Cover page, books, Part C and Sig page

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LTFM2Xs7H0wKNw0GOcEvaCPgFOJv86PwrjtRgT5wF/SXJ7eUjMCjPdFMG7pKVost ZBhbqHiLVEGHzTUNfIvxtg== 0000717316-01-500002.txt : 20010421 0000717316-01-500002.hdr.sgml : 20010421 ACCESSION NUMBER: 0000717316-01-500002 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20010419 EFFECTIVENESS DATE: 20010501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN CENTURY CALIFORNIA TAX FREE & MUNICIPAL FUNDS CENTRAL INDEX KEY: 0000717316 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 946562826 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 002-82734 FILM NUMBER: 1606239 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-03706 FILM NUMBER: 1606240 BUSINESS ADDRESS: STREET 1: 1665 CHARLESTON RD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 8003218321 MAIL ADDRESS: STREET 1: 1665 CHARLESTON RD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 FORMER COMPANY: FORMER CONFORMED NAME: BENHAM CALIFORNIA TAX FREE TRUST / DATE OF NAME CHANGE: 19960815 FORMER COMPANY: FORMER CONFORMED NAME: BENHAM CALIFORNIA TAX FREE & MUNICIPAL FUNDS DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BENHAM CALIFORNIA TAX FREE TRUST DATE OF NAME CHANGE: 19910218 485BPOS 1 doc2-pea32.htm COVER PAGE, BOOKS, PART C AND SIGNATURE PAGE Cover page, books, Part C and Sig page

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 32 [X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]

Amendment No. 36 [X]

(Check appropriate box or boxes.)

AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
_________________________________________________________________
(Exact Name of Registrant as Specified in Charter)

4500 Main Street, Kansas City, MO 64141-6200
_________________________________________________________________
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (816) 531-5575

David C. Tucker, Esq., 4500 Main Street, Kansas City, MO 64141-6200
_________________________________________________________________
(Name and Address of Agent for Service)

Approximate Date of Proposed Public Offering: May 1, 2001

It is proposed that this filing will become effective (check appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 2001 pursuant to paragraph (b)
[ ] 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:

[X] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Your
AMERICAN CENTURY
prospectus

California High-Yield Municipal Fund

MAY 1, 2001
C 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.

American Century Investment Services, Inc.

[american century logo and text logo (reg. sm)]

Dear Investor,

Planning and maintaining your investment portfolio is a big job. However, an
easy-to-understand Prospectus can make your work a lot less daunting. We hope
you'll find this Prospectus easy to understand, and, more importantly, that it
gives you confidence in the investment decisions you have made or are soon to
make.

As you begin to read this Prospectus, take a look at the table of contents to
understand how it is organized. The first four sections take a close-up look at
the fund - the fund's investment objectives, strategies and risks.

As you continue to read, the Prospectus will acquaint you with the fund
management team and give you an overview about how to invest and manage your
account. You'll also find important financial information you'll need to make an
informed decision.

Naturally, you may have questions about investing after you read through the
Prospectus. Please contact your investment professional with questions or for
more information about our funds.

Sincerely,

/signature/
W. Gordon Snyder
President, Chief Marketing Officer
American Century Investment Services, Inc.

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[american century logo and text logo (reg. sm)]
American Century
Investments

P.O. Box 419385
Kansas City, MO
64141-6385

TABLE OF CONTENTS

An Overview of the Fund ................................................... 2
Fund Performance History .................................................. 3
Fees and Expenses ......................................................... 4
Objectives, Strategies and Risks .......................................... 5
Basics of Fixed-Income Investing .......................................... 6
Management ................................................................ 8
Investing with American Century ........................................... 10
Share Price and Distributions ............................................. 13
Taxes ..................................................................... 14
Multiple Class Information ................................................ 16
Performance Information of Other Class .................................... 17

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Throughout this book you'll find definitions of key investment terms and
phrases. When you see a word printed in BLUE ITALICS, look for its definition in
the left margin.

[graphic of pointing finger]
This symbol highlights special information and helpful tips.

American Century Investments

AN OVERVIEW OF THE FUND

WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?

This fund seeks high current income that is exempt from federal and California
income tax.

WHAT ARE THE FUND'S PRIMARY INVESTMENT STRATEGIES AND PRINCIPAL RISKS?

The fund managers invest most of the fund's assets in intermediate- and
long-term DEBT SECURITIES, including junk and private activity bonds, issued by
cities, counties and other California municipalities.

* INTEREST RATE RISK - Generally, when interest rates rise, the value of the
fund's fixed-income securities will decline. The opposite is true when
interest rates decline.

* CREDIT RISK - The value of the fund's fixed-income securities will be
affected adversely by any erosion in the ability of the issuers of these
securities to make interest and principal payments as they become due.

* LIQUIDITY RISK - The market for lower-quality debt securities, including junk
bonds, is generally less liquid than the market for higher-quality debt
securities, and at times it may become difficult to sell the lower-quality
debt securities.

* PRINCIPAL LOSS - As with all mutual funds, it is possible to lose money by
investing in the fund.

WHO may WANT TO INVEST IN THE FUND?

The fund may be a good investment if you are

* a California resident or taxpayer

* seeking current tax-free income

* comfortable with risk based on California's economy

* comfortable with the fund's other investment risks

* seeking diversification by investing in a fixed-income mutual fund

WHO may not WANT TO INVEST IN THE FUND?

The funds may not be a good investment if you are

* investing in an IRA or other tax-advantaged retirement plan

* investing for long-term growth

* looking for the added security of FDIC insurance

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DEBT SECURITIES include fixed-income investments such as notes, bonds,
commercial paper and U.S. Treasury securities.

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An investment in the fund is not a bank deposit, and it is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.

2 American Century Investments 1-800-345-3533

FUND PERFORMANCE HISTORY

CALIFORNIA HIGH-YIELD MUNICIPAL FUND

When the C Class of the fund has investment results for a full calendar year,
this section will feature charts that show

* Annual Total Returns

* Highest and Lowest Quarterly Returns

* Average Annual Total Returns, including a comparison of these returns to a
benchmark index for the C Class of the fund

The performance of the fund's Investor Class shares for each full calendar year
in the life of the fund is shown below.(1)

[data from bar chart]

California High-Yield
Municipal Fund

2000 12.70%
1999 -3.31%
1998 6.73%
1997 10.50%
1996 5.89%
1995 18.29%
1994 -5.36%
1993 13.18%
1992 9.17%
1991 10.91%

(1) If the C Class had existed during the periods presented, its performance
would have been substantially similar to that of the Investor Class because
each represents an investment in the same portfolio of securities. However,
performance of the C Class would have been lower because of its higher expense
ratio.

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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.

www.americancentury.com American Century Investments 3

FEES AND EXPENSES

There are no sales loads, fees or other charges

* to buy fund shares directly from American Century

* to reinvest dividends in additional shares

* to exchange into the C Class shares of other American Century funds

* to redeem your shares after you have held them for 18 months

The following table describes the fees and expenses you may pay if you buy and
hold shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(load)(as a percentage of net asset value) 0.75% (1)

(1) The deferred sales charge is contingent on the length of time you have owned
your shares. The charge is 0.75% in the first year after purchase, declines
ratably over the next six months, and is eliminated thereafter.

ANNUAL OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

Management Distribution and Other Total Annual Fund
Fee (1) Service (12b-1) Fees(2) Expenses (3) Operating Expenses
- --------------------------------------------------------------------------------------------------
California
High-Yield Municipal 0.54% 0.75% 0.00% 1.29%

(1) Based on expenses incurred by all classes of the fund druing the most
recent fiscal year. The fund has a stepped fee schedule. As a result, the
fund's management fee rate generally decreases as fund assets increase.

(2) The 12b-1 fee is designed to permit investors to purchase C Class shares
through broker-dealers, banks, insurance companies and other financial
intermediaries. A portion of the fee is used to compensate them for ongoing
individual shareholder and administrative services, and a portion is used to
compensate them for distribution services. For more information, see Service
and Distribution Fees, page 16.

(3) Other expenses, which include the fees and expenses of the fund's
independent trustees and their legal counsel, as well as interest, are expected
to be less than 0.005% for the current fiscal year.

EXAMPLE

The examples in the table below are intended to help you compare the costs of
investing in the fund with the costs of investing in other mutual funds.
Assuming you . . .

* invest $10,000 in the fund

* redeem all of your shares at the end of the periods shown below

* earn a 5% return each year

* incur the same operating expenses as shown above

. . . your cost of investing in the fund would be:

1 year 3 years 5 years 10 years
- -----------------------------------------------------------------------------
California High-Yield Municipal $209 $407 $704 $1,547

You would pay the following expenses if you did not redeem your shares.

1 year 3 years 5 years 10 years
- -----------------------------------------------------------------------------
California High-Yield Municipal $131 $407 $704 $1,547

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When purchasing through a financial intermediary you may be charged a fee.

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Use this example to compare the costs of investing in other funds. Of course,
your actual costs may be higher or lower.

4 American Century Investments 1-800-345-3533

OBJECTIVES, STRATEGIES AND RISKS

CALIFORNIA HIGH-YIELD MUNICIPAL FUND

WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?

The fund seeks high current income that is exempt from federal and California
income taxes.

HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVES?

The fund managers buy long- and intermediate-term debt securities with income
payments exempt from federal and California income taxes. Cities, counties and
other municipalities in California 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 long- and intermediate-term debt securities with
income payments exempt from regular federal income tax, but not exempt from 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 athletic stadiums, airports and apartment
buildings.

The fund managers buy securities rated below investment grade, including
so-called junk bonds and bonds that are in technical or monetary default. The
issuers of these securities often have short financial histories or questionable
credit or have had and may continue to have problems making interest and
principal payments.

In the event of exceptional market or economic conditions, the fund may, as a
temporary defensive measure, invest all or a substantial portion of its assets
in cash or cash-equivalent securities. To the extent the fund assumes a
defensive position, it will not be pursuing its investment objectives and may
generate taxable income.

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 PRINCIPAL RISKS OF INVESTING IN THE FUND?

The fund's investments often have high credit risk, which helps the fund pursue
a higher yield than more conservatively managed bond funds. Issuers of
high-yield securities are more vulnerable to real or perceived economic changes
(such as an economic downturn or a prolonged period of rising interest rates),
political changes or adverse developments specific to the issuer. These factors
may be more likely to cause an issuer of low-quality bonds to default on its
obligation to pay the interest and principal due under its securities.

The market for lower-quality debt securities is generally less liquid than the
market for higher-quality securities. Adverse publicity and investor
perceptions, as well as new and proposed laws, also may have a greater negative
impact on the market for lower-quality securities.

Because the fund typically invests in intermediate-term and long-term bonds, the
fund's interest rate risk is higher than for funds with shorter weighted average
maturities, such as money market and short-term bond funds. See the discussion
on page 6 for more information about the effects of changing interest rates on
the fund's portfolio.

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 California's economy. California 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 your shares may be worth more or less than
the price you paid for them. As a result, it is possible to lose money by
investing in the fund.

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Income from California High-Yield Municipal may be subject to the alternative
minimum tax. For more information, see Taxes in this Prospectus.

www.americancentury.com American Century Investments 5

BASICS OF FIXED-INCOME INVESTING

DEBT SECURITIES

When a fund buys a debt security, also called a fixed-income security, it is
essentially lending money to the security's issuer. Notes, bonds, commercial
paper and U. S. Treasury securities 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 debt security may rise or fall based on many
factors, including changes in interest rates, liquidity and credit quality.

The fund managers decide which debt securities to buy and sell by

* determining which debt securities help a fund meet its maturity requirements

* identifying debt securities that satisfy a fund's credit quality standards

* evaluating the current economic conditions and assessing the risk of inflation

* evaluating special features of the debt 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, generally the more sensitive its price 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 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 the 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.

Amount of Percent of Remaining Weighted
Security Owned Portfolio Maturity Maturity
- ------------------------------------------------------------------------------
Debt Security A $100,000 25% 4 years 1 year
- ------------------------------------------------------------------------------
Debt Security B $300,000 75% 12 years 9 years
- ------------------------------------------------------------------------------
Weighted Average Maturity 10 years

TYPES OF RISK

The basic types of risk the fund faces 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 fund invests primarily in
debt securities, changes in interest rates will affect the fund's performance.
This sensitivity to interest rate changes is called interest rate risk.

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.

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The longer a fund's weighted average maturity, the more sensitive it is to
interest rate changes.

WEIGHTED AVERAGE MATURITY is a tool the fund managers use to approximate the
remaining term to maturity of a fund's investment portfolio.

6 American Century Investments 1-800-345-3533

The following table shows the likely effect of a 1% (100 basis points) 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 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.

The fund managers do not invest solely on the basis of a debt security's credit
rating; they also consider other factors, including potential returns. Higher
credit ratings usually mean lower interest rate payments, so investors often
purchase debt securities that aren't the highest rated to increase return. If a
fund purchases lower-rated debt securities, it assumes additional credit risk.

Debt securities rated in one of the highest four categories by a nationally
recognized securities rating organization are considered investment grade.
Although they are considered investment grade, an investment in these debt
securities still involves some credit risk because even a AAA rating is not a
guarantee of payment. For a complete description of the ratings system, see the
Statement of Additional Information. The fund's credit quality restrictions
apply at the time of purchase; the fund will not necessarily sell debt
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 difficulty selling its debt securities is called liquidity risk.

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Credit quality may be lower when the issuer has any of the following

* a high debt level

* a short operating history

* a senior level of debt

* a difficult, competitive environment

* a less stable cash flow

www.americancentury.com American Century Investments 7

MANAGEMENT

WHO MANAGES THE FUND?

The Board of Trustees, investment advisor and fund management team play key
roles in the management of the fund.

THE BOARD OF TRUSTEES

The Board of Trustees oversees the management of the fund and meets at least
quarterly to review reports about fund operations. Although the Board of
Trustees does not manage the fund, it has hired an investment advisor to do so.
More than two-thirds of the trustees are independent of the fund's advisor; that
is, they are not employed by and have no financial interest in the advisor.

THE INVESTMENT ADVISOR

The fund's investment advisor is American Century Investment Management, Inc.
The advisor has been managing mutual funds since 1958 and is headquartered at
4500 Main Street, Kansas City, Missouri 64111.

The advisor is responsible for managing the investment portfolios of the fund
and directing the purchase and sale of its investment securities. The advisor
also arranges for transfer agency, custody and all other services necessary for
the fund to operate.

For the services it provides to the fund, the advisor receives a unified
management fee based on a percentage of the average net assets of the C Class
shares of the fund. The rate of the management fee for a fund is determined
monthly on a class-by-class basis 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 management fee is paid monthly in
arrears.

The Statement of Additional Information contains detailed information about the
calculation of the management fee. Out of that fee, the advisor pays 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 fund's management
fee may be paid by the fund's advisor to unaffiliated third parties who provide
recordkeeping and administrative services that would otherwise be performed by
an affiliate of the advisor.

The fund was not in operation for the fiscal year ended August 31, 2000. The
fund will pay the advisor a unified management fee calculated by adding the
appropriate Investment Category and Complex Fees from the following schedules.

Investment Category Fee Schedule Complex Fee Schedule (C Class)
- --------------------------------------------------------------------------------
Category Assets Fee Rate Complex Assets Fee Rate
- ------------------------------------------------------------------------------
First $1 billion 0.3100% First $2.5 billion 0.3100%
Next $1 billion 0.2580% Next $7.5 billion 0.3000%
Next $3 billion 0.2280% Next $15 billion 0.2985%
Next $5 billion 0.2080% Next $25 billion 0.2970%
Next $15 billion 0.1950% Next $50 billion 0.2960%
Next $25 billion 0.1930% Next $100 billion 0.2950%
Thereafter 0.1925% Next $100 billion 0.2940%
Next $200 billion 0.2930%
Next $250 billion 0.2920%
Next $500 billion 0.2910%
Thereafter 0.2900%

8 American Century Investments 1-800-345-3533

THE FUND MANAGEMENT TEAM

The advisor uses a team of portfolio managers, assistant portfolio managers and
analysts to manage the fund. The team meets regularly to review portfolio
holdings and discuss purchase and sale activity. Team members buy and sell
securities for the fund as they see fit, guided by the fund's investment
objectives and strategy.

The portfolio manager who leads the team is identified below:

STEVEN M. PERMUT

Mr. Permut, Vice President, Director of Municipal Research and Senior Portfolio
Manager, has been a member of the team that manages California High-Yield
Municipal since January 1988. He joined American Century in June 1987. He has a
bachelor's degree in business and geography from State University of New York -
Oneonta and an MBA in finance from Golden Gate University - San Francisco.

FUNDAMENTAL INVESTMENT POLICIES

Fundamental investment policies contained in the Statement of Additional
Information and the investment objectives of the fund may not be changed without
shareholder approval. The Board of Trustees may change any other policies and
investment strategies.

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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 fund.
Among other provisions, the Code of Ethics prohibits portfolio managers and
other investment personnel from buying securities in an initial public offering
or 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 fund to obtain approval before executing permitted personal trades.

www.americancentury.com American Century Investments 9

INVESTING WITH AMERICAN CENTURY

ELIGIBILITY FOR C CLASS SHARES

The C Class shares are intended for purchase by participants in
employer-sponsored retirement or savings plans and for persons purchasing shares
through broker-dealers, banks, insurance companies and other financial
intermediaries that provide various administrative, shareholder and distribution
services.

MINIMUM INITIAL INVESTMENT AMOUNTS

To open an account, the minimum investments are:
- --------------------------------------------------------------------------------
Individual or Joint $2,500
- --------------------------------------------------------------------------------
Traditional IRA $1,000
- --------------------------------------------------------------------------------
Roth IRA $1,000
- --------------------------------------------------------------------------------
Education IRA $500
- --------------------------------------------------------------------------------
UGMA/UTMA $2,500
- --------------------------------------------------------------------------------
403(b) $1,000(1)

(1) For each fund you select for your 403(b) plan, American Century will waive
the fund minimum if you make a contribution of at least $50 a month. If your
contribution is less than $50 a month, you may make only one fund choice.

INVESTING THROUGH FINANCIAL INTERMEDIARIES

If you do business with us through a financial intermediary, your ability to
purchase, exchange and redeem shares will depend on the policies of that entity.
Some policy differences may include

* minimum investment requirements

* exchange policies

* fund choices

* cutoff time for investments

Please contact your financial intermediary for a complete description of its
policies. Copies of the fund's annual report, semiannual report 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 fund share transactions 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 fund.

The fund has authorized certain financial intermediaries to accept orders on the
fund's behalf. American Century has contracts with these intermediaries
requiring them to track the time investment orders are received and to comply
with procedures relating to the transmission of orders. Orders must be received
by the intermediary on a fund's behalf before the time the net asset value is
determined in order to receive that day's share price. 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.

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Financial intermediaries include banks, broker-dealers, insurance companies and
investment advisors.

10 American Century Investments 1-800-345-3533

MODIFYING OR CANCELING AN INVESTMENT

Investment instructions are irrevocable. That means that once you have mailed or
otherwise transmitted your investment instruction, you may not modify or cancel
it. The fund reserves the right to suspend the offering of shares for a period
of time, and to reject any specific investment (including a purchase by
exchange). Additionally, we may refuse a purchase if, in our judgment, it is of
a size that would disrupt the management of a fund.

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 fund and its shareholders, we reserve the right to reject any
purchase order (including exchanges) from any investor who 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.

YOUR RESPONSIBILITY FOR UNAUTHORIZED TRANSACTIONS

American Century and its affiliated companies use procedures reasonably designed
to confirm that telephone, electronic and other instructions are genuine. These
procedures include recording telephone calls, requesting personalized security
codes or other information, and sending confirmation of transactions. If we
follow these procedures, we are not responsible for any losses that may occur
due to unauthorized instructions. For transactions conducted over the Internet,
we recommend the use of a secure Internet browser. In addition, you should
verify the accuracy of your confirmation statements immediately after you
receive them.

REDEMPTIONS

Your redemption proceeds will be calculated using the NET ASSET VALUE (NAV) next
determined after we receive your transaction request in good order. Each time
you make an investment with American Century, there is a seven-day holding
period before you can redeem those shares, unless you provide us with
satisfactory proof that your purchase funds have cleared. However, investments
by wire require only a one-day holding period.

In addition, we reserve the right to delay delivery of redemption proceeds--up
to seven days--or to honor certain redemptions with securities, rather than
cash, as described in the next section.

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A fund's NET ASSET VALUE, or NAV, is the price of the fund's shares.

www.americancentury.com American Century Investments 11

SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS

If, during any 90-day period, you redeem fund shares worth more than $250,000
(or 1% of the value of the fund's assets if that amount 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 in cash. The fund
managers would select these securities from the fund's portfolio. A payment in
securities can help the fund's remaining shareholders avoid tax liabilities that
they might otherwise have incurred had the fund sold securities prematurely to
pay the entire redemption amount in cash.

We will value these securities 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. Also, if payment is made in securities, a shareholder may have to
pay brokerage or other transaction costs to convert the securities to cash.

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 investors.

REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS

If your account balance falls 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.

EXCHANGES BETWEEN FUNDS

You may exchange C Class shares of the fund for C Class shares of any other
American Century fund. You may not exchange from the C Class to any other class.
We will not charge a Contingent Deferred Sales Charge (CDSC) on the shares you
exchange, regardless of the length of time you have owned them. When you do
redeem shares that have been exchanged, the CDSC will be based on the date you
purchased the original shares.

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A redemption is the sale of all or a portion of the shares in an account,
including those sold as a part of an exchange to another American Century
account.

12 American Century Investments 1-800-345-3533

SHARE PRICE AND DISTRIBUTIONS

SHARE PRICE

American Century determines the NAV of the fund 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 closed (including certain
U.S. holidays), we do not calculate the NAV. A fund share's NAV 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 are not readily
available, the advisor may determine their fair value in accordance with
procedures adopted by the fund's Board.

We will price your purchase, exchange or redemption at the NAV next determined
after we receive your transaction request in good order.

DISTRIBUTIONS

Federal tax laws require the fund to make distributions to its shareholders in
order to qualify as a "regulated investment company." Qualification as a
regulated investment company means the fund will not be subject to state or
federal income tax on amounts distributed. The distributions generally consist
of dividends and interest received by the fund, as well as CAPITAL GAINS
realized by the fund on the sale of its investment securities. The fund pays
distributions from net income monthly. The fund generally pays distributions of
capital gains, if any, once a year in December. A fund may make more frequent
distributions if necessary to comply with Internal Revenue Code provisions.

You will participate in fund distributions when they are declared, starting the
next business day after your purchase is effective. For example, if you purchase
shares on a day 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
distributions received with your redemption proceeds.

We will reinvest distributions unless you elect to receive them in cash. Please
consult your services guide for further information about distributions and your
options for receiving them.

[left margin]

CAPITAL GAINS are increases in the values of capital assets, such as stock, from
the time the assets are purchased.

www.americancentury.com American Century Investments 13

TAXES

Tax-Exempt Income

Most of the income that the fund receives from California municipal securities
is exempt from California and regular federal income taxes. However, corporate
shareholders should be aware that distributions are subject to California's
corporate franchise tax.

The fund also may 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, distributions from the funds that represent
income derived from private activity bonds are taxable to you. Consult your tax
advisor to determine whether you are subject to the alternative minimum tax.

Taxable Income

The fund's investment performance also is based on sources other than income
from California 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 fund 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 if it is distributed to shareholders.

* Capital Gains. When a fund sells a security, even a tax-exempt municipal
security, it can generate a capital gain or loss, which you must report on
your tax return.

* Temporary Investments. Some temporary investments, such as securities loans
and repurchase agreements, can generate taxable income.

Type of Distribution Tax Rate for 15% Bracket Tax Rate for 28% Bracket or Above
- -------------------------------------------------------------------------------------------------
Short-term capital gains Ordinary income rate Ordinary income rate
- -------------------------------------------------------------------------------------------------
Long-term capital gains (1-5 years) 10% 20%
- -------------------------------------------------------------------------------------------------
Long-term capital gains (> 5 years) 8% 20%(1)

(1) The reduced rate for these gains will not begin until 2006, because the
security holding period must start after December 31, 2000. Once the security
has been held for more than 5 years the rate will be 18%.

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 distributions in
additional shares or take them in cash. American Century will inform you of the
tax status of fund distributions for each calendar year in an annual tax mailing
(Form 1099-DIV).

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.

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[graphic of pointing finger]
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 the fund's portfolio may build up taxable
gains throughout the period covered by a distribution, as securities are sold at
a profit. The fund distributes 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.

14 American Century Investments 1-800-345-3533

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 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 and will be disallowed to the extent of any distribution of tax-exempt
income to you with respect to those 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 pay 31% of dividends, capital gains
distributions and redemption proceeds to the IRS.

www.americancentury.com American Century Investments 15

MULTIPLE CLASS INFORMATION

American Century offers two classes of the fund: Investor Class and C Class. The
shares offered by this Prospectus are C Class shares and are offered primarily
through employer-sponsored retirement plans, or through institutions like banks,
broker-dealers and insurance companies.

The other class has different fees, expenses and/or minimum investment
requirements from the C Class. The difference in the fee structures between the
classes is the result of their separate arrangements for shareholder and
distribution services and not the result of any difference in amounts charged by
the advisor for core investment advisory services. Accordingly, the core
investment advisory expenses do not vary by class. Different fees and expenses
will affect performance. For additional information concerning the other classes
of shares not offered by this Prospectus, call us at 1-800-345-2021.

You also can contact a sales representative or financial intermediary who offers
those classes of shares.

Except as described below, all classes of shares of the funds have identical
voting, dividend, liquidation and other rights, preferences, terms and
conditions. The only differences between the classes are (a) each class may be
subject to different expenses specific to that class; (b) each class has a
different identifying designation or name; (c) each class has exclusive voting
rights with respect to matters solely affecting that class; and (d) each class
may have different exchange privileges.

Contingent Deferred Sales Charge

If you sell C Class shares within 18 months of purchasing them, you will pay a
Contingent Deferred Sales Charge (CDSC). The charge is 0.75% in the first year
after purchase, declines ratably over the next six months and is eliminated
thereafter in accordance with the following chart:

After 13 months 0.625%

After 14 months 0.500%

After 15 months 0.375%

After 16 months 0.250%

After 17 months 0.125%

After 18 months 0.000%

The CDSC is calculated from your date of purchase, and will not be charged on
shares acquired through reinvestment of dividends or distributions, increases in
the net asset value of shares, or exchanges into the C Class of other American
Century funds. We will redeem shares not subject to the CDSC first, and other
shares will be redeemed in the order they were purchased.

Service and Distribution Fees

Investment Company Act Rule 12b-1 permits mutual funds that adopt a written plan
to pay certain expenses associated with the distribution of their shares out of
fund assets. The fund's C Class shares have a 12b-1 Plan. Under the Plan, the
fund's C Class pays an annual fee of 0.75% of C Class average net assets, 0.25%
for certain individual shareholder and administrative services and 0.50% for
distribution services. The advisor, as paying agent for the fund, pays all or a
portion of such fees to the banks, broker-dealers and insurance companies that
make C Class shares available. Because these fees are paid out of the fund's
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges. For
additional information about the Plan and its terms, see Multiple Class
Structure - Master Distribution and Shareholder Services Plan in the Statement
of Additional Information.

16 American Century Investments 1-800-345-3533

PERFORMANCE INFORMATION OF OTHER CLASS

The following financial information is provided to show the performance of the
fund's original class of shares. This class, the Investor Class, has a total
expense ratio that is 0.75% lower than the C Class. If the C Class had existed
during the periods presented, its performance would have been lower because of
the additional expense.

The table on the next page itemizes what contributed to the changes in the
Investor Class share price during the most recently ended fiscal year. It also
shows 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, the table includes as appropriate

* share price at the beginning of the period

* investment income and capital gains or losses

* distributions of income and capital gains paid to investors

* share price at the end of the period

The table also includes some key statistics for the period as appropriate

* TOTAL RETURN - the overall percentage of return of the fund, assuming the
reinvestment of all distributions

* EXPENSE RATIO - the operating expenses of the fund as a percentage of average
net assets

* NET INCOME RATIO - the net investment income of the fund as a percentage of
average net assets

* PORTFOLIO TURNOVER - the percentage of the fund's buying and selling activit

The Financial Highlights for the fiscal years ended August 31, 2000, 1999 and
1998 have been audited by PricewaterhouseCoopers LLP, independent accountants.
Their Independent Accountants' Report and the financial statements are included
in the funds' Annual Report, which is available upon request. Prior years'
information was audited by other independent auditors.

www.americancentury.com American Century Investments 17

CALIFORNIA HIGH-YIELD MUNICIPAL FUND

Investor Class

FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31

Per-Share Data

2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $9.36 $9.93 $9.68 $9.27 $9.11
-------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income 0.52 0.49 0.51 0.55 0.56
Net Realized and Unrealized Gain (Loss)
on Investments 0.08 (0.46) 0.37 0.41 0.16
-------- -------- -------- -------- --------
Total From Investment Operations 0.60 0.03 0.88 0.96 0.72
-------- -------- -------- -------- --------
Distributions
From Net Investment Income (0.52) (0.49) (0.51) (0.55) (0.56)
From Net Realized Gains on
Investment Transactions -- --(1) (0.12) -- --
In Excess of Net Realized Gains -- (0.11) -- -- --
-------- -------- -------- -------- --------
Total Distributions (0.52) (0.60) (0.63) (0.55) (0.56)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $9.44 $9.36 $9.93 $9.68 $9.27
======== ======== ======== ======== ========
Total Return(2) 6.70% 0.26% 9.35% 10.61% 8.02%

Ratios/Supplemental Data
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.54% 0.54% 0.54% 0.50% 0.51%
Ratio of Net Investment Income
to Average Net Assets 5.64% 5.08% 5.23% 5.77% 5.99%
Portfolio Turnover Rate 52% 59% 36% 46% 36%
Net Assets, End of Period (in thousands) $318,197 $341,968 $303,842 $192,831 $144,675

(1) Per share amount was less than $0.005.

(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any.

18 American Century Investments 1-800-345-3533

NOTES

www.americancentury.com American Century Investments 19

NOTES

20 American Century Investments 1-800-345-3533

NOTES

www.americancentury.com American Century Investments 21

MORE INFORMATION ABOUT THE FUND IS CONTAINED IN THESE DOCUMENTS.

Annual and Semiannual Reports

Annual and semiannual reports contain more information about the fund's
investments and the market conditions and investment strategies that
significantly affected the fund's performance during the most recent fiscal
period.

Statement of Additional Information (SAI)

The SAI contains a more detailed, legal description of the fund's 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 fund or your accounts, by contacting American Century at the
address or telephone numbers listed below.

You also can get information about the fund (including the SAI) from the
Securities and Exchange Commission (SEC). The SEC charges a duplicating fee to
provide copies of this information.

In person SEC Public Reference Room
Washington, D.C.
Call 202-942-8090
for location and hours.

On the Internet * EDGAR database at www.sec.gov
* By email request at publicinfo@sec.gov

By mail SEC Public Reference Section
Washington, D.C. 20549-0102

Investment Company Act File No. 811-0816

[american century logo and text logo (reg. sm)]

American Century Investments
P.O. Box 419385
Kansas City, Missouri 64141-6385

1-800-345-3533 or 816-531-5575

0105
SH-PRS-24816

[front cover]

AMERICAN CENTURY
statement of
additional information

California Tax-Free Money Market Fund
California Municipal Money Market Fund
California Limited-Term Tax-Free Fund
California Intermediate-Term Tax-Free Fund
California Long-Term Tax-Free Fund
California Insured Tax-Free Fund
California High-Yield Municipal Fund

[american century logo and text logo(reg.sm)]

[sidebar]

May 1, 2001
American Century California Tax-Free and Municipal Funds

THIS STATEMENT OF ADDITIONAL INFORMATION ADDS TO THE DISCUSSION IN THE FUNDS'
INVESTOR CLASS PROSPECTUS DATED JANUARY 1, 2001, AND C CLASS PROSPECTUS DATED
MAY 1, 2001, 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 THE PROSPECTUS, PLEASE CONTACT US AT ONE OF THE ADDRESSES
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 REPORTS BY CALLING 1-800-345-2021.

American Century Investment Services, Inc.

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TABLE OF CONTENTS

The Funds' History ........................................................ 2
Fund Investment Guidelines ................................................ 2
California Tax-Free Money Market Fund
California Municipal Money Market Fund ............................... 3
California Limited-Term Tax-Free Fund
California Intermediate-Term Tax-Free Fund
California Long-Term Tax-Free Fund ................................... 3
California Insured Tax-Free Fund ..................................... 4
California High-Yield Municipal Fund ................................. 4
Fund Investments and Risks ................................................ 4
Investment Strategies and Risks ...................................... 4
Investment Policies .................................................. 16
Fundamental Investment Policies ...................................... 17
Temporary Defensive Measures ......................................... 18
Portfolio Turnover ................................................... 18
Management ................................................................ 18
The Board of Trustees ................................................ 18
Officers ............................................................. 22
Code of Ethics ....................................................... 23
The Funds' Principal Shareholders ......................................... 24
Service Providers ......................................................... 24
Investment Advisor ................................................... 24
Transfer Agent and Administrator ..................................... 27
Distributor .......................................................... 27
Other Service Providers ................................................... 27
Custodian Banks ...................................................... 27
Independent Accountants .............................................. 27
Brokerage Allocation ...................................................... 28
Information About Fund Shares ............................................. 28
Multiple Class Structure ............................................. 28
Buying and Selling Fund Shares ....................................... 31
Valuation of a Fund's Securities ..................................... 31
Money Market Funds ................................................... 31
Non-Money Market Funds ............................................... 32
Taxes ..................................................................... 32
Federal Income Tax ................................................... 32
Alternative Minimum Tax .............................................. 34
State and Local Taxes ................................................ 34
How Fund Performance Information Is Calculated ............................ 35
Financial Statements ...................................................... 38
Explanation of Fixed-Income Securities Ratings ............................ 38

www.americancentury.com American Century Investments 1

THE FUNDS' HISTORY

American Century California Tax-Free and Municipal Funds is a registered
open-end management investment company that was organized as a Massachusetts
business trust on February 18, 1983. From then until January 1997, it was known
as Benham California Tax-Free and Municipal Funds. Throughout this Statement of
Additional Information we refer to American Century California Tax-Free and
Municipal Funds as the Trust.

Each fund is a separate series of the Trust and operates for many purposes as if
it were an independent company. Each fund has its own tax identification and
stock registration number.

Fund-Class (Ticker Symbol) Inception Date
- -----------------------------------------------------------------------------------------
California Tax-Free Money Market Fund -- Investor Class (BCTXX) 11/09/1983
- -----------------------------------------------------------------------------------------
California Municipal Money Market Fund -- Investor Class (BNCXX) 12/31/1990
California Limited-Term Tax-Free Fund -- Investor Class (BCSTX) 06/01/1992
- -----------------------------------------------------------------------------------------
California Intermediate-Term Tax-Free Fund -- Investor Class (BCITX) 11/09/198
- -----------------------------------------------------------------------------------------
California Long-Term Tax-Free Fund -- Investor Class (BCLTX) 11/09/1983
- -----------------------------------------------------------------------------------------
California Insured Tax-Free Fund -- Investor Class (BCINX) 12/30/1986
- -----------------------------------------------------------------------------------------
California High-Yield Municipal Fund -- Investor Class (BCHYX) 12/30/1986
- -----------------------------------------------------------------------------------------
California High-Yield Municipal Fund -- C Class (N/A) N/A
- -----------------------------------------------------------------------------------------

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 4. In the case of the funds' principal investment
strategies, these descriptions elaborate upon discussion contained in the
Prospectus.

Each fund is diversified as defined in the Investment Company Act of 1940 (the
Investment Company Act), with the exception of the California Municipal Money
Market which is non-diversified. 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 or own more than 10% of the outstanding voting
securities of a single issuer.

To meet federal tax requirements for qualification as a regulated investment
company, each fund must limit its investments so that at the close of each
quarter of its taxable year

(1) no more than 25% of its total assets are invested in the securities of a
single issuer (other than the U.S. government or a regulated investment
company), and

(2) with respect to at least 50% of its total assets, no more than 5% of its
total assets are invested in the securities of a single issuer.

Each fund intends to remain fully invested in municipal obligations. As a
fundamental policy, each fund will invest at least 80% of its net assets in
California municipal obligations. A municipal obligation is a "California"
municipal obligation if its income is exempt from California state income taxes.
This includes obligations of the Commonwealth of Puerto Rico and its public
corporations (as well as other territories such as Guam and the Virgin Islands),
which are exempt from federal and California state income taxes.

The remaining 20% of net assets may be invested in

(1) municipal obligations issued in other states and

(2) U.S. government obligations.

For temporary defensive purposes, each fund may invest more than 20% of its net
assets in U.S. government obligations. For liquidity purposes, each non-money
market fund may

2 American Century Investments 1-800-345-2021

invest up to 5% of its total assets in shares of money market funds, including
California Municipal Money Market and California Tax-Free Money Market.

Each fund will invest at least 80% of its net assets in obligations with
interest exempt from regular federal income tax. California Municipal Money
Market and California High-Yield Municipal, unlike the other funds, may invest
substantially all of their assets in securities that are subject to the
alternative minimum tax. See Alternative Minimum Tax, page 33.

For an explanation of the securities ratings referred to in the Prospectus and
this Statement of Additional Information, see Explanation of Fixed-Income
Securities Ratings beginning on page 37.

CALIFORNIA TAX-FREE MONEY MARKET FUND
CALIFORNIA MUNICIPAL MONEY MARKET FUND

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:

* buys only U.S. dollar-denominated obligations with remaining maturities of
397 days or less (and variable- and floating-rate obligations with demand
features that effectively shorten their maturities to 397 days or less)

* maintains a dollar-weighted average maturity of 90 days or less

* restricts its investments to high-quality obligations determined by the
advisor, pursuant to procedures established by the Board of Trustees, to
present minimal credit risks

To be considered high-quality, an obligation must be

* a U.S. government obligation, or

* rated (or of an issuer rated with respect to a class of comparable short-term
obligations) in one of the two highest rating categories for short-term
obligations by at least two nationally recognized statistical rating agencies
(rating agencies) (or one if only one has rated the obligation), or

* an obligation judged by the advisor, pursuant to guidelines established by
the Board of Trustees, to be of quality comparable to the securities listed
above.

While it adheres to the same quality and maturity criteria as California
Tax-Free Money Market, California Municipal Money Market may purchase private
activity municipal securities. The interest from these securities is treated as
a tax-preference item in calculating federal alternative minimum tax (AMT)
liability. In the past, private activity securities have provided somewhat
higher yields than comparable municipal securities whose interest is not a
tax-preference item. Therefore, the fund is designed for investors who do not
expect to pay alternative minimum taxes. See Taxes, page 32.

CALIFORNIA LIMITED-TERM TAX-FREE FUND
CALIFORNIA INTERMEDIATE-TERM TAX-FREE FUND
CALIFORNIA LONG-TERM TAX-FREE FUND

California Limited-Term Tax-Free, California Intermediate-Term Tax-Free and
California Long-Term Tax-Free have identical policies governing the quality of
securities in which they may invest. The funds differ in their maturity criteria
as stated in the Prospectus.

In terms of credit quality, each of these funds restricts its investments to

* municipal bonds rated, when acquired, within the four highest categories
designated by a rating agency

www.americancentury.com American Century Investments 3

* municipal notes (including variable-rate demand obligations) and tax-exempt
commercial paper that is rated, when acquired, within the two highest
categories designated by a rating agency

* unrated obligations judged by the advisor, under the direction of the Board
of Trustees, to be of a quality comparable to the securities listed above.

CALIFORNIA INSURED TAX-FREE FUND

California Insured Tax-Free invests primarily in long-term municipal obligations
covered by insurance that guarantees the timely payment of interest and
repayment of principal.

Under normal conditions, at least 65% of the fund's total assets are invested in
insured municipal obligations. Securities held by the fund may be (1) insured
under a new-issue insurance policy obtained by the issuer of the security, (2)
insured under a secondary market insurance policy purchased by the fund or a
previous bondholder, (3) secured by an escrow or trust account holding U.S.
government securities, or (4) rated AAA by a rating agency based upon the
issuer's credit quality.

California Insured Tax-Free also may invest in short-term securities carrying
one of the two highest ratings designated by a rating agency.

CALIFORNIA HIGH-YIELD MUNICIPAL FUND

Like California Long-Term Tax-Free, California High-Yield Municipal invests
primarily in long- and intermediate-term California municipal obligations.
Although California High-Yield Municipal typically invests a significant portion
of its assets in investment-grade bonds, the advisor does not adhere to specific
rating criteria in selecting investments for this fund. The fund invests in
securities rated or judged by the advisor to be below investment-grade quality
(e.g., bonds rated BB/Ba or lower, which are sometimes referred to as junk
bonds) or unrated bonds.

Many issuers of medium- and lower-quality bonds choose not to have their
obligations rated and a large portion of California High-Yield Municipal's
portfolio may consist of obligations that, when acquired, were not rated. There
is no limit to the percentage of assets the fund may invest in unrated
securities. The fund may invest up to 10% of its total assets in securities that
are in technical or monetary default.

California High-Yield Municipal may invest in investment-grade municipal
obligations if the advisor considers it appropriate to do so. Investments of
this nature may be made due to market considerations (e.g., a limited supply of
medium- and lower-grade municipal obligations) or to increase liquidity of the
fund. Investing in high-grade obligations may lower the fund's return.

California High-Yield Municipal may purchase private activity municipal
securities. The interest from these securities is treated as a tax-preference
item in calculating federal AMT liability. The fund is not limited in its
investments in securities that are subject to the AMT. Therefore, the fund is
better suited for investors who do not expect alternative minimum tax liability.
See Taxes, page 32.

FUND INVESTMENTS AND RISKS

INVESTMENT STRATEGIES AND RISKS

This section describes 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.

4 American Century Investments 1-800-345-2021

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 California Municipal Securities

As noted in the Prospectus, the funds are susceptible to political, economic and
regulatory events that affect issuers of California municipal obligations. These
include possible adverse effects of California constitutional amendments,
legislative measures, voter initiatives and other matters described below.

The following information about risk factors is provided in view of the funds'
policies of concentrating their assets in California municipal securities. This
information is based on recent official statements relating to securities
offerings of California issuers, although it does not constitute a complete
description of the risks 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.

ECONOMIC OVERVIEW

California's economy is the largest among the 50 states and one of the largest
in the world. The state's 1999 population of approximately 34 million,
representing approximately 12.5% of the U.S. population, has grown by 14% since
1990. Total personal income grew an estimated $990 billion in 1999.

From 1990 through 1993, the state suffered a severe recession, the worst since
the 1930s, heavily influenced by large cutbacks in defense/aerospace industries
and military base closures and a major drop in real estate construction.
California's economy has been recovering and growing steadily since the
beginning of 1994, to the point where the state's economic growth is outpacing
the rest of the nation. The state added more than 376,000 non-farm jobs in 1999,
while personal income grew by more than $69 billion or 7.5%. The unemployment
rate fell to a 30-year low of 4.7% in late 1999.

California's economic expansion is being fueled by strong growth in
high-technology industries, including computer software, electronics
manufacturing and motion picture/television production. Growth is also strong in
business services, export trade and manufacturing, with the aerospace sector
showing increasing employment. Non-residential and residential construction have
been growing moderately since the depths of the recession, but remain much lower
(as measured by annual new unit permits) than the late 1980s.

CONSTITUTIONAL LIMITATIONS ON TAXES

Many California issuers rely on ad valorem property taxes as a source of
revenue. The taxing powers of California local governments and districts are
limited by Article XIIIA of the California Constitution, enacted by voters in
1978 and commonly known as "Proposition 13." Proposition 13 limits to 1% of full
cash value the rate of ad valorem taxes on real property and restricts the
reassessment of property to 2% per year, except where new construction or
changes of ownership have occurred (subject to a number of exemptions). Taxing
entities may, however, raise ad valorem taxes above the 1% limit to pay debt
service

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on voter-approved bonded indebtedness. The U.S. Supreme Court has upheld
Proposition 13 against claims that it has unlawfully resulted in widely varying
tax liability on similarly situated properties.

Proposition 13 also requires voters of any governmental unit to give two-thirds
approval to levy any special tax. Subsequent court decisions, however, have
allowed non-voter approved general taxes so long as they are not dedicated to a
specific use. In response to these decisions, voters adopted an initiative in
1986 that imposed new limits on the ability of local government entities to
raise or levy general taxes without voter approval. Based upon a 1991
intermediate appellate court decision, it was believed that significant parts of
this initiative, known as Proposition 62, were unconstitutional. On September
28, 1995, the California Supreme Court rendered a decision in the case of Santa
Clara County Local Transportation Authority vs. Guardino that rejected the prior
decision and upheld Proposition 62, while striking down a 1/2-cent sales tax for
transportation purposes that was approved by a majority, but less than
two-thirds, vote. Proposition 62 does not apply to charter cities, but other
local governments may be constrained in raising any taxes without voter
approval.

On November 5, 1996, California voters approved Proposition 218. This
proposition adds Articles XIIIC and XIIID to the state Constitution, which
affect the ability of local governments, including charter cities, to levy and
collect both existing and future taxes, assessments, fees and charges.
Proposition 218 became effective on November 6, 1996, although application of
some of its provisions was deferred until July 1, 1997. This proposition could
negatively impact a local government's ability to make its debt service
payments, and thus could result in lower credit ratings.

CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS

The state and its local governments are subject to an annual appropriations
limit imposed by Article XIIIB of the California Constitution. This article was
enacted by voters in 1979 and was significantly amended by Propositions 98 and
111 in 1988 and 1990, respectively. Article XIIIB prohibits the state and
certain local governments from spending "appropriations subject to limitation"
in excess of an appropriations limit. The appropriations limit is adjusted
annually to reflect population changes and changes in the cost of living as well
as transfers of responsibility between government units. "Appropriations subject
to limitation" are authorizations to spend "proceeds of taxes" consisting of tax
revenues and certain other charges and fees to the extent that such proceeds
exceed the cost of providing the product or service. However, proceeds of taxes
exclude most state subventions to local governments.

"Excess revenues" under Article XIIIB are measured over a two-year cycle. Local
governments must return any excess revenues to taxpayers through tax rate
reductions. The state must refund 50% of any excess and pay the other 50% to
schools and community colleges. With the application of more liberal annual
adjustment factors since 1988 and depressed revenues since 1990 due to the
recession, few governments are currently operating near their spending limits,
but this condition may change over time. Local governments may, by voter
approval, exceed their spending limits for a limited time.

Because of the complex nature of Articles XIIIA and XIIIB, the ambiguities and
possible inconsistencies in their terms and the impossibility of predicting
future appropriations, population changes, changes in the cost of living or the
probability of continuing legal challenges, it is difficult to measure the full
impact of these Articles on the California municipal market or on the ability of
California issuers to pay debt service on their obligations.

OBLIGATIONS OF THE STATE OF CALIFORNIA

As of July 1, 2000, the state had approximately $21.3 billion of general
obligation bonds outstanding, and approximately $14.8 billion remained
authorized but unissued. In fiscal year 1999-00, debt service on general
obligation bonds and lease-purchase debt was approximately 3.74% of general fund
revenues, down from 4.42% in fiscal year 1998-99.

6 American Century Investments 1-800-345-2021

The state's principal sources of General Fund revenues for fiscal year 1999-00
were the California personal income tax (55% of total revenues), the sales tax
(29.3%), bank and corporations taxes (9.4%) and the gross premium tax on
insurance (1.8%). Historically, the state has paid the principal of and interest
on its general obligation bonds, lease-purchase debt and short-term obligations
when due.

General. Pressures on the state's budget in the late 1980s and early 1990s were
caused by a combination of external economic conditions and growth of the
largest General Fund expenditure programs--K-12 education, health, welfare and
corrections--at rates faster than the revenue base. The largest state
expenditure program is assistance to local public school districts. In 1988,
Proposition 98 was enacted; it essentially guarantees local school districts and
community college districts a minimum share of the state's General Fund revenues
(currently 35%).

Expenditures pressures continue as the state's overall population and school age
population continue to grow, and as the state's corrections program responds to
a "Three Strikes" law enacted in 1994 (which requires mandatory life prison
terms for certain third-time felony offenders). In addition, the long-term
impact of federal welfare reform on the state's budget is uncertain.

Recent Budgets. State finances have improved over the past five fiscal years,
due primarily to stronger than anticipated revenue and lower than anticipated
social spending. The state finished fiscal year 1999-00 with an estimated $7.8
billion fund balance, up from a balance of $3.9 billion the prior year. The
fiscal 2000 budget contained the following features:

* Proposition 98 Funding for K-12 schools was increased by $1.6 billion over
revised fiscal year levels and was $108.6 million higher than the minimum
Proposition 98 guarantee.

* Funding for higher education increased by $184 million (7.3%) for the
University of California, $126. million (5.9%) for the California State
University System and $324.3 million (6.6%) for community colleges.

* Funding for health and human services increased nearly $600 million.

* $800 million from the General Fund will be directed toward infrastructure,
including $425 million in additional funding for the Infrastructure Bank.

* The Legislature enacted a one-year reduction of 10% in the Vehicle License
Fee (VLF) for calendar year 2000, at a cost of about $250 million in fiscal
year 2000 and 2001. In addition, several targeted tax cuts, primarily for
business, also were approved at a cost of $54 million in fiscal year 2000.

* A one-time appropriation of $150 million, to be split between cities and
counties, was made to offset property tax shifts during the early 1990s.

Current Budget. The Budget Act anticipates General Fund revenues and transfers
of $74.0 billion (a 17.2% increase from the prior fiscal year) and expenditures
of $78.8 billion (a 23.7% increase). On a budgetary basis, the General Fund
balance is projected to decrease from $7.8 billion as of June 30, 2000, to $2.9
billion as of June 30, 2001. The following are major features of the 2000-01
Budget Act:

* Funding for higher education was increased substantially as funding for the
University of California and the California State University System is
increased 17.9% and 12.7%, respectively.

* The budget includes increased funding for health and human services of $2.7
billion.

* Proposition 98 funding for K-12 schools was increased by $3 billion, $1.4
billion higher than the minimum guarantee.

* A total of $2.0 billion was appropriated for transportation improvements,
supplementing gasoline tax revenues normally used for that purpose.

www.americancentury.com American Century Investments 7

* The budget contained a tax reduction of $1.5 billion, primarily reflected in
the phased-in reduction of the Vehicle License Fee (VLF). Other tax
reductions included both a one-time Senior Citizens Homeowner and Renters Tax
Assistance program that will cost $154 million, a personal tax credit for
teachers costing $218 million and a refundable credit for child care expenses
that will cost $195 million.

* A one-time appropriation of $200 million, to be split between cities and
counties, was made to offset property tax shifts during the early 1990's.
Additionally $121 million was appropriated for support of local law
enforcement, and $75 million in one time funding was provided for local law
enforcement agencies to purchase high technology equipment.

Due to the state's economy and financial condition, the State of California was
upgraded by Moody's Investors Service in September 2000 to Aa2; by Standard and
Poor's in September 2000 from AA- to AA; and by Fitch Investors Service in
February 2000 from AA- to AA.

OBLIGATIONS OF OTHER ISSUERS IN CALIFORNIA

Property tax revenues received by local governments declined more than 50%
following the passage of Proposition 13 in 1978. Subsequently, the California
legislature enacted measures to provide for the redistribution of the state's
General Fund surplus to local agencies, the reallocation of certain state
revenues to local agencies, and the assumption of certain government functions
by the state to assist the state's municipalities. However, in response to the
fiscal crisis at the state level, the Legislature in 1992-93 and 1993-94
effectively reversed the post-Proposition 13 bailout aid and directed over $3
billion of city, county and special district property taxes to school districts,
which enabled the state to reduce its aid to schools by the same amount. Part of
this shortfall is to be covered by a 0.5% sales tax allocated to local
governments for public safety purposes. The 0.5% sales tax increase was imposed
by Proposition 172, which was approved by a majority of voters at the statewide
election on November 2, 1993.

Even with these cuts and property tax shifts, more than 70% of the state's
General Fund expenditures are for local government assistance. To the extent
that the state is constrained by its Article XIIIB appropriations limit, its
obligation to conform to Proposition 98, or other fiscal considerations, the
absolute level or rate of growth of state assistance to local governments may be
reduced. Any such reductions in state aid could compound the serious fiscal
constraints already experienced by many local governments, particularly
counties.

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. TANs usually are general obligations of
the issuer. General obligations 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 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.

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Tax-Exempt Commercial Paper is an obligation with a stated maturity of 365 days
or less issued to finance seasonal cash flow needs or to provide short-term
financing in anticipation of longer-term financing.

Revenue Anticipation Warrants, or reimbursement warrants, are issued to meet the
cash flow needs of the State of California at the end of a fiscal year and in
the early weeks of the following fiscal year. These warrants are payable from
unapplied money in the state's General Fund, including the proceeds of revenue
anticipation notes issued following enactment of a state budget or the proceeds
of refunding warrants issued by the state.

Municipal Bonds

Municipal bonds, which generally have maturities of more than one year when
issued, are designed to meet longer-term capital needs. These securities have
two principal classifications: general obligation bonds and revenue bonds.

General Obligation (GO) Bonds are issued by states, counties, cities, towns and
regional districts to fund a variety of public projects, including construction
of and improvements to schools, highways, and water and sewer systems. General
obligation bonds are backed by the issuer's full faith and credit based on its
ability to levy taxes for the timely payment of interest and repayment of
principal, although such levies may be constitutionally or statutorily limited
as to rate or amount.

Revenue Bonds are not backed by an issuer's taxing authority; rather, interest
and principal are secured by the net revenues from a project or facility.
Revenue bonds are issued to finance a variety of capital projects, including
construction or refurbishment of utility and waste disposal systems, highways,
bridges, tunnels, air and sea port facilities, schools and hospitals. Many
revenue bond issuers provide additional security in the form of a debt-service
reserve fund that may be used to make payments of interest and repayments of
principal on the issuer's obligations. Some revenue bond financings are further
protected by a state's assurance (without obligation) that it will make up
deficiencies in the debt-service reserve fund.

Industrial Development Bonds (IDBs), a type of revenue bond, are issued by or on
behalf of public authorities to finance privately operated facilities. These
bonds are used to finance business, manufacturing, housing, athletic and
pollution control projects, as well as public facilities such as mass transit
systems, air and sea port facilities and parking garages. Payment of interest
and repayment of principal on an IDB depend solely on the ability of the
facility's user to meet financial obligations, and on the pledge, if any, of the
real or personal property financed. The interest earned on IDBs may be subject
to the federal alternative minimum tax.

Variable- and Floating-Rate Obligations

Variable- and floating-rate demand obligations (VRDOs and FRDOs) 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. 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 that are held by a bank in trust or
otherwise, which have tender options or demand features attached. These tender
option or demand features 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.

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Some obligations with term puts attached may be issued by municipalities. The
fund managers 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 an obligation with a put attached 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 a 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, but not more than 120 days, later).

For example, a fund may sell a security and at the same time make a commitment
to purchase the same or a comparable security at a future date and specified
price. Conversely, a fund may purchase a security and at the same time make a
commitment to sell the same or a comparable security at a future date and
specified price. These types of transactions are executed simultaneously in what
are known as dollar-rolls, cash and carry, or financing transactions. For
example, a broker-dealer may seek to purchase a particular security that a fund
owns. The fund will sell that security to the broker-dealer and simultaneously

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enter into a forward commitment agreement to buy it back at a future date. This
type of transaction generates income for the fund if the dealer is willing to
execute the transaction at a favorable price in order to acquire a specific
security.

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 they 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, a fund will not
hold such obligations directly as a lessor of the property but will purchase a
participation interest in a municipal lease obligation from a bank or other
third party.

Municipal leases frequently carry risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set forth
requirements that states and municipalities must meet to incur debt. These may
include voter referenda, interest rate limits or public sale requirements.
Leases, installment purchases or conditional sale contracts (which normally
provide for title to the leased asset to pass to the government issuer) have
evolved as a way for government issuers to acquire property and equipment
without meeting constitutional and statutory requirements for the issuance of
debt.

Many leases and contracts include nonappropriation clauses, which provide that
the governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purposes by the
appropriate legislative body on a yearly or other periodic basis. Municipal
lease obligations also may be subject to abatement risk. For example,
construction delays or destruction of a facility as a result of an uninsurable
disaster that prevents occupancy could result in all or a portion of a lease
payment not being made.

California and its municipalities are the largest issuers of municipal lease
obligations in the United States.

Inverse Floaters

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

www.americancentury.com American Century Investments 11

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

(1) a broker-dealer who purchases fixed-rate bonds and places them in a trust,
or

(2) 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:

* 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.

* Inverse floater holders receive all of the interest that remains, if any, on
the underlying bonds after floater interest and auction fees are paid. The
interest rates on inverse floaters may be significantly reduced, even to
zero, if interest rates rise.

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.

Lower-Quality Bonds

As indicated in the Prospectus, an investment in California High-Yield Municipal
carries greater risk than an investment in the other funds because the fund may
invest, without limitation, in lower-rated bonds and unrated bonds judged by the
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.

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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

In order to meet anticipated redemptions, anticipated purchases of additional
securities for a fund's portfolio, or, in some cases, for temporary defensive
purposes, the non-money market funds may invest a portion of their assets in
money market and other short-term securities.

Examples of those securities include:

* Securities issued or guaranteed by the U.S. government and its agencies and
instrumentalities

* Commercial Paper

* Certificates of Deposit and Euro Dollar Certificates of Deposit

* Bankers' Acceptances

* Short-term notes, bonds, debentures or other debt instruments

* Repurchase agreements

Under the Investment Company Act, a fund's investment in other investment
companies (including money market funds) currently is limited to

(a) 3% of the total voting stock of any one investment company;

(b) 5% of the fund's total assets with respect to any one investment company;
and

For the non-money market funds, these investments may include investments in
money market funds managed by the advisor. Any investments in money market funds
must be consistent with the investment policies and restrictions of the fund
making the investment.

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.

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 strate-

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gies, 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 indices such as the Bond
Buyer Municipal Bond Index that are consistent with the funds' investment
objectives. The funds 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 fund managers consider 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

14 American Century Investments 1-800-345-2021

contracts it holds. The fund managers 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.

Municipal Bond Insurers

Securities held by California Insured Tax-Free may be (a) insured under a
new-issue insurance policy obtained by the issuer of the security or (b) insured
under a secondary market insurance policy purchased by the fund or a previous
bond holder. The following paragraphs provide some background on the bond
insurance organizations most frequently relied upon for municipal bond insurance
in the United States.

www.americancentury.com American Century Investments 15

AMBAC Indemnity Corporation (AMBAC Indemnity) is a Wisconsin-domiciled stock
insurance corporation. AMBAC Indemnity is a wholly owned subsidiary of AMBAC
Inc., a publicly held company. Moody's Investors Service, Inc. (Moody's) and
Standard & Poor's Corporation (S&P) have rated AMBAC Indemnity's claims-paying
ability Aaa and AAA, respectively.

Financial Guaranty Insurance Company (FGIC) is a wholly owned subsidiary of FGIC
Corporation, a Delaware corporation. FGIC's claims-paying ability was rated
Aaa/AAA/AAA by Moody's, S&P and Fitch, respectively.

Municipal Bond Investors Assurance (MBIA) Corporation is a monoline insurance
company organized as a New York corporation. MBIA's claims-paying ability was
rated Aaa/AAA/AAA by Moody's, S&P and Fitch, respectively.

Financial Security Assurance, Inc. (FSA) is a financial guaranty insurance
company operated in New York which became a separately capitalized Dexia
subsidiary on July 5, 2000. FSA's claims-paying ability was rated Aaa/AAA/AAA by
Moody's, S&P and Fitch, respectively.

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 has delegated the day-to-day function of determining the liquidity of
Rule 144A securities to the fund managers. 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 restrictions described below apply at the time a fund enters into
a transaction. 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.

For purposes of the funds' investment restrictions, the party identified as the
"issuer" of a municipal security depends on the form and conditions of the
security. When the assets and revenues of a political subdivision are separate
from those of the government that created the subdivision and the security is
backed only by the assets and revenues of the subdivision, the subdivision is
deemed the sole issuer. Similarly, in the case of an Industrial Development
Bond, if the bond were backed only by the assets and revenues of a
non-governmental user, the non-governmental user would be deemed the sole
issuer. If, in either case, the creating government or some other entity were to
guarantee the security, the guarantee would be considered a separate security
and treated as an issue of the guaranteeing entity.

16 American Century Investments 1-800-345-2021

FUNDAMENTAL INVESTMENT POLICIES

The funds' fundamental investment policies are set forth below. These investment
policies 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.

Subject Policy
- --------------------------------------------------------------------------------
Senior Securities A fund may not issue senior securities, except as permitted
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.
- --------------------------------------------------------------------------------
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 a fund from
investing 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.
- --------------------------------------------------------------------------------

For purposes of the investment restrictions relating to lending and borrowing,
the funds have received an exemptive order from the SEC regarding an interfund
lending program. Under the terms of the exemptive order, the funds may borrow
money from or lend money to other ACIM-advised funds that permit such
transactions. All such transactions will be subject to the limits for borrowing
and lending set forth above. The funds will borrow money through the program
only when the costs are equal to or lower than the cost of short-term bank
loans. Interfund loans and borrowings normally extend only overnight, but can
have a maximum duration of seven days. The funds will lend through the program
only when the returns are higher than those available from other short-term
instruments (such as repurchase agreements). The funds may have to borrow from a
bank at a higher interest rate if an interfund loan is called or not renewed.
Any delay in repayment to a lending fund could result in a lost investment
opportunity or additional borrowing costs.

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 its authorities, agencies,
instrumentalities or political subdivisions and repurchase agreements
secured by such obligations,

www.americancentury.com American Century Investments 17

(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 their 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) business credit and personal credit businesses will be considered separate
industries.

Nonfundamental Investment Policies

In addition, the funds are subject to the following investment policies that are
not fundamental and may be changed by the Board of Trustees.

Subject Policy
- --------------------------------------------------------------------------------
Leveraging A fund may not purchase additional investment securities at any
time during which outstanding borrowings exceed 5% of the total
assets of the fund.
- --------------------------------------------------------------------------------
Futures and The money market funds may not purchase or sell futures contracts
options or call options. This limitation does not apply to options
attached to, or acquired or traded together with, their underlying
securities, and does not apply to securities that incorporate
features similar to options or futures contracts.
- --------------------------------------------------------------------------------
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 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

The portfolio turnover rate of each fund (except those of the money market
funds) is listed in the Financial Highlights table in the Prospectus. 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.

18 American Century Investments 1-800-345-2021

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 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 (including ACIM and ACSC); the funds' distribution
agent, American Century Investment Services, Inc. (ACIS); or other funds advised
by the advisor. Each trustee (except James E. Stowers III) listed below serves
as a trustee or director of eight registered investment companies in the
American Century family of funds, which also are advised by the advisor. James
E. Stowers III serves as a trustee or director of 15 registered investment
companies in the American Century family of funds.

Name (Age) Position(s) Held Principal Occupation(s)
Address With Funds During Past Five Years
- --------------------------------------------------------------------------------------------------------
Albert A. Eisenstat (70) Trustee Independent Director, Commercial Metals Co.
1665 Charleston Road (1982 to 2000)
Mountain View, CA 94043 Independent Director, Sungard Data Systems
(1991 to present)
General Partner, Discovery Ventures
(venture capital firm, 1996 to 1998)
Independent Director, Business Objects S/A
(software & programming, 1994 to present)
- --------------------------------------------------------------------------------------------------------
Ronald J. Gilson (54) Trustee Charles J. Meyers Professor of Law and Business,
1665 Charleston Road Stanford Law School (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* (45) Trustee Chief Executive Officer, ACC
4500 Main Street (September 2000-present)
Kansas City, MO 64111 President, Chief Operating Officer and
Assistant Secretary, ACC
Executive Vice President, Chief Operating Officer,
ACIM, ACSC and 11 other ACC subsidiaries
Director, ACIM, ACSC and 15 other
ACC subsidiaries
Secretary , ACIM, ACSC and six other
ACC subsidiaries
- --------------------------------------------------------------------------------------------------------
Myron S. Scholes (59) Trustee Partner, Oak Hill Capital Management,
1665 Charleston Road 1999-present
Mountain View, CA 94043 Principal, Long-Term Capital Management
(investment advisor, 1993 to January 1999)
Frank E. Buck Professor of Finance,
Stanford Graduate School of Business
(1981 to present)
Director, Dimensional Fund Advisors
(investment advisor, 1982 to present)
Director, Smith Breeden Family of Funds
(1992 to present)
- --------------------------------------------------------------------------------------------------------

www.americancentury.com American Century Investments 19

Committees

The Board has four standing 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 Kenneth E. Scott The Audit Committee recommends the engagement of the funds'
Albert A. Eisenstat independent auditors and oversees its activities. The committee
Jeanne D. Wohlers receives reports from the advisor's Internal Audit Department,
which is accountable to the committee. The committee also
receives reporting about compliance matters affecting the Trust.
- --------------------------------------------------------------------------------------------------------
Nominating Kenneth E. Scott The Nominating Committee primarily considers and recommends
Myron S. Scholes individuals for nomination as trustees. The names of potential
Albert A. Eisenstat trustee candidates are drawn from a number of sources, including
Ronald J. Gilson recommendations from members of the board, management
Jeanne D. Wohlers and shareholders. This committee also reviews and makes
recommendations to the board with respect to the composition
of board committees and other board-related matters, including
its organization, size, composition, responsibilities, functions
and compensation.
- --------------------------------------------------------------------------------------------------------
Portfolio Myron S. Scholes The Portfolio Committee reviews quarterly the investment activities
Ronald J. Gilson and strategies used to manage fund assets. The committee regularly
receives reports from portfolio managers, credit analysts and other
investment personnel concerning the funds' investments.
- --------------------------------------------------------------------------------------------------------
Quality of Ronald J. Gilson The Quality of Service Committee reviews the level and quality
Service Myron S. Scholes of transfer agent and administrative services provided to the funds
William M. Lyons and their shareholders. It receives and reviews reports comparing
those services to those of fund competitors and seeks to improve
such services where feasible and appropriate.
- --------------------------------------------------------------------------------------------------------

20 American Century Investments 1-800-345-2021

Compensation of Trustees

The trustees serve as trustees for eight American Century investment companies.
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
eight 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 eight 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 eight 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 AUGUST 31, 2000
- --------------------------------------------------------------------------------
Total Compensation Total Compensation from the
Name of Trustee from the Funds(1) American Century Family of Funds(2)
- --------------------------------------------------------------------------------
Albert A. Eisenstat $8,647 $78,500
- --------------------------------------------------------------------------------
Ronald J. Gilson 9,415 87,500
- --------------------------------------------------------------------------------
Myron S. Scholes 8,326 75,250
- --------------------------------------------------------------------------------
Kenneth E. Scott 8,954 82,250
- --------------------------------------------------------------------------------
Isaac Stein 8,582 77,750(3)
- --------------------------------------------------------------------------------
Jeanne D. Wohlers 8,506 77,250
- --------------------------------------------------------------------------------

(1) Includes compensation paid to the trustees during the fiscal year ended
August 31, 2000, and also includes amounts deferred at the election of the
trustees under the Amended and Restated 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, $8,647; Mr. Gilson, $9,415; Mr. Scholes, $8,326;
and Mr. Scott, $4,477.

(2) Includes compensation paid by the eight investment company members of the
American Century family of funds served by this board.

(3) Mr. Stein retired from the board on September 15, 2000.

The funds have adopted the Amended and Restated 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. To date, the funds have
voluntarily funded their obligations. The rights of trustees to receive their
deferred fee account balances are the

www.americancentury.com American Century Investments 21

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 August 31, 2000.

OFFICERS

Background information about the officers of the funds is provided below. All
persons named as officers of the funds also serve in similar capacities for the
14 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 the funds, ACC or ACC's subsidiaries
(including ACIM, ACSC and ACIS).

Name (Age) Positions Held with Principal Occupation(s)
Address the Funds During Past Five Years
- -------------------------------------------------------------------------------------------------------------
William M. Lyons (45) President Chief Executive Officer, ACC
4500 Main St. (September 2000 to present)
Kansas City, MO 64111 President, ACC (June 1997 to present)
Chief Operating Officer, ACC
(June 1995 to present)
General Counsel, ACC, ACIM, ACIS,
ACSC and other ACC subsidiaries
(June 1989 to June 1998)
Executive Vice President, ACC,
(January 1995 to June 1997)
Also serves as: Executive Vice President and
Chief Operating Officer, ACIM, ACIS, ACSC
and other ACC subsidiaries, and Executive
Vice President of other ACC subsidiaries
- -------------------------------------------------------------------------------------------------------------
Robert T. Jackson (55) Executive Chief Administrative Officer and
4500 Main St. Vice President Chief Financial Officer, ACC
Kansas City, MO 64111 and Chief (August 1997 to present)
Financial Officer President, ACSC
(January 1999 to present)
Executive Vice President, ACC
(May 1995 to present)
Also serves as: Executive Vice
President, ACIM, ACIS and other
ACC subsidiaries, and Treasurer
of ACC and other ACC subsidiaries
- -------------------------------------------------------------------------------------------------------------
Maryanne Roepke, CPA (45) Senior Vice President, Senior Vice President and Assistant
4500 Main St. Treasurer and Chief Treasurer, ACSC
Kansas City, MO 64111 Accounting Officer
- -------------------------------------------------------------------------------------------------------------
David C. Tucker (42) Senior Vice President Senior Vice President, ACIM,
4500 Main St. and General Counsel ACIS, ACSC and other ACC
Kansas City, MO 64111 subsidiaries (June 1998 to present)
General Counsel, ACC, ACIM, ACIS,
ACSC and other ACC subsidiaries
(June 1998 to present)
Consultant to mutual fund industry
(May 1997 to April 1998)
Vice President and General Counsel,
Janus Companies (1990 to 1997)
- -------------------------------------------------------------------------------------------------------------

22 American Century Investments 1-800-345-2021

Name (Age) Positions Held with Principal Occupation(s)
Address the Funds During Past Five Years
- -------------------------------------------------------------------------------------------------------------
Charles A. Etherington (43) Vice President Vice President (October 1996 to present)
4500 Main St. and Associate General Counsel
Kansas City, MO 64111 (December 1998 to present), ACSC
Counsel to ACSC
(February 1994 to December 1998)
- -------------------------------------------------------------------------------------------------------------
Charles C. S. Park (33) Vice President Vice President, ACSC (February 2000 to present)
1665 Charleston Road and Assistant General Counsel, ACSC
Mountain View, CA 94043 (January 1998 to present)
Counsel to ACSC (October 1995 to January 1998)
- -------------------------------------------------------------------------------------------------------------
David H. Reinmiller (37) Vice President Chief Compliance Officer, ACIM, ACSC, ACIS
4500 Main St. and American Century Brokerage, Inc.
Kansas City, MO 64111 (March 2001 to present)
Vice President, ACSC (February 2000 to present)
and Assistant General Counsel, ACSC
(August 1996 to present)
Counsel to ACSC (January 1994 to August 1996)
- -------------------------------------------------------------------------------------------------------------
Paul Carrigan Jr. (51) Secretary Secretary, ACC (February 1998 to present)
4500 Main St. Director of Legal Operations, ACSC
Kansas City, MO 64111 (February 1996 to February 2001)
- -------------------------------------------------------------------------------------------------------------
C. Jean Wade (37) Controller, Controller, ACSC
4500 Main St. Vice President Vice President-Fund Accounting, ACSC
Kansas City, MO 64111 (February 2000 to present)
- -------------------------------------------------------------------------------------------------------------
Jon Zindel (33) Tax Officer Vice President of Taxation, ACSC (1996 to present)
4500 Main Street Vice President, ACIM, ACIS and other ACC
Kansas City, MO 64111 subsidiaries (April 1999 to present)
President, American Century Employee
Benefit Services, Inc. (January 2000 to present)
Treasurer, American Century Ventures, Inc.
(December 1999 to present)
Tax Manager, Price Waterhouse LLP (1989 to 1996)
- -------------------------------------------------------------------------------------------------------------

CODE OF ETHICS

The funds, their investment advisor and principal underwriter have adopted a
code of ethics under Rule 17j-1 of the Investment Company Act and the code of
ethics permits personnel subject to the code to invest in securities, including
securities that may be purchased or held by the funds, provided that they first
obtain approval from the compliance department before making such investments.

www.americancentury.com American Century Investments 23

THE FUNDS' PRINCIPAL SHAREHOLDERS

As of April 2, 2001, the following companies were the record owners of more than
5% of a fund's outstanding shares:

Fund Shareholder and Percentage of Shares Outstanding
- ----------------------------------------------------------------------------------------------
California Tax-Free Money Market Morgan Guaranty Trust of NY 17%
Newark, DE
- ----------------------------------------------------------------------------------------------
California Municipal Money Market Morgan Guaranty Trust of NY 7%
Newark, DE
- ----------------------------------------------------------------------------------------------
California Limited-Term Tax-Free Charles Schwab & Co., Inc. 27%
San Francisco, CA
Bank of America NA 8%
Dallas, TX
National Financial Services Corp. 6%
New York, NY
- ----------------------------------------------------------------------------------------------
California Intermediate-Term Tax-Free Charles Schwab & Co. 16%
San Francisco, CA
- ----------------------------------------------------------------------------------------------
California Long-Term Tax-Free Charles Schwab & Co. 10%
San Francisco, CA
- ----------------------------------------------------------------------------------------------
California Insured Tax-Free Charles Schwab & Co. 8%
San Francisco, CA
- ----------------------------------------------------------------------------------------------
California High-Yield Municipal Charles Schwab & Co. 26%
San Francisco, CA
- ----------------------------------------------------------------------------------------------

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 April 2, 2001, 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 that is described below.

ACIM, ACSC and ACIS are 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 the funds of its investment
category managed by the advisor (the Investment Category Fee). The three
investment categories are money market funds, bond funds and equity funds. When
calculating the fee for a money market fund, for example, all of the assets of
the money market funds managed by the advisor are aggregated and the fee rate is
applied to the total. Second, a separate fee rate schedule is applied to the
assets of all the funds managed by the advisor (the Complex Fee). The amounts
calculated using 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 unified management fee is determined are shown in the
following tables. The Investment

24 American Century Investments 1-800-345-2021

Category Fees are determined according to the schedule below.

INVESTMENT CATEGORY FEE SCHEDULE
FOR CALIFORNIA TAX-FREE MONEY MARKET AND CALIFORNIA MUNICIPAL MONEY MARKET
- --------------------------------------------------------------------------------
Category Assets Fee Rate
- --------------------------------------------------------------------------------
First $1 billion .02700%
Next $1 billion .02270%
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 CALIFORNIA LIMITED-TERM TAX-FREE,
CALIFORNIA INTERMEDIATE-TERM TAX-FREE, CALIFORNIA LONG-TERM TAX-FREE AND
CALIFORNIA INSURED TAX-FREE
- --------------------------------------------------------------------------------
Category Assets Fee Rate
- --------------------------------------------------------------------------------
First $1 billion 0.2800%
Next $1 billion 0.2280%
Next $3 billion 0.1980%
Next $5 billion 0.1780%
Next $15 billion 0.1650%
Next $25 billion 0.1630%
Thereafter 0.1625%

INVESTMENT CATEGORY FEE SCHEDULE FOR CALIFORNIA HIGH-YIELD MUNICIPAL
- --------------------------------------------------------------------------------
Category Assets Fee Rate
- --------------------------------------------------------------------------------
First $1 billion 0.3100%
Next $1 billion 0.2580%
Next $3 billion 0.2280%
Next $5 billion 0.2080%
Next $15 billion 0.1950%
Next $25 billion 0.1930%
Thereafter 0.1925%

The Complex Fee is determined according to the schedule below for Investor and C
Class shares.

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%
- --------------------------------------------------------------------------------

www.americancentury.com American Century Investments 25

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 between the Trust and the advisor 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 a majority of outstanding shareholder votes
(as defined in the Investment Company Act) and

(2) 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 states that the funds' Board of Trustees or a majority
of outstanding shareholder votes may terminate the management agreement at any
time without payment of any penalty on 60 days' written notice to the advisor.
The management agreement 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, render services to others,
and devote time and attention to any other business whether of a similar or
dissimilar nature.

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 allocate 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.

Unified management fees incurred by each fund for the fiscal periods ended
August 31, 2000, 1999 and 1998, are indicated in the following table. As a new
class, information regarding the C Class was not available as of the end of the
fiscal year.

26 American Century Investments 1-800-345-2021

UNIFIED MANAGEMENT FEES
- --------------------------------------------------------------------------------
Fund 2000 1999 1998
- --------------------------------------------------------------------------------
California Tax-Free Money Market $2,936,540 $2,514,416 $2,159,236
California Municipal Money Market $956,050 $873,026 $845,834
California Limited-Term Tax-Free $714,414 $744,334 $656,701
California Intermediate-Term Tax-Free $2,230,933 $2,402,570 $2,264,194
California Long-Term Tax-Free $1,532,838 $1,729,194 $1,599,824
California Insured Tax-Free $1,660,548 $1,118,237 $1,031,569
California High-Yield Municipal $1,006,819 $1,778,084 $1,311,664
- --------------------------------------------------------------------------------

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 the advisor. The advisor pays
ACSC for these services.

From time to time, special services may be offered to shareholders who maintain
higher share balances in our family of funds. These services may include the
waiver of minimum investment requirements, expedited confirmation of shareholder
transactions, newsletters and a team of personal representatives. Any expenses
associated with these special services will be paid by the advisor.

DISTRIBUTOR

The funds' shares are distributed by ACIS, a registered broker-dealer. ACIS is a
wholly owned subsidiary of ACC and its principal business address is 4500 Main
Street, Kansas City, Missouri 64111.

The distributor is the principal underwriter of the funds' shares. The
distributor makes a continuous, best-efforts underwriting of the funds' shares.
This means the distributor has no liability for unsold shares.

OTHER SERVICE PROVIDERS

CUSTODIAN BANKS

J.P. Morgan Chase and Co., 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 funds' assets. 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 LLP provides services including

(1) auditing of the annual financial statements for each fund,

(2) assisting and consultating in connection with SEC filings, and

(3) reviewing the annual federal income tax return filed for each fund.

www.americancentury.com American Century Investments 27

BROKERAGE ALLOCATION

The funds generally purchase and sell debt securities through principal
transactions, meaning the funds normally purchase securities on a net basis
directly from the issuer or a primary market-maker acting as principal for the
securities. The funds do not pay brokerage commissions on these transactions,
although the purchase price for debt securities usually includes an undisclosed
compensation. Purchases of securities from underwriters typically include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market-makers typically include a dealer's markup (i.e.,
a spread between the bid and asked prices). During the fiscal years ended August
31, 2000, 1999 and 1998, the funds did not pay any brokerage commissions.

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. See Multiple Class Structure, which follows. Additional funds and
classes may be added without a shareholder vote.

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.

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.

MULTIPLE CLASS STRUCTURE

The corporation's Board of Trustees has adopted a multiple class plan (the
Multiclass Plan) pursuant to Rule 18f-3 adopted by the SEC. Pursuant to such
plan, the funds may issue up to two classes of shares: an Investor Class and a C
Class. Not all funds offer both classes.

The Investor Class is made available to investors directly without any load or
commission, for a single unified management fee. The C Class is made available
through financial intermediaries, for purchase by individual investors using
"wrap account" style advisory and personal services from the intermediary. The
total management fee is the same as for Investor Class, but the C Class shares
also are subject to a Master Distribution and Indi-

28 American Century Investments 1-800-345-2021

vidual Shareholder Services Plan (the Plan) described below. The Plan has been
adopted by the funds' Board of Trustees and initial shareholder in accordance
with Rule 12b-1 adopted by the SEC under the Investment Company Act.

Rule 12b-1

Rule 12b-1 permits an investment company to pay expenses associated with the
distribution of its shares in accordance with a plan adopted by its Board of
Trustees and approved by its shareholders. Pursuant to such rule, the Board of
Trustees and initial shareholder of the funds' C Class have approved and entered
into the Plan. The Plan is described below.

In adopting the Plan, the Board of Trustees (including a majority of directors
who are not interested persons of the funds [as defined in the Investment
Company Act], hereafter referred to as the independent trustees) determined that
there was a reasonable likelihood that the Plan would benefit the funds and the
shareholders of the affected class. Pursuant to Rule 12b-1, information with
respect to revenues and expenses under the Plan is presented to the Board of
Trustees quarterly for its consideration in connection with its deliberations as
to the continuance of the Plan. Continuance of the Plan must be approved by the
Board of Trustees (including a majority of the independent trustees) annually.
The Plan may be amended by a vote of the Board of Trustees (including a majority
of the independent trustees), except that the Plan may not be amended to
materially increase the amount to be spent for distribution without majority
approval of the shareholders of the affected class. The Plan terminates
automatically in the event of an assignment and may be terminated upon a vote of
a majority of the independent trustees or by vote of a majority of the
outstanding voting securities of the affected class.

All fees paid under the Plan will be made in accordance with Section 26 of the
Rules of Fair Practice of the National Association of Securities Dealers
(NASD).

Master Distribution and Individual Shareholder Services Plan (the Plan)

As described in the Prospectuses, the C Class shares of the funds are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through broker-dealers, banks, insurance companies and
other financial intermediaries that provide various administrative, shareholder
and distribution services. The funds' distributor enters into contracts with
various banks, broker-dealers, insurance companies and other financial
intermediaries, with respect to the sale of the fund's shares and/or the use of
the fund's shares in various investment products or in connection with various
financial services.

Certain recordkeeping and administrative services that are provided by the
fund's transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for C Class
investors. In addition to such services, the financial intermediaries provide
various individual shareholder and distribution services.

To enable the fund's shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the fund's
Board of Trustees has adopted the Plan. Pursuant to the Plan, the C Class pays
the Advisor, as paying agent for the fund, a fee equal to .75% annually of the
average daily net asset value of the fund's C Class shares, .25% of which is
paid for individual shareholder services (as described below) and .50% of which
is paid for distribution services (as described below). Because this is a new
class, no fees were paid under the Plan for the most recent fiscal year.

www.americancentury.com American Century Investments 29

Payments may be made for a variety of individual shareholder services,
including, but not limited to:

(a) providing individualized and customized investment advisory services,
including the consideration of shareholder profiles and specific goals;

(b) creating investment models and asset allocation models for use by
shareholders in selecting appropriate funds;

(d) periodic rebalancing of shareholder accounts to ensure compliance with the
selected asset allocation;

(e) consolidating shareholder accounts in one place; and

(f) other individual services.

Individual shareholder services do not include those activities and expenses
that are primarily intended to result in the sale of additional shares of the
funds.

Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of C Class shares, which services
may include but are not limited to:

(a) paying sales commissions, on-going commissions and other payments to
brokers, dealers, financial institutions or others who sell C Class shares
pursuant to selling agreements;

(b) compensating registered representatives or other employees of the
distributor who engage in or support distribution of the funds' C Class
shares;

(d) printing prospectuses, statements of additional information and reports for
other-than-existing shareholders;

(e) preparing, printing and distributing sales literature and advertising
materials provided to the funds' shareholders and prospective shareholders;

(f) receiving and answering correspondence from prospective shareholders,
including distributing prospectuses, statements of additional information,
and shareholder reports;

(g) providing facilities to answer questions from prospective shareholders about
fund shares;

(h) complying with federal and state securities laws pertaining to the sale of
fund shares;

(i) assisting shareholders in completing application forms and selecting
dividend and other account options;

(j) providing other reasonable assistance in connection with the distribution of
fund shares;

(k) organizing and conducting of sales seminars and payments in the form of
transactional and compensation or promotional incentives;

(l) profit on the foregoing;

(m) paying service fees for providing personal, continuing services to
investors, as contemplated by the Rules of Fair Practice of the NASD; and

(n) such other distribution and services activities as the advisor determines
may be paid for by the fund pursuant to the terms of the agreement between
the corporation and the fund's distributor and in accordance with Rule 12b-1
of the Investment Company Act.

Dealer Concessions

The fund's distributor expects to pay sales commissions to the financial
intermediaries who sell C Class shares of the fund at the time of such sales.
Payments will equal .75% of the purchase price of the C Class shares sold by the
intermediary. The distributor will

30 American Century Investments 1-800-345-2021

retain the distribution fee paid by the fund for the first 13 months after the
shares are purchased. This fee is intended in part to permit the distributor to
recoup a portion of on-going sales commissions to dealers plus financing costs,
if any. After the first 13 months, the distributor will make the distribution
and individual shareholder services fee payments described above to the
financial intermediaries involved on a monthly basis.

BUYING AND SELLING FUND SHARES

Information about buying, selling and exchanging fund shares is contained in the
funds' Prospectus and in Your Guide to American Century Services. The Prospectus
and guide are 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), each day the Exchange is
open for business. The Exchange usually closes at 4 p.m. Eastern time. 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 by the advisor if such deviation should exceed 0.25%.

www.americancentury.com American Century Investments 31

Actions the advisor and 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.

The funds have obtained private insurance that partially protects the money
market funds against default of principal or interest payments on the
instruments it holds, and against bankruptcy by issuers and credit enhancers of
these instruments. Although the funds will be charged premiums by an insurance
company for coverage of specified types of losses related to default or
bankruptcy on certain securities, the funds may incur losses regardless of the
insurance. The insurance does not guarantee or insure that the funds will be
able to maintain a stable net asset value of $1.00 per share.

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.

Securities not priced by a pricing service are valued at the mean between the
most recently quoted bid and asked prices provided by broker-dealers. The
municipal bond market is typically a "dealer market"; that is, dealers buy and
sell bonds for their own accounts rather than for customers. As a result, the
spread, or difference, between bid and asked prices for certain municipal bonds
may differ substantially among dealers.

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 trustees
determine that this would not result in fair valuation of a given security.
Other assets and securities for which quotations are not readily available are
valued in good faith at their fair value using methods approved by the Board of
Trustees.

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 investors. If a fund fails to qualify as
a regulated investment company, it will be liable for taxes, significantly
reducing its distributions to investors and eliminating investors' ability to
treat distributions received from the funds in the same manner in which they
were realized by the funds.

Certain 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

32 American Century Investments 1-800-345-2021

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 a
short-term capital gain.

As of August 31, 2000, the funds on the table below had the following capital
loss carryovers. When a fund has a capital loss carryover, it does not make
capital gains distributions until the loss has been offset or expired.

Fund Capital Loss Carryover
- --------------------------------------------------------------------------------
California Tax-Free Money Market $278,807 (expiring in 2004 through 2008
California Municipal Money Market $158,356 (expiring in 2003 through 2006
California Limited-Term Tax-Free $565,637 (expiring in 2004 through 2008
California Intermediate-Term Tax-Free $1,267,880 (expiring in 2008)
California Long-Term Tax-Free $1,238,946 (expiring in 2008)
California Insured Tax-Free $476,531 (expiring in 2008)
California High-Yield Municipal $5,122,430 ( expiring in 2008)
- --------------------------------------------------------------------------------

Interest on certain types of industrial development bonds (small issues and
obligations issued to finance certain exempt facilities that may be leased to or
used by persons other than the issuer) is not exempt from federal income tax
when received by "substantial users" or persons related to substantial users as
defined in the Code. The term "substantial user" includes any "non-exempt
person" who regularly uses in trade or business part of a facility financed from
the proceeds of industrial development bonds. The funds may invest periodically
in industrial development bonds and, therefore, may not be appropriate
investments for entities that are substantial users of facilities financed by
industrial development bonds or "related persons" of substantial users.
Generally, an individual will not be a related person of a substantial user
under the Code unless he or his immediate family (spouse, brothers, sisters,
ancestors and lineal descendants) owns directly or indirectly in aggregate more
than 50% of the equity value of the substantial user.

Under the Code, any distribution of a fund's net realized long-term capital
gains that is designated by the fund as a capital gains dividend is taxable to
you as long-term capital gains, regardless of the length of time you have held
your shares in the fund. If you purchase shares in the fund and sell them at a
loss within six months, your loss on the sale of those shares will be treated as
a long-term capital loss to the extent of any long-term capital gains dividend
you received on those shares. Any such loss will be disallowed to the extent of
any tax-exempt dividend income you received on those shares.

www.americancentury.com American Century Investments 33

ALTERNATIVE MINIMUM TAX

While the interest on bonds issued to finance essential state and local
government operations is generally exempt from regular federal income tax,
interest on certain "private activity" bonds issued after August 7, 1986, while
exempt from regular federal income tax, constitutes a tax-preference item for
taxpayers in determining alternative minimum tax liability under the Code and
income tax provisions of several states.

California Municipal Money Market and California High-Yield Municipal may each
invest in private activity bonds. The interest on private activity bonds could
subject a shareholder to, or increase liability under, the federal alternative
minimum tax, depending on the shareholder's tax situation. The interest on
California private activity bonds is not subject to the California alternative
minimum tax when it is earned (either directly or through investment in a mutual
fund) by a California taxpayer. However, if either fund were to invest in
private activity securities of non-California issuers (due to a limited supply
of appropriate California municipal obligations, for example), the interest on
those securities would be included in California alternative minimum taxable
income.

All distributions derived from interest exempt from regular federal income tax
may subject corporate shareholders to, or increase their liability under, the
alternative minimum tax because these distributions are included in the
corporation's "adjusted current earnings."

In addition, a deductible environmental tax of 0.12% is imposed on a
corporation's modified alternative minimum taxable income in excess of $2
million. The environmental tax will be imposed even if the corporation is not
required to pay an alternative minimum tax. To the extent that exempt-interest
dividends paid by a fund are included in alternative minimum taxable income,
corporate shareholders may be subject to the environmental tax.

The Trust will inform California Municipal Money Market and California
High-Yield Municipal fund shareholders annually of the amount of distributions
derived from interest payments on private activity bonds.

STATE AND LOCAL TAXES

California law concerning the payment of exempt-interest dividends is similar to
federal law. Assuming each fund qualifies to pay exempt-interest dividends under
federal and California law, and to the extent that dividends are derived from
interest on tax-exempt bonds of California state or local governments, such
dividends also will be exempt from California personal income tax. The Trust
will inform shareholders annually as to the amount of distributions from each
fund that constitutes exempt-interest dividends and dividends exempt from
California personal income tax. The funds' dividends are not exempt from
California state franchise or corporate income taxes.

The funds' dividends may not qualify for exemption under income or other tax
laws of state or local taxing authorities outside California. Shareholders
should consult their tax advisors or state or local tax authorities about the
status of distributions from the funds in this regard.

The information above is only a summary of some of the tax considerations
affecting the funds and their shareholders. No attempt has been made to discuss
individual tax consequences. A prospective investor should consult with his or
her tax advisors or state or local tax authorities to determine whether the
funds are suitable investments.

34 American Century Investments 1-800-345-2021

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

The 30-day SEC yield calculation for non-money market funds is as follows:

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 tax-equivalent yield is based on the current double-tax-exempt yield and
your combined federal and state marginal tax rate. Assuming all the funds'
dividends are tax-exempt in California (which may not always be the case) and
that your California taxes are fully deductible for federal income tax purposes,
you can calculate your tax equivalent yield for the funds using the following
equation:

Fund's Double Tax-Free Yield = Your Tax-Equivalent Yield
- --------------------------------------------------------
(100% - Federal Tax Rate) (100% - California 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 gains
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. As a new fund, performance
information for California High-Yield Municipal C Class is not available as of
the date of this Statement of Additional Information.

www.americancentury.com American Century Investments 35

MONEY MARKET FUND TAX-EQUIVALENT YIELDS (seven-day period ended August 31, 2000)
- ----------------------------------------------------------------------------------------------------------
7-Day Tax-Equivalent Tax-Equivalent Tax-Equivalent Tax-Equivalent
Current Yield 34.70% Yield 37.42% Yield 41.95% 45.22% Yield
Fund Yield Tax Bracket Tax Bracket Tax Bracket Tax Bracket
- ----------------------------------------------------------------------------------------------------------
California Tax-Free
Money Market 3.39% 5.19% 5.42% 5.83% 6.19%
- ----------------------------------------------------------------------------------------------------------
California Municipal
Money Market 3.46% 5.30% 5.53% 5.96% 6.31%
- ----------------------------------------------------------------------------------------------------------

MONEY MARKET FUND TAX-EQUIVALENT YIELDS (seven-day period ended August 31, 2000)
- ----------------------------------------------------------------------------------------------------------
7-Day Tax-Equivalent Tax-Equivalent Tax-Equivalent Tax-Equivalent
Effective Yield 34.70% Yield 37.42% Yield 41.95% 45.22% Yield
Fund Yield Tax Bracket Tax Bracket Tax Bracket Tax Bracket
- ----------------------------------------------------------------------------------------------------------
California Tax-Free
Money Market 3.44% 5.27% 5.50% 5.92% 6.28%
- ----------------------------------------------------------------------------------------------------------
California Municipal
Money Market 3.52% 5.39% 5.62% 6.06% 6.42%
- ----------------------------------------------------------------------------------------------------------

NON-MONEY MARKET FUND TAX-EQUIVALENT YIELDS (30-day period ended August 31, 2000)
- -------------------------------------------------------------------------------------------------------------
30-Day Tax-Equivalent Tax-Equivalent Tax-Equivalent Tax-Equivalent
SEC Yield 34.70% Yield 37.42% Yield 41.95% 45.22% Yield
Fund Yield Tax Bracket Tax Bracket Tax Bracket Tax Bracket
- -------------------------------------------------------------------------------------------------------------
California Limited-Term
Tax-Free 3.79% 5.80% 6.06% 6.53% 6.92%
- -------------------------------------------------------------------------------------------------------------
California Intermediate-
Term Tax-Free 4.01% 6.14% 6.41% 6.91% 7.32%
- -------------------------------------------------------------------------------------------------------------
California Long-Term
Tax-Free 4.66% 7.14% 7.45% 8.03% 8.51%
- -------------------------------------------------------------------------------------------------------------
California Insured
Tax-Free 4.50% 6.89% 7.19% 7.75% 8.21%
- -------------------------------------------------------------------------------------------------------------
California High-Yield
Municipal 5.26% 8.06% 8.40% 9.05% 9.60%
- -------------------------------------------------------------------------------------------------------------

36 American Century Investments 1-800-345-2021

AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED AUGUST 31
- ----------------------------------------------------------------------------------------------
Fund 1 year 5 years 10 years Life of Fund Inception Date
- ----------------------------------------------------------------------------------------------
California Tax-Free
Money Market 3.11% 3.03% 2.99% 3.70% 11/09/1983
- ----------------------------------------------------------------------------------------------
California Municipal
Money Market 3.19% 3.10% N/A 3.10% 12/31/1990
- ----------------------------------------------------------------------------------------------
California Limited-Term
Tax-Free 5.44% 4.47% N/A 4.60% 06/01/1992
- ----------------------------------------------------------------------------------------------
California Intermediate-Term
Tax-Free 6.95% 5.35% 6.39% 6.57% 11/09/1983
- ----------------------------------------------------------------------------------------------
California Long-Term
Tax-Free 7.79% 6.24% 7.38% 7.84% 11/09/1983
- ----------------------------------------------------------------------------------------------
California Insured
Tax-Free 7.90% 6.12% 7.35% 6.45% 12/30/1986
- ----------------------------------------------------------------------------------------------
California High-Yield
Municipal 6.70% 6.92% 7.56% 6.40% 12/30/1986
- ----------------------------------------------------------------------------------------------

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 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;

www.americancentury.com American Century Investments 37

(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 who 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.

MULTIPLE CLASS PERFORMANCE ADVERTISING

Pursuant to the Multiple Class Plan, the Trust may issue additional classes of
existing funds or introduce new funds with multiple classes available for
purchase. To the extent a new class is added to an existing fund, the advisor
may, in compliance with SEC and NASD rules, regulations and guidelines, market
the new class of shares using the historical performance information of the
original class of shares. When quoting performance information for the new class
of shares for periods prior to the first full quarter after inception, the
original class's performance will be restated to reflect the expenses of the new
class. For periods after the first full quarter after inception, actual
performance of the new class will be used.

FINANCIAL STATEMENTS

The financial statements for the fiscal years ended August 31, 2000, 1999, and
1998 have been audited by PricewaterhouseCoopers LLP, independent accountants.
Their Independent Accountants' Reports and the financial statements included in
the funds' Annual Reports for the fiscal year ended August 31, 2000 are
incorporated herein by reference. The financial statements for the fiscal years
ended August 31, 1996 and 1997 have been audited by other independent
accountants. Their Independent Accountants' Reports and the financial statements
included in the funds' Annual Reports for the fiscal year ended August 31, 1997
are incorporate herein by reference.

EXPLANATION OF FIXED-INCOME SECURITIES RATINGS

As described in the Prospectus, some of the funds will 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.

38 American Century Investments 1-800-345-2021

BOND RATINGS
- --------------------------------------------------------------------------------
S&P Moody's Description
- --------------------------------------------------------------------------------
AAA Aaa These are the highest ratings assigned by S&P and Moody's to a
debt obligation. They indicate 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. Debt rated below
BBB/Baa is regarded as having significant speculative
characteristics.
- --------------------------------------------------------------------------------
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.

www.americancentury.com American Century Investments 39

COMMERCIAL PAPER RATINGS
- --------------------------------------------------------------------------------------------------------
S&P Moody's Description
- --------------------------------------------------------------------------------------------------------
A-1 Prime-1 This indicates that the degree of safety regarding timely payment is strong.
(P-1) Standard & Poor's 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
(P-2) degree of safety 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
(P-3) somewhat more vulnerable to the adverse changes in circumstances than
obligations carrying the higher designations.
- --------------------------------------------------------------------------------------------------------

NOTE RATINGS
- -----------------------------------------------------------------------------------

S&P Moody's Description
- -----------------------------------------------------------------------------------
SP-1 MIG-1; VMIG-1 Notes are of the highest quality enjoying strong
protection from established cash flows of funds for their
servicing or from established and broad-based access to
the market for refinancing, or both.
- -----------------------------------------------------------------------------------
SP-2 MIG-2; VMIG-2 Notes are of high quality with margins of protection
ample, although not so large as in the preceding group.
- -----------------------------------------------------------------------------------
SP-3 MIG-3; VMIG-3 Notes are of favorable quality with all security elements
accounted for, but lacking the undeniable strength of the
preceding grades. Market access for refinancing, in
particular, is likely to be less well-established.
- -----------------------------------------------------------------------------------
SP-4 MIG-4; VMIG-4 Notes are of adequate quality, carrying specific risk but
having protection and not distinctly or predominantly
speculative.
- -----------------------------------------------------------------------------------

40 American Century Investments 1-800-345-2021

MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS

Annual and Semiannual Reports

Annual and semiannual 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.

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

* a bank
* a broker-dealer
* an insurance company
* another financial intermediary

you can receive the annual and semiannual reports directly from them.

You also can get information about the funds from the Securities and Exchange
Commission (SEC).

In person SEC Public Reference Room
Washington, D.C. Call 202-942-8090
for location and hours.

On the Internet * EDGAR database at
www.sec.gov
* By email request at
publicinfo@sec.gov

By mail SEC Public Reference Section
Washington, D.C. 20549-0102

(Investment Company Act File No. 811-3706)

- --------------------------------------------------------------------------------
[american century logo and text logo(reg.sm)]

American Century Investments
P.O. Box 419200
Kansas City, Missouri 64141-6200

Investor Relations
1-800-345-2021 or 816-531-5575

Automated Information Line
1-800-345-8765

www.americancentury.com

Fax
816-340-7962

Telecommunications Device for Deaf
1-800-634-4113 or 816-444-3485

Business, Not-For-Profit and
Employer-Sponsored Retirement Plans
1-800-345-353

SH-SAI-23091 0105

AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS

1933 Act Post-Effective Amendment No. 32
1940 Act Amendment No. 36
- --------------------------------------------------------------------------------

PART C OTHER INFORMATION

ITEM 23 EXHIBITS (All exhibits not filed herewith are being incorporated
herein by reference.)

(a) (1) Amended and Restated Agreement and Declaration of Trust dated
March 9, 1998 and amended March 1, 1999, (filed electronically as
Exhibit a1 to Post-Effective Amendment No. 29 to the Registration
Statement, File No. 2-82734, on December 29, 1999).

(2) Amendment No. 1 to the Declaration of Trust dated March 6, 2001 is
included herein.

(b) Amended and Restated Bylaws dated March 9, 1998 (filed electronically
as Exhibit 2b to Post-Effective Amendment No. 23 to the Registration
Statement of American Century Municipal Trust, on March 26, 1998, File
No. 2-91229).

(c) Registrant hereby incorporates by reference, as though set forth fully
herein, Article III, Article VII and Article VIII of Registrant's
Amended and Restated Agreement and Declaration of Trust, as amended,
appearing as Exhibit (a) to the Registration Statement of the
Registrant; and Article II, Article VII and Article VIII of
Registrant's Amended and Restated Bylaws, appearing as Exhibit (b) to
the Registration Statement of the Registrant.

(d) (1) Investor Class Management Agreement between American Century
California Tax-Free and Municipal Funds 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 to the Investor Class Management Agreement between
American Century California Tax-Free and Municipal Funds and American
Century Investment Management, Inc., dated March 31, 1998 (filed
electronically as Exhibit 5b to Post-Effective Amendment No. 23 to the
Registration Statement of American Century Municipal Trust on March
26, 1998, File No. 2-91229).

(3) Amendment to the Investor Class Management Agreement between
American Century California Tax-Free and Municipal Funds and American
Century Investment Management, Inc., dated July 1, 1998 (filed
electronically as Exhibit d3 to Post-Effective Amendment No. 39 to the
Registration Statement of American Century Government Income Trust, on
July 28, 1999, File No. 2-99222).

(4) Amendment No. 1 to the Investor Class Management Agreement between
American Century California Tax-Free and Municipal Funds and American
Century Investment Management, Inc. dated September 16, 2000 (filed
electronically as Exhibit d4 of Post-Effective Amendment No. 30 to the
Registration Statement of the Registrant on December 29, 2000, File
No. 2-82734).

(5) C Class Management Agreement between American Century Target
Maturities Trust, American Century California Tax-Free and Municipal
Funds, American Century Government Income Trust, American Century
Investment Trust, American Century Quantitative Equity Funds, American
Century Municipal Trust and American Century Investment Management
Inc., dated September 16, 2000 (filed electronically as Exhibit d6 to
Post-Effective Amendment No. 35 to the Registration Statement of
American Century Target Maturities Trust on April 17, 2001, File No.
2-94608).

(e) (1) Distribution Agreement between American Century California
Tax-Free and Municipal Funds and American Century Investment Services,
Inc. dated March 13, 2000 (filed electronically as Exhibit e7 to
Post-Effective Amendment No. 17 to the Registration Statement of
American Century World Mutual Funds, Inc. on March 30, 2000, File No
33-39242).

(2) Amendment No. 1 to the Distribution Agreement between American
Century California Tax-Free and Municipal Funds and American Century
Investment Services, Inc. dated June 1, 2000 (filed electronically as
Exhibit e9 to Post-Effective Amendment No. 19 to the Registration
Statement of American Century World Mutual Funds, Inc. on May 24,
2000, File No. 33-39242).

(3) Amendment No. 2 to the Distribution Agreement between American
Century California Tax-Free and Municipal Funds and American Century
Investment Services, Inc. dated November 20, 2000 (filed
electronically as Exhibit e10 to Post-Effective Amendment No. 29 to
the Registration Statement of American Century Variable Portfolios,
Inc. on December 1, 2000, File No. 33-14567).

(4) Amendment No. 3 to the Distribution Agreement between American
Century California Tax-Free and Municipal Funds and American Century
Investment Services, Inc. dated March 1, 2001 (filed electronically as
Exhibit e4 to Post-Effective Amendment No. 35 to the Registration
Statement of American Century Target Maturities Trust on April 17,
2001, File No. 2-94608).

(5) Amendment No. 4 to the Distribution Agreement between American
Century California Tax-Free and Municipal Funds and American Century
Investment Services, Inc. dated April 30, 2001 (filed electronically
as Exhibit e5 to Post-Effective Amendment No. 35 to the Registration
Statement of American Century Target Maturities Trust on April 17,
2001, File No. 2-94608).

(f) Not applicable.

(g) (1) Master Agreement by and between Commerce Bank N.A. and Twentieth
Century Services, Inc. dated January 22, 1997 (filed electronically as
Exhibit g2 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 American Century Investments and
The Chase Manhattan Bank, dated August 9, 1996 (filed electronically
as Exhibit 8 of Post-Effective Amendment No. 31 to the Registration
Statement of the American Century Government Income Trust, on February
7, 1997, File No. 2-99222).

(3) Amendment to Global Custody Agreement between American Century
Investments and The Chase Manhattan Bank dated December 9, 2000 (filed
electronically as Exhibit g2 of Pre-Effective Amendment No. 2 to the
Registration Statement of American Century Variable Portfolios II,
Inc., on January 9, 2001, File No. 333-46922).

(h) (1) Transfer Agency Agreement between American Century California
Tax-Free and Municipal Funds 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 to the Transfer Agency Agreement between American
Century California Tax-Free and Municipal Funds and American Century
Services Corporation dated March 9, 1998 (filed electronically as
Exhibit 9 to Post-Effective Amendment No. 23 to the Registration
Statement of American Century Municipal Trust on March 26, 1998, File
No. 2-91229).

(3) Amendment No. 1 to the Transfer Agency Agreement between American
Century California Tax-Free and Municipal Funds and American Century
Services Corporation dated June 29, 1998 (filed electronically as
Exhibit 9b to Post-Effective Amendment No. 23 to the Registration
Statement of American Century Quantitative Equity Funds on June 29,
1998, File No. 33-19589).

(4) Amendment No. 2 to the Transfer Agency Agreement between American
Century California Tax-Free and Municipal Funds and American Century
Services Corporation dated November 20, 2000 (filed electronically as
Exhibit h4 to Post-Effective Amendment No. 30 to the Registration
Statement of the Registrant on December 29, 2000, File No. 2-82734).

(5) Credit Agreement between American Century Funds and The Chase
Manhattan Bank, as Administrative Agent dated as of December 19, 2000
(filed electronically as Exhibit h5 to Post-Effective Amendment No. 33
to the Registration Statement of American Century Target Maturities
Trust, on January 31, 2001, File No. 2-94608).

(i) Opinion and consent of counsel (filed electronically as Exhibit to
Post-Effective Amendment No. 30 to the Registration Statement of the
Registrant on December 29, 1999, File No. 2-82734).

(j) (1) Consent of PricewaterhouseCoopers LLP, independent accountants is
included herein.

(2) Consent of KPMG Peat Marwick, LLP, independent auditors (filed
electronically as an Exhibit to Post-Effective Amendment No. 28 to the
Registration Statement of the Registrant on December 28, 1998).

(3) Power of Attorney dated September 16, 2000 (filed electronically
as Exhibit j3 to Post-Effective Amendment No. 30 to the Registration
Statement of the Registrant on December 29, 2000, File No. 2-82734).

(k) Not applicable.

(l) Not applicable.

(m) Master Distribution and Individual Shareholder Services Plan of
American Century Government Income Trust, American Century Investment
Trust, American Century California Tax-Free and Municipal Funds,
American Century Municipal Trust, American Century Target Maturities
Trust and American Century Quantitative Equity Funds (C Class) dated
September 16, 2000 (filed electronically as Exhibit m3 to
Post-Effective Amendment No. 35 to the Registration Statement of
American Century Target Maturities Trust on April 17, 2001, File No.
2-94608).

(n) Amended and Restated Multiple Class Plan of American Century
California Tax-Free and Municipal Funds, American Century Government
Income Trust, American Century International Bond Funds, American
Century Investment Trust, American Century Municipal Trust, American
Century Target Maturities Trust and American Century Quantitative
Equity Funds dated November 20, 2000 (filed electronically as Exhibit
n to Post-Effective Amendment No. 35 to the Registration Statement of
American Century Target Maturities Trust on April 17, 2001, File No.
2-94608).

(o) Not applicable.

(p) American Century Investments Code of Ethics (filed electronically as
Exhibit p to Post-Effective Amendment No. 30 to the Registration
Statement of the Registrant on December 29, 2000, File No. 2-82734).

Item 24. Persons Controlled by or Under Common Control with Registrant.

None.

Item 25. Indemnification.

As stated in Article VII, Section 3 of the Amended and Restated
Agreement and Declaration of Trust, incorporated herein by reference
to Exhibit (a) to the Registration Statement, 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."

Registrant hereby incorporates by reference, as though set forth fully
herein, Article VI of the Registrant's Bylaws, amended on March 9,
1998, appearing as Exhibit (b)(2) to Post-Effective Amendment No. 28.

Item 26. Business and Other Connections of Investment Advisor.

None.

Item 27. Principal Underwriter.

I. (a) American Century Investment Services, Inc. (ACIS) 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 Variable Portfolios II, Inc.
American Century World Mutual Funds, Inc.

ACIS is registered with the Securities and Exchange Commission as a
broker-dealer and is a member of the National Association of Securities Dealers.
ACIS is located at 4500 Main Street, Kansas City, Missouri 64111. ACIS is a
wholly-owned subsidiary of American Century Companies, Inc.

(b) The following is a list of the directors, executive officers and
partners of ACIS:

Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- --------------------------------------------------------------------------------
James E. Stowers, Jr. Chairman and Director none

James E. Stowers III Co-Chairman and Director Chairman and
Director

W. Gordon Snyder President none

William M. Lyons Chief Executive Officer, President
Executive Vice President and Director

Robert T. Jackson Executive Vice President, Executive Vice
Chief Financial Officer President and
and Chief Accounting Officer Chief Financial
Officer

Kevin Cuccias Senior Vice President none

Joseph Greene Senior Vice President none

Brian Jeter Senior Vice President none

Mark Killen Senior Vice President none

Tom Kmak Senior Vice President none

David C. Tucker Senior Vice President Senior Vice President
and General Counsel

* All addresses are 4500 Main Street, Kansas City, Missouri 64111

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 American Century Tower, 4500 Main Street, Kansas City,
Missouri 64111.

ITEM 29. Management Services - Not applicable.

ITEM 30. Undertakings - Not applicable.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment No. 32 and 1940
Act Amendment No. 36 to its Registration Statement pursuant to Rule 485(b)
promulgated under the Securities Act of 1933, as amended, and has duly caused
this Post-Effective Amendment No. 32/Amendment No. 36 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Kansas City, and
State of Missouri, on the 19th day of April, 2001.

AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS

By: /*/William M. Lyons
President and Principal Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 32/Amendment No. 36 has been signed below by the
following persons in the capacities and on the dates indicated.

Signature Title Date
- --------- ----- ----

*William M. Lyons President and April 19, 2001
- --------------------------------- Principal Executive
William M. Lyons Officer

*Maryanne Roepke Senior Vice President, April 19, 2001
- --------------------------------- Treasurer and Chief
Maryanne Roepke Accounting Officer

*James E. Stowers III Director and April 19, 2001
- --------------------------------- Chairman of the Board
James E. Stowers III

*Albert A. Eisenstat Director April 19, 2001
- ---------------------------------
Albert A. Eisenstat

*Ronald J. Gilson Director April 19, 2001
- ---------------------------------
Ronald J. Gilson

*Myron S. Scholes Director April 19, 2001
- ---------------------------------
Myron S. Scholes

*Kenneth E. Scott Director April 19, 2001
- ---------------------------------
Kenneth E. Scott

*Jeanne D. Wohlers Director April 19, 2001
- ---------------------------------
Jeanne D. Wohlers

/s/Janet A. Nash
*by Janet A. Nash, Attorney in Fact (pursuant to a Power of Attorney dated
September 16, 2000).

EX-99 2 exindx-pea32.htm EXHIBIT INDEX Exhibit Index

EXHIBIT     DESCRIPTION

EX-99.a1    Amended and Restated Agreement and Declaration of Trust dated March
            9, 1998 and amended March 1, 1999 (filed as Exhibit a1 to
            Post-Effective Amendment No. 30 to the Registration Statement, File
            No. 2-82734, filed on December 29, 1999, and incorporated herein by
            reference).

EX-99.a2    Amendment to the Declaration of Trust.

EX-99.b     Amended and Restated Bylaws dated March 9, 1998 (filed as Exhibit 2b
            of Post-Effective Amendment No. 23 to the Registration Statement on
            Form N-1A of American Century Municipal Trust, File No. 2-91229,
            filed on March 26, 1998 and incorporated herein by reference).

EX-99.d1    Investor Class Management Agreement between American Century
            California Tax-Free and Municipal Funds 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 on July 31, 1997, and incorporated herein by
            reference).

EX-99.d2    Amendment to the Investor Class Management Agreement between
            American Century California Tax-Free and Municipal Funds and
            American Century Investment Management, Inc., dated March 31, 1998
            (filed as Exhibit 5b of Post-Effective Amendment No. 23 to the
            Registration Statement on Form N-1A of American Century Municipal
            Trust, File No. 2-91229, filed on March 26, 1998, and incorporated
            herein by reference).

EX-99.d3    Amendment to the Investor Class Management Agreement between
            American Century California Tax-Free and Municipal Funds and
            American Century Investment Management, Inc., dated July 1, 1998
            (filed as Exhibit d3 of Post-Effective Amendment No. 39 to the
            Registration Statement on Form N-1A of American Century Government
            Income Trust, File No 2-99222, filed on July 28, 1999, and
            incorporated herein by reference).

EX-99.d4    Amendment No. 1 to the Investor Class Management Agreement between
            American Century California Tax-Free and Municipal Funds and
            American Century Investment Management, Inc. dated September 16,
            2000 (filed as Exhibit d4 to Post-Effective Amendment No. 30 to the
            Registration Statement on Form N-1A of the Registrant, File No.
            2-82734, filed on December 29, 2000, and incorporated herein by
            reference).

EX-99.d5    C Class Management Agreement between American Century Target
            Maturities Trust, American Century Government Income Trust, American
            Century Investment Trust, American Century Quantitative Equity
            Funds, American Century Municipal Trust and American Century
            Investment Management, Inc. dated September 16, 2000 (filed as
            Exhibit d6 to Post-Effective Amendment No. 35 to the Registration
            Statement on Form N-1A of American Century Target Maturities Trust,
            File No. 2-94608, filed on April 17, 2001, and incorporated herein
            by reference).

EX-99.e1    Distribution Agreement between American Century California Tax-Free
            and Municipal Funds and American Century Investment Services, Inc.
            dated March 13, 2000 (filed as Exhibit e7 to Post-Effective
            Amendment No. 17 to the Registration Statement on Form N-1A of
            American Century World Mutual Funds, Inc., File No. 33-39242, filed
            on March 30, 2000, and incorporated herein by reference).

EX-99.e2    Amendment No. 1 to the Distribution Agreement between American
            Century California Tax-Free and Municipal Funds and American Century
            Investment Services, Inc. dated June 1, 2000 (filed as Exhibit e9 to
            Post-Effective Amendment No. 19 to the Registration Statement on
            Form N-1A of American Century World Mutual Funds, Inc., File No.
            33-39242, filed on May 25, 2000, and incorporated herein by
            reference).

EX-99.e3    Amendment No. 2 to the Distribution Agreement between American
            Century California Tax-Free and Municipal Funds and American Century
            Investment Services, Inc. dated November 20, 2000 (filed as Exhibit
            e10 to Post-Effective Amendment No. 29 to the Registration Statement
            on Form N-1A of American Century Variable Portfolios, Inc., File No.
            33-14567, filed on December 1, 2000, and incorporated herein by
            reference).

EX-99.e4    Amendment No. 3 to the Distribution Agreement between American
            Century California Tax-Free and Municipal Funds and American Century
            Investment Services, Inc. dated March 1, 2001 (filed as Exhibit e4
            to Post-Effective Amendment No. 35 to the Registration Statement on
            Form N-1A of American Century Target Maturities Trust, File No.
            2-94608, filed on April 17, 2001, and incorporated herein by
            reference).

EX-99-e5    Amendment No. 4 to the Distribution Agreement between American
            Century California Tax-Free and Municipal Funds and American Century
            Investment Services, Inc. dated April 30, 2001 (filed as Exhibit e5
            to Post-Effective Amendment No. 35 to the Registration Statement on
            Form N-1A of American Century Target Maturities Trust, File No.
            2-94608, filed on April 17, 2001, and incorporated herein by
            reference).

EX-99.g1    Master Agreement by and between Commerce Bank N.A. and Twentieth
            Century Services, Inc dated January 22, 1997 (filed as Exhibit g2 to
            Post-Effective Amendment No. 76 to the Registration Statement of
            American Century Mutual Funds, Inc., File No. 2-14213, filed on
            February 28, 1997, and incorporated hereby by reference).

EX-99.g2    Global Custody Agreement between American Century Investments and
            The Chase Manhattan Bank, dated August 9, 1996, (filed as Exhibit 8
            of Post-Effective Amendment No. 31 to the Registration Statement on
            Form N-1A of American Century Government Income Trust, File No.
            2-99222, filed on February 7, 1997, and incorporated herein by
            reference).

EX-99.g3    Amendment to Global Custody Agreement between American Century
            Investments and The Chase Manhattan Bank dated December 9, 2000
            (filed as Exhibit g2 to Pre-Effective Amendment No. 2 to the
            Registration Statement on Form N-1A of American Century Variable
            Portfolios II, Inc., File No. 333-46922, filed on January 9, 2001,
            and incorporated herein by reference).

EX-99.h1    Transfer Agency Agreement American Century American Century
            California Tax-Free and Municipal Funds and American Century
            Services Corporation, dated August 1, 1997 (filed as Exhibit 9 to
            Post-Effective Amendment No. 33 to the Registration Statement on
            Form N-1A of American Century Government Income Trust, File No.
            2-99222, filed on July 31, 1997, and incorporated herein by
            reference).

EX-99.h2    Amendment to the Transfer Agency Agreement between American Century
            California Tax-Free and Municipal Funds and American Century
            Services Corporation dated March 9, 1998 (filed as Exhibit 9b to
            Post-Effective Amendment No. 23 to the Registration Statement on
            Form N-1A of American Century Municipal Trust, File No. 2-91229,
            filed on March 26, 1998, and incorporated herein by reference).

EX-99.h3    Amendment No. 1 to the Transfer Agency Agreement between American
            Century California Tax-Free and Municipal Funds and American Century
            Services Corporation dated June 29, 1998 (filed as Exhibit 9b to
            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    Amendment No. 2 dated November 20, 2000 to the Transfer Agency
            Agreement between American Century California Tax-Free and Municipal
            Funds and American Century Services Corporation (filed as Exhibit h4
            to Post-Effective Amendment No. 30 to the Registration Statement on
            Form N-1A of the Registrant, File No. 2-82734, filed on December 29,
            2000, and incorporated herein by reference).

EX-99.h5    Credit Agreement between American Century Funds and The Chase
            Manhattan Bank, as Administrative Agent, dated as of December 19,
            2000 (filed as Exhibit h5 to Post-Effective Amendment No. 33 to the
            Registration Statement on Form N-1A American Century Target
            Maturities Trust, File No. 2-94608, filed on January 31, 2001, and
            incorporated herein by reference).

EX-99.i     Opinion and consent of counsel (filed as a part of Post-Effective
            Amendment No. 28 of the Registration Statement of the Registrant,
            File No. 2-82734, filed on December 28, 1998 and incorporated herein
            by reference).

EX-99.j1    Consent of PricewaterhouseCoopers LLP, independent accountants.

EX-99.j2    Consent of KPMG Peat Marwick, LLP, independent auditors (filed as a
            part of Post-Effective Amendment No. 28 of the Registration
            Statement of the Registrant, File No. 2-82734, filed on December 28,
            1998, and incorporated herein by reference).

EX-99.j3    Power of Attorney dated September 16, 2000 (filed as Exhibit j3 to
            Post-Effective Amendment No. 30 to the Registration Statement on
            Form N-1A of the Registrant, File no. 2-82734, filed on December 29,
            2000, and incorporated herein by reference).

EX-99.m1    Master Distribution and Individual Shareholder Services Plan of
            American Century Government Income Trust, American Century
            California Tax-Free and Municipal Funds, American Century Municipal
            Trust, American Century Target Maturities Trust and American Century
            Quantitative Equity Funds (C Class) dated September 16, 2000 (filed
            as Exhibit m3 to Post-Effective Amendment No. 35 to the Registration
            Statement on Form N-1A of American Century Target Maturities Trust,
            File No. 2-94608, filed on April 17, 2001, and incorporated herein
            by reference).

EX-99.n     Amended and Restated Multiple Class Plan of American Century
            California Tax-Free and Municipal Funds, American Century Government
            Income Trust, American Century International Bond Funds, American
            Century Investment Trust, American Century Target Maturities Trust
            and American Century Quantitative Equity Funds dated November 20,
            2000 (filed as Exhibit n to Post-Effective Amendment No. 35 to the
            Registration Statement on Form N-1A of American Century Target
            Maturities Trust, File No. 2-94608, filed on April 17, 2001, and
            incorporated herein by reference).

EX-99.p     American Century Investments Code of Ethics (filed as Exhibit P to
            Post-Effective Amendment No. 30 to the Registration Statement on
            Form N-1A of the Registrant, File No. 2-82734, filed on December 29,
            2000, and incorporated herein by reference).

EX-99.A 3 exa2-pea32.htm AMD 1 TO DECLARATION OF TRUST exhibit

AMENDMENT NO. 1 TO

AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST

THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED AGREEMENT AND DECLARATION
OF TRUST is made as of the 6th day of March, 2001 by the Trustees hereunder.

WHEREAS, the Trustees have executed an amendment and restatement to the
Agreement and Declaration of Trust dated March 9, 1998 and amended March 1,
1999.

AND WHEREAS, the Board of Trustees have determined that it is in the
best interests of American Century California Tax-Free and Municipal Funds (the
"Trust") to add a new class, and

NOW, THEREFORE, BE IT RESOLVED, that Schedule A of the Amended and
Restated Agreement and Declaration of Trust for the Trust is hereby amended as
of March 6, 2001, by deleting the text thereof in its entirety and inserting in
lieu therefor the Schedule A attached hereto.

IN WITNESS WHEREOF, the Trustees do hereto set their hands as of the
6th day of March, 2001.

Trustees of the American Century California Tax-Free and Municipal Funds

/*/Albert A. Eisenstat /*/Kenneth E. Scott
Albert A. Eisenstat Kenneth E. Scott

/*/Ronald J. Gilson /*/James E. Stowers III
Ronald J. Gilson James E. Stowers III

/*/William M. Lyons /*/Jeanne D. Wohlers
William M. Lyons Jeanne D. Wohlers

/*/Myron S. Scholes
Myron S. Scholes

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:

Series Class Date of Establishment

California Tax-Free Money Market Fund Investor 11/09/1983

California Municipal Money Market Fund Investor 12/31/1990

California Limited-Term Tax-Free Fund Investor 06/01/1992

California Intermediate-Term Tax-Free Fund Investor 11/09/1983

California Long-Term Tax-Free Fund Investor 11/09/1983

California Insured Tax-Free Fund Investor 12/30/1986

California High-Yield Municipal Fund Investor 12/30/1986
C 05/01/2001

This Schedule A shall supersede any previously adopted Schedule A to the
Declaration of Trust.

EX-99.J 4 exj1-pea32.htm CONSENT OF INDEPENDENT ACCOUNTANTS exhibit

                       CONSENT OF INDEPENDENT ACCOUNTANTS


We hereby consent to the incorporation by reference in Post-Effective Amendment
No. 32 to the Registration Statement on Form N1-A of our report dated October
13, 2000, relating to the financial statements and financial highlights which
appear in the August 31, 2000 Annual Report to Shareholders of the California
Tax-Free Money Market Fund, California Municipal Money Market Fund, California
Limited-Term Tax-Free Fund, California Intermediate-Term Tax-Free Fund,
California Long-Term Tax-Free Fund, California Insured Tax-Free Fund, and
California High-Yield Municipal Fund, which are incorporated by reference into
the Registration Statement. We also consent to the references to us under the
headings "Financial Highlights", "Experts", "Independent Accountants" and
"Financial Statements" in such Registration Statement.



/*/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

Kansas City, Missouri
April 16, 2001

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