
protected by a state's assurance (without obligation) that it will make up
deficiencies in the debt-service reserve fund.
Industrial Development Bonds (IDBs), a type of revenue bond, are issued by or on
behalf of public authorities to finance privately operated facilities. These
bonds are used to finance business, manufacturing, housing, athletic and
pollution control projects, as well as public facilities such as mass transit
systems, air and sea port facilities and parking garages. Payment of interest
and repayment of principal on an IDB depend solely on the ability of the
facility's user to meet financial obligations, and on the pledge, if any, of the
real or personal property financed. The interest earned on IDBs may be subject
to the federal alternative minimum tax.
Variable- and Floating-Rate Obligations
The funds may buy variable- and floating-rate demand obligations (VRDOs and
FRDOs). These obligations carry rights that permit holders to demand payment of
the unpaid principal plus accrued interest, from the issuers or from financial
intermediaries. Floating-rate securities, or floaters, have interest rates that
change whenever there is a change in a designated base rate; variable-rate
instruments provide for a specified, periodic adjustment in the interest rate,
which typically is based on an index. These rate formulas are designed to result
in a market value for the VRDO or FRDO that approximates par value.
Obligations with Term Puts Attached
Each fund may invest in fixed-rate bonds subject to third-party puts and in
participation interests in such bonds held by a bank in trust or otherwise.
These bonds and participation interests have tender options or demand features
that permit the funds to tender (or put) their bonds to an institution at
periodic intervals and to receive the principal amount thereof.
The advisor expects that the funds will pay more for securities with puts
attached than for securities without these liquidity features. The advisor 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 fund's investments.
To ensure that the interest on municipal securities subject to puts is
tax-exempt to the funds, the advisor limits the funds' use of puts in accordance
with applicable interpretations and rulings of the Internal Revenue Service
(IRS).
Because it is difficult to evaluate the likelihood of exercise or the potential
benefit of a put, puts normally will be determined to have a value of zero,
regardless of whether any direct or indirect consideration is paid. Accordingly,
puts as separate securities are not expected to affect the funds' weighted
average maturities. When a fund has paid for a put, the cost will be reflected
as unrealized depreciation on the underlying security for the period the put is
held. Any gain on the sale of the underlying security will be reduced by the
cost of the put.
There is a risk that the seller of a put will not be able to repurchase the
underlying obligation when (or if) a fund attempts to exercise the put. To
minimize such risks, the funds will purchase obligations with puts attached only
from sellers deemed creditworthy by the advisor under the direction of the Board
of Trustees.
Tender Option Bonds
Tender option bonds (TOBs) were created to increase the supply of high-quality,
short-term tax-exempt obligations, and thus they are of particular interest to
the money market funds. However, any of the funds may purchase these
instruments.
TOBs are created by municipal bond dealers who purchase long-term tax-exempt
bonds in the secondary market, place the certificates in trusts, and sell
interests in the trusts with puts or other liquidity guarantees attached. The
credit quality of the resulting synthetic short-term instrument is based on the
guarantor's short-term rating and the underlying bond's long-term rating.
There is some risk that a remarketing agent will renege on a tender option
agreement if the underlying bond is downgraded or defaults. Because of this, the
advisor 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 rating agency.
The advisor 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 (1) legal opinions relating to the tax-exempt status of the
underlying municipal bonds, (2) legal opinions relating to the tax ownership of
the underlying bonds, and (3) other elements of the structure that could result
in taxable income or other adverse tax consequences. After purchase, the advisor
monitors factors related to the tax-exempt status of the fund's TOB holdings in
order to minimize the risk of generating taxable income.
When-Issued and Forward Commitment Agreements
The funds may engage in municipal securities transactions on a when-issued or
forward commitment basis in which the transaction price and yield are each fixed
at the time the commitment is made, but payment and delivery occur at a future
date (typically 15 to 45 days later).
When purchasing securities on a when-issued or forward commitment basis, a fund
assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. While the fund will make commitments to purchase or sell
securities with the intention of actually receiving or delivering them, it may
sell the securities before the settlement date if doing so is deemed advisable
as a matter of investment strategy.
In purchasing securities on a when-issued or forward commitment basis, a fund
will establish and maintain until the settlement date a segregated account
consisting of cash, cash equivalents or other appropriate liquid securities in
an amount sufficient to meet the purchase price. When the time comes to pay for
the when-issued securities, the fund will meet its obligations with available
cash, through the sale of securities, or, although it would not normally expect
to do so, by selling the when-issued securities themselves (which may have a
market value greater or less than the fund's payment obligation). Selling
securities to meet when-issued or forward commitment obligations may generate
taxable capital gains or losses.
As an operating policy, no fund will commit more than 50% of its total assets to
when-issued or forward commitment agreements. If fluctuations in the value of
securities held cause more than 50% of a fund's total assets to be committed
under when-issued or forward commitment agreements, the fund managers need not
sell such agreements, but it will be restricted from entering into further
agreements on behalf of the fund until the percentage of assets committed to
such agreements is below 50% of total assets.
Municipal Lease Obligations
Each fund may invest in municipal lease obligations. These obligations, which
may take the form of a lease, an installment purchase, or a conditional sale
contract, are issued by state and local governments and authorities to acquire
land and a wide variety of equipment and facilities. Generally, the funds will
not hold such obligations directly as a lessor of the property but will purchase
a participation interest in a municipal lease obligation from a bank or other
third party.
Municipal leases frequently carry risks distinct from those associated with
general obligation or revenue bonds. state constitutions and statutes set forth
requirements that states and municipalities must meet to incur debt. These may
include voter referenda, interest rate limits or public sale requirements.
Leases, installment purchases or conditional sale contracts (which normally
provide for title to the leased asset to pass to the government issuer) have
evolved as a way for government issuers to acquire property and equipment
without meeting constitutional and statutory requirements for the issuance of
debt.
Many leases and contracts include nonappropriation clauses, which provide that
the governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purposes by the
appropriate legislative body on a yearly or other periodic basis. Municipal
lease obligations also may be subject to abatement risk. For example,
construction delays or destruction of a facility as a result of an uninsurable
disaster that prevents occupancy could result in all or a portion of a lease
payment not being made.
Inverse Floaters
The funds (except the money market funds) may hold inverse floaters. An inverse
floater is a type of derivative that bears an interest rate that moves inversely
to market interest rates. As market interest rates rise, the interest rate on
inverse floaters goes down, and vice versa. Generally, this is accomplished by
expressing the interest rate on the inverse floater as an above-market fixed
rate of interest, reduced by an amount determined by reference to a market-based
or bond-specific floating interest rate (as well as by any fees associated with
administering the inverse floater program).
Inverse floaters may be issued in conjunction with an equal amount of Dutch
Auction floating-rate bonds (floaters), or a market-based index may be used to
set the interest rate on these securities. A Dutch Auction is an auction system
in which the price of the security is gradually lowered until it meets a
responsive bid and is sold. 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:
o Floater holders receive interest based on rates set at a six month interval
or at a Dutch Auction, which is typically held every 28 to 35 days. Current
and prospective floater holders bid the minimum interest rate that they are
willing to accept on the floaters, and the interest rate is set just high
enough to ensure that all of the floaters are sold.
o Inverse floater holders receive all of the interest that remains on the
underlying bonds after floater interest and auction fees are paid.
Procedures for determining the interest payment on floaters and inverse floaters
brought to market directly by the issuer are comparable, although the interest
paid on the inverse floaters is based on a presumed coupon rate that would have
been required to bring fixed-rate bonds to market at the time the floaters and
inverse floaters were issued.
Where inverse floaters are issued in conjunction with floaters, inverse floater
holders may be given the right to acquire the underlying security (or to create
a fixed-rate bond) by calling an equal amount of corresponding floaters. The
underlying security may then be held or sold. However, typically, there are time
constraints and other limitations associated with any right to combine interests
and claim the underlying security.
Floater holders subject to a Dutch Auction procedure generally do not have the
right to "put back" their interests to the issuer or to a third party. If a
Dutch Auction fails, the floater holder may be required to hold its position
until the underlying bond matures, during which time interest on the floater is
capped at a predetermined rate.
The secondary market for floaters and inverse floaters may be limited. The
market value of inverse floaters tends to be significantly more volatile than
fixed-rate bonds. The interest rates on inverse floaters may be significantly
reduced, even to zero, if interest rates rise.
Lower-Quality Bonds
As indicated in the Prospectus, an investment in High-Yield Municipal carries
greater risk than an investment in the other funds because the fund may invest
without limitation in lower-rated bonds and unrated bonds judged by the advisor
to be of comparable quality (collectively, lower-quality bonds).
While the market values of higher-quality bonds tend to correspond to market
interest rate changes, the market values of lower-quality bonds tend to reflect
the financial condition of their issuers.
Projects financed through the issuance of lower-quality bonds are often highly
leveraged. The issuer's ability to service its debt obligations may be adversely
affected by an economic downturn, a period of rising interest rates, the
issuer's inability to meet projected revenue forecasts, or a lack of needed
additional financing.
Lower-quality bonds generally are unsecured and often are subordinated to other
obligations of the issuer. These bonds frequently have call or buy-back features
that permit the issuer to call or repurchase the bond from the holder. Premature
disposition of a lower-quality bond due to a call or buy-back feature,
deterioration of the issuer's creditworthiness, or a default may make it
difficult for the advisor to manage the flow of income to the fund, which may
have negative tax implications for shareholders.
The market for lower-quality bonds tends to be concentrated among a smaller
number of dealers than the market for higher-quality bonds. This market is
dominated by dealers and institutions (including mutual funds), rather than by
individuals. To the extent that a secondary trading market for lower-quality
bonds exists, it may not be as liquid as the secondary market for higher-quality
bonds. Limited liquidity in the secondary market may adversely affect market
prices and hinder the advisor's ability to dispose of particular bonds when it
determines that it is in the best interest of the fund to do so. Reduced
liquidity also may hinder the advisor's ability to obtain market quotations for
purposes of valuing the fund's portfolio and determining its net asset value.
The advisor continually monitors securities to determine their relative
liquidity.
A fund may incur expenses in excess of its ordinary operating expenses if it
becomes necessary to seek recovery on a defaulted bond, particularly a
lower-quality bond.
Short-Term Securities
Under certain circumstances, the non-money market funds may invest in short-term
municipal or U.S. government securities, including money market instruments
(short-term securities). If a fund invests in U.S. government securities, a
portion of dividends paid to shareholders will be taxable at the federal level,
and may be taxable at the state level, as ordinary income. However, the advisor
intends to minimize such investments and, when suitable short-term municipal
securities are unavailable, may allow the funds to hold cash to avoid generating
taxable dividends.
Except as otherwise required for temporary defensive purposes, the advisor does
not expect the non-money market funds to invest more than 35% of total assets in
short-term securities.
Pursuant to an exemptive order from the Securities and Exchange Commission
(SEC), each non-money market fund may invest in shares of any money market funds
to facilitate cash management provided that the investment is consistent with
the funds' investment policies and restrictions.
The non-money market funds may invest up to 5% of their total assets in shares
of any money market funds. To avoid generating dividend income subject to the
AMT, the non-money market funds (excluding High-Yield Municipal) will limit
their money market fund investments to Tax-Free Money Market. High-Yield
Municipal, which ordinarily invests in AMT securities, may invest up to 5% of
its total assets in shares of either of the money market funds.
Futures and Options
Each non-money market fund may enter into futures contracts, options or options
on futures contracts. Some futures and options strategies, such as selling
futures, buying puts and writing calls, hedge a fund's investments against price
fluctuations. Other strategies, such as buying futures, writing puts and buying
calls, tend to increase market exposure. The funds do not use futures and
options transactions for speculative purposes.
Although other techniques may be used to control a fund's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While a fund pays brokerage commissions in connection
with opening and closing out futures positions, these costs are lower than the
transaction costs incurred in the purchase and sale of the underlying
securities.
Futures contracts provide for the sale by one party and purchase by another
party of a specific security at a specified future time and price. Futures
contracts are traded on national futures exchanges. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission (CFTC), a U.S. government agency. The funds may engage in
futures and options transactions based on securities indexes such as the Bond
Buyer Index of Municipal Bonds that are consistent with the fund's investment
objectives. The fund also may engage in futures and options transactions based
on specific securities such as U.S. Treasury bonds or notes.
Bond Buyer Municipal Bond Index futures contracts differ from traditional
futures contracts in that when delivery takes place, no bonds change hands.
Instead, these contracts settle in cash at the spot market value of the Bond
Buyer Municipal Bond Index.
Although other types of futures contracts by their terms call for actual
delivery or acceptance of the underlying securities, in most cases the contracts
are closed out before the settlement date. A futures position may be closed by
taking an opposite position in an identical contract (i.e., buying a contract
that has previously been sold or selling a contract that has previously been
bought).
To initiate and maintain open positions in a futures contract, a fund would be
required to make a good faith margin deposit in cash or government securities
with a futures broker or custodian. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimum initial
margin requirements are established by the futures exchanges and may be revised.
In addition, brokers may establish margin deposit requirements that are higher
than the exchange minimums.
Once a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the
margin on deposit does not satisfy margin requirements, the contract holder is
required to pay additional variation margin. Conversely, changes in the contract
value may reduce the required margin, resulting in a repayment of excess margin
to the contract holder. Variation margin payments are made to or from the
futures broker for as long as the contract remains open and do not constitute
margin transactions for purposes of the funds' investment restrictions.
Risks Related to Futures and Options Transactions
Futures and options prices can be volatile, and trading in these markets
involves certain risks. If the advisor applies a hedge at an inappropriate time
or judges interest rate trends incorrectly, futures and options strategies may
lower a fund's return.
A fund could suffer losses if it were unable to close out its position because
of an illiquid secondary market. Futures contracts may be closed out only on an
exchange that provides a secondary market for these contracts, and there is no
assurance that a liquid secondary market will exist for any particular futures
contract at any particular time. Consequently, it may not be possible to close a
futures position when the advisor 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 advisor would not otherwise elect to do
so. In addition, a fund may be required to deliver or take delivery of
instruments underlying futures contracts it holds. The advisor will seek to
minimize these risks by limiting the contracts entered into on behalf of the
funds to those traded on national futures exchanges and for which there appears
to be a liquid secondary market.
A fund could suffer losses if the prices of its futures and options positions
were poorly correlated with its other investments, or if securities underlying
futures contracts purchased by a fund had different maturities than those of the
portfolio securities being hedged. Such imperfect correlation may give rise to
circumstances in which a fund loses money on a futures contract at the same time
that it experiences a decline in the value of its "hedged" portfolio securities.
A fund also could lose margin payments it has deposited with a margin broker,
if, for example, the broker became bankrupt.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of the trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond the limit. However, the daily limit
governs only price movement during a particular trading day and, therefore, does
not limit potential losses. In addition, the daily limit may prevent liquidation
of unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
Options On Futures
By purchasing an option on a futures contract, a fund obtains the right, but not
the obligation, to sell the futures contract (a put option) or to buy the
contract (a call option) at a fixed strike price. A fund can terminate its
position in a put option by allowing it to expire or by exercising the option.
If the option is exercised, the fund completes the sale of the underlying
security at the strike price. Purchasing an option on a futures contract does
not require a fund to make margin payments unless the option is exercised.
Although they do not currently intend to do so, the funds may write (or sell)
call options that obligate it to sell (or deliver) the option's underlying
instrument upon exercise of the option. While the receipt of option premiums
would mitigate the effects of price declines, the funds would give up some
ability to participate in a price increase on the underlying security. If a fund
were to engage in options transactions, it would own the futures contract at the
time a call were written and would keep the contract open until the obligation
to deliver it pursuant to the call expired.
Restrictions on the Use of Futures Contracts and Options
Each non-money market fund may enter into futures contracts, options or options
on futures contracts.
Under the Commodity Exchange Act, a fund may enter into futures and options
transactions (a) for hedging purposes without regard to the percentage of assets
committed to initial margin and option premiums or (b) for other than hedging
purposes, provided that assets committed to initial margin and option premiums
do not exceed 5% of the fund's total assets. To the extent required by law, each
fund will set aside cash and appropriate liquid assets in a segregated account
to cover its obligations related to futures contracts and options.
The funds intend to comply with tax rules applicable to regulated investment
companies, including a requirement that capital gains from the sale of
securities held less than three months constitute less than 30% of a fund's
gross income for each fiscal year. Gains on some futures contracts and options
are included in this 30% calculation, which may limit the funds' investments in
such instruments.
Restricted and Illiquid Securities
The funds may, from time to time, purchase restricted or illiquid securities,
including Rule 144A securities, when they present attractive investment
opportunities that otherwise meet the funds' criteria for selection. Rule 144A
securities are securities that are privately placed with and traded among
qualified institutional investors rather than the general public. Although Rule
144A securities are considered "restricted securities," they are not necessarily
illiquid.
With respect to securities eligible for resale under Rule 144A, the staff of the
SEC has taken the position that the liquidity of such securities in the
portfolio of a fund offering redeemable securities is a question of fact for the
Board of Trustees to determine, such determination to be based upon a
consideration of the readily available trading markets and the review of any
contractual restrictions. Accordingly, the Board of Trustees is responsible for
developing and establishing the guidelines and procedures for determining the
liquidity of Rule 144A securities. As allowed by Rule 144A, the Board of
Trustees of the funds has delegated the day-to-day function of determining the
liquidity of Rule 144A securities to the advisor. The Board retains the
responsibility to monitor the implementation of the guidelines and procedures it
has adopted.
Because the secondary market for such securities is limited to certain qualified
institutional investors, the liquidity of such securities may be limited
accordingly and a fund may, from time to time, hold a Rule 144A or other
security that is illiquid. In such an event, the advisor will consider
appropriate remedies to minimize the effect on such fund's liquidity.
INVESTMENT POLICIES
Unless otherwise indicated, with the exception of the percentage limitations on
borrowing, the following restrictions apply at the time transactions are entered
into. Accordingly, any later increase or decrease beyond the specified
limitation resulting from a change in a fund's net assets will not be considered
in determining whether it has complied with its investment restrictions.
Fundamental Investment Policies
The funds are subject to the following investment restrictions that are
fundamental and may not be changed without approval of a majority of the
outstanding votes of shareholders of a fund, as determined in accordance with
the Investment Company Act.
For purposes of the investment restriction relating to concentration, a fund
shall not purchase any securities that 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.
<TABLE>
Subject Policy
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<S> <C>
Senior A fund may not issue senior securities, except as permitted
Securities under the Investment Company Act.
Borrowing A fund may not borrow money, except 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).
Lending A fund may not lend any security or make any other loan if, as
a result, more than 33 1/3% of the fund's total assets would
be lent to other parties, except (i) through the purchase of
debt securities in accordance with its investment objective,
policies and limitations or (ii) by engaging in repurchase
agreements with respect to portfolio securities.
Real Estate A fund may not purchase or sell real estate unless acquired as
a result of ownership of securities or other instruments. This
policy shall not prevent the fund from investment in
securities or other instruments backed by real estate or
securities of companies that deal in real estate or are
engaged in the real estate business.
Concentration A fund may not concentrate its investments in securities of
issuers in a particular industry (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities).
Underwriting A fund may not act as an underwriter of securities issued by
others, except to the extent that the fund may be considered
an underwriter within the meaning of the Securities Act of
1933 in the disposition of restricted securities.
Commodities A fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other
instruments; provided that this limitation shall not prohibit
the fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments
backed by physical commodities.
Control A fund may not invest for purposes of exercising control over
management.
Nonfundamental Investment Policies
In addition, the funds are subject to the following additional investment
restrictions that are not fundamental and may be changed by the Board of
Trustees.
Subject Policy
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Diversification A fund may not purchase additional investment securities at any time during which
(Tax-Free Money Market, outstanding borrowings exceed 5% of the total assets of the fund.
Limited-Term,
Intermediate-Term and
Long-Term Tax-Free)
Diversification To meet federal tax requirements for qualification as a regulated investment
(Florida Municipal Money company, each fund must limit its investments so that at the close of each
Market, Florida quarter of its taxable year (1) no more than 25% of its total assets are invested
Intermediate-Term in the securities of a single issuer (other than the U.S government or a
Municipal, Arizona regulated investment company), and (2) with respect to at least 50% of its total
Intermediate-Term Municipal assets, no more than 5% of its total assets are invested in the securities of a
and High-Yield Municipal) single issuer.
Futures and options [money The money market funds may not purchase or sell futures contracts or call
market funds only] 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.
Liquidity A fund may not purchase any security or enter into a repurchase agreement if, as
a result, more than 15% of its net assets (10% for the money market funds) would
be invested in repurchase agreements not entitling the holder to payment of
principal and interest within seven days and in securities that are illiquid by
virtue of legal or contractual restrictions on resale or the absence of a readily
available market.
Short Sales A fund may not sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, and
provided that transactions in futures contracts and options are not deemed to
constitute selling securities short.
Margin A fund may not purchase securities on margin, except to 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.
</TABLE>
TEMPORARY DEFENSIVE MEASURES
For temporary defensive purposes, a fund may invest in securities that may not
fit its investment objective or its stated market. During a temporary defensive
period, a fund may direct its assets to the following investment vehicles: (1)
interest-bearing bank accounts or certificates of deposit; (2) U.S. government
securities and repurchase agreements collateralized by U.S. government
securities; and (3) other money market funds.
PORTFOLIO TURNOVER
Under normal conditions, the funds' annual portfolio turnover rates are not
expected to exceed 100%. Because a higher turnover rate increases transaction
costs and may increase taxable capital gains, the managers carefully weigh the
potential benefits of short-term investing against these considerations.
The funds' portfolio turnover rates (except those of the money market funds) are
listed in the Financial Highlights table in the Prospectuses. Because of the
short-term nature of the money market funds' investments, portfolio turnover
rates are not generally used to evaluate their trading activities.
MANAGEMENT
THE BOARD OF TRUSTEES
The Board of Trustees oversees the management of the funds and meets at least
quarterly to review reports about fund operations. Although the Board of
Trustees does not manage the funds, it has hired the advisor to do so.
Two-thirds of the trustees are independent of the funds' advisor, that is, they
are not employed by and have no financial interest in the advisor.
The individuals listed in the table below whose names are marked by an asterisk
(*) are interested persons of the funds (as defined in the Investment Company
Act) by virtue of, among other considerations, their affiliation with either the
funds; the advisor, American Century Investment Management, Inc. (ACIM); the
funds' agent for transfer and administrative services, American Century Services
Corporation (ACSC); the parent corporation, American Century Companies, Inc.
(ACC) or ACC's subsidiaries; the funds' distribution agent and co-administrator,
Funds Distributor, Inc. (FDI); or other funds advised by the advisor. Each
trustee listed below serves as a trustee or director of seven registered
investment companies in the American Century family of funds, which are also
advised by the advisor.
<TABLE>
Position(s)
Name (Age) Held Principal Occupation(s)
Address With Fund During Past Five Years
- --------------------------- ---------- --------------------------------------------------------------------------
<S> <C> <C>
Albert A. Eisenstat (69) Trustee Independent Director, Commercial Metals Co. (1982 to present)
1665 Charleston Road Independent Director, Sungard Data Systems (1991 to present)
Mountain View, CA 94043 General Partner, Discovery Ventures (venture capital firm, 1996 to 1998)
Independent Director, Business Objects S/A (software & programming, 1994
to present)
Ronald J. Gilson (52) Trustee Charles J. Meyers Professor of Law and Business, Stanford Law School
1665 Charleston Road (1979 to present)
Mountain View, CA 94043 Mark and Eva Stern Professor of Law and Business, Columbia University
School of Law (1992 to present)
Counsel, Marron, Reid & Sheehy (a San Francisco law firm, 1984 to
present)
William M. Lyons* (43) Trustee President, Chief Operating Officer and Assistant Secretary, ACC
4500 Main Street Executive Vice President, Chief Operating Officer and Secretary, ACSC
Kansas City, MO 64111 and ACIS
Myron S. Scholes (58) Trustee Limited Partner, Long-Term Capital Management (since February 1999)
1665 Charleston Road Principal, Long-Term Capital Management (investment advisor, 1993 to
Mountain View, CA 94043 January 1999)
Frank E. Buck Professor of Finance, Stanford Graduate School of Business
(1981 to present)
Director, Dimensional Fund Advisors (investment advisor, since 1982)
Director, Smith Breeden Family of Funds (1992 to present)
Kenneth E. Scott (70) Trustee Ralph M. Parsons Professor of Law and Business, Stanford Law School
1665 Charleston Road (1972 to present)
Mountain View, CA 94043 Director, RCM Capital Funds, Inc. (1994 to present)
Isaac Stein (52) Trustee Director, Raychem Corporation (electrical equipment, since 1993)
1665 Charleston Road President, Waverley Associates, Inc. (private investment firm, 1983 to
Mountain View, CA 94043 present)
Director, ALZA Corporation
(pharmaceuticals, 1987 to present)
Trustee, Stanford University (1994 to
present) Chairman, Stanford Health
Services (1994 to present)
James E. Stowers III* (40) Trustee, Chief Executive Officer and Director, ACC
4500 Main Street Chairman President, Chief Executive Officer and Director, ACSC and ACIS
Kansas City, MO 64111 of the Son of James E. Stowers, Jr. (founder)
Board
Jeanne D. Wohlers (54) Trustee Director, Indus International (software solutions, January 1999 to
1665 Charleston Road present)
Mountain View, CA 94043 Director and Partner, Windy Hill Productions, LP (educational software,
1994 to 1998)
Director, Quintus Corporation (automation solutions, 1995 to present)
- --------------------------- ---------- --------------------------------------------------------------------------
Committees
The Board has four committees to oversee specific functions of the funds'
operations. Information about these committees appears in the table below. The
trustee first named acts as chairman of the committee:
- ------------------ ------------------- --------------------------------------------------------------------------
Committee Members Function of Committee
- ------------------ ------------------- --------------------------------------------------------------------------
Audit Jeanne D. Wohlers The Audit Committee selects and oversees the activities of the Trust's
Albert A. independent auditor. The committee receives reports from the advisor's
Eisenstat Internal Audit Department, which is accountable solely to the committee.
Kenneth E. Scott The committee also receives reporting about compliance matters affecting
the Trust.
Nominating Kenneth E. Scott The Nominating Committee primarily considers and recommends individuals
Myron S. Scholes for nomination as trustees. The names of potential trustee candidates
Albert A. are drawn from a number of sources, including recommendations from
Eisenstat members of the Board, management and shareholders. This committee also
Ronald J. Gilson reviews and makes recommendations to the Board with respect to the
Isaac Stein composition of Board committees and other Board-related matters,
Jeanne D. Wohlers including its organization, size, composition, responsibilities,
functions and compensation.
Portfolio Myron S. Scholes The Portfolio Committee reviews quarterly the investment activities and
Ronald J. Gilson strategies used to manage fund assets. The committee regularly receives
Isaac Stein reports from portfolio managers, credit analysts and other investment
personnel concerning the funds' investments.
Quality of William Lyons The Quality of Service Committee reviews the level and quality of
Service Ronald J. Gilson transfer agent and administrative services provided to the funds and
Myron S. Scholes their shareholders. It receives and reviews reports comparing those
Isaac Stein services to fund competitors and seeks to improve such services where
feasible and appropriate.
- ------------------ ------------------- --------------------------------------------------------------------------
</TABLE>
Compensation of Trustees
The trustees also serve as trustees for six American Century investment
companies other than American Century Municipal Trust. Each trustee who is not
an interested person as defined in the Investment Company Act receives
compensation for service as a member of the Board of all seven such companies
based on a schedule that takes into account the number of meetings attended and
the assets of the funds for which the meetings are held. These fees and expenses
are divided among the seven investment companies based, in part, upon their
relative net assets. Under the terms of the management agreement with the
advisor, the funds are responsible for paying such fees and expenses.
The following table shows the aggregate compensation paid by the Trust for the
periods indicated and by the seven investment companies served by this Board to
each trustee who is not an interested person as defined in the Investment
Company Act.
AGGREGATE TRUSTEE COMPENSATION FOR FISCAL YEAR ENDED MAY 31, 1999
- ---------------------------- ---------------------- ---------------------
Total Compensation
from the
Total Compensation American Century
Name of Trustee from Family of Funds(2)
the Funds(1)
- ---------------------------- ---------------------- ---------------------
Albert A. Eisenstat $13,571 $57,750
Ronald J. Gilson 13,917 66,500
Myron S. Scholes 13,424 55,250
Kenneth E. Scott 13,905 66,500
Isaac Stein 13,695 61,750
Jeanne D. Wohlers 13,832 64,750
- ---------------------------- ---------------------- ---------------------
1 Includes compensation paid to the trustees during the fiscal year ended May
31, 1999, and also includes amounts deferred at the election of the
trustees under the American Century Mutual Funds Deferred Compensation Plan
for Non-Interested Directors and Trustees. The total amount of deferred
compensation included in the preceding table is as follows: Mr. Eisenstat,
$13,571; Mr. Gilson, $13,917; Mr. Scholes, $13,424, and Mr. Scott, $6,952.
2 Includes compensation paid by the seven investment company members of the
American Century family of funds served by this Board.
The funds have adopted the American Century Deferred Compensation Plan for
Non-Interested Directors and Trustees. Under the plan, the independent trustees
may defer receipt of all or any part of the fees to be paid to them for serving
as trustees of the funds.
All deferred fees are credited to an account established in the name of the
trustees. The amounts credited to the account then increase or decrease, as the
case may be, in accordance with the performance of one or more of the American
Century funds that are selected by the trustee. The account balance continues to
fluctuate in accordance with the performance of the selected fund or funds until
final payment of all amounts credited to the account. Trustees are allowed to
change their designation of mutual funds from time to time.
No deferred fees are payable until such time as a trustee resigns, retires or
otherwise ceases to be a member of the Board of Trustees. Trustees may receive
deferred fee account balances either in a lump sum payment or in substantially
equal installment payments to be made over a period not to exceed 10 years. Upon
the death of a trustee, all remaining deferred fee account balances are paid to
the trustee's beneficiary or, if none, to the trustee's estate.
The plan is an unfunded plan and, accordingly, the funds have no obligation to
segregate assets to secure or fund the deferred fees. The rights of trustees to
receive their deferred fee account balances are the same as the rights of a
general unsecured creditor of the funds. The plan may be terminated at any time
by the administrative committee of the plan. If terminated, all deferred fee
account balances will be paid in a lump sum.
No deferred fees were paid to any trustee under the plan during the fiscal year
ended May 31, 1999.
OFFICERS
Background information for the officers of the funds is provided below. All
persons named as officers of the funds also serve in similar capacities for the
12 other investment companies advised by ACIM. Not all officers of the funds are
listed; only those officers with policy-making functions for the funds are
listed. No officer is compensated for his or her service as an officer of the
funds. The individuals listed in the table are interested persons of the funds
(as defined in the Investment Company Act) by virtue of, among other
considerations, their affiliation with either the funds; ACC; ACC's subsidiaries
(including ACIM and ACSC); or the funds' distributor (FDI), as specified in the
following table.
<TABLE>
Positions
Name (Age) Held Principal Occupation(s)
Address With Fund During Past Five Years
- --------------------------- ---------- ---------------------------------------------------------------------------
<S> <C> <C>
George A. Rio (44) President Executive Vice President and Director of Client Services, FDI (March 1998
60 State St. to present)
Boston, MA 02109 Senior Vice President and Senior Key Account Manager, Putnam Mutual Funds
(June 1995 to March 1998)
Director Business Development, First Data Corporation (May 1994 to June
1995)
Christopher J. Kelley (34) Vice Vice President and Associate General Counsel, FDI (July 1996 to present)
60 State St. President Assistant Counsel, Forum Financial Group (April 1994 to July 1996)
Boston, MA 02109 Compliance Officer, Putnam Investments (1992 to April 1994)
Mary A. Nelson (35) Vice Vice President and Manager of Treasury Services and Administration, FDI,
60 State St. President (1994 to present)
Boston, MA 02109 Assistant Vice President and Client Manager, The Boston Company, Inc.
(1989 to 1994)
Maryanne Roepke, CPA (43) Vice Senior Vice President, Treasurer and Principal Accounting Officer, ACSC
4500 Main St. President
Kansas City, MO 64111 and
Treasurer
David C. Tucker (41) Vice Senior Vice President and General Counsel, ACSC and ACIM (June 1998 to
4500 Main St. President present)
Kansas City, MO 64111 General Counsel, ACC (June 1998 to present)
Consultant to mutual fund industry (May
1997 to April 1998) Vice President and
General Counsel, Janus Companies (1990 to
1997)
Douglas A. Paul (52) Secretary Vice President and Associate General Counsel, ACSC
1665 Charleston Road and Vice
Mountain View, CA 94043 President
C. Jean Wade (35) Controller Controller--Fund Accounting, ACSC
4500 Main St.
Kansas City, MO 64111
Jon Zindel (32) Tax Vice President and Director of Taxation, ACSC (1996 to present
4500 Main St. Officer Tax Manager, Price Waterhouse LLP (1989-1996)
Kansas City, MO 64111
THE FUNDS' PRINCIPAL SHAREHOLDERS
As of August 31, 1999, the following companies were the record owners of more
than 5% of a fund's outstanding shares:
Fund Shareholder and Percentage of Shares Outstanding
- ---------------------------------------------- -------------------------------------------------------------------
Tax-Free Money Market James A. Benham
Incline Village, NV -- _____%
Florida Municipal Money Market Morgan Guaranty
New York, NY -- _____%
Margaret A. Benham
Astatula, FL -- _____%
Benjamin Benham
Chuluota, FL -- _____%
Limited-Term Tax-Free Charles Schwab & Company
San Francisco, CA -- _____%
Intermediate-Term Tax-Free Charles Schwab & Company
San Francisco, CA -- _____%
Long-Term Tax-Free Charles Schwab & Company
San Francisco, CA -- _____%
High-Yield Municipal American Century Investment Management, Inc.
Kansas City, MO -- _____%
Todd Morgan
Scottsdale, AZ -- _____%
Arizona Intermediate-Term Municipal Charles Schwab & Company
San Francisco, CA -- _____%
Florida Intermediate-Term Municipal Charles Schwab & Company
San Francisco, CA -- _____%
American Century Investment Management, Inc.
Kansas City, MO -- _____%
Morgan Guaranty
New York, NY -- _____%
</TABLE>
The funds are unaware of any other shareholders, beneficial or of record, who
own more than 5% of a fund's outstanding shares. As of August 31, 1999, the
officers and trustees of the funds, as a group, own less than 1% of any fund's
outstanding shares.
SERVICE PROVIDERS
The funds have no employees. To conduct the funds' day-to-day activities, the
funds have hired a number of service providers. Each service provider has a
specific function to fill on behalf of the funds and is described below.
ACIM and ACSC are both wholly owned by ACC. James E. Stowers, Jr., Chairman of
ACC, controls ACC by virtue of his ownership of a majority of its voting stock.
INVESTMENT ADVISOR
A description of the responsibilities of the advisor appears in the Prospectus
under the heading "Management."
For the services provided to the funds, the advisor receives a monthly fee based
on a percentage of the average net assets of a fund. The annual rate at which
this fee is assessed is determined monthly in a two-step process. First, a fee
rate schedule is applied to the assets of all of the funds of its investment
category managed by the advisor (the Investment Category Fee). For example, when
calculating the fee for a money market fund, all of the assets of the money
market funds managed by the advisor are aggregated. The three investment
categories are money market funds, bond funds and equity funds. Second, a
separate fee rate schedule is applied to the assets of all of the funds managed
by the advisor (the Complex Fee). The Investment Category Fee and the Complex
Fee are then added to determine the unified management fee payable by a fund to
the advisor.
The schedules by which the Investment Category Fees are determined are as
follows:
INVESTMENT CATEGORY FEE SCHEDULE FOR TAX-FREE MONEY MARKET AND FLORIDA MUNICIPAL
MONEY MARKET
- --------------------------- -----------------------
Category Assets Fee Rate
- --------------------------- -----------------------
First $1 billion 0.2700%
Next $1 billion 0.2270%
Next $3 billion 0.1860%
Next $5 billion 0.1690%
Next $15 billion 0.1580%
Next $25 billion 0.1575%
Thereafter 0.1570%
- --------------------------- -----------------------
INVESTMENT CATEGORY FEE SCHEDULE FOR LIMITED-TERM TAX-FREE, INTERMEDIATE-TERM
TAX-FREE, LONG-TERM TAX-FREE, ARIZONA INTERMEDIATE-TERM MUNICIPAL, AND FLORIDA
INTERMEDIATE-TERM MUNICIPAL
- --------------------------- -----------------------
Category Assets Fee Rate
- --------------------------- -----------------------
First $1 billion 0.4100%
Next $1 billion 0.2280%
Next $3 billion 0.1980%
Next $5 billion 0.1780%
Next $15 billion 0.1650%
Next $25 billion 0.1630%
Thereafter 0.1625%
- --------------------------- -----------------------
INVESTMENT CATEGORY FEE SCHEDULE FOR HIGH-YIELD MUNICIPAL
- --------------------------- -----------------------
Category Assets Fee Rate
- --------------------------- -----------------------
First $1 billion 0.4100%
Next $1 billion 0.3580%
Next $3 billion 0.3280%
Next $5 billion 0.3080%
Next $15 billion 0.2950%
Next $25 billion 0.2930%
Thereafter 0.2925%
- --------------------------- -----------------------
The Complex Fee is determined according to the schedule below.
COMPLEX FEE SCHEDULE
Complex Assets Fee Rate
- --------------------------------- -------------------
First $2.5 billion 0.3100%
Next $7.5 billion 0.3000%
Next $15.0 billion 0.2985%
Next $25.0 billion 0.2970%
Next $50.0 billion 0.2960%
Next $100.0 billion 0.2950%
Next $100.0 billion 0.2940%
Next $200.0 billion 0.2930%
Next $250.0 billion 0.2920%
Next $500.0 billion 0.2910%
Thereafter 0.2900%
- --------------------------------- -------------------
On the first business day of each month, the funds pay a management fee to the
advisor for the previous month at the specified rate. The fee for the previous
month is calculated by multiplying the applicable fee for the fund by the
aggregate average daily closing value of a fund's net assets during the previous
month. This number is then multiplied by a fraction, the numerator of which is
the number of days in the previous month and the denominator of which is 365
(366 in leap years).
The management agreement shall continue in effect until the earlier of the
expiration of two years from the date of its execution or until the first
meeting of shareholders following such execution and for as long thereafter as
its continuance is specifically approved at least annually, by (1) the funds'
Board of Trustees, or by the vote of a majority of outstanding votes (as defined
in the Investment Company Act) and (2) by the vote of a majority of the trustees
of the funds who are not parties to the agreement or interested persons of the
advisor, cast in person at a meeting called for the purpose of voting on such
approval.
The management agreement provides that it may be terminated at any time without
payment of any penalty by the funds' Board of Trustees, or by a vote of a
majority of outstanding votes, on 60 days' written notice to the advisor, and
that it shall be automatically terminated if it is assigned.
The management agreement provides that the advisor shall not be liable to the
funds or their shareholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties. The
management agreement also provides that the advisor and its officers, trustees
and employees may engage in other business, devote time and attention to any
other business whether of a similar or dissimilar nature, and render services to
others.
Certain investments may be appropriate for the funds and also for other clients
advised by the advisor. Investment decisions for the funds and other clients are
made with a view to achieving their respective investment objectives after
consideration of such factors as their current holdings, availability of cash
for investment and the size of their investment generally. A particular security
may be bought or sold for only one client or fund, or in different amounts and
at different times for more than one but less than all clients or funds. In
addition, purchases or sales of the same security may be made for two or more
clients or funds on the same date. Such transactions will be allocated among
clients in a manner believed by the advisor to be equitable to each. In some
cases this procedure could have an adverse effect on the price or amount of the
securities purchased or sold by a fund.
The advisor may aggregate purchase and sale orders of the funds with purchase
and sale orders of its other clients when the advisor believes that such
aggregation provides the best execution for the funds. The Board of Trustees has
approved the policy of the advisor with respect to the aggregation of portfolio
transactions. Where portfolio transactions have been aggregated, the funds
participate at the average share price for all transactions in that security on
a given day and share transaction costs on a pro rata basis. The advisor will
not aggregate portfolio transactions of the funds unless it believes such
aggregation is consistent with its duty to seek best execution on behalf of the
funds and the terms of the management agreement. The advisor receives no
additional compensation or remuneration as a result of such aggregation.
Prior to August 1, 1997, Benham Management Corporation served as the investment
advisor to the funds. Benham Management Corporation was merged into the advisor
in late 1997.
Unified management fees incurred by each fund for the fiscal periods ended May
31, 1999, 1998, and October 31, 1997, are indicated in the following table. Fee
amounts are net of amounts reimbursed or recouped under the funds' previous
investment advisory agreement with Benham Management Corporation.
<TABLE>
UNIFIED MANAGEMENT FEES(1)
- ---------------------------------------------- --------------------- ------------------------- ----------------------
<S> <C> <C> <C>
Fund 1999 1998 1997
- ---------------------------------------------- --------------------- ------------------------- ----------------------
Tax-Free Money Market Data not $1,201,502 $341,854
Florida Municipal Money Market Yet 564,438 0
Limited-Term Tax-Free Available 112,235 259,501
Intermediate-Term Tax-Free 402,534 489,817
Long-Term Tax-Free 332,031 378,372
High-Yield Municipal 0 N/A
Arizona Intermediate-Term Municipal 179,507 81,705
Florida Intermediate-Term Municipal 120,693 23,601
- ---------------------------------------------- --------------------- ------------------------- ----------------------
</TABLE>
1 Net of Reimbursements
Other Advisory Relationships
In addition to managing the funds, the advisor also serves as an investment
advisor to seven institutional accounts and to the following registered
investment companies:
American Century Mutual Funds, Inc.
American Century World Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Variable Portfolios, Inc.
American Century Capital Portfolios, Inc.
American Century Strategic Asset Allocations, Inc.
American Century Government Income Trust
American Century Investment Trust
American Century Target Maturities Trust
American Century Quantitative Equity Funds
American Century International Bond Funds
American Century California Tax-Free and Municipal Funds
TRANSFER AGENT AND ADMINISTRATOR
American Century Services Corporation, 4500 Main Street, Kansas City, Missouri
64111, serves as transfer agent and dividend-paying agent for the funds. It
provides physical facilities, computer hardware and software, and personnel, for
the day-to-day administration of the funds and of the advisor. The advisor pays
ACSC for such services.
Prior to August 1, 1997, the funds paid American Century Services Corporation
directly for its services as transfer agent and administrative services agent.
Administrative service and transfer agent fees paid by each fund for the fiscal
periods ended May 31, 1998 and October 31, 1997, are indicated in the table
below. Fee amounts are net of expense limitations.
<TABLE>
ADMINISTRATIVE FEES
<S> <C> <C>
Fund 1998 1997
- ------------------------------------------------------------- ------------------ -----------------
Tax-Free Money Market $13,717 $84,467
Florida Municipal Money Market 15,789 0
Limitred-Term Tax-Free N/A N/A
Intermediate-Term Tax-Free N/A N/A
Long-Term Tax-Free N/A N/A
High-Yield Municipal N/A N/A
Arizona Intermediate-Term Municipal 4,889 26,168
Florida Intermediate-Term Municipal 3,851 10,678
TRANSFER AGENT FEES
Fund 1998 1997
- ------------------------------------------------------------- ------------------ -----------------
Tax-Free Money Market $9,971 $61,414
Florida Municipal Money Market 6,746 0
Limited-Term Tax-Free N/A N/A
Intermediate-Term Tax-Free N/A N/A
Long-Term Tax-Free N/A N/A
High-Yield Municipal N/A N/A
Arizona Intermediate-Term Municipal 3,255 19,990
Florida Intermediate-Term Municipal 1,484 10,178
- ------------------------------------------------------------- ------------------ -----------------
</TABLE>
DISTRIBUTOR
The funds' shares are distributed by FDI, a registered broker-dealer. The
distributor is a wholly owned, indirect subsidiary of Boston Institutional
Group, Inc. The distributor's principal business address is 60 State Street,
Suite 1300, Boston, Massachusetts 02109.
The distributor is the principal underwriter of the funds' shares. The
distributor makes a continuous, best-efforts underwriting of the funds' shares.
This means that the distributor has no liability for unsold shares.
OTHER SERVICE PROVIDERS
CUSTODIAN BANKS
Chase Manhattan Bank, 770 Broadway, 10th floor, New York, New York 10003-9598,
and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105, each serves
as custodian of the assets of the funds. The custodians take no part in
determining the investment policies of the funds or in deciding which securities
are purchased or sold by the funds. The funds, however, may invest in certain
obligations of the custodians and may purchase or sell certain securities from
or to the custodians.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP are the independent accountants of the funds. The
address of PricewaterhouseCoopers LLP is 1055 Broadway, 10th floor, Kansas City,
Missouri 64105. As the independent accountants of the funds,
PricewaterhouseCoopers provides services including (1) audit of the annual
financial statements for each fund, (2) assistance and consultation in
connection with SEC filings, and (3) review of the annual federal income tax
return filed for each fund.
BROKERAGE ALLOCATION
Under the management agreement between the funds and the advisor, the advisor
has the responsibility of selecting brokers and dealers to execute portfolio
transactions. In many transactions, the selection of the broker or dealer is
determined by the availability of the desired security and its offering price.
In other transactions, the selection of a broker or dealer is a function of the
selection of market and the negotiation of price, as well as the broker's
general execution and operational and financial capabilities in the type of
transaction involved. The advisor will seek to obtain prompt execution of orders
at the most favorable prices or yields. The advisor may choose to purchase and
sell portfolio securities to and from dealers who provide statistical and other
information and services, including research, to the funds and to the advisor.
Such information or services will be in addition to and not in lieu of the
services required to be performed by the advisor, and the expenses of the
advisor will not necessarily be reduced as a result of the receipt of such
supplemental information.
INFORMATION ABOUT FUND SHARES
Each of the funds named on the front of this Statement of Additional Information
is a series of shares issued by the Trust, and shares of each fund have equal
voting rights.
Each fund votes separately on matters affecting that fund exclusively. Voting
rights are not cumulative, so that investors holding more than 50% of the
Trust's (i.e., all funds') outstanding shares may be able to elect a Board of
Trustees. The Trust undertakes dollar-based voting, meaning that the number of
votes a shareholder is entitled to is based upon the dollar amount of the
shareholder's investment. The election of trustees is determined by the votes
received from all Trust shareholders without regard to whether a majority of
shares of any one fund voted in favor of a particular nominee or all nominees as
a group.
Each shareholder has rights to dividends and distributions declared by the fund
he or she owns 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 fund have equal voting rights, although each fund votes
separately on matters affecting that fund exclusively.
Shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable for its obligations. However, the
Declaration of Trust contains an express disclaimer of shareholder liability for
acts or obligations of the Trust. The Declaration of Trust also provides for
indemnification and reimbursement of expenses of any shareholder held personally
liable for obligations of the Trust. The Declaration of Trust provides that the
Trust will, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. The Declaration of Trust further provides that the Trust may maintain
appropriate insurance (for example, fidelity, bonding and errors and omissions
insurance) for the protection of the Trust, its shareholders, trustees,
officers, employees and agents to cover possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss as a result of
shareholder liability is limited to circumstances in which both inadequate
insurance exists and the Trust is unable to meet its obligations.
BUYING AND SELLING FUND SHARES
Information about buying, selling and exchanging fund shares is contained in
Your Guide to American Century Services. The guide is available to investors
without charge and may be obtained by calling us.
VALUATION OF A FUND'S 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 4 p.m.
Eastern time each day the Exchange is open for business. The Exchange typically
observes the following holidays: New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Although the funds expect the same holidays
to be observed in the future, the Exchange may modify its holiday schedule at
any time.
Each fund's NAV is calculated by adding the value of all portfolio securities
and other assets, deducting liabilities and dividing the result by the number of
shares outstanding. Expenses and interest earned on portfolio securities are
accrued daily.
MONEY MARKET FUNDS
Securities held by the money market funds are valued at amortized cost. This
method involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium paid at the time of
purchase. Although this method provides certainty in valuation, it generally
disregards the effect of fluctuating interest rates on an instrument's market
value. Consequently, the instrument's amortized cost value may be higher or
lower than its market value, and this discrepancy may be reflected in the funds'
yields. During periods of declining interest rates, for example, the daily yield
on fund shares computed as described above may be higher than that of a fund
with identical investments priced at market value. The converse would apply in a
period of rising interest rates.
The money market funds operate pursuant to Investment Company Act Rule 2a-7,
which permits valuation of portfolio securities on the basis of amortized cost.
As required by the rule, the Board of Trustees has adopted procedures designed
to stabilize, to the extent reasonably possible, a money market fund's price per
share as computed for the purposes of sales and redemptions at $1.00. While the
day-to-day operation of the money market funds has been delegated to the fund
managers, the quality requirements established by the procedures limit
investments to certain instruments that the Board of Trustees has determined
present minimal credit risks and that have been rated in one of the two highest
rating categories as determined by a rating agency or, in the case of unrated
securities, of comparable quality. The procedures require review of the money
market funds' portfolio holdings at such intervals as are reasonable in light of
current market conditions to determine whether the money market funds' net asset
values calculated by using available market quotations deviate from the
per-share value based on amortized cost. The procedures also prescribe the
action to be taken if such deviation should occur.
The Board of Trustees monitors the levels of illiquid securities, however if the
levels are exceeded, they will take action to rectify these levels.
Actions the Board of Trustees may consider under these circumstances include (i)
selling portfolio securities prior to maturity, (ii) withholding dividends or
distributions from capital, (iii) authorizing a one-time dividend adjustment,
(iv) discounting share purchases and initiating redemptions in kind, or (v)
valuing portfolio securities at market price for purposes of calculating NAV.
NON-MONEY MARKET FUNDS
Securities held by the non-money market funds normally are priced by an
independent pricing service, provided that such prices are believed by the
advisor to reflect the fair market value of portfolio securities.
Because there are hundreds of thousands of municipal issues outstanding, and the
majority of them do not trade daily, the prices provided by pricing services are
generally determined without regard to bid or last sale prices. In valuing
securities, the pricing services generally take into account institutional
trading activity, trading in similar groups of securities, and any developments
related to specific securities. The methods used by the pricing service and the
valuations so established are reviewed by the advisor under the general
supervision of the Board of Trustees. There are a number of pricing services
available, and the advisor, 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.
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.
Debt securities maturing within 60 days of the valuation date may be valued at
cost, plus or minus any amortized discount or premium, unless the directors
determine that this would not result in fair valuation of a given security.
Other assets and securities for which quotations are not readily available are
valued in good faith at their fair value using methods approved by the Board of
Trustees.
TAXES
Federal Income Tax
Each fund intends to qualify annually as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). By so
qualifying, a fund will be exempt from federal and state income taxes to the
extent that it distributes substantially all of its net investment income and
net realized capital gains (if any) to shareholders. If a fund fails to qualify
as a regulated investment company, it will be liable for taxes, significantly
reducing its distributions to shareholders and eliminating shareholders' ability
to treat distributions of the funds in the manner they were realized by the
funds.
Certain of the bonds purchased by the funds may be treated as bonds that were
originally issued at a discount. Original issue discount represents interest for
federal income tax purposes and can generally be defined as the difference
between the price at which a security was issued and its stated redemption price
at maturity. Original issue discount, although no cash is actually received by a
fund until the maturity of the bond, is treated for federal income tax purposes
as income earned by a fund over the term of the bond, and therefore is subject
to the distribution requirements of the Code. The annual amount of income earned
on such a bond by a fund generally is determined on the basis of a constant
yield to maturity that takes into account the semiannual compounding of accrued
interest. Original issue discount on an obligation with interest exempt from
federal income tax will constitute tax-exempt interest income to the fund.
In addition, some of the bonds may be purchased by a fund at a discount that
exceeds the original issue discount on such bonds, if any. This additional
discount represents market discount for federal income tax purposes. The gain
realized on the disposition of any bond having market discount generally will be
treated as taxable ordinary income to the extent it does not exceed the accrued
market discount on such bond (unless a fund elects to include market discount in
income in tax years to which it is attributable). Generally, market discount
accrues on a daily basis for each day the bond is held by a fund on a straight
line basis over the time remaining to the bond's maturity. In the case of any
debt security having a fixed maturity date of not more than one year from date
of issue, the gain realized on disposition generally will be treated as
short-term capital gain. In general, gain realized on disposition of a security
held less than one year is treated as short-term capital gain.
Under the Code, any distribution of a fund's net realized long-term capital
gains designated by the fund as a capital gain dividend is taxable to
shareholders as long-term capital gains, regardless of the length of time shares
are held. If a capital gain dividend is paid with respect to any shares of a
fund sold at a loss after being held for six months or less, the loss will be
treated as a long-term capital loss for tax purposes.
Alternative Minimum Tax
While the interest on bonds issued to finance essential state and local
government operations is generally exempt from regular federal income tax,
interest on certain "private activity" bonds issued after August 7, 1986, while
exempt from regular federal income tax, constitutes a tax-preference item for
taxpayers in determining alternative minimum tax liability under the Code and
income tax provisions of several states.
The funds may each invest in private activity bonds. The interest on private
activity bonds could subject a shareholder to, or increase liability under, the
federal alternative minimum tax, depending on the shareholder's tax situation.
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 fund shareholders annually of the amount of distributions
derived from interest payments on private activity bonds.
HOW FUND PERFORMANCE INFORMATION IS CALCULATED
The funds may quote performance in various ways. Historical performance
information will be used in advertising and sales literature.
For the money market funds, yield quotations are based on the change in the
value of a hypothetical investment (excluding realized gains and losses from the
sale of securities and unrealized appreciation and depreciation of securities)
over a seven-day period (base period) and stated as a percentage of the
investment at the start of the base period (base-period return). The base-period
return is then annualized by multiplying by 365/7 with the resulting yield
figure carried to at least the nearest hundredth of one percent.
Calculations of effective yield begin with the same base-period return used to
calculate yield, but the return is then annualized to reflect weekly compounding
according to the following formula:
Effective Yield = [(Base-Period Return + 1)365/7] - 1
For the non-money market funds, yield quotations are based on the investment
income per share earned during a particular 30-day period, less expenses accrued
during the period (net investment income), and are computed by dividing the
fund's net investment income by its share price on the last day of the period
according to the following formula:
YIELD = (2 [(a - b + 1)6 - 1])/cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of shares
outstanding during the period that were entitled to receive dividends, and d =
the maximum offering price per share on the last day of the period.
The funds may also quote tax-equivalent yields. Arizona Intermediate-Term
Municipal's tax-equivalent yield is based on the current double tax-exempt yield
and your combined federal and state marginal tax rate. Assuming all the funds'
dividends are tax-exempt in Arizona (which may not always be the case) and that
your Arizona taxes are fully deductible for federal income tax purposes, you can
calculate your tax equivalent yield for the fund using the equation below.
Fund's Double Tax-Free Yield = Your Tax-Equivalent Yield
- ----------------------------------------------------
(100% - Federal Tax Rate) (100% - Arizona Tax Rate)
The Florida funds' tax-equivalent yield is based on each fund's tax-free yield,
your federal income tax bracket, and the Florida Intangibles Tax applicable to a
taxable investment. The formula is:
Fund's Tax-Free Yield + Florida Intangibles Tax Rate = Your Tax-Equivalent
- ------------------------ Yield
100% - Federal Tax Rate
Tax-equivalent yields for Tax-Free Money Market, Limited-Term Tax-Free,
Intermediate-Term Tax-Free, Long-Term Tax-Free and High-Yield Municipal are
calculated using the following equation:
Fund's Tax-Free Yield = Your Tax-Equivalent Yield
- ---------------------------------------
100% - Federal Tax Rate
Total returns quoted in advertising and sales literature reflect all aspects of
a fund's return, including the effect of reinvesting dividends and capital gain
distributions (if any) and any change in the fund's NAV during the period.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in a fund during a stated
period and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over 10 years would produce an average annual return of 7.18%, which is the
steady annual rate that would equal 100% growth on a compounded basis in 10
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the funds' performance is
not constant over time, but changes from year-to-year, and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance.
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, including periods other than one, five and 10 years.
Average annual and cumulative total returns may be quoted as percentages or as
dollar amounts and may be calculated for a single investment, a series of
investments, or a series of redemptions over any time period. Total returns may
be broken down into their components of income and capital (including capital
gains and changes in share price) to illustrate the relationship of these
factors and their contributions to total return.
MONEY MARKET FUND YIELDS
(seven-day period ended May 31, 1999)
- -------------------------------- ---------- ----------
7-Day Effective
Yield Yield
- -------------------------------- ---------- ----------
- -------------------------------- ---------- ----------
Tax-Free Money Market 3.03% 3.08%
Florida Municipal Money Market 2.92% 2.96%
- -------------------------------- ---------- ----------
NON-MONEY MARKET FUND YIELDS
(30-day period ended May 31, 1999)
- ---------------------------------------- -------------
Fund 30-Day Yield
- ---------------------------------------- -------------
- ---------------------------------------- -------------
Limited-Term Tax-Free 3.86%
Intermediate-Term Tax-Free 4.56%
Long-Term Tax-Free 4.93%
High-Yield Municipal 5.28%
Arizona Intermediate-Term Municipal 4.36%
- ---------------------------------------- -------------
Florida Interdiate-Term Municipal 4.19%
- ---------------------------------------- -------------
<TABLE>
MONEY MARKET FUND TAX-EQUIVALENT YIELDS
(seven-day period ended May 31, 1999)
- -------------------------------- ---------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
7-Day Tax-Equivalent Tax-Equivalent Tax-Equivalent Tax-Equivalent
Yield Yield Yield Yield Yield
28% Tax 31% Tax 36% Tax 39.6% Tax
Bracket Bracket Bracket Bracket
- -------------------------------- ---------- -------------- -------------- -------------- --------------
- -------------------------------- ---------- -------------- -------------- -------------- --------------
Tax-Free Money Market 3.03% 4.21% 4.39% 4.73% 5.02%
Florida Municipal Money Market 2.92% 4.06% 4.23% 4.56% 4.83%
- -------------------------------- ---------- -------------- -------------- -------------- --------------
NON-MONEY MARKET FUND TAX-EQUIVALENT YIELDS
(30-day period ended May 31, 1999)
- ---------------------------------------- ------------- -------------- ------------- ------------- -------------
Fund 30-Day SEC Tax-Equivalent Tax-Equivalent Tax-Equivalent Tax-Equivalent
Yield Yield Yield Yield Yield
28% Tax 31% Tax 36% Tax 39.6% Tax
Bracket Bracket Bracket Bracket
- ---------------------------------------- ------------- -------------- ------------- ------------- -------------
- ---------------------------------------- ------------- -------------- ------------- ------------- -------------
Limited-Term Tax-Free 3.42% 4.75% 4.96% 5.34% 5/66%
Intermediate-Term Tax-Free 3.91% 5.43% 5.67% 6.11% 6.47%
Long-Term Tax-Free 4.37% 6.07% 6.33% 6.83% 7.24%
High-Yield Municipal 5.31% 7.38% 7.70% 8.30% 8.79%
Arizona Intermediate-Term Municipal 3.87% 5.61% 5.85% 5.92% 6.38%
Florida Interdiate-Term Municipal 3.95% 5.49% 5.72% 6.17% 6.54%
- ---------------------------------------- ------------- -------------- ------------- ------------- -------------
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED MAY 31
- ------------------------------------- ---------- --------- --------- ------------- -------------
Fund 1 year 5 years 10 years Life of Fund Inception
Date
- ------------------------------------- ---------- --------- --------- ------------- -------------
Tax-Free Money Market 3.10% 3.18% 3.42% 3.93% 7/31/84
Florida Municipal Money Market 2.92% 3.47% N/A 3.45% 4/11/94
Limited-Term Tax-Free 4.15% 4.75% N/A 4.44% 3/1/93
Intermediate-Term Tax-Free 4.07% 5.82% 6.35% 5.87% 3/2/87
Long-Term Tax-Free 3.44% 6.79% 7.14% 6.95% 3/2/87
High-Yield Municipal 6.18% N/A N/A 6.90% 3/31/98
Arizona Intermediate-Term Municipal 4.51% 5.92% N/A 6.17% 4/11/94
Florida Interdiate-Term Municipal 4.71% 6.23% N/A 6.42% 4/11/94
- ------------------------------------- ---------- --------- --------- ------------- -------------
</TABLE>
PERFORMANCE COMPARISONS
The funds' performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indices of market
performance. This may include comparisons with funds that, unlike the American
Century funds, are sold with a sales charge or deferred sales charge. Sources of
economic data that may be used for such comparisons may include, but are not
limited to, U.S. Treasury bill, note and bond yields, money market fund yields,
U.S. government debt and percentage held by foreigners, the U.S. money supply,
net free reserves, and yields on current-coupon GNMAs (source: Board of
Governors of the Federal Reserve System); the federal funds and discount rates
(source: Federal Reserve Bank of New York); yield curves for U.S. Treasury
securities and AA/AAA-rated corporate securities (source: Bloomberg Financial
Markets); yield curves for AAA-rated, tax-free municipal securities (source:
Telerate); yield curves for foreign government securities (sources: Bloomberg
Financial Markets and Data Resources, Inc.); total returns on foreign bonds
(source: J.P. Morgan Securities Inc.); various U.S. and foreign government
reports; the junk bond market (source: Data Resources, Inc.); the CRB Futures
Index (source: Commodity Index Report); the price of gold (sources: London
a.m./p.m. fixing and New York Comex Spot Price); rankings of any mutual fund or
mutual fund category tracked by Lipper, 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 indices of stock market performance; and indices and
historical data supplied by major securities brokerage or investment advisory
firms. The funds also may utilize reprints from newspapers and magazines
furnished by third parties to illustrate historical performance or to provide
general information about the funds.
PERMISSIBLE ADVERTISING INFORMATION
From time to time, the funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the funds; (5) descriptions of investment strategies for one or more of the
funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the funds; (7)
comparisons of investment products (including the funds) with relevant market or
industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) testimonials
describing the experience of persons that have invested in one or more of the
funds. The funds also may include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of any of the funds.
FINANCIAL STATEMENTS
The financial statements of the funds are included in the annual reports to
shareholders for the fiscal year ended May 31, 1999. The annual reports are
incorporated herein by reference. You may receive copies of the reports without
charge upon request to American Century at the address and telephone number
shown on the back cover of this Statement of Additional Information.
EXPLANATION OF FIXED INCOME SECURITIES RATINGS
As described in the Prospectus, the funds may invest in fixed income securities.
Those investments, however, are subject to certain credit quality restrictions,
as noted in the Prospectus. The following is a summary of the rating categories
referenced in the prospectus disclosure.
<TABLE>
BOND RATINGS
- ---------- -------- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
S&P Moody's Description
- ---------- -------- -----------------------------------------------------------------------------------------------------
AAA Aaa These are the highest ratings assigned by S&P and Moody's to a debt obligation and indicates an
extremely strong capacity to pay interest and repay principal.
AA Aa Debt rated in this category is considered to have a very strong capacity to pay interest and repay
principal and differs from AAA/Aaa issues only in a small degree.
A 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 Baa Debt rated BBB/Baa 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.
BB Ba Debt rated BB/Ba 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 also is used for debt subordinated to senior debt that is assigned
an actual or implied BBB- rating.
B 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/Ba or BB-/Ba3
rating.
CCC Caa Debt rated CCC/Caa 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/Caa rating category is
also used for debt subordinated to senior debt that is assigned an actual or implied B or B-/B3
rating.
CC Ca The rating CC/Ca typically is applied to debt subordinated to senior debt that is assigned an
actual or implied CCC/Caa rating.
C C The rating C typically is applied to debt subordinated to senior debt, which is assigned an actual
or implied CCC-/Caa3 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 rating CI is reserved for income bonds on which no interest is being paid.
D D Debt rated D is in payment default. The D rating category is used when interest payments or
principal payments are not made on the date due even if the applicable grace period has not
expired, unless S&P believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
- ---------- -------- -----------------------------------------------------------------------------------------------------
To provide more detailed indications of credit quality, the Standard & Poor's
ratings from AA to CCC may be modified by the addition of a plus or minus sign
to show relative standing within these major rating categories. Similarly,
Moody's adds numerical modifiers (1,2,3) to designate relative standing within
its major bond rating categories. Fitch Investors Service, Inc. also rates bonds
and uses a ratings system that is substantially similar to that used by Standard
& Poor's.
COMMERCIAL PAPER RATINGS
- ---------- -------- -----------------------------------------------------------------------------------------------------
S&P Moody's Description
- ---------- -------- -----------------------------------------------------------------------------------------------------
A-1 Prime-1 This indicates that the degree of safety regarding timely payment is strong. Standard & Poor's
(P-1) rates those issues determined to possess extremely strong safety characteristics as A-1+.
A-2 Prime-2 Capacity for timely payment on commercial paper is satisfactory, but the relative degree of safety
(P-2) is not as high as for issues designated A-1. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still appropriated, may be more
affected by external conditions. Ample alternate liquidity is maintained.
A-3 Prime-3 Satisfactory capacity for timely repayment. Issues that carry this rating are somewhat more
(P-3) vulnerable to the adverse changes in circumstances than obligations carrying the higher
designations.
- ---------- -------- -----------------------------------------------------------------------------------------------------
Note Ratings
- ---------- -------- -----------------------------------------------------------------------------------------------------
S&P Moody's Description
- ---------- -------- -----------------------------------------------------------------------------------------------------
SP-1 MIG-1; Notes are of the highest quality enjoying strong protection from established cash flows of funds
VMIG-1 for their servicing or from established and broad-based access to the market for refinancing, or
both.
SP-2 MIG-2; Notes are of high quality, with margins of protection ample, although not so large as in the
VMIG-2 preceding group.
SP-3 MIG-3; Notes are of favorable quality, with all security elements accounted for, but lacking the
VMIG-3 undeniable strength of the preceding grades. Market access for refinancing, in particular, is
likely to be less well established.
SP-4 MIG-4; Notes are of adequate quality, carrying specific risk but having protection and not distinctly or
VMIG-4 predominantly speculative.
- ---------- -------- -----------------------------------------------------------------------------------------------------
</TABLE>
MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS
ANNUAL AND SEMIANNUAL REPORTS
These contain more information about the funds' investments and the market
conditions and investment strategies that significantly affected the funds'
performance during the most recent fiscal period. The annual and semiannual
reports are incorporated by reference into this Statement of Additional
Information (SAI). This means that it is legally part of this SAI.
You can receive a free copy of the annual and semiannual reports, and ask any
questions about the funds, by contacting us at the address or one of the
telephone numbers listed below.
If you own or are considering purchasing fund shares through
o an employer-sponsored retirement plan
o a bank
o a broker-dealer
o an insurance company
o another financial intermediary
you can receive the annual and semiannual reports directly from them.
You can also get information about the funds from the Securities and Exchange
Commission (SEC).
o In person
SEC Public Reference Room Washington, D.C. Call 1-800-SEC-0330 for location
and hours.
o On the internet
www.sec.gov
o By mail
SEC Public Reference Section Washington, D.C. 20549-6009. (The SEC will
charge a fee for copying the documents.)
(Investment Company Act File No. 811-4025)
- -------------------------------------- -----------------------------------------
American Century Investments Fax
P.O. Box 419200 816-340-7962
Kansas City, Missouri 64141-6200
Telecommunications Device for Deaf
Investor Relations 1-800-634-4113 or 816-444-3485
1-800-345-2021 or 816-531-5575
Business, Not-For-Profit and
Automated Information Line Employer-Sponsored Retirement Plans
1-800-345-8765 1-800-345-3533
www.americancentury.com
- -------------------------------------- -----------------------------------------
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
SEPTEMBER 7, 1999
AMERICAN CENTURY
MUNICIPAL TRUST
This Statement of Additional Information adds to the discussion in the funds'
Prospectuses, dated August 31, 1999, but is not a prospectus. The Statement of
Additional Information should be read in conjunction with the funds' current
Prospectuses. If you would like a copy of a Prospectus, please contact us at the
address or telephone numbers listed on the back cover or visit American
Century's Web site at www.americancentury.com.
This Statement of Additional Information incorporates by reference certain
information that appears in the funds' annual and semiannual reports, which are
delivered to all shareholders. You may obtain a free copy of the funds' annual
or semiannual report by calling 1-800-345-2021.
TAX-FREE MONEY MARKET FUND
FLORIDA MUNICIPAL MONEY MARKET FUND
NEW YORK MUNICIPAL MONEY MARKET FUND
LIMITED-TERM TAX-FREE FUND
INTERMEDIATE-TERM TAX-FREE FUND
LONG-TERM TAX-FREE FUND
HIGH-YIELD MUNICIPAL FUND
ARIZONA INTERMEDIATE-TERM MUNICIPAL FUND
FLORIDA INTERMEDIATE-TERM MUNICIPAL FUND
[american century logo(reg.sm)]
American
Century
Distributed by Funds Distributor, Inc.
TABLE OF CONTENTS
================================================================================
THE FUNDS'HISTORY..............................................................1
FUND INVESTMENT GUIDELINES.....................................................1
Florida Municipal Money Market Fund and
Florida Intermediate-Term Municipal Fund...................................
Arizona Intermediate-Term Municipal Fund.....................................
Tax-Free Money Market Fund, Limited-Term Tax-Free Fund,
Intermediate-Term Tax-Free Fund and Long-Term Tax
Free Fund....................................................................
High-Yield Municipal Fund....................................................
Credit Quality and Maturity Guidelines.....................................14
DETAILED INFORMATION ABOUT THE FUNDS............................................
Investment Strategies and Risks..............................................
Investment Policies........................................................14
Temporary Defensive Measures...............................................16
Portfolio Turnover.........................................................16
MANAGEMENT....................................................................16
The Board of Trustees......................................................16
Officers...................................................................18
THE FUNDS'PRINCIPAL SHAREHOLDERS..............................................19
SERVICE PROVIDERS.............................................................20
Investment Advisor.........................................................20
Transfer Agent and Administrator...........................................22
Distributor................................................................22
OTHER SERVICE PROVIDERS.......................................................23
Custodian Banks............................................................22
Independent Accountants....................................................22
BROKERAGE ALLOCATION..........................................................23
INFORMATION ABOUT FUND SHARES.................................................24
Buying and Selling Fund Shares.............................................XX
Valuation of Portfolio Securities..........................................XX
Money Market Funds......................................................24
Non-Money Market Funds..................................................25
TAXES.........................................................................25
Federal Income Tax.........................................................XX
HOW FUND PERFORMANCE INFORMATION IS CALCULATED................................25
FINANCIAL STATEMENTS..........................................................29
EXPLANATION OF FIXED-INCOME SECURITIES RATINGS................................XX
THE FUNDS' HISTORY
American Century Municipal Trust is a registered open-end management investment
company that was organized as a Massachusetts business trust on May 1, 1984.
From then until January 1997, it was known as Benham Municipal Income Trust.
Throughout this Statement of Additional Information we refer to American Century
Municipal Trust as the Trust.
Each fund described in this Statement of Additional Information is a separate
series of the Trust and operates for many purposes as if it were an independent
company. Each fund has its own investment objective, strategy, management team,
assets, tax identification and stock registration number.
Fund Ticker Symbol Inception
Date
- --------------------------------------------------- --------------- -----------
New York Municipal Money Market
Tax-Free Money Market BNTXX 7/31/84
Florida Municipal Money Market BEFXX 4/11/94
Limited-Term Tax-Free TWTSX 3/1/93
Intermediate-Term Tax-Free TWT1X 3/2/87
Long-Term Tax-Free TWTLX 3/2/87
High-Yield Municipal ABHY2 3/31/98
Arizona Intermediate-Term Municipal BEAMX 4/11/94
Florida Intermediate-Term Municipal ACBFX 4/11/94
- --------------------------------------------------- --------------- -----------
FUND INVESTMENT GUIDELINES
This section explains the extent to which the funds' advisor, American Century
Investment Management, Inc. can use various investment vehicles and strategies
in managing a fund's assets. Descriptions of the investment techniques and risks
associated with each appear in the section, "Investment Strategies and Risks,"
which begins on page XX. In the case of the funds' principal investment
strategies, these descriptions elaborate upon discussion contained in the
Prospectuses.
Each fund (except High-Yield Municipal, New York Municipal Money Market, Florida
Municipal Money Market, Florida Intermediate-Term Municipal and Arizona
Intermediate-Term Municipal) is a diversified open-end investment company as
defined in the Investment Company Act of 1940 (the Investment Company Act).
Diversified means that, with respect to 75% of its total assets, each fund will
not invest more than 5% of its total assets in the securities of a single
issuer.
Tax-Free Money Market and Florida Municipal Money Market each operate pursuant
to Rule 2a-7 under the Investment Company Act. That rule permits the valuation
of portfolio securities on the basis of amortized cost. To rely on the rule,
each fund must be diversified with regard to 100% of its assets other than U.S.
government securities. This operating policy is more restrictive than the
Investment Company Act, which requires a diversified investment company to be
diversified with regard to only 75% of its assets.
To meet federal tax requirements for qualification as a regulated investment
company, each fund must limit its investments so that at the close of each
quarter of its taxable year (1) no more than 25% of its total assets are
invested in the securities of a single issuer (other than the U.S government or
a regulated investment company), and (2) with respect to at least 50% of its
total assets, no more than 5% of its total assets are invested in the securities
of a single issuer.
In general, within the restrictions outlined here and in the funds'
Prospectuses, the fund managers have broad powers to decide how to invest fund
assets, including the power to hold them uninvested.
So long as a sufficient number of acceptable securities are available, the
managers intend to keep the funds fully invested. However, under exceptional
conditions, the funds may assume a defensive position, temporarily investing all
or a substantial portion of their assets in cash or short-term securities.
FLORIDA MUNICIPAL MONEY MARKET FUND
FLORIDA INTERMEDIATE-TERM MUNICIPAL FUND
The Florida Municipal Money Market Fund and Florida Intermediate-Term Municipal
Fund seek to obtain as high a level of current income exempt from regular
federal income tax as is consistent with prudent investment management and
conservation of shareholders' capital. In addition, fund shares are intended to
be exempt from the Florida Intangibles Tax.
The funds are designed for individuals in upper tax brackets seeking income free
from regular federal income tax, although the funds may generate some taxable
income. The funds also provide an investment that is intended to be exempt from
the Florida Intangibles Tax. Because of this emphasis on tax-exempt income, the
funds by themselves do not constitute a balanced investment plan.
Each fund intends to remain fully invested in municipal obligations (obligations
issued by or on behalf of a state, its political subdivisions, agencies, and
instrumentalities). As a fundamental policy, each fund will invest at least 80%
of its net assets in obligations with interest exempt from the regular federal
income tax. The funds are not limited, however, in their investments in
securities that are subject to the Federal Alternative Minimum Tax (AMT).
In addition, each fund will invest at least 65% of its net assets in Florida
municipal obligations (obligations issued by or on behalf of Florida, its
political subdivisions, agencies and instrumentalities, or U.S. possessions or
territories such as Puerto Rico). The remaining 35% of each fund's net assets
may be invested in (1) obligations issued by other states and their political
subdivisions and (2) U.S. government securities.
Each fund is authorized under normal conditions to invest as much as 100% of its
net assets in municipal obligations for which the interest is a tax preference
item for purposes of the AMT. If you are or become subject to the AMT, a portion
of your income distributions that are exempt from the regular federal income tax
may not be exempt from the AMT. Interest from AMT bonds is considered to be
exempt from federal income tax purposes of the 80% policy noted above.
A fund may need to sell certain investments near the end of each calendar year
so that on January 1 of each year, its portfolio consists only of investments
that are exempt from the Florida Intangibles Tax. As a result, a fund could
incur additional costs or taxable income or gains.
NEW YORK MUNICIPAL MONEY MARKET FUND
New York Municipal Money Market is designed for individuals in upper tax
brackets seeking income free from New York state and regular federal income
taxes, although New York Municipal Money Market may generate some taxable
income. Because of this emphasis on tax-exempt income, New York Municipal Money
Market does not constitute a balanced investment.
New York Municipal Money Market intends to remain fully invested in municipal
obligations (obligations issued by or on behalf of a state, its political
subdivisions, agencies and instrumentalities). As a fundamental policy, New York
Municipal Money Market will invest at least 80% of its net assets in obligations
with interest exempt from the regular federal income tax. New York Municipal
Money Market is not limited, however, in its investments in securities that are
subject to the federal AMT.
In addition, New York Municipal Money Market will invest at least 65% of its net
assets in New York municipal obligations (obligations issued by or on behalf of
the state of New York, its political subdivisions, agencies and
instrumentalities or U.S. possessions or territories such as Puerto Rico). The
remaining 35% of its net assets may be invested in (1) obligations issued by
other states and their political subdivisions and (2) U.S. government
securities.
New York Municipal Money Market is authorized under normal conditions to invest
as much as 100% of its net assets in municipal obligations for which the
interest is a tax preference item for purposes of the AMT. If you are or become
subject to the AMT, a portion of your income distributions that are exempt from
the regular federal income tax may not be exempt from the AMT. Interest from AMT
bonds is considered to be exempt from federal income tax for purposes of the 80%
policy noted above.
Because New York Municipal Money Market invests primarily in New York municipal
securities, political and economic developments within the state of New York
affect the fund's yield. The following summary is derived from independent
municipal credit reports but has not been independently verified by the manager
and does not purport to be a complete description of the conditions and
developments in New York that may affect New York Municipal Money Market.
ARIZONA INTERMEDIATE-TERM MUNICIPAL FUND
Arizona Intermediate-Term Municipal seeks to obtain as high a level of current
income exempt from Arizona and regular federal income tax as is consistent with
prudent investment management and conservation of shareholders' capital.
Arizona Intermediate-Term Municipal is designed for individuals in upper tax
brackets seeking income free from Arizona state and regular federal income
taxes, although the fund may generate some taxable income. Because of this
emphasis on tax-exempt income, the fund does not constitute a balanced
investment.
The fund intends to remain fully invested in municipal obligations (obligations
issued by or on behalf of a state, its political subdivisions, agencies, and
instrumentalities). As a fundamental policy, the fund will invest at least 80%
of its net assets in obligations with interest exempt from the regular federal
income tax. The fund is not limited, however, in its investments in securities
that are subject to the AMT.
In addition, Arizona Intermediate-Term Municipal will invest at least 65% of its
net assets in Arizona municipal obligations (obligations issued by or on behalf
of Arizona; its political subdivisions, agencies and instrumentalities; or U.S.
possessions or territories such as Puerto Rico). The remaining 35% of its net
assets may be invested in (1) obligations issued by other states and their
political subdivisions and (2) U.S. government securities.
The fund is authorized under normal conditions to invest as much as 100% of its
net assets in municipal obligations for which the interest is a tax preference
item for purposes of the AMT. If you are or become subject to the AMT, a portion
of your income distributions that are exempt from the regular federal income tax
may not be exempt from the AMT. Interest from AMT bonds is considered to be
exempt from federal income tax for purposes of the 80% policy noted above.
TAX-FREE MONEY MARKET FUND, LIMITED-TERM TAX-FREE FUND, INTERMEDIATE-TERM
TAX-FREE FUND, LONG-TERM TAX-FREE FUND
Tax-Free Money Market Fund, Limited-Term Tax-Free Fund, Intermediate-Term
Tax-Free Fund, and Long-Term Tax-Free Fund seek as high a level of current
income exempt from regular federal income tax as is consistent with prudent
investment management and conservation of shareholders' capital.
Each fund intends to remain fully invested in municipal obligations, although
for temporary defensive purposes, each may invest a portion of its assets in
U.S. government securities, the interest income on which is subject to federal
income tax. The municipal obligations in which the funds may invest include
securities issued by U.S. territories or possessions, such as Puerto Rico,
provided that the interest on these securities is exempt from regular federal
income tax.
The funds may invest up to 20% of their total assets in municipal obligations
for which the interest is a tax preference item for purposes of the AMT.
HIGH-YIELD MUNICIPAL FUND
High-Yield Municipal Fund seeks to provide high current income exempt from
federal income tax as is consistent with its investment policies, which permit
investment in lower-rated and unrated securities. As a secondary objective, the
fund seeks capital appreciation.
The fund intends to remain fully invested in municipal obligations (obligations
issued by or on behalf of a state or its political subdivisions, agencies and
instrumentalities). The fund also may invest in securities issued by U.S.
territories or possessions, such as Puerto Rico, provided that the interest on
these securities is exempt from regular federal income tax. As a fundamental
policy, the fund will invest at least 80% of its net assets in obligations with
interest exempt from regular federal income tax. The fund is not limited,
however, in its investments in securities that are subject to the AMT.
The fund is authorized, under normal conditions, to invest as much as 100% of
its net assets in municipal obligations for which the interest is a tax
preference item for purposes of the AMT. If you are or become subject to the
AMT, a portion of your income distributions that are exempt from regular federal
income tax may not be exempt from the AMT.
The fund intends to remain fully invested in municipal obligations, although for
temporary defensive purposes, it may invest a portion of its assets in U.S.
government securities, the interest income on which is subject to federal income
tax.
CREDIT QUALITY AND MATURITY GUIDELINES
The Money Market Funds
Tax-Free Money Market Fund and Florida Municipal Money Market Fund seek to
maintain a $1.00 share price, although there is no guarantee they will be able
to do so. Shares of the funds are neither insured nor guaranteed by the U.S.
government.
The money market funds may be appropriate for investors seeking share price
stability who can accept the lower yields that short-term obligations typically
provide.
In selecting investments for the money market funds, the advisor adheres to
regulatory guidelines concerning the quality and maturity of money market fund
investments as well as to internal guidelines designed to minimize credit risk.
In particular, each fund: (1) buys only U.S. dollar-denominated obligations with
remaining maturities of 13 months or less (and variable- and floating-rate
obligations with demand features that effectively shorten their maturities to 13
months or less); (2) maintains a dollar-weighted average portfolio maturity of
90 days or less; and (3) restricts its investments to high-quality obligations
determined by the advisor to present minimal credit risks, pursuant to
guidelines established by the Board of Trustees.
To be considered high-quality, an obligation must be one of the following: (1) a
U.S. government obligation; (2) rated (or issued by an issuer rated with respect
to a class of short-term obligations) within the two highest rating categories
for short-term debt obligations by at least two nationally recognized
statistical rating organizations (rating agencies) (or one if only one has rated
the obligation); or (3) an unrated obligation judged by the advisor, pursuant to
guidelines established by the Board of Trustees, to be of comparable quality.
The fund managers intend to buy only obligations that are designated as
first-tier securities as defined by the SEC; that is, securities with the
highest rating.
The acquisition of securities that are unrated or rated by only one rating
agency must be approved or ratified by the Board of Trustees.
Non-Money Market Funds (except High-Yield Municipal)
Limited-Term Tax-Free, Intermediate-Term Tax-Free, Long-Term Tax-Free, Arizona
Intermediate-Term Municipal and Florida Intermediate-Term Municipal have
identical policies governing the quality of securities in which they may invest.
The funds differ in their maturity criteria as stated in the Prospectus.
In terms of credit quality, each of these funds restricts its investments to (1)
municipal bonds rated, when acquired, within the four highest categories
designated by a rating agency; (2) municipal notes (including variable-rate
demand obligations) and tax-exempt commercial paper rated, when acquired, within
the two highest categories designated by a rating agency; and (3) unrated
obligations judged by the advisor, under the direction of the Board of Trustees,
to be of comparable quality.
DETAILED INFORMATION ABOUT THE FUNDS
INVESTMENT STRATEGIES AND RISKS
This section describes each of the investment vehicles and strategies that the
fund managers can use in managing a fund's assets. It also details the risks
associated with each, because each technique contributes to a fund's overall
risk profile.
Concentration in Types of Municipal Activities
From time to time, a significant portion of a fund's assets may be invested in
municipal obligations that are related to the extent that economic, business or
political developments affecting one of these obligations could affect the other
obligations in a similar manner. For example, if a fund invested a significant
portion of its assets in utility bonds and a state or federal government agency
or legislative body promulgated or enacted new environmental protection
requirements for utility providers, projects financed by utility bonds could
suffer as a group. Additional financing might be required to comply with the new
environmental requirements, and outstanding debt might be downgraded in the
interim. Among other factors that could negatively affect bonds issued to
finance similar types of projects are state and federal legislation regarding
financing for municipal projects, pending court decisions relating to the
validity or means of financing municipal projects, material or manpower
shortages and declining demand for projects or facilities financed by the
municipal bonds.
About the Risks Affecting Arizona Municipal Securities
As noted in the Prospectus, the Arizona Intermediate-Term Municipal fund is
susceptible to political, economic and regulatory events that affect issuers of
Arizona municipal obligations. These include possible adverse affects of Arizona
constitutional amendments, legislative measures, voter initiatives and other
matters described below.
The following information about risk factors is provided in view of the fund's
policy of concentrating its assets in Arizona municipal securities. This
information is based on certain official statements of the state of Arizona
published in connection with the issuance of specific Arizona municipal
securities as well as from other publicly available sources. It does not
constitute a complete description of the risk associated with investing in
securities of these issuers. While the advisor has not independently verified
the information contained in the official statements, it has no reason to
believe the information is inaccurate.
Located in the country's sunbelt, Arizona has been, and is projected to continue
to be, one of the faster growing areas in the United States. Over the last
several decades, the state has outpaced most other regions of the country in
population and personal income growth, gross state product, and job creation.
Geographically, Arizona is the nation's sixth largest state in terms of area. It
is divided into three distinct topographic regions: the northern third, which is
high plateau country traversed by deep canyons, such as Grand Canyon National
Park; central Arizona, which is rugged, mountainous, and heavily forested; and
the southern third, which encompasses desert areas and flat, fertile
agricultural lands in valleys between mountains rich in mineral deposits. These
topographic areas all have different climates, which have distinctively
influenced development in each region. Land ownership is vested largely in the
federal and state governments: 32% is owned by the federal government, 28% is
held as Federal Trust Land (Indian), 17% is in private ownership, and 13% is
held by the state, leaving approximately 10% held in other categories.
The Arizona economy continues to diversify away from its historical reliance on
the mining and agricultural employment sectors. Significant job growth has
occurred in the areas of aerospace and high technology, construction, finance,
insurance, and real estate. Arizona's economy has continued to grow in recent
years, as it is among the fastest growing states in the nation.
Under its constitution, the state of Arizona is not permitted to issue general
obligation bonds secured by the full faith and credit of the state. However,
certain agencies and instrumentalities of the state are authorized to issue
bonds secured by revenues from specific projects and activities, and the state
and local governmental units may enter into lease transactions. The particular
source of payments and security for an Arizona municipal obligation is detailed
in the instruments themselves and in related offering materials.
The state and local governmental units are subject to limitations imposed by
Arizona law with respect to ad valorem taxation, bonded indebtedness, the amount
of annual increases in taxes, and other matters. These limitations may affect
the ability of the issuers to generate revenues to satisfy their debt
obligations. There are periodic attempts in the form of voter initiatives and
legislative proposals to further limit the amount of annual increases in taxes
that may be levied without voter approval. If such a proposal were enacted,
there might be an adverse impact on state or local government financing.
Arizona is required by law to maintain a balanced budget. In the past, the state
has used a combination of spending reductions and tax increases to avoid
potential budgetary shortfalls and may be required to do so again in the future.
About the Risks Affecting Florida Municipal Securities
As noted in the Prospectus, the Florida Municipal Money Market and Florida
Intermediate-Term Municipal funds are susceptible to political, economic and
regulatory events that affect issuers of Florida municipal obligations. These
include possible adverse affects of Florida constitutional amendments,
legislative measures, voter initiatives and other matters described below.
The following information about risk factors is provided in view of the funds'
policies of concentrating their assets in Florida municipal securities. This
information is based on independent municipal credit reports relating to
securities offerings of Florida issuers and other publicly available sources. It
does not constitute a complete description of the risk associated with investing
in securities of these issuers. While the advisor has not independently verified
this information, it has no reason to believe the information is inaccurate.
Because the funds invest primarily in Florida municipal securities, they will be
affected by political and economic conditions and developments within the state
of Florida. In general, the credit quality and credit risk of any issuer's debt
depend on the state and local economy, the health of the issuer's finances, the
amount of the issuer's debt, the quality of management, and the strength of
legal provisions in debt documents that protect debt holders. Credit risk is
usually lower whenever the economy is strong, growing and diversified, financial
operations are sound, and the debt burden is reasonable.
The state of Florida's economy is characterized by a large service sector, a
dependence on the tourism and construction industries, and a large retirement
population. The management of rapid growth has been the major challenge facing
state and local governments. Florida's population has grown rapidly and is now
the fourth largest state; this growth is expected to continue, but at reduced
rates. The retiree component is expected to continue to be a major factor. As
this growth continues, particularly within the retirement population, the demand
for both public and private services will increase, which may strain the service
sector's capacity and impede the state's budget balancing efforts.
In recent years, the Florida economy has been transforming from a narrow base of
agriculture and seasonal tourism into a service and trade economy, with
substantial insurance, banking and export participation as well as greater
year-round attraction. The outlook for the Florida economy is continued
expansion fueled by population growth but at a slower rate than that of the
1980s.
Debt levels in the state of Florida are moderate to high, reflecting the
tremendous capital demands associated with rapid population growth. Florida is
unusual among states in that all general obligation full faith and credit debt
issues of municipalities must be approved by public referendum and are,
therefore, relatively rare. Most debt instruments issued by local municipalities
and authorities have a narrower pledge of security, such as a sales tax stream,
special assessment revenue, user fees, utility taxes or fuel taxes. Credit
quality of such debt instruments tends to be somewhat lower than that of general
obligation debt. The state of Florida issues general obligation debt for a
variety of purposes; however, the state constitution requires a specific revenue
stream to be pledged to state general obligation bonds as well.
The state of Florida is heavily dependent upon sales tax, which makes the
state's general fund vulnerable to recession and presents difficulties in
expanding the tax base in an economy increasingly geared to services. This
dependence upon sales tax, combined with economic recession, has resulted in
budgetary shortfalls in the past; Florida has reacted to preserve an adequate
financial position primarily through expenditure reductions. State officials,
however, still face tremendous capital and operating pressures due to the growth
that will continue to strain the state's narrow revenue base. Future budgets may
require a wider revenue base to meet such demands; the most likely candidate for
such revenue enhancement is a tax on consumer services. The creation of a
Florida personal income tax is a remote possibility because it would require an
amendment to the state's constitution. However, there can be no assurance that a
personal income tax will not be implemented in the future. If such a tax were to
be imposed, there is no assurance that interest earned on Florida municipal
obligations would be exempt from this tax.
About the Risks Affecting New York Municipal Securities
New York Municipal Money Market is susceptible to political, economic and
regulatory events that affect issuers of New York municipal obligations. The
following information about risk factors is provided in view of the fund's
policies of concentrating its investments in New York municipal securities. This
information is based on independent municipal credit reports relating to
securities offerings of New York issuers and other publicly available sources.
It does not constitute a complete description of the risk associated with
investing in securities of these issuers. While the manager has not
independently verified this information, it has no reason to believe the
information is inaccurate.
The fund's concentration in the debt obligations of one state carries a higher
risk than a portfolio that is geographically diversified. In addition to state
general obligation bonds and notes and the debt of various state agencies, the
fund will invest in local bond issues, lease obligations and revenue bonds, the
credit quality and risk of which will vary according to each security's own
structure and underlying economics.
The fund's ability to maintain a high level of "triple-tax-free" income is
primarily dependent upon the ability of New York issuers to continue to meet
debt service obligations in a timely fashion. In 1975 the State, New York City
and other related issuers experienced serious financial difficulties that
ultimately resulted in much lower credit ratings and loss of access to the
public debt markets. A series of fiscal reforms and an improved economic climate
allowed these entities to return to financial stability by the early 1980s.
Credit ratings were reinstated or raised and access to the public credit markets
was restored. During the early 1990s, the State and City confronted renewed
fiscal pressure, as the region suffered moderate economic decline. Conditions
began to improve in 1993, though below-average economic performance and tight
budgetary conditions persist. Both entities experienced financial relief in
fiscal 1997 because of the strong national economy, a robust financial services
sector and vigilant spending control. The State and City continue to face
challenging budgets while they attempt to adjust spending levels and priorities.
About the Risks Affecting Puerto Rico Municipal Securities
From time to time the funds invest in obligations of the Commonwealth of Puerto
Rico and its public corporations which are exempt from federal, state, and city
or local income taxes. The majority of the Commonwealth's debt is issued by the
major public agencies that are responsible for many of the island's public
functions, such as water, wastewater, highways, telecommunications, education
and public construction. As of December 31, 1996, public sector debt issued by
the Commonwealth and its public corporations totaled $18.4 billion.
Since the 1980s, Puerto Rico's economy and financial operations have paralleled
the economic cycles of the United States. The island's economy, particularly the
manufacturing sector, has experienced substantial gains in employment. Much of
these economic gains are attributable in part to favorable treatment under
Section 936 of the federal Internal Revenue Code for U.S. corporations doing
business in Puerto Rico. The number of persons employed in Puerto Rico during
fiscal 1994 averaged one million persons -- a record level.
Unemployment, however, still remains high at 13.8 percent.
Debt ratios for the Commonwealth are high as it assumes much of the
responsibility for local infrastructure. Sizable infrastructure programs are
ongoing to upgrade the island's water, sewer and road systems. The
Commonwealth's general obligation debt is secured by a first lien on all
available revenues. The Commonwealth has maintained a fiscal policy, which seeks
to correlate the growth in public sector debt to the growth of the economic base
available to service that debt. Between fiscal years 1992 and 1996, debt
increased 27.5% while gross product rose 27.7%. Short-term debt remains a modest
13% of total debt outstanding as of December 31, 1996. The maximum annual debt
service requirement on Commonwealth general obligation debt totaled 8.7% of
governmental revenues for fiscal 1997. This is well below the 15% limit imposed
by the Constitution of Puerto Rico.
After recording three years of positive operating results from 1989 to 1991, the
Commonwealth's General Fund moved into a deficit position, with a $62 million
cash deficit for fiscal 1992 and a $116 million deficit for fiscal 1993. The
fiscal 1994 budget was balanced with an increase in the "tollgate" tax on
Section 936 companies and improved revenue collections, which enabled the
Commonwealth to record a strong turnaround in the General Fund balance to $309
million (6.8% of General Fund expenses). A General Fund unreserved balance of
$171 million was recorded for the end of fiscal year 1996.
The Commonwealth's economy remains vulnerable to changes in oil prices, American
trade, foreign policy and levels of federal assistance. Per-capita income
levels, while being the highest in the Caribbean, lag far behind the United
States. In November 1993, the voters of Puerto Rico were asked in a non-binding
referendum to consider the options of statehood, continued Commonwealth status
or independence. Of the 48.4% of the voters who favored continuation of
Commonwealth status, 46.2% were for statehood, and 4.4% were for independence.
In February 1997, legislation was introduced in Congress proposing a mechanism
to permanently settle the political relationship with the United States.
For many years, U.S. companies operating in Puerto Rico were eligible to receive
a special tax credit available under Section 936 of the federal tax code, which
helped spur significant expansion in capital-intensive manufacturing activity.
Federal tax legislation was passed in 1993, which revised the tax benefits
received by U.S. corporations (Section 936 firms) that operate manufacturing
facilities in Puerto Rico. The legislation provides these firms with two
options: a five-year phased reduction of the income-based tax credit to 40% of
the previously allowable credit or the conversion to a wage-based standard,
allowing a tax credit for the first 60% of qualified compensation paid to
employees as defined in the Internal Revenue Code. Studies indicate that there
have been no reductions in the economic growth rate or employment in industries
that were expected to be impacted by the 1993 amendments. In 1996, amendments
were signed into law to phase out the tax credit over a 10-year period for
existing claimants and to eliminate it for corporations without established
operations after October 1995. At present, it is difficult to forecast what the
short-and long-term effects of a phase-out of the Section 936 credit would have
on the economy of Puerto Rico.
A final risk factor with the Commonwealth is the large amount of unfunded
pension liabilities. The two main public pension systems are largely
underfunded. The employees' retirement system has a funded ratio of 19% and an
unfunded liability of $5.0 billion. The teachers' retirement system has a funded
ratio of 56% and an unfunded liability of $1.1 billion. A measure enacted by the
legislature in 1990 is designed to address the solvency of the plans over a
50-year period.
Municipal Notes
Municipal notes are issued by state and local governments or government entities
to provide short-term capital or to meet cash flow needs.
Tax Anticipation Notes (TANs) are issued in anticipation of seasonal tax
revenues, such as ad valorem property, income, sales, use and business taxes,
and are payable from these future taxes. Tax anticipation notes usually are
general obligations of the issuer. General obligations are secured by the
issuer's pledge of its full faith and credit (i.e., taxing power) for the
payment of principal and interest.
Revenue Anticipation Notes (RANs) are issued with the expectation that receipt
of future revenues, such as federal revenue sharing or state aid payments, will
be used to repay the notes. Typically, these notes also constitute general
obligations of the issuer.
Bond Anticipation Notes (BANs) are issued to provide interim financing until
long-term financing can be arranged. In most cases, the long-term bonds provide
the money for repayment of the notes.
Tax-Exempt Commercial Paper is an obligation with a stated maturity of 365 days
or less issued to finance seasonal cash flow needs or to provide short-term
financing in anticipation of longer-term financing.
Revenue Anticipation Warrants, or reimbursement warrants, are issued to meet the
cash flow needs of state governments at the end of a fiscal year and in the
early weeks of the following fiscal year. These warrants are payable from
unapplied money in the state's General Fund, including the proceeds of revenue
anticipation notes issued following enactment of a state budget or the proceeds
of refunding warrants issued by the state.
Municipal Bonds
Municipal bonds, which generally have maturities of more than one year when
issued, are designed to meet longer-term capital needs. These securities have
two principal classifications: general obligation bonds and revenue bonds.
General Obligation (GO) Bonds are issued by states, counties, cities, towns and
regional districts to fund a variety of public projects, including construction
of and improvements to schools, highways, and water and sewer systems. General
obligation bonds are backed by the issuer's full faith and credit based on its
ability to levy taxes for the timely payment of interest and repayment of
principal, although such levies may be constitutionally or statutorily limited
as to rate or amount.
Revenue Bonds are not backed by an issuer's taxing authority; rather, interest
and principal are secured by the net revenues from a project or facility.
Revenue bonds are issued to finance a variety of capital projects, including
construction or refurbishment of utility and waste disposal systems, highways,
bridges, tunnels, air and sea port facilities, schools and hospitals. Many
revenue bond issuers provide additional security in the form of a debt-service
reserve fund that may be used to make payments of interest and repayments of
principal on the issuer's obligations. Some revenue bond financings are further
protected by a state's assurance (without obligation) that it will make up
deficiencies in the debt-service reserve fund.
Industrial Development Bonds (IDBs), a type of revenue bond, are issued by or on
behalf of public authorities to finance privately operated facilities. These
bonds are used to finance business, manufacturing, housing, athletic and
pollution control projects, as well as public facilities such as mass transit
systems, air and sea port facilities and parking garages. Payment of interest
and repayment of principal on an IDB depend solely on the ability of the
facility's user to meet financial obligations, and on the pledge, if any, of the
real or personal property financed. The interest earned on IDBs may be subject
to the federal alternative minimum tax.
Variable- and Floating-Rate Obligations
The funds may buy variable- and floating-rate demand obligations (VRDOs and
FRDOs). These obligations carry rights that permit holders to demand payment of
the unpaid principal plus accrued interest, from the issuers or from financial
intermediaries. Floating-rate securities, or floaters, have interest rates that
change whenever there is a change in a designated base rate; variable-rate
instruments provide for a specified, periodic adjustment in the interest rate,
which typically is based on an index. These rate formulas are designed to result
in a market value for the VRDO or FRDO that approximates par value.
Obligations with Term Puts Attached
Each fund may invest in fixed-rate bonds subject to third-party puts and in
participation interests in such bonds held by a bank in trust or otherwise.
These bonds and participation interests have tender options or demand features
that permit the funds to tender (or put) their bonds to an institution at
periodic intervals and to receive the principal amount thereof.
The advisor expects that the funds will pay more for securities with puts
attached than for securities without these liquidity features. The advisor 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 fund's investments.
To ensure that the interest on municipal securities subject to puts is
tax-exempt to the funds, the advisor limits the funds' use of puts in accordance
with applicable interpretations and rulings of the Internal Revenue Service
(IRS).
Because it is difficult to evaluate the likelihood of exercise or the potential
benefit of a put, puts normally will be determined to have a value of zero,
regardless of whether any direct or indirect consideration is paid. Accordingly,
puts as separate securities are not expected to affect the funds' weighted
average maturities. When a fund has paid for a put, the cost will be reflected
as unrealized depreciation on the underlying security for the period the put is
held. Any gain on the sale of the underlying security will be reduced by the
cost of the put.
There is a risk that the seller of a put will not be able to repurchase the
underlying obligation when (or if) a fund attempts to exercise the put. To
minimize such risks, the funds will purchase obligations with puts attached only
from sellers deemed creditworthy by the advisor under the direction of the Board
of Trustees.
Tender Option Bonds
Tender option bonds (TOBs) were created to increase the supply of high-quality,
short-term tax-exempt obligations, and thus they are of particular interest to
the money market funds. However, any of the funds may purchase these
instruments.
TOBs are created by municipal bond dealers who purchase long-term tax-exempt
bonds in the secondary market, place the certificates in trusts, and sell
interests in the trusts with puts or other liquidity guarantees attached. The
credit quality of the resulting synthetic short-term instrument is based on the
guarantor's short-term rating and the underlying bond's long-term rating.
There is some risk that a remarketing agent will renege on a tender option
agreement if the underlying bond is downgraded or defaults. Because of this, the
advisor 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 rating agency.
The advisor 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 (1) legal opinions relating to the tax-exempt status of the
underlying municipal bonds, (2) legal opinions relating to the tax ownership of
the underlying bonds, and (3) other elements of the structure that could result
in taxable income or other adverse tax consequences. After purchase, the advisor
monitors factors related to the tax-exempt status of the fund's TOB holdings in
order to minimize the risk of generating taxable income.
When-Issued and Forward Commitment Agreements
The funds may engage in municipal securities transactions on a when-issued or
forward commitment basis in which the transaction price and yield are each fixed
at the time the commitment is made, but payment and delivery occur at a future
date (typically 15 to 45 days later).
When purchasing securities on a when-issued or forward commitment basis, a fund
assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. While the fund will make commitments to purchase or sell
securities with the intention of actually receiving or delivering them, it may
sell the securities before the settlement date if doing so is deemed advisable
as a matter of investment strategy.
In purchasing securities on a when-issued or forward commitment basis, a fund
will establish and maintain until the settlement date a segregated account
consisting of cash, cash equivalents or other appropriate liquid securities in
an amount sufficient to meet the purchase price. When the time comes to pay for
the when-issued securities, the fund will meet its obligations with available
cash, through the sale of securities, or, although it would not normally expect
to do so, by selling the when-issued securities themselves (which may have a
market value greater or less than the fund's payment obligation). Selling
securities to meet when-issued or forward commitment obligations may generate
taxable capital gains or losses.
As an operating policy, no fund will commit more than 50% of its total assets to
when-issued or forward commitment agreements. If fluctuations in the value of
securities held cause more than 50% of a fund's total assets to be committed
under when-issued or forward commitment agreements, the fund managers need not
sell such agreements, but it will be restricted from entering into further
agreements on behalf of the fund until the percentage of assets committed to
such agreements is below 50% of total assets.
Municipal Lease Obligations
Each fund may invest in municipal lease obligations. These obligations, which
may take the form of a lease, an installment purchase, or a conditional sale
contract, are issued by state and local governments and authorities to acquire
land and a wide variety of equipment and facilities. Generally, the funds will
not hold such obligations directly as a lessor of the property but will purchase
a participation interest in a municipal lease obligation from a bank or other
third party.
Municipal leases frequently carry risks distinct from those associated with
general obligation or revenue bonds. state constitutions and statutes set forth
requirements that states and municipalities must meet to incur debt. These may
include voter referenda, interest rate limits or public sale requirements.
Leases, installment purchases or conditional sale contracts (which normally
provide for title to the leased asset to pass to the government issuer) have
evolved as a way for government issuers to acquire property and equipment
without meeting constitutional and statutory requirements for the issuance of
debt.
Many leases and contracts include nonappropriation clauses, which provide that
the governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purposes by the
appropriate legislative body on a yearly or other periodic basis. Municipal
lease obligations also may be subject to abatement risk. For example,
construction delays or destruction of a facility as a result of an uninsurable
disaster that prevents occupancy could result in all or a portion of a lease
payment not being made.
Inverse Floaters
The funds (except the money market funds) may hold inverse floaters. An inverse
floater is a type of derivative that bears an interest rate that moves inversely
to market interest rates. As market interest rates rise, the interest rate on
inverse floaters goes down, and vice versa. Generally, this is accomplished by
expressing the interest rate on the inverse floater as an above-market fixed
rate of interest, reduced by an amount determined by reference to a market-based
or bond-specific floating interest rate (as well as by any fees associated with
administering the inverse floater program).
Inverse floaters may be issued in conjunction with an equal amount of Dutch
Auction floating-rate bonds (floaters), or a market-based index may be used to
set the interest rate on these securities. A Dutch Auction is an auction system
in which the price of the security is gradually lowered until it meets a
responsive bid and is sold. 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:
o Floater holders receive interest based on rates set at a six month interval
or at a Dutch Auction, which is typically held every 28 to 35 days. Current
and prospective floater holders bid the minimum interest rate that they are
willing to accept on the floaters, and the interest rate is set just high
enough to ensure that all of the floaters are sold.
o Inverse floater holders receive all of the interest that remains on the
underlying bonds after floater interest and auction fees are paid.
Procedures for determining the interest payment on floaters and inverse floaters
brought to market directly by the issuer are comparable, although the interest
paid on the inverse floaters is based on a presumed coupon rate that would have
been required to bring fixed-rate bonds to market at the time the floaters and
inverse floaters were issued.
Where inverse floaters are issued in conjunction with floaters, inverse floater
holders may be given the right to acquire the underlying security (or to create
a fixed-rate bond) by calling an equal amount of corresponding floaters. The
underlying security may then be held or sold. However, typically, there are time
constraints and other limitations associated with any right to combine interests
and claim the underlying security.
Floater holders subject to a Dutch Auction procedure generally do not have the
right to "put back" their interests to the issuer or to a third party. If a
Dutch Auction fails, the floater holder may be required to hold its position
until the underlying bond matures, during which time interest on the floater is
capped at a predetermined rate.
The secondary market for floaters and inverse floaters may be limited. The
market value of inverse floaters tends to be significantly more volatile than
fixed-rate bonds. The interest rates on inverse floaters may be significantly
reduced, even to zero, if interest rates rise.
Lower-Quality Bonds
As indicated in the Prospectus, an investment in High-Yield Municipal carries
greater risk than an investment in the other funds because the fund may invest
without limitation in lower-rated bonds and unrated bonds judged by the advisor
to be of comparable quality (collectively, lower-quality bonds).
While the market values of higher-quality bonds tend to correspond to market
interest rate changes, the market values of lower-quality bonds tend to reflect
the financial condition of their issuers.
Projects financed through the issuance of lower-quality bonds are often highly
leveraged. The issuer's ability to service its debt obligations may be adversely
affected by an economic downturn, a period of rising interest rates, the
issuer's inability to meet projected revenue forecasts, or a lack of needed
additional financing.
Lower-quality bonds generally are unsecured and often are subordinated to other
obligations of the issuer. These bonds frequently have call or buy-back features
that permit the issuer to call or repurchase the bond from the holder. Premature
disposition of a lower-quality bond due to a call or buy-back feature,
deterioration of the issuer's creditworthiness, or a default may make it
difficult for the advisor to manage the flow of income to the fund, which may
have negative tax implications for shareholders.
The market for lower-quality bonds tends to be concentrated among a smaller
number of dealers than the market for higher-quality bonds. This market is
dominated by dealers and institutions (including mutual funds), rather than by
individuals. To the extent that a secondary trading market for lower-quality
bonds exists, it may not be as liquid as the secondary market for higher-quality
bonds. Limited liquidity in the secondary market may adversely affect market
prices and hinder the advisor's ability to dispose of particular bonds when it
determines that it is in the best interest of the fund to do so. Reduced
liquidity also may hinder the advisor's ability to obtain market quotations for
purposes of valuing the fund's portfolio and determining its net asset value.
The advisor continually monitors securities to determine their relative
liquidity.
A fund may incur expenses in excess of its ordinary operating expenses if it
becomes necessary to seek recovery on a defaulted bond, particularly a
lower-quality bond.
Short-Term Securities
Under certain circumstances, the non-money market funds may invest in short-term
municipal or U.S. government securities, including money market instruments
(short-term securities). If a fund invests in U.S. government securities, a
portion of dividends paid to shareholders will be taxable at the federal level,
and may be taxable at the state level, as ordinary income. However, the advisor
intends to minimize such investments and, when suitable short-term municipal
securities are unavailable, may allow the funds to hold cash to avoid generating
taxable dividends.
Except as otherwise required for temporary defensive purposes, the advisor does
not expect the non-money market funds to invest more than 35% of total assets in
short-term securities.
Pursuant to an exemptive order from the Securities and Exchange Commission
(SEC), each non-money market fund may invest in shares of any money market funds
to facilitate cash management provided that the investment is consistent with
the funds' investment policies and restrictions.
The non-money market funds may invest up to 5% of their total assets in shares
of any money market funds. To avoid generating dividend income subject to the
AMT, the non-money market funds (excluding High-Yield Municipal) will limit
their money market fund investments to Tax-Free Money Market. High-Yield
Municipal, which ordinarily invests in AMT securities, may invest up to 5% of
its total assets in shares of either of the money market funds.
Futures and Options
Each non-money market fund may enter into futures contracts, options or options
on futures contracts. Some futures and options strategies, such as selling
futures, buying puts and writing calls, hedge a fund's investments against price
fluctuations. Other strategies, such as buying futures, writing puts and buying
calls, tend to increase market exposure. The funds do not use futures and
options transactions for speculative purposes.
Although other techniques may be used to control a fund's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While a fund pays brokerage commissions in connection
with opening and closing out futures positions, these costs are lower than the
transaction costs incurred in the purchase and sale of the underlying
securities.
Futures contracts provide for the sale by one party and purchase by another
party of a specific security at a specified future time and price. Futures
contracts are traded on national futures exchanges. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission (CFTC), a U.S. government agency. The funds may engage in
futures and options transactions based on securities indexes such as the Bond
Buyer Index of Municipal Bonds that are consistent with the fund's investment
objectives. The fund also may engage in futures and options transactions based
on specific securities such as U.S. Treasury bonds or notes.
Bond Buyer Municipal Bond Index futures contracts differ from traditional
futures contracts in that when delivery takes place, no bonds change hands.
Instead, these contracts settle in cash at the spot market value of the Bond
Buyer Municipal Bond Index.
Although other types of futures contracts by their terms call for actual
delivery or acceptance of the underlying securities, in most cases the contracts
are closed out before the settlement date. A futures position may be closed by
taking an opposite position in an identical contract (i.e., buying a contract
that has previously been sold or selling a contract that has previously been
bought).
To initiate and maintain open positions in a futures contract, a fund would be
required to make a good faith margin deposit in cash or government securities
with a futures broker or custodian. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimum initial
margin requirements are established by the futures exchanges and may be revised.
In addition, brokers may establish margin deposit requirements that are higher
than the exchange minimums.
Once a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the
margin on deposit does not satisfy margin requirements, the contract holder is
required to pay additional variation margin. Conversely, changes in the contract
value may reduce the required margin, resulting in a repayment of excess margin
to the contract holder. Variation margin payments are made to or from the
futures broker for as long as the contract remains open and do not constitute
margin transactions for purposes of the funds' investment restrictions.
Risks Related to Futures and Options Transactions
Futures and options prices can be volatile, and trading in these markets
involves certain risks. If the advisor applies a hedge at an inappropriate time
or judges interest rate trends incorrectly, futures and options strategies may
lower a fund's return.
A fund could suffer losses if it were unable to close out its position because
of an illiquid secondary market. Futures contracts may be closed out only on an
exchange that provides a secondary market for these contracts, and there is no
assurance that a liquid secondary market will exist for any particular futures
contract at any particular time. Consequently, it may not be possible to close a
futures position when the advisor 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 advisor would not otherwise elect to do
so. In addition, a fund may be required to deliver or take delivery of
instruments underlying futures contracts it holds. The advisor will seek to
minimize these risks by limiting the contracts entered into on behalf of the
funds to those traded on national futures exchanges and for which there appears
to be a liquid secondary market.
A fund could suffer losses if the prices of its futures and options positions
were poorly correlated with its other investments, or if securities underlying
futures contracts purchased by a fund had different maturities than those of the
portfolio securities being hedged. Such imperfect correlation may give rise to
circumstances in which a fund loses money on a futures contract at the same time
that it experiences a decline in the value of its "hedged" portfolio securities.
A fund also could lose margin payments it has deposited with a margin broker,
if, for example, the broker became bankrupt.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of the trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond the limit. However, the daily limit
governs only price movement during a particular trading day and, therefore, does
not limit potential losses. In addition, the daily limit may prevent liquidation
of unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
Options On Futures
By purchasing an option on a futures contract, a fund obtains the right, but not
the obligation, to sell the futures contract (a put option) or to buy the
contract (a call option) at a fixed strike price. A fund can terminate its
position in a put option by allowing it to expire or by exercising the option.
If the option is exercised, the fund completes the sale of the underlying
security at the strike price. Purchasing an option on a futures contract does
not require a fund to make margin payments unless the option is exercised.
Although they do not currently intend to do so, the funds may write (or sell)
call options that obligate it to sell (or deliver) the option's underlying
instrument upon exercise of the option. While the receipt of option premiums
would mitigate the effects of price declines, the funds would give up some
ability to participate in a price increase on the underlying security. If a fund
were to engage in options transactions, it would own the futures contract at the
time a call were written and would keep the contract open until the obligation
to deliver it pursuant to the call expired.
Restrictions on the Use of Futures Contracts and Options
Each non-money market fund may enter into futures contracts, options or options
on futures contracts.
Under the Commodity Exchange Act, a fund may enter into futures and options
transactions (a) for hedging purposes without regard to the percentage of assets
committed to initial margin and option premiums or (b) for other than hedging
purposes, provided that assets committed to initial margin and option premiums
do not exceed 5% of the fund's total assets. To the extent required by law, each
fund will set aside cash and appropriate liquid assets in a segregated account
to cover its obligations related to futures contracts and options.
The funds intend to comply with tax rules applicable to regulated investment
companies, including a requirement that capital gains from the sale of
securities held less than three months constitute less than 30% of a fund's
gross income for each fiscal year. Gains on some futures contracts and options
are included in this 30% calculation, which may limit the funds' investments in
such instruments.
Restricted and Illiquid Securities
The funds may, from time to time, purchase restricted or illiquid securities,
including Rule 144A securities, when they present attractive investment
opportunities that otherwise meet the funds' criteria for selection. Rule 144A
securities are securities that are privately placed with and traded among
qualified institutional investors rather than the general public. Although Rule
144A securities are considered "restricted securities," they are not necessarily
illiquid.
With respect to securities eligible for resale under Rule 144A, the staff of the
SEC has taken the position that the liquidity of such securities in the
portfolio of a fund offering redeemable securities is a question of fact for the
Board of Trustees to determine, such determination to be based upon a
consideration of the readily available trading markets and the review of any
contractual restrictions. Accordingly, the Board of Trustees is responsible for
developing and establishing the guidelines and procedures for determining the
liquidity of Rule 144A securities. As allowed by Rule 144A, the Board of
Trustees of the funds has delegated the day-to-day function of determining the
liquidity of Rule 144A securities to the advisor. The Board retains the
responsibility to monitor the implementation of the guidelines and procedures it
has adopted.
Because the secondary market for such securities is limited to certain qualified
institutional investors, the liquidity of such securities may be limited
accordingly and a fund may, from time to time, hold a Rule 144A or other
security that is illiquid. In such an event, the advisor will consider
appropriate remedies to minimize the effect on such fund's liquidity.
INVESTMENT POLICIES
Unless otherwise indicated, with the exception of the percentage limitations on
borrowing, the following restrictions apply at the time transactions are entered
into. Accordingly, any later increase or decrease beyond the specified
limitation resulting from a change in a fund's net assets will not be considered
in determining whether it has complied with its investment restrictions.
Fundamental Investment Policies
The funds are subject to the following investment restrictions that are
fundamental and may not be changed without approval of a majority of the
outstanding votes of shareholders of a fund, as determined in accordance with
the Investment Company Act.
For purposes of the investment restriction relating to concentration, a fund
shall not purchase any securities that 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.
Subject Policy
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Senior A fund may not issue senior securities, except as permitted
Securities under the Investment Company Act.
Borrowing A fund may not borrow money, except 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).
Lending A fund may not lend any security or make any other loan if, as
a result, more than 33 1/3% of the fund's total assets would
be lent to other parties, except (i) through the purchase of
debt securities in accordance with its investment objective,
policies and limitations or (ii) by engaging in repurchase
agreements with respect to portfolio securities.
Real Estate A fund may not purchase or sell real estate unless acquired as
a result of ownership of securities or other instruments. This
policy shall not prevent the fund from investment in
securities or other instruments backed by real estate or
securities of companies that deal in real estate or are
engaged in the real estate business.
Concentration A fund may not concentrate its investments in securities of
issuers in a particular industry (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities).
Underwriting A fund may not act as an underwriter of securities issued by
others, except to the extent that the fund may be considered
an underwriter within the meaning of the Securities Act of
1933 in the disposition of restricted securities.
Commodities A fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other
instruments; provided that this limitation shall not prohibit
the fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments
backed by physical commodities.
Control A fund may not invest for purposes of exercising control over
management.
- ----------------- --------------------------------------------------------------
Nonfundamental Investment Policies
In addition, the funds are subject to the following additional investment
restrictions that are not fundamental and may be changed by the Board of
Trustees.
<TABLE>
Subject Policy
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<S> <C>
Diversification A fund may not purchase additional investment securities at any time during which
(Tax-Free Money Market, outstanding borrowings exceed 5% of the total assets of the fund.
Limited-Term,
Intermediate-Term and
Long-Term Tax-Free)
Diversification To meet federal tax requirements for qualification as a regulated investment
(New York Municipal Money company, each fund must limit its investments so that at the close of each
Market, Florida Municipal quarter of its taxable year (1) no more than 25% of its total assets are invested
Money Market, Florida in the securities of a single issuer (other than the U.S government or a
Intermediate-Term regulated investment company), and (2) with respect to at least 50% of its total
Municipal, Arizona assets, no more than 5% of its total assets are invested in the securities of a
Intermediate-Term Municipal single issuer.
and High-Yield Municipal)
Futures and options [money The money market funds may not purchase or sell futures contracts or call
market funds only] 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.
Liquidity A fund may not purchase any security or enter into a repurchase agreement if, as
a result, more than 15% of its net assets (10% for the money market funds) would
be invested in repurchase agreements not entitling the holder to payment of
principal and interest within seven days and in securities that are illiquid by
virtue of legal or contractual restrictions on resale or the absence of a readily
available market.
Short Sales A fund may not sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, and
provided that transactions in futures contracts and options are not deemed to
constitute selling securities short.
Margin A fund may not purchase securities on margin, except to 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.
- ----------------------------- -----------------------------------------------------------------------------------
TEMPORARY DEFENSIVE MEASURES
For temporary defensive purposes, a fund may invest in securities that may not
fit its investment objective or its stated market. During a temporary defensive
period, a fund may direct its assets to the following investment vehicles: (1)
interest-bearing bank accounts or certificates of deposit; (2) U.S. government
securities and repurchase agreements collateralized by U.S. government
securities; and (3) other money market funds.
PORTFOLIO TURNOVER
Under normal conditions, the funds' annual portfolio turnover rates are not
expected to exceed 100%. Because a higher turnover rate increases transaction
costs and may increase taxable capital gains, the managers carefully weigh the
potential benefits of short-term investing against these considerations.
The funds' portfolio turnover rates (except those of the money market funds) are
listed in the Financial Highlights table in the Prospectuses. Because of the
short-term nature of the money market funds' investments, portfolio turnover
rates are not generally used to evaluate their trading activities.
MANAGEMENT
THE BOARD OF TRUSTEES
The Board of Trustees oversees the management of the funds and meets at least
quarterly to review reports about fund operations. Although the Board of
Trustees does not manage the funds, it has hired the advisor to do so.
Two-thirds of the trustees are independent of the funds' advisor, that is, they
are not employed by and have no financial interest in the advisor.
The individuals listed in the table below whose names are marked by an asterisk
(*) are interested persons of the funds (as defined in the Investment Company
Act) by virtue of, among other considerations, their affiliation with either the
funds; the advisor, American Century Investment Management, Inc. (ACIM); the
funds' agent for transfer and administrative services, American Century Services
Corporation (ACSC); the parent corporation, American Century Companies, Inc.
(ACC) or ACC's subsidiaries; the funds' distribution agent and co-administrator,
Funds Distributor, Inc. (FDI); or other funds advised by the advisor. Each
trustee listed below serves as a trustee or director of seven registered
investment companies in the American Century family of funds, which are also
advised by the advisor.
Position(s)
Name (Age) Held Principal Occupation(s)
Address With Fund During Past Five Years
- --------------------------- ---------- --------------------------------------------------------------------------
Albert A. Eisenstat (69) Trustee Independent Director, Commercial Metals Co. (1982 to present)
1665 Charleston Road Independent Director, Sungard Data Systems (1991 to present)
Mountain View, CA 94043 General Partner, Discovery Ventures (venture capital firm, 1996 to 1998)
Independent Director, Business Objects S/A (software & programming, 1994
to present)
Ronald J. Gilson (52) Trustee Charles J. Meyers Professor of Law and Business, Stanford Law School
1665 Charleston Road (1979 to present)
Mountain View, CA 94043 Mark and Eva Stern Professor of Law and Business, Columbia University
School of Law (1992 to present)
Counsel, Marron, Reid & Sheehy (a San Francisco law firm, 1984 to
present)
William M. Lyons* (43) Trustee President, Chief Operating Officer and Assistant Secretary, ACC
4500 Main Street Executive Vice President, Chief Operating Officer and Secretary, ACSC
Kansas City, MO 64111 and ACIS
Myron S. Scholes (58) Trustee Limited Partner, Long-Term Capital Management (since February 1999)
1665 Charleston Road Principal, Long-Term Capital Management (investment advisor, 1993 to
Mountain View, CA 94043 January 1999)
Frank E. Buck Professor of Finance, Stanford Graduate School of Business
(1981 to present)
Director, Dimensional Fund Advisors (investment advisor, since 1982)
Director, Smith Breeden Family of Funds (1992 to present)
Kenneth E. Scott (70) Trustee Ralph M. Parsons Professor of Law and Business, Stanford Law School
1665 Charleston Road (1972 to present)
Mountain View, CA 94043 Director, RCM Capital Funds, Inc. (1994 to present)
Isaac Stein (52) Trustee Director, Raychem Corporation (electrical equipment, since 1993)
1665 Charleston Road President, Waverley Associates, Inc. (private investment firm, 1983 to
Mountain View, CA 94043 present)
Director, ALZA Corporation (pharmaceuticals, 1987 to present)
Trustee, Stanford University (1994 to present)
Chairman, Stanford Health Services (1994 to present)
James E. Stowers III* (40) Trustee, Chief Executive Officer and Director, ACC
4500 Main Street Chairman President, Chief Executive Officer and Director, ACSC and ACIS
Kansas City, MO 64111 of the Son of James E. Stowers, Jr. (founder)
Board
Jeanne D. Wohlers (54) Trustee Director, Indus International (software solutions, January 1999 to
1665 Charleston Road present)
Mountain View, CA 94043 Director and Partner, Windy Hill Productions, LP (educational software,
1994 to 1998)
Director, Quintus Corporation (automation solutions, 1995 to present)
- --------------------------- ---------- --------------------------------------------------------------------------
Committees
The Board has four committees to oversee specific functions of the funds'
operations. Information about these committees appears in the table below. The
trustee first named acts as chairman of the committee:
- ------------------ ------------------- --------------------------------------------------------------------------
Committee Members Function of Committee
- ------------------ ------------------- --------------------------------------------------------------------------
Audit Jeanne D. Wohlers The Audit Committee selects and oversees the activities of the Trust's
Albert A. independent auditor. The committee receives reports from the advisor's
Eisenstat Internal Audit Department, which is accountable solely to the committee.
Kenneth E. Scott The committee also receives reporting about compliance matters affecting
the Trust.
Nominating Kenneth E. Scott The Nominating Committee primarily considers and recommends individuals
Myron S. Scholes for nomination as trustees. The names of potential trustee candidates
Albert A. are drawn from a number of sources, including recommendations from
Eisenstat members of the Board, management and shareholders. This committee also
Ronald J. Gilson reviews and makes recommendations to the Board with respect to the
Isaac Stein composition of Board committees and other Board-related matters,
Jeanne D. Wohlers including its organization, size, composition, responsibilities,
functions and compensation.
Portfolio Myron S. Scholes The Portfolio Committee reviews quarterly the investment activities and
Ronald J. Gilson strategies used to manage fund assets. The committee regularly receives
Isaac Stein reports from portfolio managers, credit analysts and other investment
personnel concerning the funds' investments.
Quality of William Lyons The Quality of Service Committee reviews the level and quality of
Service Ronald J. Gilson transfer agent and administrative services provided to the funds and
Myron S. Scholes their shareholders. It receives and reviews reports comparing those
Isaac Stein services to fund competitors and seeks to improve such services where
feasible and appropriate.
- ------------------ ------------------- --------------------------------------------------------------------------
</TABLE>
Compensation of Trustees
The trustees also serve as trustees for six American Century investment
companies other than American Century Municipal Trust. Each trustee who is not
an interested person as defined in the Investment Company Act receives
compensation for service as a member of the Board of all seven such companies
based on a schedule that takes into account the number of meetings attended and
the assets of the funds for which the meetings are held. These fees and expenses
are divided among the seven investment companies based, in part, upon their
relative net assets. Under the terms of the management agreement with the
advisor, the funds are responsible for paying such fees and expenses.
The following table shows the aggregate compensation paid by the Trust for the
periods indicated and by the seven investment companies served by this Board to
each trustee who is not an interested person as defined in the Investment
Company Act.
AGGREGATE TRUSTEE COMPENSATION FOR FISCAL YEAR ENDED MAY 31, 1999
- ---------------------------- ---------------------- ---------------------
Total Compensation
from the
Total Compensation American Century
Name of Trustee from Family of Funds(2)
the Funds(1)
- ---------------------------- ---------------------- ---------------------
Albert A. Eisenstat $13,571 $57,750
Ronald J. Gilson 13,917 66,500
Myron S. Scholes 13,424 55,250
Kenneth E. Scott 13,905 66,500
Isaac Stein 13,695 61,750
Jeanne D. Wohlers 13,832 64,750
- ---------------------------- ---------------------- ---------------------
1 Includes compensation paid to the trustees during the fiscal year ended May
31, 1999, and also includes amounts deferred at the election of the
trustees under the American Century Mutual Funds Deferred Compensation Plan
for Non-Interested Directors and Trustees. The total amount of deferred
compensation included in the preceding table is as follows: Mr. Eisenstat,
$13,571; Mr. Gilson, $13,917; Mr. Scholes, $13,424, and Mr. Scott, $6,952.
2 Includes compensation paid by the seven investment company members of the
American Century family of funds served by this Board.
The funds have adopted the American Century Deferred Compensation Plan for
Non-Interested Directors and Trustees. Under the plan, the independent trustees
may defer receipt of all or any part of the fees to be paid to them for serving
as trustees of the funds.
All deferred fees are credited to an account established in the name of the
trustees. The amounts credited to the account then increase or decrease, as the
case may be, in accordance with the performance of one or more of the American
Century funds that are selected by the trustee. The account balance continues to
fluctuate in accordance with the performance of the selected fund or funds until
final payment of all amounts credited to the account. Trustees are allowed to
change their designation of mutual funds from time to time.
No deferred fees are payable until such time as a trustee resigns, retires or
otherwise ceases to be a member of the Board of Trustees. Trustees may receive
deferred fee account balances either in a lump sum payment or in substantially
equal installment payments to be made over a period not to exceed 10 years. Upon
the death of a trustee, all remaining deferred fee account balances are paid to
the trustee's beneficiary or, if none, to the trustee's estate.
The plan is an unfunded plan and, accordingly, the funds have no obligation to
segregate assets to secure or fund the deferred fees. The rights of trustees to
receive their deferred fee account balances are the same as the rights of a
general unsecured creditor of the funds. The plan may be terminated at any time
by the administrative committee of the plan. If terminated, all deferred fee
account balances will be paid in a lump sum.
No deferred fees were paid to any trustee under the plan during the fiscal year
ended May 31, 1999.
OFFICERS
Background information for the officers of the funds is provided below. All
persons named as officers of the funds also serve in similar capacities for the
12 other investment companies advised by ACIM. Not all officers of the funds are
listed; only those officers with policy-making functions for the funds are
listed. No officer is compensated for his or her service as an officer of the
funds. The individuals listed in the table are interested persons of the funds
(as defined in the Investment Company Act) by virtue of, among other
considerations, their affiliation with either the funds; ACC; ACC's subsidiaries
(including ACIM and ACSC); or the funds' distributor (FDI), as specified in the
following table.
<TABLE>
Positions
Name (Age) Held Principal Occupation(s)
Address With Fund During Past Five Years
- --------------------------- ---------- ---------------------------------------------------------------------------
<S> <C> <C>
George A. Rio (44) President Executive Vice President and Director of Client Services, FDI (March 1998
60 State St. to present)
Boston, MA 02109 Senior Vice President and Senior Key Account Manager, Putnam Mutual Funds
(June 1995 to March 1998)
Director Business Development, First Data Corporation (May 1994 to June
1995)
Christopher J. Kelley (34) Vice Vice President and Associate General Counsel, FDI (July 1996 to present)
60 State St. President Assistant Counsel, Forum Financial Group (April 1994 to July 1996)
Boston, MA 02109 Compliance Officer, Putnam Investments (1992 to April 1994)
Mary A. Nelson (35) Vice Vice President and Manager of Treasury Services and Administration, FDI,
60 State St. President (1994 to present)
Boston, MA 02109 Assistant Vice President and Client Manager, The Boston Company, Inc.
(1989 to 1994)
Maryanne Roepke, CPA (43) Vice Senior Vice President, Treasurer and Principal Accounting Officer, ACSC
4500 Main St. President
Kansas City, MO 64111 and
Treasurer
David C. Tucker (41) Vice Senior Vice President and General Counsel, ACSC and ACIM (June 1998 to
4500 Main St. President present)
Kansas City, MO 64111 General Counsel, ACC (June 1998 to present)
Consultant to mutual fund industry (May
1997 to April 1998) Vice President and
General Counsel, Janus Companies (1990 to
1997)
Douglas A. Paul (52) Secretary Vice President and Associate General Counsel, ACSC
1665 Charleston Road and Vice
Mountain View, CA 94043 President
C. Jean Wade (35) Controller Controller--Fund Accounting, ACSC
4500 Main St.
Kansas City, MO 64111
Jon Zindel (32) Tax Vice President and Director of Taxation, ACSC (1996 to present
4500 Main St. Officer Tax Manager, Price Waterhouse LLP (1989-1996)
Kansas City, MO 64111
THE FUNDS' PRINCIPAL SHAREHOLDERS
As of August 31, 1999, the following companies were the record owners of more
than 5% of a fund's outstanding shares:
Fund Shareholder and Percentage of Shares Outstanding
- ---------------------------------------------- -------------------------------------------------------------------
Tax-Free Money Market James A. Benham
Incline Village, NV -- _____%
Florida Municipal Money Market Morgan Guaranty
New York, NY -- _____%
Margaret A. Benham
Astatula, FL -- _____%
Benjamin Benham
Chuluota, FL -- _____%
Limited-Term Tax-Free Charles Schwab & Company
San Francisco, CA -- _____%
Intermediate-Term Tax-Free Charles Schwab & Company
San Francisco, CA -- _____%
Long-Term Tax-Free Charles Schwab & Company
San Francisco, CA -- _____%
High-Yield Municipal American Century Investment Management, Inc.
Kansas City, MO -- _____%
Todd Morgan
Scottsdale, AZ -- _____%
Arizona Intermediate-Term Municipal Charles Schwab & Company
San Francisco, CA -- _____%
Florida Intermediate-Term Municipal Charles Schwab & Company
San Francisco, CA -- _____%
American Century Investment Management, Inc.
Kansas City, MO -- _____%
Morgan Guaranty
New York, NY -- _____%
</TABLE>
The funds are unaware of any other shareholders, beneficial or of record, who
own more than 5% of a fund's outstanding shares. As of August 31, 1999, the
officers and trustees of the funds, as a group, own less than 1% of any fund's
outstanding shares.
SERVICE PROVIDERS
The funds have no employees. To conduct the funds' day-to-day activities, the
funds have hired a number of service providers. Each service provider has a
specific function to fill on behalf of the funds and is described below.
ACIM and ACSC are both wholly owned by ACC. James E. Stowers, Jr., Chairman of
ACC, controls ACC by virtue of his ownership of a majority of its voting stock.
INVESTMENT ADVISOR
A description of the responsibilities of the advisor appears in the Prospectus
under the heading "Management."
For the services provided to the funds, the advisor receives a monthly fee based
on a percentage of the average net assets of a fund. The annual rate at which
this fee is assessed is determined monthly in a two-step process. First, a fee
rate schedule is applied to the assets of all of the funds of its investment
category managed by the advisor (the Investment Category Fee). For example, when
calculating the fee for a money market fund, all of the assets of the money
market funds managed by the advisor are aggregated. The three investment
categories are money market funds, bond funds and equity funds. Second, a
separate fee rate schedule is applied to the assets of all of the funds managed
by the advisor (the Complex Fee). The Investment Category Fee and the Complex
Fee are then added to determine the unified management fee payable by a fund to
the advisor.
The schedules by which the Investment Category Fees are determined are as
follows:
INVESTMENT CATEGORY FEE SCHEDULE FOR TAX-FREE MONEY MARKET, FLORIDA MUNICIPAL
MONEY MARKET AND NEW YORK MUNICIPAL MONEY MARKET
- --------------------------- -----------------------
Category Assets Fee Rate
- --------------------------- -----------------------
First $1 billion 0.2700%
Next $1 billion 0.2270%
Next $3 billion 0.1860%
Next $5 billion 0.1690%
Next $15 billion 0.1580%
Next $25 billion 0.1575%
Thereafter 0.1570%
- --------------------------- -----------------------
INVESTMENT CATEGORY FEE SCHEDULE FOR LIMITED-TERM TAX-FREE, INTERMEDIATE-TERM
TAX-FREE, LONG-TERM TAX-FREE, ARIZONA INTERMEDIATE-TERM MUNICIPAL, AND FLORIDA
INTERMEDIATE-TERM MUNICIPAL
- --------------------------- -----------------------
Category Assets Fee Rate
- --------------------------- -----------------------
First $1 billion 0.4100%
Next $1 billion 0.2280%
Next $3 billion 0.1980%
Next $5 billion 0.1780%
Next $15 billion 0.1650%
Next $25 billion 0.1630%
Thereafter 0.1625%
- --------------------------- -----------------------
INVESTMENT CATEGORY FEE SCHEDULE FOR HIGH-YIELD MUNICIPAL
- --------------------------- -----------------------
Category Assets Fee Rate
- --------------------------- -----------------------
First $1 billion 0.4100%
Next $1 billion 0.3580%
Next $3 billion 0.3280%
Next $5 billion 0.3080%
Next $15 billion 0.2950%
Next $25 billion 0.2930%
Thereafter 0.2925%
- --------------------------- -----------------------
The Complex Fee is determined according to the schedule below.
COMPLEX FEE SCHEDULE
Complex Assets Fee Rate
- --------------------------------- -------------------
First $2.5 billion 0.3100%
Next $7.5 billion 0.3000%
Next $15.0 billion 0.2985%
Next $25.0 billion 0.2970%
Next $50.0 billion 0.2960%
Next $100.0 billion 0.2950%
Next $100.0 billion 0.2940%
Next $200.0 billion 0.2930%
Next $250.0 billion 0.2920%
Next $500.0 billion 0.2910%
Thereafter 0.2900%
- --------------------------------- -------------------
On the first business day of each month, the funds pay a management fee to the
advisor for the previous month at the specified rate. The fee for the previous
month is calculated by multiplying the applicable fee for the fund by the
aggregate average daily closing value of a fund's net assets during the previous
month. This number is then multiplied by a fraction, the numerator of which is
the number of days in the previous month and the denominator of which is 365
(366 in leap years).
The management agreement shall continue in effect until the earlier of the
expiration of two years from the date of its execution or until the first
meeting of shareholders following such execution and for as long thereafter as
its continuance is specifically approved at least annually, by (1) the funds'
Board of Trustees, or by the vote of a majority of outstanding votes (as defined
in the Investment Company Act) and (2) by the vote of a majority of the trustees
of the funds who are not parties to the agreement or interested persons of the
advisor, cast in person at a meeting called for the purpose of voting on such
approval.
The management agreement provides that it may be terminated at any time without
payment of any penalty by the funds' Board of Trustees, or by a vote of a
majority of outstanding votes, on 60 days' written notice to the advisor, and
that it shall be automatically terminated if it is assigned.
The management agreement provides that the advisor shall not be liable to the
funds or their shareholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties. The
management agreement also provides that the advisor and its officers, trustees
and employees may engage in other business, devote time and attention to any
other business whether of a similar or dissimilar nature, and render services to
others.
Certain investments may be appropriate for the funds and also for other clients
advised by the advisor. Investment decisions for the funds and other clients are
made with a view to achieving their respective investment objectives after
consideration of such factors as their current holdings, availability of cash
for investment and the size of their investment generally. A particular security
may be bought or sold for only one client or fund, or in different amounts and
at different times for more than one but less than all clients or funds. In
addition, purchases or sales of the same security may be made for two or more
clients or funds on the same date. Such transactions will be allocated among
clients in a manner believed by the advisor to be equitable to each. In some
cases this procedure could have an adverse effect on the price or amount of the
securities purchased or sold by a fund.
The advisor may aggregate purchase and sale orders of the funds with purchase
and sale orders of its other clients when the advisor believes that such
aggregation provides the best execution for the funds. The Board of Trustees has
approved the policy of the advisor with respect to the aggregation of portfolio
transactions. Where portfolio transactions have been aggregated, the funds
participate at the average share price for all transactions in that security on
a given day and share transaction costs on a pro rata basis. The advisor will
not aggregate portfolio transactions of the funds unless it believes such
aggregation is consistent with its duty to seek best execution on behalf of the
funds and the terms of the management agreement. The advisor receives no
additional compensation or remuneration as a result of such aggregation.
Prior to August 1, 1997, Benham Management Corporation served as the investment
advisor to the funds. Benham Management Corporation was merged into the advisor
in late 1997.
Unified management fees incurred by each fund for the fiscal periods ended May
31, 1999, 1998, and October 31, 1997, are indicated in the following table. Fee
amounts are net of amounts reimbursed or recouped under the funds' previous
investment advisory agreement with Benham Management Corporation.
<TABLE>
UNIFIED MANAGEMENT FEES(1)
- ---------------------------------------------- --------------------- ------------------------- ----------------------
<S> <C> <C> <C>
Fund 1999 1998 1997
- ---------------------------------------------- --------------------- ------------------------- ----------------------
Tax-Free Money Market Data not $1,201,502 $341,854
Florida Municipal Money Market Yet 564,438 0
Limited-Term Tax-Free Available 112,235 259,501
Intermediate-Term Tax-Free 402,534 489,817
Long-Term Tax-Free 332,031 378,372
High-Yield Municipal 0 N/A
Arizona Intermediate-Term Municipal 179,507 81,705
Florida Intermediate-Term Municipal 120,693 23,601
- ---------------------------------------------- --------------------- ------------------------- ----------------------
1 Net of Reimbursements
</TABLE>
Other Advisory Relationships
In addition to managing the funds, the advisor also serves as an investment
advisor to seven institutional accounts and to the following registered
investment companies:
American Century Mutual Funds, Inc.
American Century World Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Variable Portfolios, Inc.
American Century Capital Portfolios, Inc.
American Century Strategic Asset Allocations, Inc.
American Century Government Income Trust
American Century Investment Trust
American Century Target Maturities Trust
American Century Quantitative Equity Funds
American Century International Bond Funds
American Century California Tax-Free and Municipal Funds
TRANSFER AGENT AND ADMINISTRATOR
American Century Services Corporation, 4500 Main Street, Kansas City, Missouri
64111, serves as transfer agent and dividend-paying agent for the funds. It
provides physical facilities, computer hardware and software, and personnel, for
the day-to-day administration of the funds and of the advisor. The advisor pays
ACSC for such services.
Prior to August 1, 1997, the funds paid American Century Services Corporation
directly for its services as transfer agent and administrative services agent.
Administrative service and transfer agent fees paid by each fund for the fiscal
periods ended May 31, 1998 and October 31, 1997, are indicated in the table
below. Fee amounts are net of expense limitations.
ADMINISTRATIVE FEES
Fund 1998 1997
- ----------------------------------------- ------------------ -----------------
Tax-Free Money Market $13,717 $84,467
Florida Municipal Money Market 15,789 0
Limitred-Term Tax-Free N/A N/A
Intermediate-Term Tax-Free N/A N/A
Long-Term Tax-Free N/A N/A
High-Yield Municipal N/A N/A
Arizona Intermediate-Term Municipal 4,889 26,168
Florida Intermediate-Term Municipal 3,851 10,678
TRANSFER AGENT FEES
Fund 1998 1997
- ----------------------------------------- ------------------ -----------------
Tax-Free Money Market $9,971 $61,414
Florida Municipal Money Market 6,746 0
Limited-Term Tax-Free N/A N/A
Intermediate-Term Tax-Free N/A N/A
Long-Term Tax-Free N/A N/A
High-Yield Municipal N/A N/A
Arizona Intermediate-Term Municipal 3,255 19,990
Florida Intermediate-Term Municipal 1,484 10,178
- ----------------------------------------- ------------------ -----------------
DISTRIBUTOR
The funds' shares are distributed by FDI, a registered broker-dealer. The
distributor is a wholly owned, indirect subsidiary of Boston Institutional
Group, Inc. The distributor's principal business address is 60 State Street,
Suite 1300, Boston, Massachusetts 02109.
The distributor is the principal underwriter of the funds' shares. The
distributor makes a continuous, best-efforts underwriting of the funds' shares.
This means that the distributor has no liability for unsold shares.
OTHER SERVICE PROVIDERS
CUSTODIAN BANKS
Chase Manhattan Bank, 770 Broadway, 10th floor, New York, New York 10003-9598,
and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105, each serves
as custodian of the assets of the funds. The custodians take no part in
determining the investment policies of the funds or in deciding which securities
are purchased or sold by the funds. The funds, however, may invest in certain
obligations of the custodians and may purchase or sell certain securities from
or to the custodians.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP are the independent accountants of the funds. The
address of PricewaterhouseCoopers LLP is 1055 Broadway, 10th floor, Kansas City,
Missouri 64105. As the independent accountants of the funds,
PricewaterhouseCoopers provides services including (1) audit of the annual
financial statements for each fund, (2) assistance and consultation in
connection with SEC filings, and (3) review of the annual federal income tax
return filed for each fund.
BROKERAGE ALLOCATION
Under the management agreement between the funds and the advisor, the advisor
has the responsibility of selecting brokers and dealers to execute portfolio
transactions. In many transactions, the selection of the broker or dealer is
determined by the availability of the desired security and its offering price.
In other transactions, the selection of a broker or dealer is a function of the
selection of market and the negotiation of price, as well as the broker's
general execution and operational and financial capabilities in the type of
transaction involved. The advisor will seek to obtain prompt execution of orders
at the most favorable prices or yields. The advisor may choose to purchase and
sell portfolio securities to and from dealers who provide statistical and other
information and services, including research, to the funds and to the advisor.
Such information or services will be in addition to and not in lieu of the
services required to be performed by the advisor, and the expenses of the
advisor will not necessarily be reduced as a result of the receipt of such
supplemental information.
INFORMATION ABOUT FUND SHARES
Each of the funds named on the front of this Statement of Additional Information
is a series of shares issued by the Trust, and shares of each fund have equal
voting rights.
Each fund votes separately on matters affecting that fund exclusively. Voting
rights are not cumulative, so that investors holding more than 50% of the
Trust's (i.e., all funds') outstanding shares may be able to elect a Board of
Trustees. The Trust undertakes dollar-based voting, meaning that the number of
votes a shareholder is entitled to is based upon the dollar amount of the
shareholder's investment. The election of trustees is determined by the votes
received from all Trust shareholders without regard to whether a majority of
shares of any one fund voted in favor of a particular nominee or all nominees as
a group.
Each shareholder has rights to dividends and distributions declared by the fund
he or she owns 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 fund have equal voting rights, although each fund votes
separately on matters affecting that fund exclusively.
Shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable for its obligations. However, the
Declaration of Trust contains an express disclaimer of shareholder liability for
acts or obligations of the Trust. The Declaration of Trust also provides for
indemnification and reimbursement of expenses of any shareholder held personally
liable for obligations of the Trust. The Declaration of Trust provides that the
Trust will, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. The Declaration of Trust further provides that the Trust may maintain
appropriate insurance (for example, fidelity, bonding and errors and omissions
insurance) for the protection of the Trust, its shareholders, trustees,
officers, employees and agents to cover possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss as a result of
shareholder liability is limited to circumstances in which both inadequate
insurance exists and the Trust is unable to meet its obligations.
BUYING AND SELLING FUND SHARES
Information about buying, selling and exchanging fund shares is contained in
Your Guide to American Century Services. The guide is available to investors
without charge and may be obtained by calling us.
VALUATION OF A FUND'S 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 4 p.m.
Eastern time each day the Exchange is open for business. The Exchange typically
observes the following holidays: New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Although the funds expect the same holidays
to be observed in the future, the Exchange may modify its holiday schedule at
any time.
Each fund's NAV is calculated by adding the value of all portfolio securities
and other assets, deducting liabilities and dividing the result by the number of
shares outstanding. Expenses and interest earned on portfolio securities are
accrued daily.
MONEY MARKET FUNDS
Securities held by the money market funds are valued at amortized cost. This
method involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium paid at the time of
purchase. Although this method provides certainty in valuation, it generally
disregards the effect of fluctuating interest rates on an instrument's market
value. Consequently, the instrument's amortized cost value may be higher or
lower than its market value, and this discrepancy may be reflected in the funds'
yields. During periods of declining interest rates, for example, the daily yield
on fund shares computed as described above may be higher than that of a fund
with identical investments priced at market value. The converse would apply in a
period of rising interest rates.
The money market funds operate pursuant to Investment Company Act Rule 2a-7,
which permits valuation of portfolio securities on the basis of amortized cost.
As required by the rule, the Board of Trustees has adopted procedures designed
to stabilize, to the extent reasonably possible, a money market fund's price per
share as computed for the purposes of sales and redemptions at $1.00. While the
day-to-day operation of the money market funds has been delegated to the fund
managers, the quality requirements established by the procedures limit
investments to certain instruments that the Board of Trustees has determined
present minimal credit risks and that have been rated in one of the two highest
rating categories as determined by a rating agency or, in the case of unrated
securities, of comparable quality. The procedures require review of the money
market funds' portfolio holdings at such intervals as are reasonable in light of
current market conditions to determine whether the money market funds' net asset
values calculated by using available market quotations deviate from the
per-share value based on amortized cost. The procedures also prescribe the
action to be taken if such deviation should occur.
The Board of Trustees monitors the levels of illiquid securities, however if the
levels are exceeded, they will take action to rectify these levels.
Actions the Board of Trustees may consider under these circumstances include (i)
selling portfolio securities prior to maturity, (ii) withholding dividends or
distributions from capital, (iii) authorizing a one-time dividend adjustment,
(iv) discounting share purchases and initiating redemptions in kind, or (v)
valuing portfolio securities at market price for purposes of calculating NAV.
NON-MONEY MARKET FUNDS
Securities held by the non-money market funds normally are priced by an
independent pricing service, provided that such prices are believed by the
advisor to reflect the fair market value of portfolio securities.
Because there are hundreds of thousands of municipal issues outstanding, and the
majority of them do not trade daily, the prices provided by pricing services are
generally determined without regard to bid or last sale prices. In valuing
securities, the pricing services generally take into account institutional
trading activity, trading in similar groups of securities, and any developments
related to specific securities. The methods used by the pricing service and the
valuations so established are reviewed by the advisor under the general
supervision of the Board of Trustees. There are a number of pricing services
available, and the advisor, 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.
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.
Debt securities maturing within 60 days of the valuation date may be valued at
cost, plus or minus any amortized discount or premium, unless the directors
determine that this would not result in fair valuation of a given security.
Other assets and securities for which quotations are not readily available are
valued in good faith at their fair value using methods approved by the Board of
Trustees.
TAXES
Federal Income Tax
Each fund intends to qualify annually as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). By so
qualifying, a fund will be exempt from federal and state income taxes to the
extent that it distributes substantially all of its net investment income and
net realized capital gains (if any) to shareholders. If a fund fails to qualify
as a regulated investment company, it will be liable for taxes, significantly
reducing its distributions to shareholders and eliminating shareholders' ability
to treat distributions of the funds in the manner they were realized by the
funds.
Certain of the bonds purchased by the funds may be treated as bonds that were
originally issued at a discount. Original issue discount represents interest for
federal income tax purposes and can generally be defined as the difference
between the price at which a security was issued and its stated redemption price
at maturity. Original issue discount, although no cash is actually received by a
fund until the maturity of the bond, is treated for federal income tax purposes
as income earned by a fund over the term of the bond, and therefore is subject
to the distribution requirements of the Code. The annual amount of income earned
on such a bond by a fund generally is determined on the basis of a constant
yield to maturity that takes into account the semiannual compounding of accrued
interest. Original issue discount on an obligation with interest exempt from
federal income tax will constitute tax-exempt interest income to the fund.
In addition, some of the bonds may be purchased by a fund at a discount that
exceeds the original issue discount on such bonds, if any. This additional
discount represents market discount for federal income tax purposes. The gain
realized on the disposition of any bond having market discount generally will be
treated as taxable ordinary income to the extent it does not exceed the accrued
market discount on such bond (unless a fund elects to include market discount in
income in tax years to which it is attributable). Generally, market discount
accrues on a daily basis for each day the bond is held by a fund on a straight
line basis over the time remaining to the bond's maturity. In the case of any
debt security having a fixed maturity date of not more than one year from date
of issue, the gain realized on disposition generally will be treated as
short-term capital gain. In general, gain realized on disposition of a security
held less than one year is treated as short-term capital gain.
Under the Code, any distribution of a fund's net realized long-term capital
gains designated by the fund as a capital gain dividend is taxable to
shareholders as long-term capital gains, regardless of the length of time shares
are held. If a capital gain dividend is paid with respect to any shares of a
fund sold at a loss after being held for six months or less, the loss will be
treated as a long-term capital loss for tax purposes.
Alternative Minimum Tax
While the interest on bonds issued to finance essential state and local
government operations is generally exempt from regular federal income tax,
interest on certain "private activity" bonds issued after August 7, 1986, while
exempt from regular federal income tax, constitutes a tax-preference item for
taxpayers in determining alternative minimum tax liability under the Code and
income tax provisions of several states.
The funds may each invest in private activity bonds. The interest on private
activity bonds could subject a shareholder to, or increase liability under, the
federal alternative minimum tax, depending on the shareholder's tax situation.
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 fund shareholders annually of the amount of distributions
derived from interest payments on private activity bonds.
HOW FUND PERFORMANCE INFORMATION IS CALCULATED
The funds may quote performance in various ways. Historical performance
information will be used in advertising and sales literature.
For the money market funds, yield quotations are based on the change in the
value of a hypothetical investment (excluding realized gains and losses from the
sale of securities and unrealized appreciation and depreciation of securities)
over a seven-day period (base period) and stated as a percentage of the
investment at the start of the base period (base-period return). The base-period
return is then annualized by multiplying by 365/7 with the resulting yield
figure carried to at least the nearest hundredth of one percent.
Calculations of effective yield begin with the same base-period return used to
calculate yield, but the return is then annualized to reflect weekly compounding
according to the following formula:
Effective Yield = [(Base-Period Return + 1)365/7] - 1
For the non-money market funds, yield quotations are based on the investment
income per share earned during a particular 30-day period, less expenses accrued
during the period (net investment income), and are computed by dividing the
fund's net investment income by its share price on the last day of the period
according to the following formula:
YIELD = (2 [(a - b + 1)6 - 1])/cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of shares
outstanding during the period that were entitled to receive dividends, and d =
the maximum offering price per share on the last day of the period.
The funds may also quote tax-equivalent yields. Arizona Intermediate-Term
Municipal's tax-equivalent yield is based on the current double tax-exempt yield
and your combined federal and state marginal tax rate. Assuming all the funds'
dividends are tax-exempt in Arizona (which may not always be the case) and that
your Arizona taxes are fully deductible for federal income tax purposes, you can
calculate your tax equivalent yield for the fund using the equation below.
Fund's Double Tax-Free Yield = Your Tax-Equivalent Yield
- ----------------------------------------------------
(100% - Federal Tax Rate) (100% - Arizona Tax Rate)
The Florida funds' tax-equivalent yield is based on each fund's tax-free yield,
your federal income tax bracket, and the Florida Intangibles Tax applicable to a
taxable investment. The formula is:
Fund's Tax-Free Yield + Florida Intangibles Tax Rate = Your Tax-Equivalent
- ------------------------ Yield
100% - Federal Tax Rate
Tax-equivalent yields for Tax-Free Money Market, Limited-Term Tax-Free,
Intermediate-Term Tax-Free, Long-Term Tax-Free and High-Yield Municipal are
calculated using the following equation:
Fund's Tax-Free Yield = Your Tax-Equivalent Yield
- ---------------------------------------
100% - Federal Tax Rate
Total returns quoted in advertising and sales literature reflect all aspects of
a fund's return, including the effect of reinvesting dividends and capital gain
distributions (if any) and any change in the fund's NAV during the period.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in a fund during a stated
period and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over 10 years would produce an average annual return of 7.18%, which is the
steady annual rate that would equal 100% growth on a compounded basis in 10
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the funds' performance is
not constant over time, but changes from year-to-year, and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance.
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, including periods other than one, five and 10 years.
Average annual and cumulative total returns may be quoted as percentages or as
dollar amounts and may be calculated for a single investment, a series of
investments, or a series of redemptions over any time period. Total returns may
be broken down into their components of income and capital (including capital
gains and changes in share price) to illustrate the relationship of these
factors and their contributions to total return.
MONEY MARKET FUND YIELDS
(seven-day period ended May 31, 1999)
- -------------------------------- ---------- ----------
7-Day Effective
Yield Yield
- -------------------------------- ---------- ----------
- -------------------------------- ---------- ----------
Tax-Free Money Market 3.03% 3.08%
Florida Municipal Money Market 2.92% 2.96%
- -------------------------------- ---------- ----------
NON-MONEY MARKET FUND YIELDS
(30-day period ended May 31, 1999)
- ---------------------------------------- -------------
Fund 30-Day Yield
- ---------------------------------------- -------------
- ---------------------------------------- -------------
Limited-Term Tax-Free 3.86%
Intermediate-Term Tax-Free 4.56%
Long-Term Tax-Free 4.93%
High-Yield Municipal 5.28%
Arizona Intermediate-Term Municipal 4.36%
- ---------------------------------------- -------------
Florida Interdiate-Term Municipal 4.19%
- ---------------------------------------- -------------
<TABLE>
MONEY MARKET FUND TAX-EQUIVALENT YIELDS
(seven-day period ended May 31, 1999)
- -------------------------------- ---------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
7-Day Tax-Equivalent Tax-Equivalent Tax-Equivalent Tax-Equivalent
Yield Yield Yield Yield Yield
28% Tax 31% Tax 36% Tax 39.6% Tax
Bracket Bracket Bracket Bracket
- -------------------------------- ---------- -------------- -------------- -------------- --------------
- -------------------------------- ---------- -------------- -------------- -------------- --------------
Tax-Free Money Market 3.03% 4.21% 4.39% 4.73% 5.02%
Florida Municipal Money Market 2.92% 4.06% 4.23% 4.56% 4.83%
- -------------------------------- ---------- -------------- -------------- -------------- --------------
NON-MONEY MARKET FUND TAX-EQUIVALENT YIELDS
(30-day period ended May 31, 1999)
- ---------------------------------------- ------------- -------------- ------------- ------------- -------------
Fund 30-Day SEC Tax-Equivalent Tax-Equivalent Tax-Equivalent Tax-Equivalent
Yield Yield Yield Yield Yield
28% Tax 31% Tax 36% Tax 39.6% Tax
Bracket Bracket Bracket Bracket
- ---------------------------------------- ------------- -------------- ------------- ------------- -------------
- ---------------------------------------- ------------- -------------- ------------- ------------- -------------
Limited-Term Tax-Free 3.42% 4.75% 4.96% 5.34% 5/66%
Intermediate-Term Tax-Free 3.91% 5.43% 5.67% 6.11% 6.47%
Long-Term Tax-Free 4.37% 6.07% 6.33% 6.83% 7.24%
High-Yield Municipal 5.31% 7.38% 7.70% 8.30% 8.79%
Arizona Intermediate-Term Municipal 3.87% 5.61% 5.85% 5.92% 6.38%
Florida Interdiate-Term Municipal 3.95% 5.49% 5.72% 6.17% 6.54%
- ---------------------------------------- ------------- -------------- ------------- ------------- -------------
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED MAY 31
- ------------------------------------- ---------- --------- --------- ------------- -------------
Fund 1 year 5 years 10 years Life of Fund Inception
Date
- ------------------------------------- ---------- --------- --------- ------------- -------------
Tax-Free Money Market 3.10% 3.18% 3.42% 3.93% 7/31/84
Florida Municipal Money Market 2.92% 3.47% N/A 3.45% 4/11/94
Limited-Term Tax-Free 4.15% 4.75% N/A 4.44% 3/1/93
Intermediate-Term Tax-Free 4.07% 5.82% 6.35% 5.87% 3/2/87
Long-Term Tax-Free 3.44% 6.79% 7.14% 6.95% 3/2/87
High-Yield Municipal 6.18% N/A N/A 6.90% 3/31/98
Arizona Intermediate-Term Municipal 4.51% 5.92% N/A 6.17% 4/11/94
Florida Interdiate-Term Municipal 4.71% 6.23% N/A 6.42% 4/11/94
- ------------------------------------- ---------- --------- --------- ------------- -------------
</TABLE>
PERFORMANCE COMPARISONS
The funds' performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indices of market
performance. This may include comparisons with funds that, unlike the American
Century funds, are sold with a sales charge or deferred sales charge. Sources of
economic data that may be used for such comparisons may include, but are not
limited to, U.S. Treasury bill, note and bond yields, money market fund yields,
U.S. government debt and percentage held by foreigners, the U.S. money supply,
net free reserves, and yields on current-coupon GNMAs (source: Board of
Governors of the Federal Reserve System); the federal funds and discount rates
(source: Federal Reserve Bank of New York); yield curves for U.S. Treasury
securities and AA/AAA-rated corporate securities (source: Bloomberg Financial
Markets); yield curves for AAA-rated, tax-free municipal securities (source:
Telerate); yield curves for foreign government securities (sources: Bloomberg
Financial Markets and Data Resources, Inc.); total returns on foreign bonds
(source: J.P. Morgan Securities Inc.); various U.S. and foreign government
reports; the junk bond market (source: Data Resources, Inc.); the CRB Futures
Index (source: Commodity Index Report); the price of gold (sources: London
a.m./p.m. fixing and New York Comex Spot Price); rankings of any mutual fund or
mutual fund category tracked by Lipper, 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 indices of stock market performance; and indices and
historical data supplied by major securities brokerage or investment advisory
firms. The funds also may utilize reprints from newspapers and magazines
furnished by third parties to illustrate historical performance or to provide
general information about the funds.
PERMISSIBLE ADVERTISING INFORMATION
From time to time, the funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the funds; (5) descriptions of investment strategies for one or more of the
funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the funds; (7)
comparisons of investment products (including the funds) with relevant market or
industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) testimonials
describing the experience of persons that have invested in one or more of the
funds. The funds also may include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of any of the funds.
FINANCIAL STATEMENTS
The financial statements of the funds are included in the annual reports to
shareholders for the fiscal year ended May 31, 1999. The annual reports are
incorporated herein by reference. You may receive copies of the reports without
charge upon request to American Century at the address and telephone number
shown on the back cover of this Statement of Additional Information.
EXPLANATION OF FIXED INCOME SECURITIES RATINGS
As described in the Prospectus, the funds may invest in fixed income securities.
Those investments, however, are subject to certain credit quality restrictions,
as noted in the Prospectus. The following is a summary of the rating categories
referenced in the prospectus disclosure.
<TABLE>
BOND RATINGS
- ---------- -------- -----------------------------------------------------------------------------------------------------
- ---------- -------- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
S&P Moody's Description
- ---------- -------- -----------------------------------------------------------------------------------------------------
AAA Aaa These are the highest ratings assigned by S&P and Moody's to a debt obligation and indicates an
extremely strong capacity to pay interest and repay principal.
AA Aa Debt rated in this category is considered to have a very strong capacity to pay interest and repay
principal and differs from AAA/Aaa issues only in a small degree.
A 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 Baa Debt rated BBB/Baa 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.
BB Ba Debt rated BB/Ba 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 also is used for debt subordinated to senior debt that is assigned
an actual or implied BBB- rating.
B 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/Ba or BB-/Ba3
rating.
CCC Caa Debt rated CCC/Caa 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/Caa rating category is
also used for debt subordinated to senior debt that is assigned an actual or implied B or B-/B3
rating.
CC Ca The rating CC/Ca typically is applied to debt subordinated to senior debt that is assigned an
actual or implied CCC/Caa rating.
C C The rating C typically is applied to debt subordinated to senior debt, which is assigned an actual
or implied CCC-/Caa3 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 rating CI is reserved for income bonds on which no interest is being paid.
D D Debt rated D is in payment default. The D rating category is used when interest payments or
principal payments are not made on the date due even if the applicable grace period has not
expired, unless S&P believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
- ---------- -------- -----------------------------------------------------------------------------------------------------
To provide more detailed indications of credit quality, the Standard & Poor's
ratings from AA to CCC may be modified by the addition of a plus or minus sign
to show relative standing within these major rating categories. Similarly,
Moody's adds numerical modifiers (1,2,3) to designate relative standing within
its major bond rating categories. Fitch Investors Service, Inc. also rates bonds
and uses a ratings system that is substantially similar to that used by Standard
& Poor's.
COMMERCIAL PAPER RATINGS
- ---------- -------- -----------------------------------------------------------------------------------------------------
- ---------- -------- -----------------------------------------------------------------------------------------------------
S&P Moody's Description
- ---------- -------- -----------------------------------------------------------------------------------------------------
A-1 Prime-1 This indicates that the degree of safety regarding timely payment is strong. Standard & Poor's
(P-1) rates those issues determined to possess extremely strong safety characteristics as A-1+.
A-2 Prime-2 Capacity for timely payment on commercial paper is satisfactory, but the relative degree of safety
(P-2) is not as high as for issues designated A-1. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still appropriated, may be more
affected by external conditions. Ample alternate liquidity is maintained.
A-3 Prime-3 Satisfactory capacity for timely repayment. Issues that carry this rating are somewhat more
(P-3) vulnerable to the adverse changes in circumstances than obligations carrying the higher
designations.
- ---------- -------- -----------------------------------------------------------------------------------------------------
Note Ratings
- ---------- -------- -----------------------------------------------------------------------------------------------------
S&P Moody's Description
- ---------- -------- -----------------------------------------------------------------------------------------------------
SP-1 MIG-1; Notes are of the highest quality enjoying strong protection from established cash flows of funds
VMIG-1 for their servicing or from established and broad-based access to the market for refinancing, or
both.
SP-2 MIG-2; Notes are of high quality, with margins of protection ample, although not so large as in the
VMIG-2 preceding group.
SP-3 MIG-3; Notes are of favorable quality, with all security elements accounted for, but lacking the
VMIG-3 undeniable strength of the preceding grades. Market access for refinancing, in particular, is
likely to be less well established.
SP-4 MIG-4; Notes are of adequate quality, carrying specific risk but having protection and not distinctly or
VMIG-4 predominantly speculative.
- ---------- -------- -----------------------------------------------------------------------------------------------------
</TABLE>
MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS
ANNUAL AND SEMIANNUAL REPORTS
These contain more information about the funds' investments and the market
conditions and investment strategies that significantly affected the funds'
performance during the most recent fiscal period. The annual and semiannual
reports are incorporated by reference into this Statement of Additional
Information (SAI). This means that it is legally part of this SAI.
You can receive a free copy of the annual and semiannual reports, and ask any
questions about the funds, by contacting us at the address or one of the
telephone numbers listed below.
If you own or are considering purchasing fund shares through
o an employer-sponsored retirement plan
o a bank
o a broker-dealer
o an insurance company
o another financial intermediary
you can receive the annual and semiannual reports directly from them.
You can also get information about the funds from the Securities and Exchange
Commission (SEC).
o In person
SEC Public Reference Room Washington, D.C. Call 1-800-SEC-0330 for location
and hours.
o On the internet
www.sec.gov
o By mail
SEC Public Reference Section Washington, D.C. 20549-6009. (The SEC will
charge a fee for copying the documents.)
(Investment Company Act File No. 811-4025)
- ---------------------------------------- --------------------------------------
American Century Investments Fax
P.O. Box 419200 816-340-7962
Kansas City, Missouri 64141-6200
Telecommunications Device for Deaf
Investor Relations 1-800-634-4113 or 816-444-3485
1-800-345-2021 or 816-531-5575
Business, Not-For-Profit and
Automated Information Line Employer-Sponsored Retirement Plans
1-800-345-8765 1-800-345-3533
www.americancentury.com
- ---------------------------------------- --------------------------------------
<PAGE>
AMERICAN CENTURY MUNICIPAL TRUST
PART C OTHER INFORMATION
Item 23 EXHIBITS (all exhibits not filed herewith are being incorporated herein
by reference).
(a) Amended Declaration of Trust dated March 9, 1998, revised March 1,
1999, is included herein.
(b) Amended and Restated Bylaws dated March 9, 1998 (filed
electronically as Exhibit 2 to Post-Effective Amendment No. 23 to
the Registration Statement on March 26, 1998, File No. 2-91229).
(c) Registrant hereby incorporates by reference, as though set forth
fully herein, Article III, Article IV, Article V, Article VI and
Article VIII of Registrant's Amended and Restated Agreement and
Declaration of Trust, appearing as Exhibit (a) to this
Post-Effective Amendment No. 26 to the Registration Statement on
Form N-1A of the Registrant; and Article II, Article III, Article IV
and Article V of Registrant's Amended and Restated Bylaws appearing
as Exhibit 2 to Post-Effective Amendment No. 23 on Form N-1A of the
Registrant.
(d) (1) Investor Class Investment Management Agreement between American
Century Municipal Trust and American Century Investment Management,
Inc., dated August 1, 1997 (filed electronically as Exhibit 5 to
Post-Effective Amendment No. 33 to the Registration Statement of
American Century Government Income Trust on July 31, 1997, File No.
2-99222).
(2) Amendment dated March 31, 1998 to the Investor Class Investment
Management Agreement between American Century Municipal Trust and
American Century Investment Management, Inc. (filed electronically
as Exhibit 5 to Post-Effective Amendment No. 23 to the Registration
Statement on March 26, 1998, File No. 2-91229).
(e) (1) Distribution Agreement between American Century Municipal Trust
and Funds Distributor, Inc., dated January 15, 1998 (filed
electronically as Exhibit 6 to Post-Effective Amendment No. 28 to
the Registration Statement of American Century Target Maturities
Trust on January 30, 1998, File No. 2-94608).
(2) Amendment No. 1 to the Distribution Agreement between American
Century Municipal Trust and Funds Distributor, Inc. dated June 1,
1998 (filed electronically as Exhibit b6b to Post-Effective
Amendment No. 11 to the Registration Statement of American Century
Capital Portfolios, Inc. on June 26, 1998, File No. 33-64872).
(3) Amendment No. 2 to the Distribution Agreement between American
Century Municipal Trust and Funds Distributor, Inc. dated December
1, 1998 (filed electronically as Exhibit b6c to Post-Effective
Amendment No. 12 to the Registration Statement of American Century
World Mutual Funds, Inc. on November 13, 1998, File No. 33-39242).
(4) Amendment No. 3 to the Distribution Agreement between American
Century Municipal Trust and Funds Distributor, Inc. dated January
29, 1999 (filed electronically as Exhibit e4 to Post-Effective
Amendment No. 24 of American Century Variable Portfolios, Inc. on
January 15, 1999, File No. 33-14567).
(f) Not applicable.
(g) (1) Master Agreement by and between Twentieth Century Services, Inc.
and Commerce Bank, N.A. dated January 22, 1997 (filed electronically
as Exhibit 8e to Post-Effective Amendment No. 76 to the Registration
Statement of American Century Mutual Funds, Inc. on February 28,
1997, File No. 2-14213).
(2) Global Custody Agreement between The Chase Manhattan Bank and the
Twentieth Century and Benham Funds, dated August 9, 1996 (filed
electronically as Exhibit 8 to Post-Effective Amendment No. 31 to
the Registration Statement of American Century Government Income
Trust on February 7, 1997, File No. 2-99222).
(h) (1) Transfer Agency Agreement between American Century Municipal
Trust and American Century Services Corporation, dated August 1,
1997 (filed electronically as Exhibit 9 to Post-Effective Amendment
No. 33 to the Registration Statement of American Century Government
Income Trust on July 31, 1997, File No. 2-99222).
(2) Amendment No. 1 dated March 9, 1998 to the Transfer Agency
Agreement between American Century Municipal Trust and American
Century Services Corporation (filed electronically as Exhibit 9 to
Post-Effective Amendment No. 23 to the Registration Statement on
March 26, 1998, File No. 2-91229).
(3) Amendment No. 2 dated June 29, 1998 to the Transfer Agency
Agreement between American Century Municipal Trust and American
Century Services Corporation (filed electronically as Exhibit b9b to
Post-Effective Amendment No. 23 to the Registration Statement of
American Century Quantitative Equity Funds, File No. 33-19589).
(4) Credit Agreement between American Century Funds and The Chase
Manhattan Bank, as Administrative Agent dated as of December 18,
1998 (filed electronically as Exhibit h2 to Post-Effective Amendment
No. 37 to the Registration Statement of American Century Government
Income Trust on May 7, 1999, File No. 2-99222).
(i) Opinion and Consent of counsel included herein.
(j) (1) Consent of PricewaterhouseCoopers LLP, independent accountants,
to be filed by amendment.
(2) Consent of KPMG Peat Marwick, LLP, independent auditors (filed
electronically as Exhibit 11 to Post-Effective Amendment No. 33 to
the Registration Statement on of American Century Government Income
Trust on July 31, 1997, File No. 2-99222).
(3) Power of Attorney dated December 18, 1998 is included herein.
(k) Not applicable.
(l) Not applicable.
(n) (1) Financial Data Schedule for Tax-Free Money Market Fund is
included herein.
(2) Financial Data Schedule for Florida Municipal Money Market Fund
is included herein.
(3) Financial Data Schedule for Intermediate-Term Tax-Free Fund is
included herein.
(4) Florida Intermediate-Term Municipal Fund is included herein.
(5) Financial Data Schedule for Arizona Intermediate-Term Municipal
Fund is included herein.
(6) Financial Data Schedule for Long-Term Tax-Free Fund is included
herein.
(7) Financial Data Schedule for Limited-Term Tax-Free Fund is
included herein.
(8) Financial Data Schedule for High-Yield Municipal Fund is
included herein.
Item 24. Persons Controlled by or Under Control with Registrant - None.
Item 25. Indemnification.
As stated in Article VII, Section 3 of the Declaration of Trust, incorporated
herein by reference to Exhibit a 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 March 9, 1998, incorporated
herein by reference to Exhibit 2 of Post-Effective Amendment No. 23 to the
Registration Statement filed on March 26, 1998 (Accession # 746458-98-000007).
The Registrant has purchased an insurance policy insuring its officers and
directors against certain liabilities which such officers and trustees may incur
while acting in such capacities and providing reimbursement to the Registrant
for sums which it may be permitted or required to pay to its officers and
trustees by way of indemnification against such liabilities, subject in either
case to clauses respecting deductibility and participation.
Item 26. Business and Other Connections of Investment Advisor.
American Century Investment Management, Inc., the investment manager to each of
the Registrant's Funds, is engaged in the business of managing investments for
deferred compensation plans and other institutional investors.
Item 27. Principal Underwriter.
(a) Funds Distributor, Inc. (the "Distributor") acts as principal
underwriter for the following investment companies.
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
J.P. Morgan Institutional Funds
J.P. Morgan Funds
JPM Series Trust
JPM Series Trust II
LaSalle Partners Funds, Inc.
Kobrick Investment Trust
Merrimac Series
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds I
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
National Investors Cash Management Fund, Inc.
Orbitex Group of Funds
SG Cowen Funds, Inc.
SG Cowen Income + Growth Fund, Inc.
SG Cowen Standby Reserve Fund, Inc.
SG Cowen Standby Tax-Exempt Reserve Fund, Inc.
SG Cowen Series Funds, Inc.
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Family of Funds, Inc.
WEBS Index Fund, Inc.
The Distributor is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. The Distributor is located at 60
State Street, Suite 1300, Boston, Massachusetts 02109. The Distributor
is an indirect wholly-owned subsidiary of Boston Institutional Group,
Inc., a holding company all of whose outstanding shares are owned by
key employees.
(b) The following is a list of the executive officers, directors and
partners of the Distributor:
<TABLE>
Name and Principal Business Positions and Offices with Positions and Offices with
Address* Underwriter Registrant
<S> <C> <C>
Marie E. Connolly Director, President and Chief none
Executive Officer
George A. Rio Executive Vice President President
Donald R. Roberson Executive Vice President none
William S. Nichols Executive Vice President none
Margaret W. Chambers Senior Vice President, none
General Counsel, Chief
Compliance Officer,
Secretary and Clerk
Joseph F. Tower, III Director, Senior Vice President, none
Treasurer and Chief Financial
Officer
Paula R. David Senior Vice President none
Gary S. MacDonald Senior Vice President none
Judith K. Benson Senior Vice President none
William J. Nutt Chairman and Director none
- --------------------
* All addresses are 60 State Street, Suite 1300, Boston, Massachusetts 02109
</TABLE>
(c) Not applicable.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act, and the rules promulgated thereunder, are in the
possession of Registrant, American Century Services Corporation and American
Century Investment Management, Inc., all located at 4500 Main Street, Kansas
City, Missouri 64111.
Item 29. Management Services - Not applicable.
Item 30. Undertakings - Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it has duly caused this
Post-Effective Amendment No. 26 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Kansas
City, State of Missouri on the 8th day of July, 1999.
AMERICAN CENTURY MUNICIPAL TRUST(Registrant)
By: /*/George A. Rio
George A. Rio
President, Principal Executive and
Principal Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 26 has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Date
<S> <C> <C>
*George A. Rio President, Principal Executive July 8, 1999
- --------------------------------- Officer and Principal Financial
George A. Rio Officer
*Maryanne Roepke Vice President and Treasurer July 8, 1999
- ---------------------------------
Maryanne Roepke
*James E. Stowers III Trustee, Chairman of the Board July 8, 1999
- ---------------------------------
James E. Stowers III
*William M. Lyons July 8, 1999
- --------------------------------- Trustee
William M. Lyons
*Albert A. Eisenstat Trustee July 8, 1999
- ---------------------------------
Albert A. Eisenstat
*Ronald J. Gilson Trustee July 8, 1999
- ---------------------------------
Ronald J. Gilson
*Myron S. Scholes Trustee July 8, 1999
- ---------------------------------
Myron S. Scholes
*Kenneth E. Scott Trustee July 8, 1999
- ---------------------------------
Kenneth E. Scott
*Isaac Stein Trustee July 8, 1999
- ---------------------------------
Isaac Stein
*Jeanne D. Wohlers Trustee July 8, 1999
- ---------------------------------
Jeanne D. Wohlers
</TABLE>
/s/Charles C.S. Park
*by Charles C.S. Park, Attorney in Fact (pursuant to a Power of Attorney dated
December 18, 1998).
EXHIBIT DESCRIPTION
EX-99.a Amended Declaration of Trust dated March 9, 1998, revised March 1,
1999 is included herein.
EX-99.b Amended and Restated Bylaws dated March 9, 1998 (filed as Exhibit 2
of Post-Effective Amendment No. 23 to the Registration Statement on
Form N-1A of the Registrant, File No. 2-91229, filed March 26, 1998
and incorporated herein by reference).
EX-99.d1 Investor Class Investment Management Agreement between American
Century Municipal Trust and American Century Investment Management,
Inc., dated August 1, 1997 (filed as Exhibit 5 of Post-Effective
Amendment No. 33 to the Registration Statement on Form N-1A of
American Century Government Income Trust, File No. 2-99222, filed
July 31, 1997 and incorporated herein by reference).
EX-99.d2 Amendment No. 1 dated March 31, 1998 to the Investor Class
Investment Management Agreement between American Century Municipal
Trust and American Century Investment Management, Inc. (filed as
Exhibit 5 of Post-Effective Amendment No. 23 to the Registration
Statement on Form N-1A of the Registrant, File No. 2-91229, filed
March 26, 1998 and incorporated herein by reference).
EX-99.e1 Distribution Agreement between American Century Municipal Trust and
Funds Distributor, Inc., dated January 15, 1998 (filed as Exhibit 6
of Post-Effective Amendment No. 28 to the Registration Statement on
Form N-1A of American Century Target Maturities Trust, File No.
2-94608, filed January 30, 1998 and incorporated herein by
reference).
EX-99.e2 Amendment No. 1 to Distribution Agreement between American Century
Capital Portfolios, Inc. and Funds Distributor, Inc. dated June 1,
1998 (filed as Exhibit b6b to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A of American Century Capital
Portfolios, Inc., File No. 33-64872, filed on June 26, 1998, and
incorporated herein by reference).
EX-99.e3 Amendment No. 2 to Distribution Agreement between American Century
Capital Portfolios, Inc. and Funds Distributor, Inc. dated December
1, 1998 (filed as Exhibit b6c to Post-Effective Amendment No. 12 to
the Registration Statement on Form N-1A of American Century World
Mutual Funds, Inc., File No. 33-39242, filed on November 13, 1998,
and incorporated herein by reference).
EX-99.e4 Amendment No. 3 to Distribution Agreement between American Century
Capital Portfolios, Inc. and Funds Distributor, Inc. dated January
29, 1999 (filed as Exhibit e4 to Post-Effective Amendment No. 28 to
the Registration Statement on Form N-1A of American Century Variable
Portfolios, Inc., File No. 33-14567, filed on January 15, 1999, and
incorporated herein by reference).
EX-99.g1 Master Agreement by and between Twentieth Century Services, Inc. and
Commerce Bank, N.A. dated January 22, 1997 (filed as Exhibit 8e to
Post-Effective Amendment No. 76 to the Registration Statement on
Form N-1A of American Century Mutual Funds, Inc., File No. 2-14213,
filed on February 28, 1997 and incorporated herein by reference).
EX-99.g2 Global Custody Agreement between The Chase Manhattan Bank and the
Twentieth Century and Benham Funds, dated August 9, 1996 (filed as
Exhibit b8 to Post-Effective Amendment No. 31 to the Registration
Statement on Form N-1A of American Century Government Income Trust,
File No. 2-99222, filed February 7, 1997, and incorporated herein by
reference).
EX-99.h1 Transfer Agency Agreement between American Century Municipal Trust
and American Century Services Corporation, dated August 1, 1997
(filed as Exhibit 9 of Post-Effective Amendment No. 33 to the
Registration Statement on Form N-1A of American Century Government
Income Trust, File No. 2-99222, filed July 31, 1997 and incorporated
herein by reference).
EX-99.h2 Amendment No. 1 dated March 9, 1998 to the Transfer Agency Agreement
between American Century Municipal Trust and American Century
Services Corporation (filed as Exhibit 9 of Post-Effective Amendment
No. 23 to the Registration Statement on Form N-1A of the Registrant,
File No. 2-91229, filed March 26, 1998 and incorporated herein by
reference).
EX-99.h3 Amendment No. 2 dated June 29, 1998 to the Transfer Agency Agreement
between American Century Municipal Trust and American Century
Services Corporation (filed as Exhibit b9b of Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A of
American Century Quantitative Equity Funds, File No. 33-19589, filed
on June 29, 1998 and incorporated herein by reference).
EX-99.h4 Credit Agreement between American Century Funds and The Chase
Manhattan Bank, as Administrative Agent dated as of December 18,
1998 (filed as Exhibit h2 of Post-Effective Amendment No. 37 to the
Registration Statement on Form N-1A of American Century Government
Income Trust, File No. 2-99222, filed on May 7, 1999, and
incorporated herein by reference).
EX-99.i Opinion and consent of Counsel, included herein.
EX-99.j1 Consent of PricewaterhouseCoopers LLP, independent accountants, to
be filed by amendment.
EX-99.j2 Consent of KPMG Peat Marwick, independent auditors (filed as Exhibit
11 of Post-Effective Amendment No. 33 to the Registration Statement
on Form N-1A of American Century Goverment Income Trust, File No.
2-99222, filed July 31, 1997 and incorporated herein by reference).
EX-99.j3 Power of Attorney dated December 18, 1998, included herein.
EX-27.4.1 Financial Data Schedule - Tax-Free Money Market Fund.
EX-27.4.2 Financial Data Schedule - Florida Municipal Money Market Fund.
EX-27.5.3 Financial Data Schedule - Intermediate-Term Tax-Free Fund.
EX-27.5.4 Financial Data Schedule - Florida Intermediate-Term Municipal Fund.
EX-27.5.5 Financial Data Schedule - Arizona Intermediate-Term Municipal Fund.
EX-27.5.6 Financial Data Schedule - Long-Term Tax-Free Fund.
EX-27.5.7 Financial Data Schedule - Limited-Term Tax-Free Fund.
EX-27.5.8 Financial Data Schedule - High-Yield Municipal Fund.
<TABLE>
<CAPTION>
AMERICAN CENTURY MUNICIPAL TRUST
AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
AS AMENDED THROUGH MARCH 9, 1998
TABLE OF CONTENTS
ARTICLE I NAME AND DEFINITIONS....................................................................................1
<S> <C> <C>
Section 1. Name.............................................................................................1
Section 2. Definitions......................................................................................1
ARTICLE II PURPOSE OF TRUST.......................................................................................2
ARTICLE III SHARES................................................................................................2
Section 1. Division of Beneficial Interest..................................................................2
Section 2. Ownership of Shares..............................................................................2
Section 3. Investments in the Trust.........................................................................3
Section 4. Status of Shares and Limitation of Personal Liability............................................3
Section 5. Power of Trustees to Change Provisions Relating to Shares........................................3
Section 6. Establishment and Designation of Series..........................................................4
Section 7. Indemnification of Shareholders..................................................................6
ARTICLE IV THE TRUSTEES...........................................................................................6
Section 1. Number, Election and Tenure......................................................................6
Section 2. Effect of Death, Resignation, etc. of a Trustee..................................................7
Section 3. Powers...........................................................................................7
Section 4. Payment of Expenses by the Trust.................................................................9
Section 5. Payment of Expenses by Shareholders..............................................................9
Section 6. Ownership of Assets of the Trust................................................................10
Section 7. Service Contracts...............................................................................10
ARTICLE V SHAREHOLDERS' VOTING POWERS AND MEETINGS...............................................................11
Section 1. Voting Powers...................................................................................11
Section 2. Voting Power and Meetings.......................................................................11
Section 3. Quorum and Required Vote........................................................................12
Section 4. Action by Written Consent.......................................................................12
Section 5. Record Dates....................................................................................12
Section 6. Additional Provisions...........................................................................13
ARTICLE VI NET ASSET VALUE, DISTRIBUTIONS, AND REDEMPTIONS.......................................................13
Section 1. Determination of Net Asset Value, Net Income, and Distributions.................................13
Section 2. Redemptions and Repurchases.....................................................................13
Section 3. Redemptions at the Option of the Trust..........................................................13
ARTICLE VII COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES.................................................14
Section 1. Compensation....................................................................................14
Section 2. Limitation of Liability.........................................................................14
Section 3. Indemnification.................................................................................14
ARTICLE VIII MISCELLANEOUS.......................................................................................14
Section 1. Trustees, Shareholders, etc. Not Personally Liable; Notice......................................14
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or Surety...................................15
Section 3. Liability of Third Persons Dealing with Trustees................................................15
Section 4. Termination of Trust or Series..................................................................15
Section 5. Merger and Consolidation........................................................................16
Section 6. Filing of Copies, References, Headings..........................................................16
Section 7. Applicable Law..................................................................................16
Section 8. Amendments......................................................................................16
Section 9. Trust Only......................................................................................16
Section 10. Use of the Name "Benham" and "American Century"................................................17
</TABLE>
AMERICAN CENTURY MUNICIPAL TRUST
AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
(as amended through March 9, 1998)
AGREEMENT AND DECLARATION OF TRUST made at Palo Alto, California on the
1st day of May, 1984 and amended by the Trustees hereunder.
WHEREAS the Trustees desire and have agreed to manage all property
coming into their hands as trustees of a Massachusetts business trust in
accordance with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby direct that this Agreement and
Declaration of Trust be filed with the Secretary of The Commonwealth of
Massachusetts and do hereby declare that they will hold all cash, securities and
other assets, which they may form time to time acquire in any manner as Trustees
hereunder, IN TRUST, and manage and dispose of the same upon the following terms
and conditions for the pro rata benefit of the holders of Shares in this Trust.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1. NAME
This Trust shall be known as the "American Century Municipal Trust" and the
Trustees shall conduct the business of the Trust under that name or any other
name as they may from time to time determine.
SECTION 2. DEFINITIONS
Whenever used herein, unless otherwise required by the context or specifically
provided:
(a) The "Trust" refers to the Massachusetts business trust established by
this Agreement and Declaration of Trust, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust named in Article IV
hereof or elected or appointed in accordance with such Article;
(c) "Shares" means the equal proportionate units of interest into which the
beneficial interest in the Trust property belonging to any Series of
the Trust (as the context may require) shall be divided from time to
time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940 Act" refers
to the Investment Company Act of 1940 and the Rules and Regulations
thereunder, all as amended from time to time;
(f) The term "Commission" shall mean the United States Securities and
Exchange Commission;
(g) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust, as amended or restated from time to time;
(h) "Bylaws" shall mean the Bylaws of the Trust as amended from time to
time;
(i) "Series Company" refers to the form of registered open-end investment
company described in Section 18(f)(2) of the 1940 Act or in any
successor statutory provision; and
(j) "Series" refers to each Series of Shares established and designated
under or in accordance with the provisions of Article III. Present and
future separate "Series" in the Trust may be referred to as
"Portfolios" and these terms may be used alternatively in future
publications and communications sent to investors.
(k) "Class" shall have the meaning prescribed in the Multiple Class Plan
dated August 1, 1997 as amended from time to time (the "Multiple Class
Plan").
ARTICLE II
PURPOSE OF TRUST
The purpose of the Trust is to provide investors a managed investment company
registered under the 1940 Act and investing one or more portfolios primarily in
securities and debt instruments.
ARTICLE III
SHARES
SECTION 1. DIVISION OF BENEFICIAL INTEREST
The beneficial interest in the Trust shall at all times be divided into an
unlimited number of Shares, without par value. Subject to the provisions of
Section 6 of this Article III, each Share shall have voting rights as provided
in Article V hereof, and holders of the Shares of any Series shall be entitled
to receive dividends, when and as declared with respect thereto in the manner
provided in Article VI, Section 1 hereof. No Shares shall have any priority or
preference over any other Share of the same Series with respect to dividends or
distributions upon termination of the Trust or of such Series made pursuant to
Article VIII, Section 4 hereof. All dividends and distributions shall be made
ratably among all Shareholders of a particular Series from the assets belonging
to such Series according to the number of Shares of such Series held of record
by each Shareholder on the record date for any dividend or on the date of
termination, as the case my be. Shareholders shall have no preemptive or other
right to subscribe to any additional Shares or other securities issued by the
Trust or any Series. The Trustees may from time to time divide or combine the
Shares of any particular Series into a greater or lesser number of Shares of
that Series without thereby changing the proportionate beneficial interest of
the Shares of that Series in the assets belonging to that Series or in any way
affecting the rights of Shares of any other Series.
SECTION 2. OWNERSHIP OF SHARES
The ownership of Shares shall be recorded on the books of the Trust or a
transfer or similar agent for the Trust, which books shall be maintained
separately for the Shares of each Series. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the transfer of Shares of each Series and similar matters. The
record books of the Trust as kept by the Trust or any transfer or similar agent,
as the case may be, shall be conclusive as to who are the Shareholders of each
Series and as to the number of Shares of each Series held from time to time by
each.
SECTION 3. INVESTMENTS IN THE TRUST
The Trustees may accept investments in the Trust from such persons, at such
times, and on such terms and for such consideration as they from time to time
authorize.
SECTION 4. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The death of a Shareholder during the existence of
the Trust shall not operate to terminate the Trust, nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but entitles
such representative only to the right of said deceased Shareholder under this
Trust. Ownership of Shares shall not entitle the Shareholder to any title in or
to the whole or any part of the Trust property or right to call for a partition
or division of the same or for an accounting , nor shall the ownership of Shares
constitute the Shareholders as partners. Neither the Trust nor the Trustees, nor
any officer, employee or agent of the Trust shall have any power to bind
personally any Shareholders, nor, except as specifically provided herein, to
call upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree
to pay.
SECTION 5. POWER OF TRUSTEES TO CHANGE PROVISIONS RELATING TO SHARES
Notwithstanding any other provision of this Declaration of Trust and without
limiting the power of the Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Trustees shall have the power to amend this Declaration of
Trust, at any time and from time to time, in such manner as the Trustees may
determine in their sole discretion, without the need for Shareholder action, so
as to add to, delete, replace or otherwise modify any provisions relating to the
Shares contained in this Declaration of Trust, provided that before adopting any
such amendment without Shareholder approval the Trustees shall determine that it
is consistent with the fair and equitable treatment of all Shareholders or that
Shareholder approval is not otherwise required by the 1940 Act or other
applicable law.
Without limiting the generality of the foregoing, the Trustees may, for the
above-stated purposes, amend the Declaration of Trust to:
(a) create one or more Series of Shares (in addition to any Series already
existing or otherwise) with such rights and preferences and such
eligibility requirements for investment therein as the Trustees shall
determine and reclassify any or all outstanding Shares as shares of
particular Series in accordance with such eligibility requirements;
(b) amend any of the provisions set forth in paragraphs (a) through (i) of
Section 6 of this Article III;
(c) combine one or more Series of Shares into a single Series on such terms
and conditions as the Trustees shall determine;
(d) change or eliminate any eligibility requirements for investment in
Shares of any Series, including without limitation, to provide for the
issue of Shares of any Series in connection with any merger or
consolidation of the Trust with another trust or company or any
acquisition by the Trust of part or all of the assets of another trust
or investment company;
(e) change the designation of any Series of Shares;
(f) change the method of allocating dividends among the various Series of
Shares;
(g) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more Series
of Shares; and
(h) specifically allocate assets to any or all Series of Shares or create
one or more additional Series of Shares which are preferred over all
other Series of Shares in respect of assets specifically allocated
thereto or any dividends paid by the Trust with respect to any net
income, however determined, earned from the investment and reinvestment
of any assets so allocated or otherwise and provide for any special
voting or other rights with respect to such Series.
SECTION 6. ESTABLISHMENT AND DESIGNATION OF SERIES
The establishment and designation of any Series of Shares shall be effective
upon resolution by a majority of the then Trustees, setting forth such
establishment and designation and the relative rights and preferences of such
Series, or as otherwise provided in such resolution. Such establishment and
designation shall be set forth in an amendment to this Declaration of Trust by
execution of a new Schedule A to this Declaration of Trust.
Shares of each Series established pursuant to this Section 6, unless otherwise
provided in the resolution establishing such Series or as modified by the
Multiple Class Plan, shall have the following rights and preferences:
(a) ASSETS BELONGING TO SERIES. All consideration received by the Trust for
the issue or sale of Shares of a particular Series, together with all
assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof from whatever source
derived, including, without limitation, any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the
same may be, shall irrevocably belong to that Series for all purposes,
subject only to the rights of creditors, shall be so recorded upon the
books of account of the Trust, and are herein referred to as "assets
belonging to" that Series. In the event that there are any assets,
income, earnings, profits and proceeds thereof, funds or payments which
are not readily identifiable as belonging to any particular Series
(collectively "General Assets"), the Trustees shall allocate such
General Assets to, between or among any one or more of the Series in
such manner and on such basis as they, in their sole discretion, deem
fair and equitable, and any General Assets to, between or among any one
or more of the Series in such manner and on such basis as they, in
their sole discretion, deem fair and equitable, and any General Asset
so allocated to a particular Series shall belong to that Series. Each
such allocation by the Trustees shall be conclusive and binding upon
the Shareholders of all Series for all purposes.
(b) LIABILITIES BELONGING TO SERIES. The assets belonging to each
particular Series shall be charged with the liabilities of the Trust in
respect to that Series and all expenses, costs, charges and reserves
attributable to that Series, and any general liabilities of the Trust
which are not readily identifiable as belonging to any particular
Series shall be allocated and charged by the Trustees to and among any
one or more of the Series in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. The
liabilities, expenses, costs, charges, and reserves so charged to a
Series are herein referred to as "liabilities belonging to" that
Series. Each allocation of liabilities, expenses, costs, charges and
reserves by the Trustee shall be conclusive and binding upon the
holders of all Series for all purposes. Under no circumstances shall
the assets allocated or belonging to any particular Series be charged
with liabilities attributable to any other Series. All persons who have
extended credit which has been allocated to particular Series, or who
have a claim or contract which has been allocated to any particular
Series, shall look only to the assets of that particular Series for
payment of such credit, claim, or contract.
(c) INCOME, DISTRIBUTIONS, AND REDEMPTIONS. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to
determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive
and binding upon the Shareholders. Notwithstanding any other provision
of this Declaration, including, without limitation, Article VI, no
dividend or distribution (including, without limitation, Article VI,
any distribution paid upon termination of the Trust or of any Series)
with respect to, nor any redemption or repurchase of, the Shares of any
Series shall be effected by the Trust other than from the assets
belonging to such Series, nor, except as specifically provided in
Section 7 of this Article III, shall any Shareholder of any particular
Series otherwise have any right or claim against the assets belonging
to any other Series except to the extent that such Shareholder has such
a right or claim hereunder as a Shareholder of such other Series.
(d) VOTING. All Shares of the Trust entitled to vote on a matter shall vote
separately by Series. That is, the Shareholders of each Series shall
have the right to approve or disapprove matters affecting the Trust and
each respective Series as if the Series were separate companies. There
are, however, two exceptions to voting by separate Series. First, if
the 1940 Act requires all Shares of the Trust to be voted in the
aggregate without differentiation between the separate Series, then all
Series shall vote together. Second, if any matter affects only the
interests of some but not all Series, then only such affected Series
shall be entitled to vote on the matter.
(e) EQUALITY. All the Shares of each particular Series shall represent an
equal proportionate interest in the assets belonging to that Series
(subject to the liabilities belonging to that Series), and each Share
of any particular Series shall be equal to each other Share of that
Series.
(f) FRACTIONS. Any fractional Share of a Series shall carry proportionately
all the rights and obligations of a whole share of that Series,
including rights with respect to voting, receipt of dividends and
distributions, redemption of Shares and termination of the Trust.
(g) EXCHANGE PRIVILEGE. The Trustees shall have the authority to provide
that the holders of Shares of any Series shall have the right to
exchange said Shares for Shares of one or more other Series of Shares
in accordance with such requirements and procedures as may be
established by the Trustees.
(h) COMBINATION OF SERIES. The Trustees shall have the authority, without
the approval of the Shareholders of any Series unless otherwise
required by applicable law, to combine the assets and liabilities
belonging to any two or more Series into assets and liabilities
belonging to a single Series.
(i) ELIMINATION OF SERIES. At any time that there are no Shares outstanding
of any particular Series previously established and designated, the
Trustees may amend this Declaration of Trust to abolish that Series and
to rescind the establishment and designation thereof, such amendment to
be effected in the manner provided pursuant to Section 5 of this
Article III.
SECTION 7. INDEMNIFICATION OF SHAREHOLDERS
In case any Shareholder or former Shareholder shall be held to be personally
liable solely by reason of his or her being or having been a Shareholder and not
because of his or her acts or omissions or for some other reasons, the
Shareholder or former Shareholder (or his or her heirs, executors,
administrators, or other legal representatives or in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled out
of the assets of the Trust to be held harmless from and indemnified against all
loss and expense arising from such liability.
ARTICLE IV
THE TRUSTEES
SECTION 1. NUMBER, ELECTION AND TENURE
The number of Trustees shall be such number as shall be fixed from time to time
by a written instrument signed by a majority of the Trustees, provided, however,
that the number of Trustees shall in no event be less than three nor more than
15. The Trustees may by vote of a majority of the remaining Trustees fill
vacancies in the Trustees or remove Trustees with or without cause by vote of a
majority of the Trustees who are "non-interested" persons (as defined in the
1940 Act) if the Trustee to be removed is a "non-interested" Trustee, or by vote
of the Trustees who are "interested persons" if the Trustee to be removed is an
"interested" Trustee. Each Trustee shall serve during the continued lifetime of
the Trust until he dies, resigns or is removed, or, if sooner, until the next
meeting of Shareholders called for the purpose of electing Trustees and until
the election and qualification of his successor, except, that Trustees who are
not "interested persons" or employees of American Century Companies, Inc. or its
affiliates shall retire at the end of the calendar year in which they shall have
reached the age of seventy-five (75) years. Any Trustee may resign at any time
by written instrument signed by him and delivered to any officer of the Trust or
to a meeting of the Trustees. Such resignation shall be effective upon receipt
unless specified to be effective at some other time. Except to the extent
expressly provided in a written agreement with the Trust, no Trustee resigning
and no Trustee removed shall have any right to any compensation for any period
following his resignation or removal, or any right to damages on account of such
removal. The Shareholders may fix the number of Trustees and elect Trustees at
any meeting of Shareholders called by the Trustees for that purpose.
SECTION 2. EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE
The death, declination, resignation, retirement, removal, or incapacity of the
Trustees, or any of them, shall not operate to annual the Trust or to revoke any
existing agency created pursuant to the terms of this Declaration of Trust.
Whenever a vacancy in the number of Trustees shall occur, until such vacancy is
filled as provided in Article IV, Section 1 the Trustees in office, regardless
of their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Declaration of Trust.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees shall be conclusive evidence of such vacancy. In the
event of the death, declination, resignation, retirement, removal, or incapacity
of all the then Trustees within a short period of time and without the
opportunity for at least one disinterested Trustee being able to appoint
additional Trustees to fill vacancies, the Trust's investment advisor or
investment advisors jointly, if there is more than one, are empowered to appoint
new Trustees.
SECTION 3. POWERS
Subject to the provisions of this Declaration of Trust, the business of the
Trust shall be managed by the Trustees, and they shall have all powers necessary
or convenient to carry out that responsibility including the power to engage in
securities transactions of all kinds on behalf of the Trust. Without limiting
the foregoing, the Trustees may adopt Bylaws not inconsistent with this
Declaration of Trust providing for the regulation and management of the affairs
of the Trust any may amend and repeal them to the extent that such Bylaws do not
reserve that right to the Shareholders; they may fill vacancies in or reduce the
number of Trustees, and may elect and remove such officers and appoint and
terminate such agents as they consider appropriate; they may appoint from their
own number and establish and terminate one or more committees consisting of two
or more Trustees which may exercise the powers and authority of the Trustees to
the extent that the Trustees determine; they may employ one or more custodians
of the assets of the Trust and may authorize such custodians to employ
subcustodians and to deposit all or any part of such assets in a system or
systems for the central handling of securities or with a Federal Reserve Bank,
retain a transfer agent or a shareholder servicing agent, or both, provide for
the distribution of Shares by the Trust, through one or more principal
underwriters or otherwise, set record dates for the determination of
Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian, transfer or Shareholder servicing agent, or principal
underwriter. Any determination as to what is in the interests of the Trust made
by the Trustees in good faith shall be conclusive. In construing the provisions
of this Declaration of Trust, the presumption shall be in favor of a grant of
power to the Trustees.
Without limiting the foregoing, the Trustees shall have power and authority:
(a) to invest and reinvest cash, to hold cast uninvested, and to subscribe
for, invest in, reinvest in, purchase or otherwise acquire, own, hold,
pledge, sell, assign, transfer, exchange, distribute, lend or otherwise
deal in or dispose of contracts for the future acquisition or delivery
of fixed income or other securities, and securities of every nature and
kind, including without limitation, all types of bonds, debentures,
stocks, negotiable or non-negotiable instruments, obligations,
evidences of indebtedness, certificates of deposit or indebtedness,
commercial paper, repurchase agreements, bankers acceptances, and other
securities of any kind, issued, created, guaranteed, or sponsored by
any and all persons, including, without limitation, states,
territories, and possessions of the United States and the District of
Columbia and any political subdivision, agency, or instrumentality of
the U.S. Government, any foreign government or any political
subdivision of the U.S. Government or any foreign government, or any
international instrumentality, or by any bank or savings institution,
or by any corporation or organization organized under the laws of the
United States or of any state, territory, or possession thereof, or by
any corporation or organization organized under any foreign law, or in
"when issued" contracts for any such securities, to change the
investments of the assets of the Trust; and to exercise any and all
rights, powers and privileges of ownership or interest in respect of
any and all such investments of every kind and description, including,
without limitation, the right to consent and otherwise act with respect
thereto, with power to designate one or more persons, firms,
associations, or corporations to exercise any of said rights, powers,
and privileges in respect of any of said instruments;
(b) to sell, exchange, lend, pledge, mortgage, hypothecate, lease, or write
options with respect to or otherwise deal in any property rights
relating to any or all of the assets of the Trust;
(c) to vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such
power and discretion with relation to securities or property as the
Trustees shall deem proper;
(d) to exercise powers and rights of subscription or otherwise which in any
manner arise out of ownership of securities;
(e) to hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in its own
name or in the name of a custodian or subcustodian or a nominee or
nominees or otherwise;
(f) to consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security
which is held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or issuer;
and to pay calls or subscriptions with respect to any security held in
the Trust;
(g) to join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to
deposit any security with, or transfer any security to, any such
committee, depositary or trustee, and to delegate to them such power
and authority with relation to any security (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses and compensation
of such committee, depositary or trustee as the Trustees shall deem
proper;
(h) to compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not
limited to claims for taxes;
(i) to enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(j) to borrow funds or other property;
(k) to endorse or guarantee the payment of any notes or other obligations
of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof;
(l) to purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring
the assets of the Trust or payment of distributions and principal on
its portfolio investments, and insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, investment
advisors, principal underwriters, or independent contractors of the
Trust, individually against all claims and liabilities of every nature
arising by reason of holding, being or having held any such office or
position, or by reason of any action alleged to have been taken or
omitted by any such person as Trustee, officer, employee, agent,
investment advisor, principal underwriter, or independent contractor,
including any action taken or omitted that may be determined to
constitute negligence, whether or not the Trust would have the power to
indemnify such person against liability; and
(m) to pay pensions as deemed appropriate by the Trustees and to adopt,
establish and carry out pension, profit-sharing, share bonus, share
purchase, savings, thrift and other retirement, incentive and benefit
plans, trusts and provisions, including the purchasing of life
insurance and annuity contracts as a means of providing such retirement
and other benefits, for any or all of the Trustees, officers, employees
and agents of the Trust.
The Trustees shall not be limited to investing in obligations maturing before
the possible termination of the Trust. The Trustees shall not in any way be
bound or limited by any present or future law or custom in regard to investment
by fiduciaries. The Trustees shall not be required to obtain any court order to
deal with any assets of the Trust or take any other action hereunder.
SECTION 4. PAYMENT OF EXPENSES BY THE TRUST
The Trustees are authorized to pay or cause to be paid out of the principal or
income of the Trust, or partly out of the principal and partly out of income, as
they deem fair, all expenses, fees, charges, taxes and liabilities incurred or
arising in connection with the Trust, or in connection with the management
thereof, including, but not limited to, the Trustees' compensation and such
expenses and charges for the services of the Trust's officers, employees,
investment advisor or manager, principal underwriter, auditors, counsel,
custodian, transfer agent, shareholder servicing agent, and such other agents or
independent contractors and such other expenses and charges as the Trustees may
deem necessary or proper to incur.
SECTION 5. PAYMENT OF EXPENSES BY SHAREHOLDERS
The Trustees shall have the power, as frequently as they may determine, to cause
each Shareholder, or each Shareholder of any particular Series, to pay directly,
in advance or arrears, for charges of the Trust's custodian or transfer,
Shareholder servicing or similar agent, an amount fixed from time to time by the
Trustees, by setting off such charges due from such Shareholder from declared
but unpaid dividends owed such Shareholder and/or by reducing the number of
shares in the account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such charges due
from such Shareholder.
SECTION 6. OWNERSHIP OF ASSETS OF THE TRUST
Title to all of the assets of the Trust shall at all times be considered as
vested in the Trustees.
SECTION 7. SERVICE CONTRACTS
(a) Subject to such requirements and restrictions as may be set forth in
the Bylaws, the Trustees may, at any time and from time to time,
contract for exclusive or nonexclusive advisory and/or management
services for the Trust or for any Series with American Century
Investment Management, Inc. or any other corporation, trust,
association or other organization (the "Advisor"); and any such
contract may contain such other terms as the Trustees may determine,
including without limitation, authority for the Advisor to determine
from time to time without prior consultation with the Trustees what
investments shall be purchased, held, sold or exchanged and what
portion, if any, of the assets of the Trust shall be held uninvested
and to make changes in the Trust's investments.
(b) The Trustees may also, at any time and from time to time, contract with
any corporation, trust, association, or other organization, appointing
it exclusive or nonexclusive distributor or principal underwriter for
the Shares of any, some, or all of the Series. Every such contract
shall comply with such requirements and restrictions as may be set
forth in the Bylaws; and any such contract may contain such other terms
as the Trustees may determine.
(c) The Trustees are also empowered, at any time and from time to time, to
contract with any corporations, trust, associations, or other
organizations, appointing it or them the transfer agent(s) and/or
shareholders servicing agent(s) for the Trust or one or more of the
Series. Specifically, the Trustees are empowered to contract or join
with other investment companies managed by the Trust's investment
advisor to have transfer agency and/or shareholder servicing activities
performed jointly by such investment companies and their employees with
an appropriate allocation between the investment companies of the costs
and expenses of providing such services. Every such contract shall
comply with such requirements and restrictions as may be set forth in
the Bylaws or stipulated by resolution of the Trustees.
(d) The fact that:
(i) any of the Shareholders, Trustees, or officers of the Trust is
a shareholder, director, officer, partner, trustee, employee,
manager, advisor, principal underwriter, distributor or
affiliate or agent of or for any corporation, trust,
association, or other organization, or for any parent or
affiliate of any organization with which an advisory or
management contract, or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or
other agency contract may have been or may hereafter be made,
or that any such organization, or any parent or affiliate
thereof, is a Shareholder or has an interest in the Trust, or
that
(ii) any corporation, trust, association or other organization with
which an advisory or management contract or principal
underwriter's or distributor's contract, or transfer,
Shareholder servicing or other agency contract may have been
or may hereafter be made also has an advisory or management
contract, or principal underwriter's or distributor's
contract, or transfer, shareholder servicing or other agency
contract with one or more other corporations, trusts,
associations, or other organizations, or has other business or
interests, shall not affect the validity of any such contract
or disqualify any Shareholder, Trustee or officer of the Trust
from voting upon or executing the same or create any liability
or accountability to the Trust or its Shareholders.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 1. VOTING POWERS
Subject to the provisions of Article III, Section 6(d), the Shareholders shall
have power to vote only (i) for the election of Trustees as provided in Article
IV, Section 1, (ii) to the same extent as the stockholders of a California
business corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders, (iii) with respect to the
termination of the Trust or any Series to the extent and as provided in Article
VIII, Section 4, and (iv) with respect to such additional matters relating to
the Trust as may be required by this Declaration of Trust, the Bylaws or any
registration of the Trust with the Commission (or any successor agency) or any
state, or as the Trustees may consider necessary or desirable. A Shareholder of
each Series shall be entitled to one vote for each dollar of net asset value per
Share of such Series, on any matter on which such Shareholder is entitled to
vote and each fractional dollar amount shall be entitled to a proportionate
fractional vote. All references in this Declaration of Trust or the Bylaws to a
vote of, or the holders of, a percentage of Shares shall mean a vote of or the
holders of that percentage of total votes representing dollars of net asset
value of a Series or of the Trust, as the case may be. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in person or
by proxy. A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to exercise of
the proxy the Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest on the challenger. At any time when no
Shares of a Series are outstanding, the Trustees may exercise all rights of
Shareholders of that Series with respect to matters affecting that Series, take
any action required by law, this Declaration of Trust or the Bylaws to be taken
by the Shareholders.
SECTION 2. VOTING POWER AND MEETINGS
Meetings of the Shareholders may be called by the Trustees for the purpose of
electing Trustees as provided in Article IV, Section 1 and for such other
purposes as may be prescribed by law, by this Declaration of Trust or by the
Bylaws. Meetings of the Shareholders may also be called by the Trustees from
time to time for the purpose of taking action upon any other matter deemed by
the Trustees to be necessary or desirable. A meeting of Shareholders may be held
at any place designated by the Trustees. Written notice of any meeting of
Shareholders shall be given or caused to be given by the Trustees by mailing
such notice at least seven days before such meeting, postage prepaid, stating
the time and place of the meeting, to each Shareholder at the Shareholder's
address as it appears on the records of the Trust. Whenever notice of a meeting
is required to be given to a Shareholder under this Declaration of Trust or the
Bylaws, a written waiver thereof, executed before or after the meeting by such
Shareholder or his attorney thereunto authorized and filed with the records of
the meeting, shall be deemed equivalent to such notice.
SECTION 3. QUORUM AND REQUIRED VOTE
Except when a larger quorum is required by applicable law, by the Bylaws or by
this Declaration of Trust, forty percent (40%) of the Shares entitled to vote
shall constitute a quorum at a Shareholders' meeting. When any one or more
Series is to vote as a single class separate from any other Shares which are to
vote on the same matters as a separate class or classes, forty percent (40%) of
the Shares of each such Series entitled to vote shall constitute a quorum at a
Shareholders' meeting of that Series. Any meeting of Shareholders may be
adjourned from time to time by a majority of the votes properly cast upon the
question, whether or not a quorum is present, and the meeting may be held as
adjourned within a reasonable time after the date set for the original meeting
without further notice. Subject to the provisions of Article III, Section 6(d),
when a quorum is present at any meeting, a majority of the Shares voted shall
decide any questions and a plurality shall elect a Trustee, except when a larger
vote is required by any provision of this Declaration of Trust or the Bylaws or
by applicable law.
SECTION 4. ACTION BY WRITTEN CONSENT
Any action taken by Shareholders may be taken without a meeting if Shareholders
holding a majority of the Shares entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express provision of this
Declaration of Trust or by the Bylaws) and holding a majority (or such larger
proportion as aforesaid) of the Shares of any Series entitled to vote separately
on the matter consent to the action in writing and such written consents are
filed with the records of the meetings of Shareholders. Such consent shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
SECTION 5. RECORD DATES
For the purpose of determining the Shareholders of any Series who are entitled
to vote or act at any meeting or any adjournment thereof, the Trustees may from
time to time fix a time, which shall be not more than 75 days before the date of
any meeting of Shareholders, as the record date for determining the Shareholders
of such Series having the right to notice of and to vote at such meeting and any
adjournment thereof, and in such case only Shareholders of record on such record
date shall have such right, notwithstanding any transfer of shares on the books
of the Trust after the record date. For the purpose of determining the
Shareholders of any Series who are entitled to receive payment of any dividend
or of any other distribution, the Trustees may from time to time fix a date,
which shall be before the date for the payment of such dividend or such other
payment, as the record date for determining the Shareholders of such Series
having the right to receive such dividend or distribution. Without fixing a
record date the Trustees may for voting and/or distribution purposes close the
register or transfer books for one or more Series for all or any part of the
period between a record date and a meeting of Shareholders or the payment of a
distribution. Nothing in this section shall be construed as precluding the
Trustees from setting different record dates for different Series.
SECTION 6. ADDITIONAL PROVISIONS
The Bylaws may include further provisions for Shareholders' votes and meetings
and related matters.
ARTICLE VI
NET ASSET VALUE, DISTRIBUTIONS, AND REDEMPTIONS
SECTION 1. DETERMINATION OF NET ASSET VALUE, NET INCOME, AND DISTRIBUTIONS
Subject to Article III, Section 6 hereof, the Trustees, in their absolute
discretion, may prescribe and shall set forth in the Bylaws or in a duly adopted
resolution of the Shares of any Series or net income attributable to the Shares
of any Series, or the declaration and payment of dividends and distributions on
the Shares of any Series, as they may deem necessary or desirable.
SECTION 2. REDEMPTIONS AND REPURCHASES
The Trust shall purchase such Shares as are offered by any Shareholder for
redemption, upon the presentation of a proper instrument of transfer together
with a request directed to the Trust or a person designated by the Trust that
the Trust purchase such Shares or in accordance with such other procedures for
redemption as the Trustees may from time to time authorize; and the Trust will
pay therefor the net asset value thereof, as determined in accordance with the
Bylaws and applicable law, next determined under the 1940 Act. Payment for said
Shares shall be made by the Trust to the Shareholder within seven days after the
date on which the request is made in proper form. The obligation set forth in
this Section 2 is subject to the provision that in the event that any time the
New York Stock Exchange is closed for other than weekends or holidays, or if
permitted by the rules of the Commission, during periods when trading on the
Exchange is restricted or during any emergency which makes it impracticable for
the Trust to dispose of the investments of the applicable Series or to determine
fairly the value of the net assets belonging to such Series or during any other
period permitted by order of the Commission for the protection of investors,
such obligation may be suspended or postponed by the Trustees.
SECTION 3. REDEMPTIONS AT THE OPTION OF THE TRUST
The Trust shall have the right at its option and at any time to redeem Shares of
any Shareholder at the net asset value thereof as described in Section 1 of this
Article VI: (i) if at such time such Shareholder owns Shares of any Series
having an aggregate net asset value of less than an amount, not to exceed
$1,000, determined from time to time by the Trustees; or (ii) to the extent that
such Shareholder owns Shares equal to or in excess of a percentage determined
from time to time by the Trustees of the outstanding Shares of the Trust or of
any Series.
ARTICLE VII
COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES
SECTION 1. COMPENSATION
The non-interested Trustees as such shall be entitled to reasonable compensation
from the Trust, and they may fix the amount of such compensation. Nothing herein
shall in any way prevent the employment of any Trustee for advisory, management,
legal, accounting, investment banking or other services and payment for the same
by the Trust.
SECTION 2. LIMITATION OF LIABILITY
The Trustees shall not be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, manager or Principal Underwriter of
the Trust, nor shall any Trustee be responsible for the act or omission of any
other Trustee, but nothing herein contained shall protect any Trustee against
any liability to which he would otherwise be subject by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Every note, bond, contract, instrument, certificate or undertaking and every
other act or thing whatsoever issued, executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
SECTION 3. INDEMNIFICATION
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 becomes
involved by virtue of his 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 of the Trustees.
ARTICLE VIII
MISCELLANEOUS
SECTION 1. TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE
All persons extending credit to, contracting with or having any claim against
the Trust or any Series shall look only to the assets of the Trust, or, to the
extent that the liability of the Trust may have been expressly limited by
contract to the assets of a particular Series, only to the assets belonging to
the relevant Series, for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, shall be personally liable
therefor. Nothing in this Declaration of Trust shall protect any Trustee against
any liability to which such Trustee would otherwise be subject by reason or
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued on behalf of the Trust by the Trustees, by an officer or officers or
otherwise may include a notice that this Declaration of Trust is on file with
the Secretary of the Commonwealth of Massachusetts and may recite that the note,
bond, contract, instrument, certificate, or undertaking was executed or made by
or on behalf of the Trust or by them as Trustee or Trustees or as officer or
officers or otherwise and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually but
are binding only upon the assets and property of the Trust or upon the assets
belonging to the Series for the benefit of which the Trustees have caused the
note, bond, contract instrument, certificate or undertaking to be made or
issued, and may contain such further recital as he or they may deem appropriate,
but the omission of any such recital shall not operate to bind any Trustee or
Trustees or officer or officers or Shareholders or any other person
individually.
SECTION 2. TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY
The exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable for his own wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and for nothing else, and
shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust, and shall be under no liability for
any act or omission in accordance with such advice or for failing to follow such
advice. The Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
SECTION 3. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES
No person dealing with the Trustees shall be bound to make any inquiry
concerning the validity of any transaction made or to be made by the Trustees or
to see to the application of any payments made or property transferred to the
Trust or upon its order.
SECTION 4. TERMINATION OF TRUST OR SERIES
Unless terminated as provided herein, the Trust shall continue without
limitation of time. The Trust may be terminated at any time by vote of at least
two-thirds (66-2/3%) of the Shares of each Series entitled to vote, voting
separately by Series, or by the Trustees by written notice to the Shareholders.
Any Series may be terminated at any time by vote of at least two-thirds
(66-2/3%) of the Shares of that Series or by the Trustees by written notice to
the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case may be), after paying
or otherwise providing for all charges, taxes, expenses and liabilities
belonging, severally, to each Series (or the applicable Series, as the case may
be), whether due or accrued or anticipated as may be determined by the Trustees,
the Trust shall, in accordance with such procedures as the Trustees consider
appropriate, reduce the remaining assets belonging, severally, to each Series
(or the applicable Series, as the case may be), to distributable form in cash or
shares or other securities, or any combination thereof, and distribute the
proceeds belonging to each Series or the applicable Series, as the case may be),
to the Shareholders of that Series, as a Series, ratably according to the number
of Shares of that Series held by the several Shareholders on the date of
termination.
SECTION 5. MERGER AND CONSOLIDATION
The Trustees may cause the Trust or one or more of its Series to be merged into
or consolidated with another Trust or company or the Shares exchanged under or
pursuant to any state or Federal statute, if any, or otherwise to the extent
permitted by law. Such merger or consolidation or share exchange must be
authorized by vote of a majority of the outstanding Shares of the Trust as a
whole or any affected Series, as may be applicable; provided that in all
respects not governed by statute or applicable law, the Trustees shall have
power to prescribe the procedure necessary or appropriate to accomplish a sale
of assets, merger or consolidation.
SECTION 6. FILING OF COPIES, REFERENCES, HEADINGS
The original or a copy of this instrument and of each amendment hereto shall be
kept at the office of the Trust where it may be inspected by any Shareholder. A
copy of this instrument and of each amendment hereto shall be filed by the Trust
with the Secretary of the Commonwealth of Massachusetts and with any other
governmental office where such filing may from time to time be required. Anyone
dealing with the Trust may rely on a certificate by an officer of the Trust as
to whether or not any such amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were the
original, may relay on a copy certified by an officer of the Trust to be a copy
of this instrument, or of any such amendments. In this instrument and in any
such amendment, references to this instrument, and all expressions like
"herein," "hereof" and "hereunder," shall be deemed to refer to this instrument
as amended or affected by any such amendments. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this instrument. This
instrument may be executed in any number of counterparts each of which shall be
deemed an original.
SECTION 7. APPLICABLE LAW
This Agreement and Declaration of Trust is created under and is to be governed
by and construed and administered according to the laws of the Commonwealth of
Massachusetts. The Trust shall be of the type commonly called a Massachusetts
business trust, and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust.
SECTION 8. AMENDMENTS
This Declaration of Trust may be amended at any time by an instrument in writing
signed by a majority of the then Trustees.
SECTION 9. TRUST ONLY
It is the intention of the Trustees to create only the relationship of Trustee
and beneficiary between the Trustees and each Shareholder from time to time. It
is not the intention of the Trustees to create a general partnership, limited
partnership, joint stock association, corporation, bailment, or any form of
legal relationship other than a trust. Nothing in this Agreement and Declaration
of Trust shall be construed to make the Shareholders, either by themselves or
with the Trustees, partners or members of a joint stock association.
SECTION 10. USE OF THE NAME "BENHAM" AND "AMERICAN CENTURY"
American Century Services Corporation ("ACSC") has consented to the use by the
Trust of the identifying words or names "Benham" and "American Century" in the
names of the Trust and/or its various Series. Such consent is conditioned upon
the employment of ACSC, its successors or any affiliate thereof, as the
Advisor/Investment Manager of the Trust. As between the Trust and itself, ACSC
controls the use of the name of the Trust insofar as such name contains "Benham"
and/or "American Century". The name or identifying words "Benham" and/or
"American Century" may be used from time to time in other connections and for
other purposes by ACSC or its affiliated entities. ACSC may require the Trust to
cease using "Benham" or "American Century" in the name of the Trust if the Trust
ceases to employ, for any reason, ACSC, an affiliate, or any successor as
Advisor/Investment Manager of the Trust.
IN WITNESS WHEREOF, a majority of the Trustees as aforesaid do hereto
set their hands this 9th day of March, 1998, as an amendment and restatement of
that Agreement and Declaration of Trust originally executed on the 1st day of
May, 1984.
TRUSTEES OF THE AMERICAN CENTURY MUNICIPAL TRUST
/*/Albert A. Eisenstat 3/9/98 /*/Kenneth E. Scott 3/9/98
Albert A. Eisenstat Date Kenneth E. Scott Date
/*/Ronald J. Gilson 3/9/98 /*/Isaac Stein 3/9/98
Ronald J. Gilson Date Isaac Stein Date
/*/William M. Lyons 3/9/98 /*/James E. Stowers III 3/9/98
William M. Lyons Date James E. Stowers III Date
/*/Myron S. Scholes 3/9/98 /*/Jeanne D. Wohlers 3/9/98
Myron S. Scholes Date Jeanne D. Wohlers Date
AMERICAN CENTURY MUNICIPAL TRUST
AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
(restated as of March 9, 1998)
SCHEDULE A
Pursuant to Article III, Section 6, the Trustees hereby establish and designate
the following Series as Series of the Trust (and the Classes thereof) with the
relative rights and preferences as described in Section 6:
- ----------------------------------------------- ------------ -------------------
Date of
Series Class Establishment
- ----------------------------------------------- ------------ -------------------
- ----------------------------------------------- ------------ -------------------
Tax-Free Money Market Fund Investor 7/31/1984
- ----------------------------------------------- ------------ -------------------
Limited-Term Tax-Free Fund Investor 3/1/1993
- ----------------------------------------------- ------------ -------------------
Intermediate-Term Tax-Free Fund Investor 7/31/1984
- ----------------------------------------------- ------------ -------------------
Long-Term Tax-Free Fund Investor 7/31/1984
- ----------------------------------------------- ------------ -------------------
High-Yield Municipal Fund Investor 12/15/1997
- ----------------------------------------------- ------------ -------------------
Florida Municipal Money Market Fund Investor 4/11/1994
- ----------------------------------------------- ------------ -------------------
Florida Intermediate-Term Municipal Fund Investor 4/11/1994
- ----------------------------------------------- ------------ -------------------
Arizona Intermediate-Term Municipal Fund Investor 4/11/1994
- ----------------------------------------------- ------------ -------------------
This Schedule A shall supersede any previously adopted Schedule A to the
Declaration of Trust.
TRUSTEES OF THE AMERICAN CENTURY MUNICIPAL TRUST
/*/Albert A. Eisenstat 3/1/98 /*/Kenneth E. Scott 3/1/98
Albert A. Eisenstat Date Kenneth E. Scott Date
/*/Ronald J. Gilson 3/1/98 /*/Isaac Stein 3/1/98
Ronald J. Gilson Date Isaac Stein Date
/*/William M. Lyons 3/1/98 /*/James E. Stowers III 3/1/98
William M. Lyons Date James E. Stowers III Date
/*/Myron S. Scholes 3/1/98 /*/Jeanne D. Wohlers 3/1/98
Myron S. Scholes Date Jeanne D. Wohlers Date
*By /*/Charles C.S. Park Date: March 1, 1999
Charles C.S. Park, Esq.
Pursuant to Power of Attorney dated December 18, 1998
CHARLES C.S. PARK
ATTORNEY AT LAW
1665 CHARLESTON ROAD
MOUNTAIN VIEW, CALIFORNIA 94043
TELEPHONE (650)965-8300
TELECOPIER (650)964-9591
July 8, 1999
American Century Municipal Trust
American Century Tower
4500 Main Street
Kansas City, Missouri 64111
Ladies and Gentlemen:
As counsel to American Century Municipal Trust (the "Trust"), I am
generally familiar with its affairs. Based upon this familiarity, and upon the
examination of such documents as I deemed relevant, it is my opinion that the
shares of the Trust described in 1933 Act Post-Effective Amendment No. 26 and
1940 Act Amendment No. 27 to its Registration Statement on Form N-1A, to be
filed with the Securities and Exchange Commission on July 8, 1999, will, when
issued, be validly issued, fully paid and nonassessable.
For the record, it should be stated that I am an officer and employee
of American Century Services Corporation, an affiliated corporation of American
Century Investment Management, Inc., the investment advisor of the Trust.
I hereby consent to the use of this opinion as an exhibit to
Post-Effective Amendment No. 26 and Amendment No. 27, referenced above.
Very truly yours,
/s/Charles C.S. Park
Charles C.S. Park
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, American Century
Municipal Trust, hereinafter called the "Trust", and certain trustees and
officers of the Trust, do hereby constitute and appoint George A. Rio, David C.
Tucker, Douglas A. Paul, Charles A. Etherington, and Charles C.S. Park, and each
of them individually, their true and lawful attorneys and agents to take any and
all action and execute any and all instruments which said attorneys and agents
may deem necessary or advisable to enable the Trust to comply with the
Securities Act of 1933 and/or the Investment Company Act of 1940, as amended,
and any rules, regulations, orders, or other requirements of the United States
Securities and Exchange Commission thereunder, in connection with the
registration under the Securities Act of 1933 and/or the Investment Company Act
of 1940, as amended, including specifically, but without limitation of the
foregoing, power and authority to sign the name of the Trust in its behalf and
to affix its seal, and to sign the names of each of such trustees and officers
in their capacities as indicated, to any amendment or supplement to the
Registration Statement filed with the Securities and Exchange Commission under
the Securities Act of 1933 and/or the Investment Company Act of 1940, as
amended, and to any instruments or documents filed or to be filed as a part of
or in connection with such Registration Statement; and each of the undersigned
hereby ratifies and confirms all that said attorneys and agents shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the Trust has caused this Power to be executed by
its duly authorized officers on this the 18th day of December, 1998.
AMERICAN CENTURY MUNICIPAL TRUST
By: /s/ George A. Rio
GEORGE A. RIO, President
SIGNATURE AND TITLE
/s/ George A. Rio /s/ Ronald J. Gilson
GEORGE A. RIO RONALD J. GILSON
President, Principal Executive and Principal Trustee
Financial Officer
/s/ Maryanne Roepke /s/ Myron S. Scholes
MARYANNE ROEPKE MYRON S. SCHOLES
Vice President and Treasurer Trustee
/s/ James E. Stowers III /s/ Kenneth E. Scott
JAMES E. STOWERS, III KENNETH E. SCOTT
Trustee Trustee
/s/ William M. Lyons /s/ Isaac Stein
WILLIAM M. LYONS ISAAC STEIN
Trustee Trustee
/s/ Albert A. Eisenstat /s/ Jeanne D. Wohlers
ALBERT A. EISENSTAT JEANNE D. WOHLERS
Trustee Trustee
Attest:
By: /s/ Douglas A. Paul
Douglas A. Paul, Secretary
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
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</LEGEND>
<CIK> 0000746458
<NAME> AMERICAN CENTURY MUNICIPAL TRUST
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<NUMBER> 1
<NAME> TAX-FREE MONEY MARKET
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<PERIOD-END> MAY-31-1999
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<INVESTMENTS-AT-VALUE> 278,858,383
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<PER-SHARE-NAV-BEGIN> 1.00
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF AMERICAN CENTURY CAPITAL PORTFOLIOS, INC. AND IS QUALIFIED IN ITS
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</LEGEND>
<CIK> 0000746458
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<PER-SHARE-NAV-BEGIN> 1.00
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[AVG-DEBT-PER-SHARE] 0.00
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF AMERICAN CENTURY CAPITAL PORTFOLIOS, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000746458
<NAME> AMERICAN CENTURY MUNICIPAL TRUST
<SERIES>
<NUMBER> 8
<NAME> INTERMEDIATE-TERM TAX-FREE
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF AMERICAN CENTURY CAPITAL PORTFOLIOS, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000746458
<NAME> AMERICAN CENTURY MUNICIPAL TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
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</LEGEND>
<CIK> 0000746458
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF AMERICAN CENTURY CAPITAL PORTFOLIOS, INC. AND IS QUALIFIED IN ITS
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF AMERICAN CENTURY CAPITAL PORTFOLIOS, INC. AND IS QUALIFIED IN ITS
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF AMERICAN CENTURY CAPITAL PORTFOLIOS, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000746458
<NAME> AMERICAN CENTURY MUNICIPAL TRUST
<SERIES>
<NUMBER> 10
<NAME> HIGH-YIELD MUNICIPAL
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> MAY-31-1999
<INVESTMENTS-AT-COST> 44,331
<INVESTMENTS-AT-VALUE> 44,410
<RECEIVABLES> 1,142
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45,552
<PAYABLE-FOR-SECURITIES> 3,019
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 465
<TOTAL-LIABILITIES> 3,484
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 41,973
<SHARES-COMMON-STOCK> 4,157,996
<SHARES-COMMON-PRIOR> 1,863,618
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 79
<NET-ASSETS> 42,068
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,959
<OTHER-INCOME> 0
<EXPENSES-NET> (4)
<NET-INVESTMENT-INCOME> 1,955
<REALIZED-GAINS-CURRENT> 169
<APPREC-INCREASE-CURRENT> (83)
<NET-CHANGE-FROM-OPS> 2,041
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,955)
<DISTRIBUTIONS-OF-GAINS> (136)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,137
<NUMBER-OF-SHARES-REDEEMED> (2,007)
<SHARES-REINVESTED> 164
<NET-CHANGE-IN-ASSETS> 23,280
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (17)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4
<AVERAGE-NET-ASSETS> 36,995
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.07
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> (0.03)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.12
<EXPENSE-RATIO> 0.01
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
</TABLE>
